Mexico - Sixth Agricultural Credit Project

t j jr ;>C Document of 4 i The World Bank FOR OFFICIAL USE ONLY REPORT AND RECOMMENDATION Report No. P-2315 --E 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 SIXTH AGRICULTURAL CREDIT PROJECT May 3, 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 authorination.  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 April 28, 1978 the peso traded at 22.68 per US dollar. Fiscal Year January 1 to December 31 Abbreviations and Acronyms BANRURAL - National Rural Credit Bank FEFA - Special Fund for Agricultural Finance FEGA - Technical Assistance and Loan Guarantee Trust Fund FINASA - National Bank for the Sugar Industry FIRA - Agriculture Trust Funds in the Bank of Mexico FONDO - Guarantee and Development Fund for Agriculture PIDER - Investment Program for Rural Development SARH - Secretariat of Agriculture and Water Resources SRA - Secretariat of Agrarian Reform  VOa OFFICUAL W ONLY MEXICO SIXTH AGRICULTURAL CREDIT PROJECT LOAN AND PROJECT SUMMARY Borrower: Naciona:L Financiera, S.A. Guarantor: United Mexican States Project Executing Agency: Agriculture Trust Funds in the Bank of Mexico (FIRA) Amount: US$200 million equivalent. Terms: RepayabLe in 17 years, including 4 years of grace, at an interesit rate of 7.5 percent per annum. Relending Terms: About US$193 million of the proposed loan would be relent through the Agriculture Trust Funds in the Bank of Mexico (FIRA) iEor on-farm investments and establishment of agro- industries. Terms and conditions of the subloans would vary wiith income level of beneficiary and size and purpose of the subloans; repayment periods would range from 3 to 15 years, including grace periods of 1 to 3 years, and interest rates would range from 11 to 17 percent per annum. The lowest rate would be applied to first time borrowers with low levels of income (annual income of less than 1,000 times the daily minimum rural wage in the region), and the highest rate would be applied to loans oE Mex$ 5 million or more. Project The project seeks to increase the production of key Description: agricultural commodities to meet demand in a rapidly expanding domestic market, as well as to increase income and employment in rural areas. It would provide medium- and lon,g-term credit for investment in livestock production, annual iand perennial crop development, and agroindustries. It woulid include a low-income producer's component, com- prising approximately one-third of the lending program, for producers with net annual earnings of less than 1,000 times the regional minimum daily wage. A program of applied research, training and monitoring would provide technicial support to credit operations. About 67,000 families would benefit from the project; their real incomes are expected to, on the average, double within six years. The project would create over 14,000 full-time jobs and about 4,000 man-years of temporary employment annually. The project has no special risks. This document h a mtrictod distribution and may be usd by recipients onb in the performance of their oicbl dutba Its contents nmy not otherwhe be disclosd without World lak authorization.  - ii - Estimated Cost: The estimated total cost of the project is US$627.2 million of which US$175.0 million would be in foreign exchange: ----US$ Millions----- Foreign Local Foreign Total Exchange I. Investment Program 432.8 171.1 603.9 28 Livestock Investments 205.9 78.4 284.3 28 Crop Investments 181.1 75.9 257.0 30 Agroindustrial Investments 45.8 16.8 62.6 27 II. Training, Demonstration, Technical Assistance, and Monitoring 19.4 3.9 23.3 17 Training and Monitoring Programs 7.9 2.3 10.2 23 Demonstration Program 2.1 1.1 3.2 34 Technical Assistance Program 9.4 0.5 9.9 5 III. TOTAL PROJECT COST 452.2 175.0 627.2 28 Financing Plan: US$ Millions X FIRA 244.0 39 Beneficiaries 96.9 15 Participating Banks 86.3 14 Bank 200.0 32 TOTAL 627.2 100 Estimated Disbursements; Bank FY 1979 1980 1981 1982 ------------US$ Millions------------ Annual 28 58 78 36 Cumulative 28 86 164 200  - iii - Economic Rate The estimated economic rate of return of the overall of Return: project is 28 percent; for individual components it ranges from 17 percent for the agroindustrial component to 35 petrcent for the crops component. Staff Appraisal Report: Report No. 1968-ME, dated May 1, 1978.   INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT -TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO NACIONAL FINANCIERA, S.A. WITH THE iGUARANTEE OF UNITED MEXICAN STATES FOR A SIXTH AGRICULTURAL CREDIT 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$200 million to help finance a sixth agricultural credit project. The loan would be repaid over 17 years, including 4 years of grace, with interest at 7.5 percent per annum. About US$193 million of the proposed loan would be relent through the Agriculture Trust Funds in the Bank of Mexico (FIRA) for on-farm investments and establishment of agro- industries. Terms and comditions of the subloans would vary with income level of beneficiary and size and purpose of the subloans; repayment periods would range from 3 to 15 years, including grace periods of 1 to 3 years, and interest rates would range from 11 to 17 percent per annum. PART I: THE ECONOMY 1/ 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. An economic mission visited Mexico in April-May 1977 and its report is now in preparation. 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 percent 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 good 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 status 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, 1/ Part I is substantially unchanged from the President's Report for the Tropical Agricultural Development Project (R78-81 of April 13, 1978).  - 2 - 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. 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, which could provide as much as an additional US$861 million once the increase in Fund quotas becomes effective. Thus, total IMF support for the Government's program may exceed US$1.3 billion. 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 are adopting 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 Govern- ment's program include progressive control of inflation together with a return to high rates of economic growth by the end of 1978. Better manage- ment 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 in the twelve months of 1977 slowed to 20.7 percent (January-December) as compared to an annual rate of 60 percent in  - 3 - the last three months of 1976. The deficit in the current account of the balance of payments has beern reduced, and is estimated preliminarily at US$2.2 billion for 1977, compared to US$3.5 billion in 1976. 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. Perhaps most importantly, there is a general feeling of increased confidence in the Government's economic policy. 9. The stabilization effort during 1977 was necessary, but its price has been the continuation of economic stagnation; for a second year in a row GDP grew only by about 2 percent in real terms, implying a further decline of real per capita income. While control of inflation will remain as the over- riding short-term objective--the Government's announced target is to reduce inflation to about 12-15 percent during 1978--the 1978 economic program aims at a simultaneous recovery of economic activity, through a recovery of private and public investment. Increased public sector savings, further strengthening of the financial system and therefore increased availability of credit to the private sector, and continuation of a carefully managed wage policy (the annual increase in minimum wages agreed upon in January 1978 averaged about 14 percent) are the main means the Government will rely upon to attain the above objectives. Economic Issues and Prospects 10. As Mexico looks alhead, the key problems that its economic policies must address would seem to include the following: (a) Many Mexican families have not participated in the sustained economic growth oE the last several decades. As of 1975, about 4,600,000 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 even more rapidly than in the past--it will grow at about 3.6 percent per year over the next decade, which implies an average annual increase by some 670,000 workers during 1978-82; during the 1960s the growth rate was 2.7 percent per year. The challenge of providing productive jobs for both new entrants and existing under-productive workers is an awesome one. (b) 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. This neaLr-stagnation of agricultural production signals the end of' the strategy in which growth of agricul- tural production came from newly irrigated land, while rain- fed agriculture wa,s relatively neglected. The continued expansion of large-scale irrigation, so successful from 1945 into the 1960s, has brought lower and lower returns as the works became costlier and easily accessible export markets for high-value crops became more nearly saturated. New approaches are required now to assure both production growth and increases in income for Mexico's poor rural families.  - 4 - (c) The size and role of the State in the economy has been a subject of much discussion in Mexico in recent years. During 1970-76, private investment slowed down, and virtually stagnated since 1975. This was, in part, a consequence of the pre-emption of credit by the public sector (during the six-year period, the share of the public sector in the economy grew from 15.0 to 21.5 percent), combined with infla- tionary financing and accompanied by what some perceived as an "anti-business" attitude. Public statements by the present Administration indicate that it wants to reverse this trend. (d) The present large foreign debt and sizable public finance deficit are mainly the direct outcomes of past public sector inability to mobilize adequate financial resources. By the early 1980s, large increases in export revenues, mainly from petroleum and related products, should make both the foreign debt problem and public finances much easier to manage. In the meantime, however, larger public sector savings are required to reduce inflationary pressures and to release credit for the private sector. (e) The rapid growth and heavy concentration of people and production in Mexico City, and the scarcity of employment opportunities and services in rural areas, are important challenges which have to be confronted. Both equity and efficiency considerations imply a need for diversion of some of Mexico City's future growth to other regions, as well as the provision of basic public services and enhanced employment opportunities in selected villages and small towns. 11. 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. 14), 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 five years of the present Administration. Resumption of economic growth combined with the intensification of the Government's family planning program (on October 28, 1977 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. 12. In agriculture, the Government's quick action to defuse tensions created by land invasions and expropriations at the end of 1976, and its decision to review the legislation concerning land and water use, should  reduce uncertainty and induce a better use of the available land and water resources. In addition, the new emphasis on rainfed agriculture--which had been relatively neglected in the past--should lead to an increase in the production potential of vast areas currently under-exploited and to a reversal of the past trend towards 'Larger income disparities between the modern and traditional agricultural subsectors. Current features of the Government's agri- cultural policy include development of intensive agriculture in the tropics, continuation of a nationwide program to construct small irrigation and drainage works, and rehabilitation of existing irrigation districts to increase efficiency of water use. These initiatives, together with the more realistic exchange rate and remunerative support prices, promise a resumption of growth of production for both domestic and export markets and increase the possibilities of an improvement in the living conditions of the rural poor. 13. Industry has potential for considerable growth in many sectors, including efficient import substitution in chemicals, petrochemicals and capital goods as well as exports of many different manufactured products. Increases in tourism export earnings are also expected. 14. Among the benefits of recent public sector investments are the new possibilities opened to the Mexican economy through the recent discover- ies of rich petroleum fields. The Government has decided to use these large hydrocarbon resources to help manage Mexico's heavy debt service burden and to enhance the country's over-all development prospects. To meet this objective, PEMEX (Petroleos Mexicanos, the State-owned oil monopoly) has launched an ambitious six-year investment program amounting to US$17.0 billion in 1977 prices (about 25 percent of total public investment). This program would: (a) almost triple the production of oil and condensates, from 292 million bbl/year in 1976 to 818 million bbl/year in 1982; (b) more than double the country's primary distillation capacity, from 270 million bbl/year in 1976 to 577 million bbl/year in 1982; (c) substantially increase production of primary petrochemicals (ammonia, ethylene, benzene, etc.) as well as downstream products (styrene, vinyl-chloride, polyethylene); and (d) enable export of natural gas at a rate of 2.0 billion cubic feet/day by 1982. Under this program, the value of exports of oil and related products would increase over ten times, from about US$0.9 billion in 1977 to more than US$10.0 billion in 1982. If this program were to be carried out on schedule, and incentives maintained for non petroleum exports, the balance of payments on current account would shift from a deficit of US$2.1 billion in 1977 to a surplus of about US$3.0 billion in 1982.  -6- 15. The prospect of rapidly rising petroleum exports, as well as pre- viously mentioned prospects for increases in tourism earnings, recovery of agricultural exports, and resumption of growth of manufactured exports, have greatly strengthened the balance of payments outlook. Even on the basis of somewhat more conservative projections of petroleum production and exports than those mentioned above, the current account deficit can be expected to decline steadily over the next several years and become slightly positive by 1982, thus reducing Mexico's external borrowing requirements (Annex I). Mexico's debt service ratio has been increasing over the recent past and reached 46 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 appears about average. The debt service ratio is expected to peak at slightly over 50 percent in 1979 and, mainly as a result of the rapid expansion of petroleum exports, then 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 to some extent over the next few years. Mexico remains creditworthy for borrow- ing on conventional terms considering the country's strong medium- and long- term potential and the comprehensive economic strategy which the Government has adopted to realize it. PART II - BANK GROUP OPERATIONS IN MEXICO 1/ Bank Operations 16. As of March 31, 1978, Mexico had received 50 loans from the Bank amounting to US$2624.4 million net of cancellations and terminations; of these, 33 loans totalling US$1486.4 million were fully disbursed. As of March 31, 1978, the Bank held US$2136.8 million of which US$761.1 million had not yet been disbursed. Some 35 percent of Bank lending has been for agriculture and rural development (15 loans for US$923.4 million), 27 percent for power (12 loans for US$704.8 million) and 21 percent for transportation projects (12 loans for US$546.7 million); the remaining 17 percent has been for industry (US$205.5 million), water supply (US$130 million) and tourism (US$114 million) projects. Mexico is carrying out a stabilization 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 1/ Part II is substantially unchanged from the President's Report for the Tropical Agricultural Development Project (R78-81 of April 13, 1978).  - 7 - cancelled (R77-305 of December 13, 1977) and the scope of several other projects has been modified.. Other projects under implementation and affected by the stabilization program are being reviewed by the Government, and further discussions will be held wiLth the Bank shortly. Adequate budget support for the ongoing projects has now been secured. Annex II contains a summary statement of Bank loans as of March 31, 1978 and notes on the execution of ongoing projects. IFC Operations 17. As of March 31, 1.978, IFC has made 13 investment commitments in Mexico, for a total of US$69.5 million, of which US$38.4 million had been sold, repaid or cancelled. The balance held by the Corporation, US$31.1 million, consists of US$26.2 million in loans and US$4.9 million in equity. A summary statement of IFC investments as of March 31, 1978 is presented in Annex II. Bank Strategy 18. 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. In support of the administration's economic stabilization efforts, it is proposed that limited finance of local costs be provided for priority projects of a social nature in which the foreign exchange costs are low. The Bank is preferentially supporting projects that make relatively modest demands on budgetary resources and have a strong positive balance of payments effect, projects of high social priLority that help the rural or urban poor, projects that promote higher levels of employment and production and those that help to decentralize economic activity. The proposed Sixth Agricultural Credit Project essentially meets t:hese criteria since it would promote the adoption of improved agricultural techniques, stimulate private investment in the sector, and provide special assistance to the subsistence farmers and ejidatarios. 1/ 19. In view of the diLfficult structural problems of Mexico's agriculture and the sector's crucial imaportance to the country's further development, the Bank has made agriculture the leading sector for its lending. Consistent with the overall framework of country and sector objectives, a three-tier approach has been developed. First, to strengthen infrastructure development and agricultural credit programs so as to meet the demands of a rapidly growing population more adequately and to generate the foreign exchange needed for rising import requirements.. Second, to raise the incomes of the rural poor and improve their standards of living through a combination of directly pro- ductive, support and social infrastructure investments. Third, to strengthen 1/ Eiidatarios are members of an ejido, which is a form of group land tenure based on usufruct.  -8- Mexico's institutional capability to use scarce agricultural resources more efficiently. In support of this strategy, the Bank has made six loans in FY's 72 through 76, totalling US$459 million, for irrigation, rural develop- ment and agriculture and livestock credit programs. In FY77, the Executive Directors approved a US$120 million loan for an integrated rural development project--PIDER II--under which some 46,000 poor farm families will benefit from directly productive activities. An agricultural development project, designed to intensify agricultural production in Mexico's humid tropics, was recently approved by the Executive Directors. 20. Bank lending for industry has been aimed at assisting the Govern- ment's efforts to reduce the balance of payments deficit and decentralize industrial activities away from the major (and increasingly congested) urban areas. Thus, a major steel project which the Bank helped finance has recently started operating in a previously underdeveloped area on the west coast of Mexico, and the Executive Directors approved a US$50 million loan in FY75 to support a fertilizer project which 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 recently approved by the Executive Directors. A fertilizer project is currently being processed for submission to the Executive Directors in the coming months. 21. 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 Water Supply Project (FY73) has been instrumental in the estab- lishment of a specialized institution for efficient supply of bulk drinking water in the Mexico Valley and in the pricing of water at levels more closely related to costs. 22. 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. 23. The Government, pressed to reduce the external deficit on current account, is giving emphasis to the tourism sector to generate higher foreign exchange earnings and promote employment. In support of this policy, the Bank has granted three loans for tourism projects in Mexico; two to provide infra- structure in new poles of tourism and one, approved by the Executive Directors earlier this year, to help finance tourism superstructure.  -9- 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. As a result, the share of agriculture in GDP fell from 16 percent in 1969 to 9 percent in 1976. 25. More than 22 million of Mexico's 62 million population live in rural areas. Agriculture is by far the most important source of employment with about 40 percent of the national labor force of about 17 million persons engaged in agriculture, forestry or fishing. The rural population comprises three distinct groups of nearly equal size: (i) landless workers, (ii) private landholders; and (iii) eiidatarios. 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. The fifteen percent of Mexican farmers with irrigated holdings produce sixty percent of Mexico's agricultural goods. Most of the remaining farmers are of low productivity and barely participate in the market economy. 27. In the past, most of the growth in agricultural production came from irrigated areas. A program of large scale irrigation works resulted in a five fold increase in pro,duction over the period 1940 to 1965, a growth that is among the highest in Latin America. The concentration of public investment, technical assistance, and farm credit in the irrigation districts enabled 3 percent of Mexico's farms to provide 80 percent of the growth in production between 1950 and 1960. This experience suggests that coordinated development efforts could stimulate agricultiral production again, as they did in the past. 28. Between 1915 and 1965 over half of Mexico's arable and pasture lands were distributed to landless families under a pioneering agrarian reform pro- gram. Many of the farmers benefitting from this massive land redistribution program also benefitted from the irrigation programs but those who did not benefit from irrigation received few public services and therefore were seldom able to exploit the land initensively. In an effort to correct this imbalance and to bring redistributed :Land into more productive use, the Secretariat of Agrarian Reform (SRA) and the Secretariat of Agriculture and Water Resources (SARH) are intensifying technical, promotional, and organizational assistance to farmers and are encourag:ing assistance from credit and marketing agencies. Government's Program 29. The agricultural policy of the Mexican Government has in recent years focused on three main objectives: (i) self-sufficiency in basic foodstuffs;  - 10 - (ii) increased production of export crops; and (iii) raising incomes and living standards for the poorer sections of the rural population. 30. The Government is restructuring its agricultural development stra- tegy to put the sector on a more competitive basis and to provide access to modern farming to a higher proportion of its rural population. This approach would attempt to increase yields through modernization of farming techniques in existing areas and through opening up of new areas, mainly in zones of favorable rainfall. The strategy calls for investments by the Government in education, applied research and extension as well as in physical infra- structure for access roads, land clearing, marketing and storage facilities, drainage and small-scale irrigation. At the same time, the Government would stimulate private investment through the credit institutions. The Bank is supporting the Government's strategy in both these areas. The tropical agri- cultural development project, recently approved by the Executive Directors, will help finance a program of public investments in agricultural infrastruc- ture, applied research, and extension; the proposed credit project would support private investment in agriculture and agroindustries. Crop Production 31. The dramatic growth in agricultural production between 1945 and 1965 (para. 24) largely came from expansion of agricultural land and concen- tration of technical services on irrigation districts (para. 27). However, since 1965, growth of cultivated area has slowed to less than one percent per annum, and the major increases in production have come from improvements in yields. While programs to increase cultivated area are underway, parti- cularly in the tropics, major emphasis is being given to stimulating agri- cultural production through: (i) adoption of better technologies; (ii) provision of technical services; and (iii) credit for farm investment. SARH and FIRA have played major roles in developing farm technologies. The basic research institutes of SARH have improved plant varieties and developed more efficient pest and disease control measures. SARH has improved efficiency in use of irrigation water and recently began a new extension program for rainfed agriculture. FIRA has helped in the application of these new technologies to increase farm output and to lower production costs; it has been particularly successful in introducing improved crop varieties and in improving pasture management. FIRA has also stimulated farmer interest in new technology through a program of demonstration farms and has improved the quality of banks' technical services by training their technicians. Finally, FIRA plays a leading role in promotion of private investment in agriculture by increasing supply of credit through the public and private banking system and by organizing the small farmers into groups, thereby reducing credit risks. These activities of FIRA would be further expanded under the proposed project. Livestock Production 32. Beef. Beef production grew at a rate of 2 percent per annum between 1960 and 1965 but accelerated dramatically to 5 percent per annum between 1970 and 1975 due to improvements in husbandry and genetic quality  - 11 - as well as favorable market prospects. FIRA has promoted the adoption of new farm technologies that improve animal nutrition, reduce disease, better breeding practices, and increase the profitability of beef operations. Similar activities would be supported under the proposed project. 33. Milk Production. Total milk production in 1975 was estimated at 4.8 million tons produced by about 4.2 million cows. Nearly 80 percent of total production is from about 2 million dairy cows located predominately in the central plateau temperate zone, while the remaining 20 percent is produced by around 2.2 million dual purpose cows in the tropics. About 85 to 90 per- cent of the national consumption of milk is supplied by domestic producers, and growth in domestic production is lagging behind demand. 34. Commercial herds; generally feed on irrigated alfalfa in the spring and summer and on forage oats and corn silage supplemented with high levels of concentrates in the autumn and winter. Although average daily production under this system is reasonable, the cost of production is high because of the large use of concentrates. Technicians of FIRA and SARH have, however, developed a low cost milk production program that reduces costs by as much as 30 percent by grazing herds on permanent legume-based pastures; extension of the low-cost milk production system would be promoted under the proposed project. 35. Pork. The slaughter of pigs has grown at the rate of 10 percent per year between 1970 and 1975 to 6.5 million head per annum, due to availability of lower cost sorghum feed and increases in consumer demand. Hog producers sell either to small processing plants, or to dealers authorized to slaughter hogs at the municipal slaughterhouses. There is, however, a need for specialized slaughterhouses in order to improve hygiene standards and to utilize the by-products efEficiently; these are some of the activities that would be supported under tehe proposed project. 36. Agroindustries. In 1975 the food processing industry (excluding beverages) employed 337,800 persons and had a total output value of Mex$ 86,600 million--18 percenit of the total value of industrial production. During the past 15 years, relatively rapid expansion has taken place for: meat processing plants; grain mills and silos; fruit and vegetable packing, storage, and processing plants; and vegetable oil processing. The Government has provided incentives and financial support for both private individual operators and groups of private or ejido producers, and these enterprises have been important in providing additional employment opportunities in smaller cities and rural areas. In view of growing domestic demand for processed agricultural products and Mexico s access to the United States market, invest- ment in agroindustrial activities is expected to remain high in the future. The proposed project would provide credit to agroindustries. Agricultural Credit 37. The Government has been promoting the development of the agricul- tural credit system in Mexico through three measures: (i) establishment of a series of trust funds in the Bank of Mexico that rediscount agricultural  - 12 - loans, provide technical assistance and guarantee repayment of loans (para. 38); (ii) establishment of public banks to provide agricultural finance to small- holders and ejidatarios, and for such other purposes as are not yet readily served by private banks (paras. 41, 42); and (iii) provision of incentives and a legal framework to encourage private lending to agriculture (para. 43). As a result of these measures, the volume of agricultural credit has grown from Mex$ 10 billion in 1965 to Mex$ 47 billion in 1975. 38. Trust Funds. The Agriculture Trust Funds in the Bank of Mexico, collectively known as FIRA, consist of three trust funds sharing common management and staff. The primary trust fund, the Guarantee and Development Fund for Agriculture (FONDO), established in 1955, rediscounts short term loans for annual production credit made by private and public banks. The Special Fund for Agricultural Finance (FEFA) was established in 1965 to channel foreign loans such as those from the Bank and the Inter-American Development Bank, with corresponding counterpart funds in local curency, to medium- and long-term loans in support of investments in agriculture, live- stock and agroindustries. The operations of FONDO and FEFA initially concen- trated on commercial producers, but have expanded to provide investment credit to low-income producers. In support of the latter expansion, the Technical Assistance and Loan Guarantee Trust Fund (FEGA) was established in 1973 to provide technical assistance and to encourage private banks to lend to low- income farmers by guaranteeing a portion of the sub-loans. 39. Beginning with funding under the Alliance for Progress program, FIRA established a special program to aid low-income producers. 1/ The Bank specifically supported the low-income producers' component beginning with the Fourth Agricultural Credit Project (Loan 910-ME of June 1973); about 20 percent of that loan was allocated to low-income farmers. The support was expanded under the Fifth Agricultural Credit Project (Loan 1217-ME of March 1976) in which 47 percent of on-farm lending was allocated to low-income producers. FIRA has been an active participant in Mexico's Investment Program for Rural Development (PIDER), which will benefit some five million individuals with low incomes in one hundred micro-regions. Bank has made two loans in support of PIDER totalling US$230 million, of which US$57.5 million was allocated to agricultural credit through FIRA for low-income farmers. FIRA will also play an important role in the Tropical Agricultural Development project (approved by the Executive Directors earlier this year) which is part of a larger program to develop intensive agriculture in the underutilized humid tropics; US$11.3 million of the US$56 million loan is allocated to agricultural credit through FIRA primarily for low-income farmers. In addition, four loans from the IDB have included credit through FIRA for low-income farmers. 40. FIRA has helped strengthen agricultural lending institutions in Mexico by expanding its rediscounting facilities and by providing technical assistance. FIRA's rediscount operations have increased from 5 percent of all 1/ Low-income producers are defined as farm families whose net annual family income does not exceed 1,000 times the daily minimum rural wage rate for the zone in which they live.  - 13 - agricultural lending in 1965 to over 20 percent in 1976. It now employs over 700 technical specialists aad has trained over 1,200 technicians and credit specialists from participating banks. As a result, investment projects are appraised systematically before the sub-loans are made, and technical assist- ance is also offered by the financial institutions during supervision of their loans. The lending policies in the sector are closely monitored by FIRA and reviewed periodically with all the agencies concerned with lending in the agricultural sector. 41. Public Banks. Nearly 60 percent of all agricultural credit is channeled through the public banking system. The largest public agricultural bank, the National Rural Credit Bank (BANRURAL), handles mostly short term credit to low-income farmers. BANRURAL was created in 1975 by merging three public banks, the Banco Ejidal, Banco Agricola and Banco Agropecuario. The Government and BANRURAL have agreed on a comprehensive program to improve BANRURAL's operations by: (i) eliminating duplicate branch offices; (ii) instituting a program of loan collections and improved monitoring of loan repaymens; (iii) separating lending operations from social welfare programs, financing each separately; (iv) increasing margins to cover progressively greater portions of administrative expenses; and (v) streamlining administra- tion and reducing overhead. BANRURAL is implementing a multi-year program along these lines. 42. The other public bank serving the farming community is the National Bank for the Sugar Industry, FINASA, which has sole responsibility for short- and long-term lending to sugarcane producers and to the sugar industry. All loans to cane producers, such as those to be provided under the proposed project, are channelled through the mills and, to the extent possible, are in kind (such as fertilizer, tractor services, and transportation). The loans are recovered when the farmer delivers his cane to the mill, which is the sole purchaser of cane in its geographical jurisdiction. During the 1975-1977 period, FIRA rediscounted Mex$ 146 million of medium- and long-term credit extended by FINASA benefiting 37,500 ha and 13,500 farmers. 43. Private Banks. Until the establishment of the FIRA rediscounting facilities, commercial banks were hesitant to undertake agricultural term- lending because of the short-term nature of the bulk of their resources, problems in obtaining collateral, and their lack of familiarity with the sector. This situation has changed appreciably in the last decade, largely owing to the support extended by FIRA in terms of funds and services. The Bank of Mexico has encouraged this trend biy stipulating that an amount equal to 2 percent of the total deposits in baLnks be held in the form of agricultural loans to low-income producers, arid reimbursing through FEGA the costs of technical assistance and loan guarantees for such producers. Private lending was further promoted by the 1975 Rural Credit Law which clarifies the legal frame- work for lending, including the availability of guarantees and establishes a mechanism to aid marginal producers who would not otherwise be in a position to receive credit. Many private banks have, as a result, established agri- cultural credit departments; and hired significant numbers of agricultural technicians. The private banks have expanded their lending to farmers from around Mex$ 3 billion in 1965 to nearly Mex$ 18 billion in 1976, and the proportion of loans rediscounted with FIRA has increased from 16 percent to 35 percent between the years 1965 and 1976.  - 14 - Experience Under Previous Credit Projects 44. The Bank has made five loans totaling US$400 million for agricul- tural credit projects executed by FIRA. In addition, three Bank loans for agricultural and rural development include US$63.4 million for medium- and long-term development credit earmarked for low-income farmers. Excepting for the amounts reserved for low-income producers in the rural development projects, the previous loans have been disbursed ahead of schedule; all the funds under the Fifth Project are committed and are expected to be disbursed by October 1978, nine months ahead of schedule. Inter-agency coordination is being improved and provision of technical assistance intensified to increase the absorptive capacity of low-income producers. 45. A Project Performance Audit of the Third Agricultural Credit Proj- ect (SecM77-353 of April 27, 1977) carried out by the Operations Evaluation Department records the achievements of the project as well as the deficiencies. The institutional growth of FIRA has been a major accomplishment of the program as illustrated by impressive expansion and up-grading of FIRA staff, decen- tralization of operations, support to participating banks, and maintenance of standards. Loan funds have been used effectively; only 4 percent of the par- ticipating banks' portfolio of loans made under the project was overdue more than six months. However, the economic rates of return on subloans financed under the project are now estimated to be between 12 and 20 percent as compared to the appraisal estimate of 24 percent overall. Rates of return of livestock operations have tended to lie in the lower end of the range due, in part, to the tendency of sub-borrowers to pursue development programs with less emphasis on pasture intensification. The Project Completion Report for the Fourth Agricultural Credit Project is under preparation. The findings are similar to those for the Third Project, but subloan recovery has improved further; a sample of 35 percent of the subloans reveals overdue amount to be less than I percent. The Fifth Project continued the improvement in agricultural credit institutions. Financing of repeater purchases of breeding stock have declined and the monitoring unit of FIRA has been strengthened. 46. The issues raised during the course of implementation of previous projects have been discussed with FIRA authorities. Under the proposed Sixth Project, efforts would be made to further strengthen technical assistance to sub-borrowers, to improve the performance of the monitoring unit, to maintain at reasonable levels the rates of purchase of breeding stock, and to expand the demonstration facilities of FIRA. The low-income producers component introduced under the Fourth Project would continue to be an impor- tant feature of the Sixth Project.  - 15 - PART IV - THE PROJECT Background 47. A Staff Appraisal Report, entitled "Sixth Agricultural Credit Project," No. 1968-ME, dated May 1, 1978 is being circulated separately to the Executive Directors. The project was prepared by FIRA and was appraised by a Bank mission in November 1977. Negotiations took place in Washington, D.C. on April 27, 1978. The Mexican negotiating team included Mr.Horacio Garcia Aguilar, Director of FIRA, and Mr. Arturo Ortiz Hidalgo of Nacional Financiera, S.A. Protect Description, Its Cost and Financing 48. As indicated in the Loan and Project Summary, total project costs are estimated at US$627.2 million equivalent. The Project would include invest- ments in annual and perennLal crops, livestock, dairies, and agroindustrial enterprises as well as training, demonstration, technical assistance, and monitoring activities. The proposed loan would finance 32 percent of project costs equivalent to the foreign exchange component (US$175 million) and US$25 million of local currency expenditures benefitting low-income producers. The balance would be provided lby FIRA (US$244.0 million), the sub-borrowers (US$96.9 million) and participating banks (US$86.3 million). Training, Demonstration, and Technical Assistance 49. Investments in training, demonstration, and technical assistance would ensure farmers' effective use of credit and acceptance of new tech- nologies. The project would strengthen training of technical staff of FIRA and participating banks. The monitoring unit in FIRA would be strengthened and the program revised to place greater emphasis on review of issues arising during project implementation. The proposed loan would finance the foreign exchange cost of these activities (US$3.9 million) and US$3.3 million of local currency expenditures. Beneficiaries 50. Low-Income Producers. In spite of the ongoing programs, the majority of Mexican farmers still use traditional methods, have inadequate or no access to technical assistance, improved seeds, fertilizer, or pesticides, and remain largely outside the market economy (paras. 26-28). FIRA, through its own programs and participation in larger efforts such as the PIDER rural develop- ment program, is playing an important role in providing modern technology and inputs to many such farmers (paras. 38-40). 51. The proposed project would continue to support FIRA's program for assistance to low-income piroducers. The low-income producer program would include: (i) credit at preferential interest rates ranging from 11 to 14  - 16 - percent per annum; (ii) intensive technical and organizational assistance; (iii) guarantee of up to 80 percent of the value of subloans through FEGA (para. 38); and (iv) reimbursement by FEGA of the participating banks' technical assistance expenses. One-third of on-farm lending under the project would initially be earmarked for low-income producers, but the demand for funds from this target group would be reviewed periodically to provide for adequate financial support of the low-income farmers on the one hand, and to avoid accumulation of excessive foreign funds with FIRA if, in spite of FIRA's best efforts, the credit demand from these producers is less than anticipated. In support of FIRA's promotion of increased lending to low-income farmers, the Bank loan would finance the estimated foreign exchange cost of such subloans and US$21.7 million equivalent of local costs. 52. Other Beneficiaries. The Government is concerned about the slow growth of farmers' productivity (para. 24) and capacity to generate savings for further investment and therefore places great emphasis on the timely provision of credit. To support the government's efforts, the Bank loan would finance the foreign exchange cost of subloans to farmers with a net annual income in excess of 1,000 times the daily minimum rural wage rate in the region, who would receive credit at higher rates of interest and in general at less favorable terms than would low-income farmers. Subloan Terms and Conditions 53. Terms and conditions of subloans would vary with income level of the beneficiary, size of loan, and purpose of loan:  - 17 - Maximum Rediscount Percentage Rates to Minimum of Subloan Participating Interest Sub-borrowers Subloan Amount Rediscounted Banks Rates ------% per annum------- 1. Low-income sub-borrowers: (a) on-farm investment projects: (i) low-income not more than 90 7.50 11.00 sub-borrowers 350,000 pesos who receive institutional credit for the first time (ii) other low- not more than 90 10.50 13.50 income sub- 1,000,000 pesos borrowers (b) agro-industrial not more than 90 11.00 14.00 projects 2,500,000 pesos 2. Other sub-borrowers: (i) not more than 90 13.00 16.00 on-farm investment 2,500,000 pesos projects and agro- industrial projects (ii) more than 80 13.25 16.00 2,500,000 and not more than 5,000,000 pesos (iii) more than 70 14.50 17.00 5,000,000 pesos Low-income beneficiaries would finance at least 3 percent of the investment out of their own resources and other beneficiaries at least 15 percent. Sub- loan repayment periods would depend on the beneficiary's projected cash flow and would range from 3 to 15 years including grace periods of I to 3 years. Terms could be extended to 20 years in special cases, with prior review with the Bank. FIRA would seek the Bank's approval for rediscount of any subloan over US$800,000 equivalent; the maximum balance outstanding to any one beneficiary would be Mex$ 5 million (Schedule 2 to the draft Project Agreement).  - 18 - 54. The proposed interest rates are higher than the rates presently charged by FIRA: Interest Rates on Sub-loans Proposed Under the Beneficiaries Until now Project (Percent per annum) Low-Income Producers 9.5 to 11 11 to 14 Others 11.5 to 14.5 16 to 17 The Mexican authorities have a good record of reviewing and adjusting interest rates periodically to promote financial intermediation in an unusually open financial system, and traditionally they have managed to ensure comparatively higher yields for peso deposits than for dollar denominated deposits in Mexico, or dollar deposits abroad by Mexicans. The Government proposes to continue this review process and adjust interest rates in the future. Given the Government's policy to contain inflation (paras. 7 and 9) and its success, the proposed rates are expected to yield positive real rates over the life of the sub-loans. Livestock Purchases 55. To encourage pasture development and to maintain investment in breed- ing livestock at reasonable levels, the FIRA would ensure that (i) no more than 53 percent 1/ of the livestock development investment is utilized for purchase of breeding stock, and (ii) replacement purchases are not financed under the proposed loan (Schedule 2 to the draft Project Agreement). Procurement 56. Since the agricultural lending activities would be implemented over a three-year period, be widely distributed geographically, cover a variety of farm/ranch investment activities, and involve a large number of sub-borrowers, bulk purchasing under ICB would not be feasible. An adequate choice for machinery, tractors and other agricultural equipment and inputs is available to sub-borrowers through local and international suppliers and permits can be obtained to import machinery and tractors in the horsepower ranges required if they are not available in Mexico or in the event of a real scarcity. Tractors up to 125 horsepower are manufactured in Mexico under franchise from five major international firms and adequate competition and satisfactory service and maintenance facilities are assured by the range of choice offered and the extensive network of dealers. As in earlier projects, FIRA would re- quire sub-borrowers to obtain quotations from several sources of supply, when- ever practicable, for goods or works financed by it, and for imports of breed- ing cows. Machinery and equipment for agroindustrial units would be purchased by private producers or groups of producers. Whenever the cost of a single item of equipment, or an assembly delivered by a single manufacturer, exceeds US$250,000 equivalent, quotations would be solicited from not less than three suppliers. Moreover, FIRA would make available to prospective sub-borrowers 1/ The weighted average of livestock purchases as a percentage of total investment for the livestock development models used in the appraisal of the project.  - 19 - a list of suppliers of agroindustrial machinery, including in it those from Bank member countries and Switzerland as well as their agents or representatives or partners in Mexico. After the proposed loan is signed, FIRA would advertise locally and notify all the embassies in Mexico of Bank member countries that manufacture agroindustrial equipment, and Switzerland, of the details of the agroindustries component of the project, giving broad particulars of the types of machinery likely to be required (Schedule 2 to the draft Project Agreement). Disbursement 57. The loan is expected to be disbursed over a three and one-half year period ending mid-1982. A schedule of estimated disbursements is given in the Loan and Project Summary. Project Impact 58. The livestock and agricultural components of the project would benefit about 67,000 families directly. At full development the project would create in the livestock sector an additional 8,000 full-time jobs and an estimated 4,000 man-years of temporary employment annually. The agricul- tural development would generate demand for an estimated 5,000 man-years of hired farm labor and increase employment of family labor. Some 1,000 full-time jobs would be generated by the new investments in agro-industrial enterprises. 59. The project would help the participants to increase their net family income substantially; on the average their real incomes would double within six years. Low-income producers' annual family incomes before the project average about US$500 in livestock enterprises and about US$1,000 in crop enterprises; average incomes for these beneficiaries would increase to US$1,300 and US$2,000, respectively. Other beneficiaries' annual family incomes currently average US$4,000 for livestock enterprises and US$2,000 in crop enterprises. Their incomes are expected to increase to US$10,000 in livestock enterprises and US$4,000 in crop enterprises. The individual increase would depend on the characteristics of the farm enterprise. For example, in the case of grazing-based dairy enterprises, beneficiaries' incomes would more than treble, while under stabled dairy development, beneficiaries' incomes would double. 60. The project wou:Ld help increase production of a wide range of crops and livestock products--particularly basic foodgrains, oil seeds, milk, meat, fruits and nuts. The value of incremental production (at 1977 farmgate prices) is estimated at US$115 million for crops and US$74 million for live- stock products. Since domestic demand for agricultural products has out- stripped domestic supply, and the marketing system is adequate to serve the potential production areas, no problems are envisaged in marketing the incre- mental output.  - 20 - 61. The economic rate of return of the project is estimated at 28 per- cent; the rates of return on individual components are estimated to be 25 percent for the livestock component, 35 percent for the crops component and 17 percent for the agroindustries component. In calculating the rate of return, the shadow price for labor has been computed at rates varying between 60 percent and 100 percent of the daily minimum wage rate to reflect the degrees of unemployment in the respective regions. Project Risks 62. Because of the soundness of institutions involved, the project does not have any special risks. However, the absorptive capacity for credit of the low-income producers is linked to the effectiveness of the technical services to be provided under the project. Also, external resources are being allocated for this group under several other projects (para. 39). It is there- fore possible that the loan amount earmarked for this group would be utilized less expeditiously than the component for the other producers. In case of sub- stantial delays, the Bank and the Government would reassess the needs of the low-income producers and the desirability of reallocating the proceeds of the loan. PART V - LEGAL INSTRUMENTS AND AUTHORITY 63. The draft Loan Agreement between the Bank and Nacional Financiera, S.A., the draft Guarantee Agreement between United Mexican States and the Bank, the draft Project Agreement between the Bank and Banco de Mexico, S.A. and the Report of the Committee provided for in Article III, Section 4 (iii), of the Articles of Agreement are being distributed to the Executive Directors separately. 64. Special conditions of the project are listed in Section III of Annex III. 65. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank. PART VI - RECOMMENDATION 66. I recommend that the Executive Directors approve the proposed loan. Robert S. McNamara President by J. Burke Knapp Attachment May 3, 1978  IUNX I Page 1 of 4 pages TABLE JA NIEXICO - SOCIAL INDICATORS DATA SHEET LAND AREA (rHOU KM2) ----'-------'-------------------- ---------------- L--A------ O---- MEXICO REFERENCE COUNTRIES (1970) TOTAL 1912.5 MOST RECENT AGRIC. g5Q.0 1iO 1970 ESTIMATE BRAZIL CHILE SPAIN GNP PER CAPITA (US$) 370.0 6SO.0 1090.0 550.0 120.0 1580.0. ____________________ POPULATION AND VITAL STATISTICS ___________________,___________ POPULATION (MID-YR. MILLION) 36.0 10.4 62.0 92.8 9.4 33.6 POPULATION DENSITY PER SQUARE KM. 19.0 26.0 31.0 11.0 12.0 67.0 PER SQ. KM. AGRICULTURAL LAND 3o.@ 52.0 65.0 49.0 58.0 105.0 VITAL STATISTICS CRUDE BIRTH RATE (/THOU, AV) 46.1 48.6 42.0 3B.4 32.9 21.0 CRUDE DEATH RATE UTHOU,AV) 14.0 10.2 s.6 9.9 11.0 8.8 INFANT MORTALITY RATE (/THOU) 74.0 6.5 12.0 110.0 79.0 27.9 LIFE EXPECTANCY AT BIRTH (YRS) 56.3 62.4 64.7 59.4 60.6 70.5 GROSS REPRODUCTION RATE 3.2 3.1 3.0 2.6 2.2 1.4 POPULATION GROWTH RATE (S) TOTAL 3.1 3.5 3-5 2.9 2.4 1.1 URBAN 4.9 4.8 5.1 5.0 3.5 2.0 URBAN POPULATION I% OF TOTAL) W0.7 56.7 63.3 55.9 76.0 59.1 AGE STRUCTURE (PERCENT) 0 TO 14 YEARS 45.8 46.2 46.3 42.0 39.0 27.8 15 TO 64 YEARS 50.9 50.1 10.3 55,0 56.3 62.5 65 YEARS AND OVER 3.3 3.7 3.4 3.0 4.7 9.7 AGE DEPENDENCY RATIO 1.0 1.0 1.0 0.8 0.8 0.6 ECONOMIC DEPENOENCY RATIO 1.6 2.0 1.e/a 1.5 1.6 1.1 FAMILY PLANNING ACCEPTORS (CUMULATIVE, THOU) .. 55.5 321.1 250.0 403.5 USERS (X OF MARRIED WOMEN) .. .. 13.1 1.6 EMPLOYMENT TOTAL LABOR FORCE (THOUSAND) 11300.0 13000.0 16600.0 29400.0 2900.0 11900.0 LABOR FORCE IN A'GRICULTURE (1) 54.0 45.0 41.0 40.4 21.0 25.0 UNEMPLOYED (% OF LABOR FORCE) .. .. 6-6/b 7.5 4.1/a I 1.1 tNCOME DISTR;BUTION X OF PRIVATE INCOME RECOD BY- HIGHEST 5s OF HOUSEHOLDS 28.7 a 27.9 ** 35.0 Ia 31.0 HIGHEST 20X OF HOUSEHOLDS 58.8 a 58.3 ** 62.0 7 55.8 LOWEST 201 OF HOUSEHOLDS 3.5 3 ** 30 7o 4.8 LOWEST 40X Of HOUSEHOLDS 1O.3 7 10.5 ** 10.4 13.0 DISTRIBUTION OF LAND OWNERSHIP 1 OWNED BY TOP 10 'OF OWNERS . 37.1 .. 45.0 % OWNED BY SMALLESI 10% OWNERS .. 0.3 .. 1.s HEALTH AND HUTRITION POPULATION PER PHYSICIAN 1000.0 1430.0 .. 19to.0 2210.0 / 740.0 /b POPULATION PER NURSING PERSON 2630.0 Lb 1620.0/a .. 3220.0 /b 5830.0 7W POPULATION PER HOSPITAL BED 590.0 7f 960.0 830.0 260.0 270.0 220.o PER CAPITA SUPPLY OF - CALORIES (x OF REQUIREMENTS) 107.0 105.0 117.0 1o9.o 101.0 107.0 PROTEIN (GRAMS PER DAY) 65.0 65.0 66.9 64.0 71.0 01.0 -OF WHICH ANIMAL AND PULSE 29.0 /d 2s.0/b 27.5 39.0 32.0 40.o DEATH RATE (/THOU) AGES 1-4 12.7 9.8 B.4.jL .- 3.9 0.9 EDUCATION ADJUSTED ENROLLMENT RATIO PRIMARY SCHOOL 80.0 104.0 111.0 87.0 107.0 123.0 SECONDARY SCHOOL 11.0 22.0 30.0 . 39.0 57.0 YEARS OF SCHOOLING PROVIDED (FIRST AND SECOND LEVEL) 12.0 12.0 12.0 11.0 12.0 11.0 VOCATIONAL ENROLLMENT (x OF SECONDARY) 24.0 24.0 .. 17 0 33.0 20.0 ADULT LITERACY RATE (x) 62.0 f 78.0 76.0 64.0 90.0 94.0 HOUSING PERSONS PER ROOM (URBAN) 2.6 2.2 .. 1.0 1.3 /c OCCUPIED DWELLINGS WITHOUT 'PIPED WATER (%) 76.0 /f 61.0 Ic / . 73.0 /C 40.0 c.d ACCESS TO ELECTPICITY (x OF ALL DWELLINGS) .. 59.0 .. 48.0 RURAL DWELLINGS CONNECTED TO ELECTRICITY (1) .. 28.0 .. 8.0 CONSUMPTION RADIO RECEIVERS (PER THOU POP) 95.0 276.0 301_0 60.0 143.0 214.0 PASSENGER CARS (PER THOU Pop) 14.0 24.0 40.0 25.0 18.0 71.0 ELECTRICITY (KWH/YR PER CAP) 313.0 567.0 724.0 491.0 806.0 1834.0 NEWSPRINT 1KG/YR PER CAP) 2.8 3.2 3.6 2.7 5.0 . ------------------------------------S------------------------ --------------------------- ------------ SEE NOTES AND DEFINITIONs ON REVERSE  Pag4 2 of 4 page NOTIt U.lnbo o;hftbru** o,tad, i.ta for 196 refer te y year betuse 1959 l 161, for 1970 betwee 1949 ad 1971, mad for Most leart lstimate betwen 1973 end 19)J 00 lao_n dcatrfbttion data for 1975 curretly balJI reeleed. 55 SpaLs be been slected a an objective coe_try bcene Its Per caita ulfes Is higbhr th Kllco'., ad because both countrie. hae In co. .n tho iporta,ce of torim sd the Influenc of nearby ribebr coutries. uxICO 16bo /a 19163; /b include, midwifery and suralg anilliariesl /c 1962; fd 1961-62; L. Six yers ead over; If Inside only. 1970 l Including assistant mars.; fb 1964-66; A imaid. only. MST uCMrf ISTIOXX /I tatlo of populAtion ender 15 nd 65 sad over to total labor force; /b Larger ritle. ocly /c 1972; /d 1971. aSAhIL 1970 js Econdcally active populatioi /b lepital persooll fc Ingide oly. ChILE i97 O Gran Santlago; fb Personel in government services only; /c Data refer to horahold; /d laside only. SPADI 1970 /a Employment office estiate; /b Registered, not all practicing in the country. R11, April 20, 1978 -1 XtNIo 5001 pl mDICAIt55 Laud Arem (thou Poo2tioo v rursinc parson - puleci_ divded by mahr of pracricin5 T - tots; urfa- area opritog land are ad Inland watr. ra d fMale gradate -re t "crems or ye-rtifer of ure end Aerlo. - 0(00, recent netieta of erlc-ltural ares Wad tmporartly or pera- ozgili.ry persononl with toiing or e rience. Osntly for crops, ptur, mrket & kitchso garden. or to lie fallow. PopulItio ho bed - PPoputiats divided by .n.br of hoapimal beds aalabla in public d private 94wrl a_ *pecalisd hospital and 95? per osrct( ; par c-pira es -tte rurr-O nt -kt prics_, rhabilirttion, c nters, eclud*a esrmie be and etblishsato fo calcu- 1t-d by am coen-raion _athod s borld lank Atlas (1973-76 bamia); custodial nd prevntfv .ors. 1960; 1970 .od 1976 da. r capita suDPpl of oslorias ( ofeuir Ul - Cputed Oron er equivalPnt of Dat food upia s a vilble f core per capita per dy; P.olIoc _nd ltol s st alable suppisa casp dn_ttc prodction, imports le4 exports and Poonlacion eid-yoar million) - Am of Joly first: if not av1ilabla, -vrg, Conse fn stock; net aplar exclud nfi fsed, a, qncits usd o two srd-vcos setlto.; 1960, 1970 nd 1976 data, to food processing ad lases tn diatributio; reqairmnt re estimted 4MMILti-dL- - m o - Kid-..r P-P1-tion Pr -varekilmomrby PAO based on pb"alolgical needs f-or "rel activity end hasth conid- Populatioc dena . - er squ4re or - "id-ar population p r square i r rfr ovlrntl temperature, body vighta, age and .. dita"ibuio_ of (100 bhtotcos) of coral ars Population, ed allowing 101 for ets at boweebold laval. Popolacbon denaicy - eyus%a rm of aErLIc. land - Casptd as above for PFr capita MMpply of Proe 4x_ nr da) - prote4 content of per capita agricultural land only net Aupply of food p r day; aMt supply of food is dffad as shore; rrquirc- tsort for 11 contras. etabliabd by USDA goonone gaearb Oachics VItal stetiatice provide for a Lia s allowace of 60 gr_ of total protsia Per dy, nd 'rud, birth rate oar thousand. evaraza - Annual Ifv births per thousand of 20 gram of anlal mad ple, proten, of which 10 grmm hould be ennail ld-ys-r population; ton-yeer arithotic vnag_ ending in 1960 ad 1970, protein; thesa standerda ar lo_r than thae of 73 sgm of total protein sod ffve-year aer.ege oditag in 1975 for mt recent ati . d 23 grm of antmal protin *e aM ,erage for tbh world, propod by FA0 Crude death rate cc tJoand *ver xa - Annual deaths per thousand of ad-yer ln the Thfrd 17orld Food Survey. population; run-ear erithestic average andi.. n 1960 nd 1970 ad fi- Per caPita protein aupoly fro an l Pd oolae - Protefa spply of fond year euorae co-ing to i975 for st recant astit. dervd fraoeteata and pulseird Dufllt ii-,rate Ihhou) - Aul deths of infants undar ons year of age rate ffthol as 1-4 - ma, dea.th por tho,ead in ge group 1-4 per thou-a u rth -A to sh.idr nf this age group; suggestd a* an lndicatnr of Le xstanoc, atbrh_ rl - erga oubrc of years of life remaining at mlboutritbon. birth; u--aIl, fi-y.ear _rg_ andino in 1960, 1970 and 1975 for develop- ing countriss Education tross rnrodrtocP rate - t-*tg n,ab r of Itve daughters a w will bear Adjusted enrollm t ratio - ori mr school - ftulnr of a11 age a par- i - bar real roprod-crt per1od if ah. eperIeaces prewsnt ags-gpecific c_anr of primry sbool-ags populatin; icludes childre aged 6-11 years focrtllcy cao; wu.t y fioe-y0. averages ndIng in 1960 1970 ad 1975 but adjuated for different tgDth. of primary education; for countrisi with tor developing cc-c.cctaa - universal education, antoltlant may xced lO0 since em pupils are bhlo Populaliepcic ar/ t c (!tL- totl -a cn. annul growth rstma of mid-er or shove the officIal school ege. PoPuIftion (or 195r-it5 1960-70 sad 1970-75. Arjuste e n ratio -. elc I jg M_cou covtb r.lp__j! c,rha, - ;_xp.Cod li kw gr_oth rats of total edctn,rqiSat least four Year. of approed Primary las rct ion; Populatio; diffret dofluitiotS of orbe ars my ffact cuaprobility of Pr-ovfde ugnas, vocatioaal or tea,her tmining Iastructiona for pupils dat a..meg cn,ao of 12 to 17 years of ago; correapodeoca .0aswee ame generalyexlued Orbac * tlt -S! o j - ltio of orba to total population; diff,rent Teaa of chootitt er d ( e * eecp level - Totl ars of definition, of orb., *rea msy ffect toprbility of dat _ coustriea scoolig; at eec l ,c ma be fr or cIeptlly socludad. ma strcture r ce - Childrn (f-1u yersl) i.-age (15-44 yer) Vocational etolle tl of econatrt) - Vocatioal iaritutloa Include And rtired (61 yer. and over) a prcnca of midyer platiast technical, iAdustrial or othar progr_ whib operate indepadetly or Age dpeo adoucy- coto - Ratio of Ptjtolarcon under 15 and 65 ead over to the departmets of s-tondar,y totitotioctr of afos 15 through 9.1. Adult lIterary maom (1 - tiltrate adlts (eble to read end -It-)asp- Oconocic OO95OdcO o netI - Rt-ilo cC royclotln ondar 15 -nd 65 ad uver to tentags of total dult population aged 15 yeas and over. tho lObor crcr 4- a go fr-P of 15-64 year. Fenlil olsc4lc.6_. a -5!ptc_'a..{(.laiue thou) lasa-tlve number of acceptors B of hirri-cootroc dcvts w cF oder auaploeo of national faily planning proera Prsopa per roon (urban - Averag nbr of person per roa In occupied F_llc -i0ctico. conventfonl d4elling. in ur7bn arena; dwllng clude DOn-permanent Fith lanIg-ta.I eo,o g P--Pretage. of mtrried Mmu of -trcruce and maccpied parts. thild-&eari.g ago (15-44 e70r5) who use birth-control devices to a11 smarIed occupied dvellinus withot sloed water tI - Occupied oonveotionaI doeliog w,meitn Itc Oir ago group. to orbs,, nd rur-l ares without intid or ooutid piped water facilltfis aS percentage of a11 occupied deIlicJe. necloymant Acceas~~."i11~ to alactril,yC faldeloa C- toetlonsl deollinge with Total labor force C ousand, IU oncei_lly actOrs perPonm, including ard elctricity in livingH qurters - p nt of tfoal dllingp i rba d forcea mnd , toyed bu- eoladig housewives, studnts, tc.; definition. rural areas. - rc. in o-trIAesare i Oc t lbcepar (i. f ing frIurI d_itlir conn cted to electrIcitItY M - Coputed a above for rural buoting mad fiobhig) a percentags of total Ibor forc. 17nams ( of laborforts - Unemployed re usually defined a persona, eo Con u.ptioo ar.ble and elIlfeg to take a job, out of A Joh on a given day, rassind ont Sdorcies(a hup p l ya frcieefrrdobodar of job, sod oekling so rb for a specified sinim period noat c din4 one to geer ic r to A d of p ltion; ecluds Parlic ed rc;eu- snob;aay at 4.otasprablebeteen contrie dueto different d.fieliton, 10 countri6o and in yearswhe reitainofrdont wei fet of oeeplycd end sctuc of date, *eg, epi_mnt Office ttitic,emi dat for recet prs m wt h cprab meet c sorveyc oatoeleory unemployent lna,oranca. dotnasofgeet. =m c b .*''1 ic - oaj.blso inc5 dlatriboliono - Percentae- of prl-te Incom (both in c-ah ed kind) lensthee sight pers_ n ; eld e hearses d itit roc-f-'ed by ricthooc 51, ritheat 201, pooret 20?, nd poort 40 of boIe- vh icles. *nc ,*t*ry hLnctriotry kwh/yr p r cap) - Manual consnmption of indutrtial, oSercial, 1-nd Pe ~~~~~~~~~~~~~~phicsdprvtseetrctyi ilwt hour per capita, geneally !=larcibocico of lood ownershi Percaotale- of lend owd by welthiet 10i bse.d n production dta, without allonc for lses in srtds but llov and poorso t 115. cI land onners. ing f~~or import end ePaorts of el1otri.tty. tsnt tiba/yr per cae3 - rar tapitr annul cop u ption in kilogrm a&wuiolnd utrithAio n - POPsI.t1oe di"idmt by Rushe of pr-ti.in# _ti d fr dowatic production plu not Imports of m- print. phymot!oa 3oceified fros a edical achoul &t university level  Cr 0. C to tO - 10 r-'H 0. H0.HC'-'C 100. CrotoCOto 0. 'OH0.'0 0 H,-rot 0. CCCCOC 0.C'0'0 Oct.03 tttoto0.00 "I 000 102 Or rroO0. 0.0. 000000 0. 0l1'lttr 0. 01014 C 01000140 010130 10 .'0'rortrr 0. '  '0'0C100'0.100.800'C 0 CC 00 00'0100r-0 C 0. 8 88.8 8 -ooo'10to r- otto 0 0 010(0 OttO. o:0oooo10rr 10 '0 1"'t C"tlotloO H 0000.000.0. "0 C o10C'010o,000C'010 0 0'tto to 0 r-0 CCC "tOo t't'10 C -'0100 to 0 8 oCo 00(0 0010 - 0.CO'0OooCo,C 0 HOOt-CC oCor- cC IroC HC'O10Cro'0'0r'ro0,'r 0'00'H 1000 C 000100 902 C 0 C 0. 0.0.0 0 - ,-10rr0tO0. tO C '0 10 010 Cl 000 10 C 0010 HO 100100. '-'0.000 8 - 4 Ct 10 0' - 0 CC 10110 000 C '0 H,-'"' 0. 10000. C 100' 0 0.to.rOO II o C 0 C to 2010. 0 0.0 0 Ct"'00 C 1000 C 000-0 .rC 081 88 gorrBo10ort 800 C 0010 CC"-' 8o." o '0. 0 00.r" 00. tO Ott OCr.'Ot-" 100 H to 0 CC 000 10 C Oto.. "2 C toO 1000100 C tor" C 0. '00. 0. Cr10 0. C 0 10 810 8 "o CC 10 00H 8 o 0.0 Cr00' 0 CC <0 0010 10 0. '0 010 Cr- C 100 0 00 00 <0 00000 00 CC 00 to to 0 010 100 '0 ro 10rtrO. tOo o nt- to o' 88 80 8 00 10' '0 0 100 tOtO 0 tO 0 10 00 0.10 10 C Ct 10"" to 00 0.0. 10 to 0 '4 0 0 C 00 '0 0 0. 00 10 10 tO I- 0 C 0' 110 I 10 1010 I - 100 10t0.0'0 00.100.0.00. 101001 at 0. lo t tttttt 10000100 0.0.100. to 100'to0. 0110 CC CO10000.01001100. Or 0100.10' t CC10 orO-ototo 0. 00.1010 00 8000100.0. Ct Cr010010000. 0.t10010100 '0 *.. 00.0101010 00.1010 010 010100.100.0001100 COOt 0.0.1001010 0. 01CC 1000 CCC 10100100 CCC C '0000.0.0' 0t01010 10 CCC10100CCCC 0100.0 0.C 0.010 Jt3O1t00 :c0.01:r.t t,0r00t wC o:: ro0t$8o.80110 0.10CC 100.0.100 10toto00. 0100.01 0. I-t'0 1.4 0101010000 01 0.0 OtOCOOC 00.100t0 toCoto 0. - Ut OttO 0. L. 01 100.100.010 00.0.0.010 10 1000.01 10 0 C 01 100 10 10100.100.00.0 10 10 10 I C 0.100.0. F. ---... 0 -t.r 0 - ,. - --,..10 0. 0.0 0.0.0. 00.001100. 100.1010100.101000.1010 0.00 001010 01010 100100. 00.1000.001010.101010 100100 1010 . . . 10100.10100 101000.100' 0 100.100 0 10010 0010010 Ct"' 10100.0 010 01100101010010.0.0. 0 100 0.010 .... p ... .... 10. 0.1010 010.010100 C100C0.0 10 0.10100. tO 10010. -I 10 toC100.to0C010C 10 0. to 04to r 10 0.100. 10 0. 100.0.000.10 o0.00 0. 1010 00.t"'0.0'10 10101001 0 00. "'01 100 1010 1000.10 0.00 10 0.100.0100 0100.10 0 0.0.0 0 0 0.0.01010 1001100.0.000100.100.00.0.01 10 0.0. - . 010010100 0 010000 10100.0 001001010 t'. 00.100100 01000110101001000 0.0.010' 0 0010 0...10..0 Cr0 0.100. 100000100 0.0010. - to0.10 0 0010000110000100. 101000.001001010 0 0 100100.10 L 010.0.00010 ... - .. 0.-I - S 0.010 t - 0.0.1010 01 100. 00000.0.0.0. C 0.0100 10 101001000.00.10010001000 0. 00.0.0.010 001001 18?2-' 0.0 100. 00.100.1010,0.0.10 10 01 0. - - - 0100 Itt tI 011001000. 01010100.0.010 0100.1001001000100.0. 10010100.010.10100 0. 0100.01 . . . 001010000. 100.1000.000 10100100.01000100 10 10 0. 0.Or-tC0.0.101010C K 0101010 10 0.1010 10100.0100. 0 01101010 0 0.0.0. 0.0.0010.010. 00100. 10 10 0100.010100.100101 0 10 10 -. 0 000. t 0.0.0.0. 0010101010 010010 00.0.0.10 1001 10 0.1000.00 0 I - 10010100.0. 102010. 0.0.0. 0 000100 00.0.10 0. 100001101000.10 I 10 0.010 0010 10 0.0 10100.0.0.100001000010 10 100100001001010 I ta '00.0.10 0. '0 0.100 ttt lIt 1000. 010.0 0 00. 0010 001010100100100.100.00.00.0.100100.0 1010 tO I 10 0 0.010 . . . . .0 * -'.00.01100 100.101000 1010001 0010 0.100.0.00100.0.10010 0.101001001010.1010 I 0 01101010 C 0 0 I 0.0. 0010 I 10 0. 0.0.0.08 0 0 0 0.001 01100 1010010 01 0.0.01010 0.0. Or 101000.0.1000.1010 0 0.10001010 1001001 0.1010 100.0 00.1001 00010 01010011000.01010 10 0.0.0. 0.0.0 ttlltt 0.1000100. 00100. 101010 100.0010100 1010t 100. 10101010000.000 10 0.100.00. ' ' 0.0.010100 010010 1000 1000101000. 0011001 0.10100.100100.100 * ...01 100010. 0.00010.0. 010100 0100 010010.0.1001010.010 0.0100.01100000 1010 r t I lIt tI 0.01100.0.10 0101100. 0.010 0.101000.1001 00001 10 0101100100001001 I 1010 0 0.0.8 80. 8 0.0. 0.0.10 0. 0 1010 0 t t 8 ttttt 0010100.10 0010110 0.100 0100100.01 or 1.1800.10 C 00100010.00100 '0.10 0001000 0100110 010.10 0.10100.00.10000.10 0. 0101001100101000 01000. 01 0.000. 0. 0 8 ' 10 0. 1010 0. to 10t-0.0.t0. 0.0. 8 t 0.0. 0. 10 8 000.0010. 00.1001 10010 01001001010 0.0.80 110 100.00.11000100 I 01 01010100.0. .''