Document of IALE i~~ur' The World Bank FOR OFFICIAL USE ONLY Report No.P-2202-PH REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE PHILIPPINE NATIONAL BANK TO BE GUARANTEED BY THE REPUBLIC OF THE PHILIPPINES FOR A FIFTH PRIVATE DEVELOPMENT CORPORATION OF THE PHILIPPINES (PDCP) CREDIT PROJECT January 17, 1978 This document has a restricted dlsribution and may be used by recipients only In the performance of their official duties. Its contents may not itherwise be disclosed without World Bank authorzation. I CURRENCY EQUIVALENTS US$1 = P 7.50 P 1 - US$0.133 P 1 million = US$133,300 ABBREVIATIONS ADB - Asian Development Bank BOI - Board of Investment DBP - Development Bank of the Philippines DFI - Development Finance Institute (PDCP) IGLF - Industrial Guarantee and Loan Fund NEDA - National Economic Development Authority PDCP - Private Development Corporation of the Philippines PNB - Philippines National Bank SBP - Small Business Program (PDCP) FISCAL YEAR January 1 - December 31 FOR OFFICIAL USE ONLY PHILIPPINES FIFTH PDCP CREDIT PROJECT LOAN AND PROJECT SUMMARY Borrower: The Philippine National Bank (PNB) Beneficiary: The Private Development Corporation of the Philippines (PDCP) Guarantor: The Republic of the Philippines Amount: $30 million equivalent Terms: The proposed loan will bear interest at 7.45% p.a. Amortization to conform substantially to the aggregate of the repayment schedules applicable to the specific investment projects financed out of the proceeds of the proposed loan. Relending Terms: PNB would relend the proceeds of the loan to PDCP at an interest rate of 7.45% plus a handling fee of 0.75% p.a. but otherwise on the same terms as those for the Bank loan. PDCP would onlend to subprojects at an interest rate of 10.5-12% p.a. (plus a service fee of 2%) for a maximum term of 15 years, including a maximum grace period of 5 years. Project Description: The proposed loan will be used by PDCP to make subloans to finance foreign exchange requirements of projects mainly in manufacturing. Estimated Disbursements: ($ million) Bank FY 79 80 81 Annual 8.7 16.9 4.4 Cummulative 8.7 25.6 30.0 Staff Appraisal Report: No. 1784-PH dated December 14, 1977. 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. REPORT AND RECOMMENDATION OF TYE PRESIDENT TO THE EXECUTIVE DIRECTOikS ON A PROPOSED LOAN TO THE PHILIPPINE NATIONAL BANK TO BE GUARANTEED BY THE REPUBLIC OF THE PHILIPPINES FOR A FIFTH PRIVATE DEVELOPMENT CORPORATION OF THE PHILIPPINES (PDCP) CREDIT PROJECT 1. I submit the following report and recommendation on a propose i.oa to the Philippine National Bank with the guarantee of the Republic of 'e Philippines for the equivalent of $30.0 million. The loan would be at an interest rate of 7.45% p.a. The proceeds of the loan would be relent to the Private Development Corporation of the Philippines (PDCP) at an interest rate of 7.45% plus a handling fee of 0.75%, but otherwise on tne same terms as those of the Bank loan, for onlending to specific productive enterprises. The loan would be repaid in accordance with the composite amortization schedules of PDCP's subloans which will have a maximum repayment period of 15 years, including a grace period of up to five years. Subborrowers would assume the foreign exchange risk. Commercial banks are also expected to concurrently provide $10.0 million for PDCP's operation; the commercial bank loan would have a term of seven years including two years of grace at an interest rate of 1-3/8% per annum over LIBOR for the first three years and 1-1/2% over LIBOR for the remaining period. PART I - THE ECONOMY /1 2. An economic mission visited the Philippines in July/August 1977 and its report, "The Philippines: Country Economic Memorandum" (No. 1765-PH of October 26, 1977) was distributed to the Executive Directors under Secretary's Memorandum PHL77-2 on October 27, 1977. A basic economic report, entitled The Philippines: Priorities and Prospects for Development, was previously distri- buted to the Executive Directors on May 18, 1976 (SecM/76/366). Macroeconomic Performance 3. During the 1960s, the Philippines' economy grew in real terms at an annual rate of about 5 1/2%. However, the rate of growth was less than what might have been achieved if its considerable natural and human resources had been utilized more effectively. The benefits of growth were also distri- buted relatively unevenly. The growth of productive employment opportunities failed to keep pace with the growth of the population and labor foree. Low levels of taxation resulted in inadequate public expenditure for necessary infrastructure and social services. Poor export performance combined with a failure to reduce the import dependence of domestic industry resulted in a chronic weakness of the balance of payments. 4. The growth of the Philippine economy accelerated slightly to an annual rate of 6% during 1970-75. Fluctuations, however, were significant. In the period 1970-72, when the effects of a balance of payments stabilization program initiated in 1970 were being felt, the economy grew less rapidly at 5% per year, exports and imports of goods and services were roughly equal, and the shares of public and private fixed investment in GNP were stable. /1 This part of the Report is, with the exception of minor changes, tl.- same as the Report on Smallholder Tree Farming and Forestry Project (Sec MIR77-296), which was considered by the Executive Directors on December 22, L9iI. -- 2Z - Economic performance was exceptional in 1973 when real GNP grew by almost 10% and the current account registered a substantial surplus as sharply higher prices for traditional export commodities stimulated demand and agricultural production rebounded strongly from tbe natural disasters of the previous year. The export-led income baoc of 1973 was followed lby an investment boom. The resulting high investment rate together with favorable sugar prices temporarily sheltered the economy from the impact of the oil price increase in late 1973 and the following world recession, and real GNP growth was sustained at 6% in 1974-75. However, the collapse of sugar prices in late 1975, following earlier declines in the prices of other major export commodities, changed the external situation dramatically. The terms of trade dropped by 23% in 1975; and the currenit account recorded a deficit equal to 6% of GNP. 5. In 1976-77, the economy, led by exports and construction, has continued to grow at 6% per year. Exports (GNFS) increased by 193% in real terms in 1976 and are estimated to have risen by 11% in 1977. Unfortunately until 1977 the stimulus of the expansion -n export volume was largely offset by further deterioration in the terms of trade. Inflation, which reached a peak of 40% in 1974 as a result of externally generated pressure on domestic prices, has slowed to an average of about 7% because of the deceLeration in international inflation and a conservative monetary-fiscal policy. Investment and Savings 6. Due largely to the buoyant export performance in 1973 and the subsequent increase in incomes, investment boomed in 1974-75. Private investment rose from 14% of GNP in the early 1970s to 20% in 1975. Public investment was raised from 2% to 4% of GNP with the growth in revenue from international trade taxes, improvements in tax administration, and improved project implementation capacity. Subsequently, public investment: has been raised further to an estimated level of 6 1/2% of GNP in 1977. The private investment rate, on the other hand, has fallen somewhat to an estimated 18% of GNP but still is well over the 14% average of the early 1970s. However, the high incremental capital-output ratio, the relatively modest growth of manufacturing output and employment, and the structural underutilization of capacity in some industries suggest that the efficiency of investment needs to be improved. 7. Aggregate savings performance has improved during the last decade and is comparable to that of other countries at a similar stage of economic development. In 1976-77, gross domestic savings maintained the level of 25% of GNP achieved in 1975 and financed about 80% of total investment, with the balance coming from foreign savings. In order to increase the efficiency of financial markets in intermediating between savers and investors, the Govern- ment has made significant improvements in financial policy (for details, see paras. 32 through 35). Organized banking institutions have been strengthened. Interest rates were restructured in 1976 to encourage a greater flow of financial savings into time and savings deposits relative to short-term deposit substitutes, but further reforms are required to increase the avail- ability of long-term domestic currency resources. Special credit programs have been adopted to expand lending to the credit short agricultural sector and rural areas and to serve the needs of medium and small scale industries. However, a deterioration of loan recovery rates has been experienced by all government financial institutions and credit programs, creating a difficult policy dilemma. On the one hand, the programs have become costly means of achieving their ojectives, and the growth of arrears reduces the overall efficiency of resource mobilization and allocation. On the other hand, the programs do redress imbalances in the availability of credit so that arrears have to be reduced without closing necessary credit channels. ;Goernment Expenditures and Revenues 8. Public expenditures and revenues have historically claimed a much smaller share of national resources in the Philippines than in many other developing countries. In the early 1970s, general government expenditure averaged only 12% of GNP, public investment was strikingly low at about 2% of GNP, and tax revenues stood at 11% of GNP. Government expenditures were dominated by general administration and social services, particularly education. This situation had resulted from a variety of factors including difficulties in raising tax revenue and weak implementation capacity in the public sector. Since the early 1970s, the Government has taken steps to correct the situation and raise both the overall level of expenditures and the share going to economic services and public investment. By 1977 govern- ment expenditures had reached an estimated 18% of GNP and public investment, which has risen very rapidly in the last two years, equaled about 6-1/2% of GNP. 9. Recognizing that a large increase in tax revenues would be required to finance expansion of the public investment program, the Government has undertaken a comprehensive program of tax reform to raise the needed revenues equitably and efficiently. In the short term, needed revenues were raised through revision in indirect taxes. In the long term, structural changes are to be made to raise the built-in elasticity of the tax system, to reduce distor- tions in economic incentives and dependence on cyclically volatile taxes on international trade, and to improve equity by increasing the proportion of revenues coming from direct taxes. The Government has increased the ratio of domestic taxes to GNP by an impressive 1.5 percentge points between 1975 and 1977 through new tax measures and vigorous efforts to improve tax payer compli- ance and collection performance. However, much of the success in mobilizing revenue from domestic sources had been offset by a sharp decline in the yield of export taxes and import duties due to cyclical fluctuations. Total tax revenues, which had been raised from 11% of GNP to 13.6% by 1975, rose to only an estimated 14.1% in 1977. Greater resource mobilization by government corporations whose investment programs have grown rapidly is also needed. Agriculture 10. Despite fairly good soils and a relatively literate rural population, agricultural yields in the Philippines are among the lowest in Asia. Possible reasons for this enigma are the low quantity and quality of irrigation facili- ties and high vulnerability to weather risks; land tenure patterns; and weak - 4 - agricultural credit extension and other supporting services. Agricultural production has, nevertheless, grown at an average rate of 4.4% per year in the 1970s. The performance of the sector was strong in 1976 and 1977, as production increased by 7% and the country was able to provide for rice and corn consumption solely from domestic production. The Philippines has been virtually self-sufficient in rice for the past three years. If this trend continues, prospects for sustained self-sufficiency in this main staple of the country appear to be good. 11. The land transfer program, which has been in operation for five years, proceeded quite rapidly when larger land holdings were concentrated on, but progress has been slower recently because of the greater difficulties inherent in dealing with a large number of medium-sized, often middle-class, landowners. As of June 1977, an estimated 120,000 tenants, or 30% of the total tenants under the program, had received Certificates of Land Transfer which established their claim to the land. Despite the difficulties in the process of implementation, the transfer program remains an important part of the Government's rural development strategy. Industry 12. During the 1960s, Philippine industrialization was promoted by tariff protection and subsidized finance, and consequently industrial growth was primarily in the area of import-substitution with a high capital intensity. Performance was disappointing with respect to employment and exports. In the early 1970s the Government floated the exchange rate and introduced policy changes to reduce tariffs and realign industrial incentives. Further efforts to reduce biases in favor of import substitution and capital intensity are needed to sustain a higher level of industrial growth, which has averaged around 8% during the 1970s. Due to the slow growth in national income and demand because of the decline in the terms of trade in the last two years, manufacturing output has also grown slowly. On the other hand, industries producing nontraditional exports have expanded rapidly as their exports increased almost fivefold in the four-year period 1973-76. The construction industry has also grown rapidly as the expansion of relatively construction- intensive public investment and large tourism investment in the Manila area raised construction expenditure from 6% of GNP in the early 1970s to 12% in 1976. Employment, Incomes and Population 13. Employment increased by about 4.6% annually during 1973-76, a considerable improvement over the historical growth rate of 2.4%, and was able to keep pace with the rapid growth of the labor force. Particularly noteworthy was the growth of employment in manufacturing, which essentially stagnated during 1970-74, but grew by 8% annually during 1975/76, resulting in part from the growth of labor-intensive production for export. However, because manufacturing's share of total employment is small, agriculture and services continue to function as residual sources of employment and accounted for most of the growth in total employment. 14. Preliminary survey data show that the share of income received by the poorest 40% of families, which remained constant during the 1961-71 period, increased from 12% in 1971 to 15% in 1975. The income share of the top 20% of families remained about the same as in 1971, while that of middle income families declined somewhat. Due to the improvement in agriculture's terms of trade, the growth of agricultural production, the decline in urban real wages following the devaluation in 1970, and the stagnation of industrial employment until 1975, the ratio of the average rural income to the average urban income rose from 48% in 1971 to 57% in 1975. Real per capita consumption increased by about 2% annually in 1971-75e Hence, after allowance for price increases, real incomes in rural areas, where most of the poor live, have probably increased somewhat, while real urban incomes have remained about the same. 15. The population is estimated at 43.3 million in 1976 and is currently growing at 2.7% as compared to a 3.U, growth rate duriT.g the 1960s. The Philippines has an active family planning program registering approxmately 650,000 new acceptors per year. Although the number of new acceptors has reached a plateau as the program faces the increasingly difficult problem of reaching rural areas, the estimated proportion of married women of reproductive age practicing family planning increased fromt 20% in 1974 to 25% in 1977. Development Strategy 16. The Government's objectives and policies for the period 1978-82 have recently been set out in a five-year plan, which calls for an accelerating economic growth first to 7% and then to 8%. The development strategy focuses on an expansion of more productive employment opportunities at a rate of 3.6% per annum, reduction of income disparities, greater self-sufficiency in food and energy, strengthening of the balance of payments and increased development in rural areas. In addition, the plan includes strategies for development in each of the country's thirteen regions. In general, the strategies outlined in the plan represent an elaboration of the policy directions pursued by the Government in recent years. They are also broadly consistent with the Bank's basic economic report although investment, manufacturing output, and exports are projected to grow more rapidly than visualized two years ago. It should be feasible to accelerate the overall growth rate to 7% as the terms of trade stabilize, but more rapid expansion of manufacturing is necessary to do so, and effort needs to focus on improving the efficiency of investment. External Sector 17. Largely as the result of a 23% decline in the terms of trade, the current account of the Philippine balance of payments recorded a deficit of $900 million, or 6% of GNP, in 1975. To maintain the momentum of growth and investment, the Government drew down its international reserves, obtained loans under various IMF facilities, and expanded its borrowing program to finance necessary imports. For the longer term, a strategy was adopted of accelerating export growth both to hold the current account deficit about constant, while it declined relative to GNP, and to meet the debt service payments on the higher level of external borrowing. - 6 - i8. Some progress in this direction was made in the last two years. in 1976, in spite of a further 11% deterioration in the terms of trade, a substantial increase in export volume and slow growth of import payments narrowed the trade deficit and partly offset the higher net interest payments. Although somewhat larger than in 1975, the current account deficit stabilized at $1.1 billion or 6% of GNP. Net capital inflows were nearly doubled to $i.1 billion. Most of the inflow was from medium and long-term loans, two thirds of which wJere oublic loans reflecting in part increased disbursements from official sources. Estimates for 1977 show a further substantial expan- sion in export volume which, with little expected change in the terms of trade, import volume, services or transfers, would reduce the current account deficit to 4% of GNP. Hence, on the whole, the balance of payments position has strengthened significantly. 19. To achieve a 7% growth rate in real GNP, as projected for the period 1978-82, imports will have to grow faster than they have recently and a net capital inflow of at least $1 billion per year will be required. Assuming continued sound debt management and the maintenance of a balanced maturity structure of foreign borrowings, the overall level of external debt of the Philippines is expected to remain within reasonable limits. The ratio of debt service payments to exports and nonfactor services would average about i9%, of which 7% would be public debt service, during the rest of this decade. In order to ensure that the long-term capital transfer is commensurate with Lhe level of development expenditures which will be required during 1978-82 and that debt service obligations remain within reasonable limits, the Govern- ment sought commitments of official assistance of $750-800 million in 1978 at the meeting of the Consultative Group for the Philippines held in Tokyo on December 1 and 2, 1977. This amount is likely to be available. Many of the planned projects have a low foreign exchange component. In these circumstances it is necessary to finance some local costs, in appropriate cases, so that the Philippines external financing requirements could be met. PART II - WORLD BANK OPERATIONS IN THE PHILIPPINES M20 By Deremb4r 31, 1977, the Philippines had received 49 Bank loans /1 (of which two :ere on Third Window terms) and three IDA credits for a total of sfl267.8 million, net of cancellations. About one-third of Bank lending .rSL65.4 million) has been for infrastructure projects in power, transporta- ,J,oin, and water supply and another third ($428.4 million) has been for agriculture. Of the remainder, $248.4 million has been for industry and $125.6 million has been for social sector projects in education, population and urban development. There has been a marked improvement in the execution of Bank-financed projects in the last four years compared with experience in the 1960s, when there were serious problems caused by a shortage of peso ccurcterpart funds and poor administration. All ongoing projects are now being implemented reasonably well. Annex II contains a summary statement of Bank loans, IDA credits and IFC investments as of November 30, 1977, and notes on the execution of ongoing projects. /1 Including the $8 million for the Smallholder Tree Farming and Forestry Prcjec-, with was approved on December 22. - 7 - 21. The Bank's lending program has been designed to continue to support the Philippine development effort with its emphasis on agriculture and infra- structure and its growing attention to the needs of lower income groups. More than 40% of Bank lending planned for the next few years would be for agricul- ture and rural development projects and about a quarter would be for needed basic infrastructure projects, mainly in the fields of transportation and power. The amount of lending for social sector projects, including education, popula- tion and urban development, is expected to continue to grow rapidly and account for more than 15% of future lending. The balance of future lending would be for industrial development, where growing attention is being given to the needs of small and medium industries with high employment potential. The rapid growth in public revenues during the past five years has allowed for a significant expansion in public investment and both the ambitious Philippine development program and the Bank's growing lending program have been designed to meet the country's substantial future needs. In view of the per capita income of the Philippines, its level of external debt, and the generally good management of the economy, a limited amount of IDA financing will be proposed in the Bank Group's overall lending to the Philippines. 22. This is the second loan to be presented to the Executive Directors in FY78. Loans for rural infrastructure, irrigation, rural electrification and two more for industrial finance are expected to be ready for consideration by the Executive Directors within the next few months. 23. As of November 30, 1977, IFC had made commitments in the Philippines totalling $86.3 million for investment in 16 projects in the fields of develop- ment banking, power, telecommunications, ceramic tiles, petroleum products, nickel mining and refining, chemicals and synthetic fibres and edible oils. Of these investments, $35.2 million had been sold, cancelled and repaid, leaving a net portfolio of $51.1 million, including $5.1 million undisbursed. 24. At present the share of the Bank Group in the Philippines' total external debt disbursed and outstanding is about 11% and its share in debt service is about 5%. These ratios are expected to increase to around 19% and 8% by the end of the present decade. PART III - THE INDUSTRIAL SECTOR AND INDUSTRIAL FINANCE 25. The industrial sector (defined as manufacturing, mining and construc- tion) in 1976 accounted for about one third of GDP and 15% of total employment. Manufacturing is by far the largest component of the industrial sector account- ing for about one quarter of GDP and about 11% of employment. Food and bever- ages is the largest manufacturing group followed by chemicals, petrochemicals and textiles. Manufacturing enterprises are predominantly privately-owned, and generally concentrated in large scale, vertically integrated capital- intensive units. 26. The industrial sector grew at a rate of about 6% per annum between 1955 and 1971. Industrial growth began to accelerate in the early 1970s but has grown at a rate of only 4.6% in the last three years, as the Philippine - 8 - economy was adversely affected by the worldwide economic slowdown and the sharp deterioration in the Philippines' terms of trade. Capital investments for plant and equipment increased by only 5% in 1976 and is expected to have increased at about the same rate in 1977. However, assuming the Philippines' terms of trade are stabilized in 1978, as expected, both exports and growing government expenditures should give increased stimulus to the economy and contribute to an expansion in the rate of industrial growth and investment. The longer term prospects for industrial growth are favorable because of the good natural and human resources of the Philippines and its very active private sector. 27. There are, however, a number of important issues confronting the industrial sector. Historically, Philippine industrial production was geared primarily to the needs of the domestic market and there has been heavy re- liance on protection policies applied through the tariff system and some degree of import control. In the late 1960s, the Government became aware of the problems implicit in this approach and through the Investment Incen- tives Act of 1967 and the Export Incentives Act of 1970 has sought to expand the nontraditional industrial base and to expand exports and industrial employment. However, Philippine industry still remains heavily protected and differential rates of protection combined with selective export incentives to various industries are still producing less than optimal industrial and export growth. To rationalize the industrial sector and to provide the basis for future growth, it will be necessary for the Government to move further toward a freer trade regime by gradually removing import restrictions and reducing tariffs. The Government, with the assistance of a Bank-financed consultant, is undertaking a major review of industrial protection and is considering a major tariff reform. 28. The Government has become increasingly aware of the need to diversify the Philippines' export structure by encouraging the growth of nontraditional manufactured exports. In addition to the incentives provided under the Export Incentives Act, the peso was devalued in 1970, an Export Processing Zone established and an Export Council created to make recommen- dations on various aspects of export promotion. Partly in response to some of these measures, nontraditional manufacturing exports grew at the very rapid annual rate of 25% during the period 1973-76. To maintain this momen- tum, further trade liberalization is necessary for the reasons noted in the preceding paragraph and further stimulus could be provided through continuing analysis and information programs on foreign market potential, simpler export procedures, larger credit programs and establishment of trading houses. 29. Until the mid-seventies, Philippine industry had contributed relatively little towards alleviating the problems of unemployment and underemployment. Between 1960 and 1974, manufacturing employment grew at an annual rate of about 2.5%. The rate of employment generation has markedly improved during the last few years as employment in manufacturing grew at an annual rate of 8% in 1975 and 1976, partly as a result of Government's programs designed to foster the growth of small and medium industries which - 9 - have considerable employment potential. These programs include expanded credit for small and medium industries through the Development Bank of the Philippines (DBP), rural banks and the Industrial Guarantee and Loan Fund (IGLF) and technical assistance through Small Business Advisory Centers and the Medium and Small Scale Industries Coordinated Action Program (MASICAP). 30. Manufacturing enterprises remain heavily concentrated in the greater Metropolitan Manila Area as it accounts for about 40% of such enter- prises and 40% of industrial employment. The problem of the geographic concentration of industry is receiving increasing Government attention. Measures already taken in this regard include provision of incentives for projects located in less developed areas, promotional measures by the Board of Investments and its practice of negotiating the location of the project before its approval and a ban on new plant establishment within 50 km of Manila (except export-oriented projects). Further decentralization of industry would be encouraged by the Government's rapidly expanding public infrastructure program (particularly roads and rural electrification), major regional planning and development efforts, and a planned program of regional industrial estates. 31. The Government's Five-Year Development Plan (1978-82) projects that the manufacturing sector will grow at an annual rate of 9% during the plan period and that manufacturing investment will grow at an annual rate of 15.5% (from $1.7 billion in 1977 to nearly $3 billion in 1982). The Government's plan calls for the rapid growth of labor-intensive, small and medium industries both for domestic and export markets, and the establishment of some large, resource-based, import-substituting industries in nonferrous metals, steel, pulp and paper, petrochemicals and shipbuilding. While there is scope for the development of some of these larger industries, careful attention will need to be given to ensure that an appropriate balance is maintained between investment in such projects and in smaller, more labor- intensive enterprises. Industrial Finance 32. The core of the Philippine financial system is a large commercial banking sector, both local and foreign, that operates under the branch banking system and is the main source of working capital and trading credit. In addition to the commercial banks, there are a number of investment houses, savings and loan associations, rural banks and regional development banks. The Government Insurance System and the Social Security System are active in real estate and mortgage financing. Investment houses operate in the active short-term money market. In late 1976, the Government allowed foreign bank branches or offices to establish Off-shore Banking Units and expand the Foreign Currency Deposit Units to undertake foreign currency credit operations. The Government-owned Development Bank of the Philippines (DBP) and the Private Development Corporation of the Philippines (PDCP) are the only two speicalized long-term lending institutions. 33. As indicated in para. 7 above, aggregate savings performance in the Philippines has improved generally during the last decade and is comparable to that of other countries at a similar stage of economic development. Since - 10 - 1975, gross domestic savings have been at a level of 25% of GNP and financed approximately 80% of total investment. However, in order to reach a gross investment level of more than 31% of GNP by 1982 and reduce the country's dependence on foreign savings, the Five Year Development Plan (1978-82) calls for an increase in gross domestic savings to a level of more than 28% of GNP at the end of the Plan period. To achieve this objective, the savings of the household sector, which is expected to contribute approximately 40% of the total domestic savings requirement, will need to increase by more than 17% per annum during the next five years. 34. In addition to raising the level of savings, there is also a need to increase the maturity of financial assets. While the gross acquisition of financial assets by the private sector rose from approximately 7% of GDP in 1965 to over 12% in 1974, the relative share of short-term assets increased from only 17% to more than 40% during the same period. This was mainly due to statutory limits on deposit rates of credit institutions while no ceilings existed for money market rates. Given the long-term finance needs of the investment program, the present preference for financial assets with shorter maturities represents an important issue for the Government's financial policy. With a view to lengthening the average maturity of financial instru- ments and to encouraging the mobilization of savings through banking institu- tions, ceilings on bank rates on savings and time deposits were raised by 0.5 to 1%/i and ceilings on interest rates for loans with maturities exceeding two years were raised from 12-14% to 19% in January 1976. In June 1977, a 35% withholding tax on interest paid on short-term financial instruments was introduced, while a 15% withholding tax on interest paid on savings and time deposits was set. These measures have resulted in a 36% increase in real terms in savings and time deposits in 1977. However, a 19% ceiling on loans and debt instruments with a maturity of over two years still effectively limits the rate on long-term deposits. 35. The Philippine financial system has not yet developed an effective stocks/bonds market mainly because longer term interest rates have been statu- torily controlled. An additional constraint is the dominance of the term market by Government financial institutions because of the preferential treat- ment given to their debt instruments. Only very limited capital expansion is being financed through the stock exchange partly due to the fact that private owners are reluctant to share control over their enterprises and prefer financing through borrowing. Recently, however, a 5% development tax was introduced on closely held corporations to encourage them to go public. 36. Financial institutions and credit programs in the Philippines have experienced deterioration of loan recovery rates during recent years which has seriously affected their financial performance. This is due in part to the rapid expansion of credit programs to the productive sectors and to interna- tional economic conditions which have had an adverse effect on some domestic enterprises. The Government is devoting increased attention to the problem of arrears, so that loan recovery can be expected to improve. /1 From a range of 6-6.5% to 7-7.5% for savings deposits and from 8-11% to 8.5-12% on time deposits. - 11 - The Bank's Role 37. The Bank has assisted industrial development in the Philippines by providing financial and technical assistance to financial intermediaries to help them expand and improve their medium and long term lending programs to productive enterprises. Total Bank lending for this purpose has amounted to about $250 million. Increasing attention has been given in recent years to the needs of small and medium industries as $55 million of the proceeds from Bank loans is being used for financing such enterprises. During the current fiscal year, in addition to the proposed loan, we hope to be able to present to the Executive Directors a third loan to the Development Bank of the Philippines for large, small and medium industries and a first loan to the Philippines Investment Systems Organization to enable it to undertake long-term industrial lending. A second loan to help support the Industrial Guarantee and Loan Funds' (IGLF)/L program of financing small and medium industries through privately- owned financial intermediaries is scheduled for presentation in FY79. These projects have been carefully designed to meet the medium and long-term capital requirements of industries of all sizes and to strengthen the institutional capability of public and private lending institutions. 38. The Bank has so far made four loans totalling $95 million to PDCP. The evaluation report on the third loan to PDCP (Loan No. 630-PH, July 10, 1969), was distributed to the Executive Directors on April 29, 1977 (SecM77-360). The report commented favorably on PDCP's performance, but noted that PDCP could have played a greater developmental role by lending for more new types of projects, and for new borrowers, particularly small enterprises. The report also noted that PDCP had played a relatively modest role in mobilizing both foreign and domestic resources. 39. PDCP has recognized the desirability of becoming more active in lending to small and medium industry and has established a special unit in its head office and four regional branch offices to implement its Small Business Program (SBP). As a result of these steps and the reactivated IGLF Program, PDCP's small industry lending increased from 4% of its total lending in 1975 to 15% in the first half of 1977. The average cost per job under such projects is estimated at $4,955, which compares with the Bank's standard for urban poverty projects in the Philippines of about $3,600 at 1976 prices. 40. With respect to resource mobilization, the decision of the Govern- ment to raise the lending ceilings on loans over two years combined with current relatively low international rates of interest have created a climate in which PDCP should be able to raise substantially more foreign resources from commercial sources. A beginning has been made in the context of this proposed loan as PDCP has completed negotiations for a loan of $10 million from the Bank of Tokyo. On the domestic resource side, while prospects have somewhat improved, PDCP's capacity to mobilize local resources is still constrained by factors noted in paras. 33 and 34 above. /1 IGLF is a long-term compensatory financing and guarantee fund administered by the Central Bank. It was established in 1952 to encourage private banking institutions to provide long-term financing to small entrepreneurs. Its compensatory financing function is discharged through a special time deposit provided to sponsoring banks. IGLF also provides automatic guarantee for 60% of the amount loaned. - 12 - PART IV - THE PROJECT 42. The loan would be the fifth to support the PDCP's successful program of industrial lending. It would be the first loan which would be associated with PDCP's effort to mobilize foreign exchange from private commercial sources. It would support PDCP's program of lending for small, medium and large industries, mainly in manufacturing but also in mining and transportation. The project was appraised in August 1977 and negotiated in November 1977. The Philippine Negotiating team consisted of representa- tives of the Government, Philippine National Bank (PNB), and PDCP. They included, among others, Mr. Panfilo Domingo, President of PNB and Messrs. Roberto Villanueva and Vicente Jayme, Chairman of the Board and President, respectively, of PDCP. 43. As with the four previous loans to PDCP, the proposed loan would be made to PNB, which would relend the proceeds under a subsidiary loan agreement which would be signed before the effectiveness of the proposed Bank loan (Section 6.01[a]) of the draft Loan Agreement). This arrangement is consistent with Philippine law which provides that the government can only guarantee the obligations of publicly-owned institutions. PNB would charge PDCP a handling fee of 0.75% p.a. on the outstanding loan amount (to be provided for in the Subsidiary Loan Agreement). 44. The Bank loan and the subsidiary loan to PDCP would have amorti- zation schedules reflecting the aggregate of the repayment schedules for subloans made by PDCP which will have maximum terms of 15 years including 5 years of grace. The maximum five-year grace period for subloans, although somewhat longer than normal for a development finance loan, has been provided for, because concurrent with this loan PDCP is borrowing commercial funds, which have a relatively short repayment period (7 years), and may need to blend these two sources in the financing of some individual subprojects. Most of PDCP's subloans will have maturities of 5-12 years with an appropriate grace period. PDCP is expected to charge interest at 12.5-14% (including all service fees) on its subloans. PDCP's current "free limit" is $1.5 million and this ceiling, above which subloans would require Bank approval, would be retained under the proposed loan (Section 2.02(b) of the draft Loan Agreement). 45. PDCP is a well-managed organization with a demonstrated capacity for effective industrial lending. Its Board of Directors of 11 members, including three representatives of foreign investors, take a keen interest in PDCP's affairs. It approves PDCP's annual business plan and receives monthly reports on actual operations, profitability and financial position with an analysis of the deviations from approved targets and the budget. It lays down policy guidelines and is responsible for investment decisions. PDCP's present President is highly respected for his professional competence and the appointment of a new Executive Vice President early next year is expected to help continue the effective management of PDCP as its operations continue to grow in size and complexity. PDCP's staff is of a high calibre reflecting PDCP's capacity to attract qualified people and its effective training program. However, there has been a high turnover of professional staff during - 13 - the last few years, because of the high premium other financial institutions are willing to pay for PDCP staff and the limited scope for promotion within PDCP. This has so far not affected the quality of PDCP's output advers2v1y because the senior and more experienced staff have remained relatively stablie and also because PDCP has a well developed training program. Nevertheless, PDCP's management is fully aware of the consequences of a prolonged high staff turnover and is attempting to slow it down by introducing a career development program and a flexible and responsive salary administration. 46. PDCP's Statement of General Business Policies provides criteria,for investment decisions, financial prudence limits, portfolio diversification, dividend policies, etc. PDCP has also recently prepared a Development Strategy Statement which provides for higher targets for lending to productive Pr,ter- prises, with emphasis on projects approved by the Board of Investment, smaller enterprises and balanced geographical distribution, and efforts to diversify its sources of foreign exchange. The statement also calls for PDCP to play a larger role in providing technical assistance to Government and other private- sector agencies. 47. PDCP's project evaluation is generally thorough, and its appraisal reports are usually precise, informative and incisive. The development impact of the projects is considered in some detail and the economic rate of return is routinely calculated. In the future, PDCP's appraisal reports will also bring out explicitly the impact of its financing on employment, and in this context, will consider alternatives with respect to choice of technology. 48. Supervision of the projects, both during construction and after completion, is systematic and thorough. PDCP's procurement procedures help ensure that the right type of machinery and equipment is purchased at a reasonable price. Disbursements are made after detailed scrutiny of support- ing documents. 49. PDCP lent P 193 million (about $25.8 million) in 1974 but declined markedly in 1975. However, with the improvement in the investment climate, loan approvals in 1976 increased significantly and it is estimated that appro- vals in 1977 reached a record level. PDCP's loan portfolio is well-developed with primary emphasis on the manufacturing sector. While industries in Ltic greater Metropolitan Manila Area accounted for 48% of the total number of loans approved by PDCP to date (30% of total amount), PDCP has been successful in dispersing its lending activities as only 26% of its loans (14% of the total amount) in the last 3-1/2 years were for projects in the Metropolitan Manila Area. PDCP has also been reasonably successful in helping to enlarge the entrepreneurial base as 62% of its total loan approvals to date have been for new clients. PDCP has also made equity investments totalling P 43 million ($5.7 million), has outstanding loan guarantees of P 27 million ($3.6 Tuillioni) and has undertaken loan syndications which have been successful in raising $20 million from foreign and P 60 million (about $8 million) from local resources. PDCP's short-term money market investmer.t portfolio amounted to P 47 million as of June 30, 1977 (about 5% of total assets). - 14 - 50. Over the past three and a half years, the average size of a PDCP loan was P 2 million (about $261,000). Loan sizes range from a high of $3 million to a low of less than $10,000 under its Small Business Program (SBP) referred to in para. 52 below. Apart from PDCP's increased emphasis on small loans through SBP, there has been no clear trend in the average size of PDCP's non-SBP loans within the last four years. 51. As of June 30, 1977, PDCP had provided financial assistance for 577 projects amounting to $248 million. These projects are estimated to have had a positive net effect on the balance of payments of $348 million and created 35,000 jobs. An analysis of a sample of projects financed since 1970 indicates an average cost per job of $14,600 and this figure could fall further with PDCP's increasing emphasis on small industry financing. The average financial rate of return for a representative sample of about 100 of these projects was estimated to be 30% and the average economic rate of return to be 43%. 52. As a result of a policy decision to give more emphasis to lending to small businesses, PDCP established the Small Business Program (SBP) in 1972. PDCP has adopted the definition of small business as one with total assets of less than P 1 million and requiring assistance of not more than P 500,000. The SBP was slow in getting established and loan approvals were initially small. By 1975, however, half of PDCP's loans were for small businesses, though they still accounted for only 4% of the amounts approved. In September 1976, PDCP was accredited to the Industrial Guarantee and Loan Fund (IGLF) which partially removed the peso resource constraint. During the first half of 1977, PDCP approved 47 small business term loans (72% of all term loans) totaling P 11.4 million (15% of all loans approved). Since the time it was accredited, PDCP has become the largest user of IGLF funds. 53. PDCP is engaged in several other developmental activities. Its Economic and Corporate Research Unit, in addition to providing advice and guidance to PDCP's clients, publishes a monthly and a quarterly economic review which is widely circulated. In addition, it has carried out and published on a regular basis, studies on such diverse sectors as wood based industries, commercial deep sea fishing, industrial alcohols and the electric power industry. The Development Finance Institute (DFI) of PDCP provides valuable training facilities. The Bank has also used PDCP frequently as training ground for staff of other Bank assisted DFC's in areas in which PDCP's know-how is considered particularly strong. At the request of the Government and jointly with it, PDCP also organizes special conferences and hosts foreign delegations to the Philippines. PDCP's President is the first elected Chairman of the Association of Development Finance Institutions in Asia and the Pacific in recognition of PDCP's active role in the Association's creation. - 15 - 54. PDCP's total assets, which stood at P 856.6 million as at June 30, 1977, grew at an average annual rate of 13.8% during the past four and a half years, although the growth in the most recent 18 months has been consider- ably slower because of lower volume of business since 1975. The long-term loan portfolio (net of the current portion) has accounted for about 70% of its total assets. Long-term borrowings in foreign currency have accounted for slightly more than 70% of total liabilities. The debt/ equity ratio, which is limited to a maximum of 8:1 under agreement with the Bank, is now 5:1. 55. PDCP has remained well within the prescribed limits on its liquidity position. However, because of increases in PDCP's arrears during the last few years (see para. 57 below), PDCP has undertaken to maintain a minimum current liquidity ratio of at least 1.15 and also a minimum debt service and interest cover of 1.1 times. In calculating these ratios, amounts overdue and not received in cash for more than 180 days are to be excluded. The adoption of these guidelines by the PDCP's Board is a condition of effective- ness of the proposed loan (Section 6.01[c]) of the draft Loan Agreement). 56. During the last few years PDCP's profitability, as measured by the return on average equity, has ranged between 17.9% in 1972 and 16.7% in 1976. Interest income from long-term loans is the principal source of income, accounting for 91% of the total. Administrative expenses have increased from 1.0% of average total assets in 1972 to 1.6% in 1976, principally because of the expenses incurred in connection with branch operations and small business lending. PDCP's current annual dividend rate is 16% on the par value of shares. All the audit reports have been unqualified. 57. PDCP's arrears have been relatively high in the last few years due in large part to international conditions which adversely affected some local industries. The outstanding principal amount affected by arrears has ranged between 14% and 22% during the 1972-76 period; portfolio affected by arrears as of June 30, 1977 was about 19%. Because of intensified efforts to collect, both the level and age structure of arrears have improved in the last two years. Furthrmore, PDCP has recently split the Supervision Department into two parts with one cncentrating exclusively on problem projects. It has also acquired a management consulting company which is expected to be of help in solving serious management and organizational problems faced by some clients. No losses as result of any foreclosures are expected. PDCP's portfolio con- tinues to be sound reflecting basically PDCP's twin objectives of commercial profitability and helping worthwhile projects get off the ground. 58. PDCP expects loan approvals to increase at a rate of about 20% p.a. during the period 1978-81, which may be somewhat optimistic but would be achievable, provided the overall rate of investment in the Philippines improves as expected. Assuming that the forecast volume of operations is achieved, PDCP's resource requirements for the period 1977-81 would amount to $212 million in foreign currency and P 388 million in domestic currency. For the two and a half year period, July 1, 1977 to December 31, 1979, PDCP's resource require- ments in foreign currency would amount to $97 million. Taking into account the resources it had on July 1, 1977, it would need during this period of two - 16 - and a half years addle onal foreign exchange resources amounting to $66 mil- llion. The proposed Bank loan of $30 million and the proposed $10 million loan from commercial sources to be managed by the Bank of Tokyo will meet a part of these requirements. PDCP expects to meet the balance of requirements by borrowings from the ADB and commercial banks. For its domestic currency loans, PDCP would require P 160 million in new resources. It expects to finance these requirements from retained earnings, net collections and borrowings. 59. According to PDCP's financial projections, its total assets are estimated to increase from P 1 billion to P 2.3 billion in 1981, or at an annual growth rate of 24%. Total long-term debt is projected to increase from P 605 million in 1.977 to P 1.7 billion in 1981, while shareholders' equity is projected to increase from P 135 million in 1977 to P 259 million in 1981. The debt/equity ratio would increase from 5.1 in 1977 to 7.9 in 1981. Assuming no significant increase in overdues, the current ratio and net liquidity ratio are also projected to remain within the new prescribed limits. 60. PDCP's net earnings after tax are projected to increase from P 23 mil- lion in 1977 to P 50 million in 1981 or from 17.9% of equity in 1977 to 21.4% in 1981 which is reasonable in the Philippine context. The debt service cover should be adequate; it is estimated to vary between 1.26 and 1.30 during the period covered by the projections. Objectives and Justifications 61. The proposed loan will provide scarce foreign exchange for the development of the important industrial sector. PDCP, whose performance up to date has been very satisfactory both from the developmental and institutional stand points, is an especially suitable vehicle for finnacing such development. The loan will be used for financing a fairly large number of economically sound and financially viable small, medium and medium-to-large scale projects, mostly in manufacturing industry. 62. A special feature of the proposed loan is to use it as a catalyst for the mobilization of complementary external medium term funds from private financial institutions. More specifically, PDCP has made arrangements to secure a loan of $10 million from private commercial sources simultaneously and in conjunction with the proposed Bank loan. The terms and condiLions of the private commercial loan have already been agreed between the lender and PDCP. PART V - LEGAL INSTRUMENTS AND AUTHORITY 63. The draft Loan Agreement between the Bank and PNB, the draft Guarantee Agreement between the Republic of the Philippines and the Bank, the draft Project Agreement between the Bank and PDCP, and the Report of the - 17 - Committee provided for in Article III, Section 4 (iii) of the Articles of Agreement of the Bank are being distributed separately to the Executive Directors. A special condition of this loan is referred to in Section III of Annex III. 64. I am satisfied that the proposed loan would comply with the Article- of Agreement of the Bank. PART VI - RECOMMENDATIONS 65. I recommend that the Executive Directors approve the proposed loan. Robert S. McNamara President Attachments January 17, 1978 ANNEX I TABLE 3A Page 1 of 4 pages PHILIPPrNES - SOCIAL INDICATORS DATA SHEET LAND AREA (THOU KM2) ------------------------------------------------- _---------------. PHILIPPINES REFERENCE COUNTRIES (1970) TOTAL 300.0 MOST RECENT AGRIC. 109.6 1960 1970 ESTIMATE THAILAND TURKEY AOCEA SOUTH *M _ - -- -- -- -- -__- -- -- -- -- -__- -- - -- _ -- -- - -- w-- ---_ - - - _- - - - ----- - _ GNP PER CAPITA (USS) 140.0* 230.0* 410.0*/a 210.0 500.0* 280.0* _ _ _ _ ----_ -_ -_ -- _ _ POPULATION AND VITAL STATISTICS POPULATION (MID-YR. MILLION) 27.4 36.9 43.3/a 26.3 35.6 32.2 POPULATION DENSITY PER SQUARE KM. 91.0 123.0 144.0/a 71.0 46.0 327.0 PER SQ. KM. AGRICULTURAL LAND 328.0 375.0 395.0/a 263.0 65.0 1371.0 VITAL STATISTICS CRUDE BIRTH RATE (/THOU. AV) 45.1 44.2 43.8 44.3 40.6 35.0 CRUDE DEATH RATE (/THOU.AV) 17.9 13.2 10.5 13.7 14.4 11.4 INFANT MORTALITY RATE (/THOU) 8. 81.0 72A 80.0 153.0/a LIFE EXPECTANCY AT BIRTH (YRS) 49.4 r5.6 5r5 55.5 54.4 65.0 GROSS REPRODUCTION RATE 3.5 3.3 3.3 3.2 2./ b c 2.6 POPULATION GROWTH RATE (%) TOTAL 3.0 3.0 2.8 3.1 2.5 2.3 URBAN 4.0 4.0 3.9 4.9 4-9/d 6.4 URBAN POPULATION (% OF TOTAL) 25.3 27.6 29.8 15.0 38.7 41.2 AGE STRUCTURE (PERCENT) 0 TO t4 YEARS 45.7 45.6 43.2 45.1 41.7 42.1 15 TO 64 YEARS 51.6 51.6 54.o 51.8 54.0 54.5 65 YEARS AND OVER 2.7 2.8 2.8 3.1 4.3 3.4 AGE DEPENDENCY RATIO 0.9 0.9 .9 0.9 0.8 ECONOMIC DEPENDENCY RATIO 1.3 1.5 13/b 1.1 1.1/e 1.4 FAMILY PLANNING ACCEPTORS (CUMULATIVE, THOU) .- 320.0 4065.0/a 470.0 .. 4424.7 USERS (% OF MARRIED WOMEN) .. 2.0 25.0/a 10.0 8.2 42.0 EMPLOYMENT TOTAL LABOR FORCE (THOUSAND) 1otoo.0 12400.0 15400.0/a 16700.0 14500.0/f 10200.0 LABOR FORCE IN AGRICULTURE (%) 61.0 55.0 52.67a 79.0 67.- 50.4/a IINFAPLOYFn (% O' LABOR FORCE) 6.3 7.5 4.C .. 4.0/j 4.S INCOME DISTRIBUTION _ --- - - - ---_ -- _ % OF PRIVATE INCOME REC D BY- HIGHEST 5% OF HOUSEHOLDS 26.8 .. .. 22.0 32.tLh 17.1 HIGHEST 20% Of HOUSEHOLDS 56.2 54.Q 53.3 51.1 606 /h 44-5 LOkEiT 20% OF N EHOLDS 4.2 :.. 5.6 2.9 tI 71 LawaST 40% OF NOUSHOLDS 11.5 11.7 14.7 14.3 *-4 /h 17-7 DISTRIBUTION OF LAND OWNERSHIP % OWNED BY TOP 10% OF OWNERS .. *- 43.0/c .. 53.0 28.0 % OWNED BY SMALLEST 10% OWNERS .. .. 2.0/c *- 0.9 2.0 HEALTH AND NUTRITION POPULATION PER PHYSICIAN .. .. 1160 0/d 7970.0 2250.o 2110.0 POPULATION PER NURSING PERSON .. .. 470 . 6650.0 1770.0 /1 2170. POPULATION PER HOSPITAL BED 1180.0 850.0 880.0 890.0 500.0 1900.0 PER CAPITA SUPPLY OF - CALORIES (% OF REQUIREMENTS) 83.0 93.0 105.7 103.0 110.0 103.0 PROTEIN (GRAMS PER DAY) 44.0 45.0 55.6 52.0 78.0 65.0 -OF WHICH ANIMAL AND PULSE 19.0 22.0 17.0 /a 22.0 19.0 DEATH RATE ((THOU) ASES 1-4 9,0 m'm 7.5 '' 14.7 /k EDUCATION ADJUSTED ENROLLMENT RATIO PRIMARY SCHOOL 95.0 113.0 117.0 81.0 109.0 104.0 SECONDARY SCHOOL 26.0 49.0 49.0 16.0 28.0 41.0 YEARS OF SCHOOLING PROVIDED (FIRST AND SECOND LEVEL) 10.0 10.0 10.0 12.0 11.0 12.0 VOCATIONAL ENROLLrENW (X OF SECONDARY) 14.0 6.0 9.0 14.0 /b 14.0 16.0 ADULT LITERACY RATE (N) .. .. 87.0 79.0 55.0 /1 87.0 HOUSING PERSONS PER ROOM (URBAN) .. *. .. .. 1.9 2.7 OCCUPIED DWELLINGS WITHOUT PIPED WATER (x) 80.0 76.0 .. .. 64.0 80.0/C ACCESS TO ELECTRICITY (% OF ALL DWELLINGS) 17.0 23.0 31.0 .. 41.0 50.0 RURAL DWELLINGS CONNECTED TO ELECTRICITY (%) *- 7.0 10.0 18.0 30.0 CONSUMPTION RADIO RECEIVERS (PER THOU POP) 22.0 72.0 .. 78.0 89.0 126.0 PASSENGER CARS (PER THOU POP) 3.0 8.0 8.0 5.0 4.0 2.0 ELECTRICITY (KWH/YR PER CAP) 100.0 235.0 291.0 124.0 247.o 307.0 NEWSPRINT (KG/YR PER CAP) 1.3 2.0 1.5 1.0 0.7 3.5 SEE NOTES AND DEFINlTIONS ON REVERSE PAMEX Iof 4 pages NOTES 7~nleee otheoviOe noted, It for 1960 refer to Any! peer between 1959 and 1961, for 1970 between 1968 entd 1970 and for molt Recent Estimate between 1973 and 1975. TN~? per capIta dote r bood -n the World Rank ArIa. nethodnlogy (1974-76 hasie). 0Korea hen eon -electod - an objective country on the bnell of its elmilar population, location end incOoe level end, like the PhilippiTee, it to -xpectedi pto-n c-pidly in the coning yeare. FliTh I?PIII 19i0 /a 1951-51; lb Ratio of population under 15 eAm 65 and over to total labpr force; c A.o percentage of moploymnt; Id 1960-62; /a 1962; /f Not including vocationail'ebort-term courbee. 19/0 i' Ae percentage of enployneot; Lb Not including private vocatIonal mchocla or voainleort-ter. cuea MHOST RECENT ESITnATE:~ Ia 1976 ; 'b Ratio of population under 15 ond 65 And over to total labor force; /c 1971; fdRgltrd only; believed to be onor-ectinate of naeber Actually practicing. I ULNI 1970 'a 1964-66; lb Public achools, which include technical education At the poet-aecondary level. TtURKEY 1970 Ia1967; /b Excludee 17 eastern provinceal .Ls 1965-67; Id 1965-70; 'a Ratio of population under 15 and 65 and oyver to labor force 15 yesar and over; if 15 years and over, excludes unemployed; al Regietersd only; lb Diaposable income; i' Including assiatant nurses and midwives; /j 1964-66; lb 1967-68; /1 Pereonao cia years and over who tell-the cenaus takers that they can read and write. KOREA REP. OF 19'O IA An percentage of employmant; lb Registered, not .1l practicing in the coun.try; cWatec piped Ins ide. Nove N mbe 17, 1977 DEFINITIONS OP SOCIAL INDICATORS Land Area (thu im2I Population per noreina par.on - Papula-iou divided by macbar of practicing Tocl-1 Total aurface sceuoonprisinglanOd area end inland warera. vale and f-1al graduate muc,trained or "certified", nures an..d gAric. -Moot recent eatimate of egricultorel area used t-porerily or parms- auxiliary, pereonnel with training Or eapacience. nently for crone, patures, market & kictchen gaerdens or to lie fallow. Population per hospital bed - Population. divided by ntumber of bepialhd. GNP per o.p t. ,m~~~~~~~~~~~~~avilablo in public And privste general And epecialisaed hospital And IS a al~(US$) - GNP per capita ertimatee at onrrnt market pricea, rahabilitation centers,; exclude. nureing honee. cod eccablialhenta. for ca.lculted ny ann convarnion method na world Sank Atlce (1973-75 baeie) ; caolladpeetv ae loAf; 1970 nod 1975 data. ~~~~~~~Per c.Pltn aopolyn of calories ft Of rssuiraenetel - Computed from nergy ?~~P.l ti- And it~~~~j t.Li.tic!. ~~~equIv.alet of mat food supplls. snvlsable in country par csplta per day; .Popultion anid vito otai tlc' available capplie. comprise domoeatic production, imnporta lasa aeperte. nod PonoacIo (md-yer nllioT " of July fIrst: if oat aveilabie, ncraga obangee in atock; net auppliee coclude -nimal feed, eaede, quatitlee need of two. and-your ecti.atee; li6E, 1970 And 1975 data. in food prcoea.ing and lIe.aa iu dietnibutcin; requiroment were estimated P.P.Iti- ...ity ar q.r. -Mid-..r -pultion ar qar. ilospterby FAG booe.d on phyeioIglc-l needs for no_el activity end health c-nad- P1opulatio enory e fur e Mdya pplto per eqare1ki-star riog eniromsetal tpafatcure, body taighta, age and Sen diatributtona of (100hactacec) ofy tota aureak. o ti.ln optd. .frPoPulation, And all1wing 10% for weete an houaehold level. Population 1 densit -ly.c 05clao ai.ln optdc bv o Per capita sanely of protein (area per dm1 - Protein content of par capjta aenleulnucol land only. mar~~~~~- suPPly of food per dp; net eupp1y of food is defoasd aa abov; -equio- vit.1 t.ti.tic. -n~~~~~~~~~~~~~mte for all countries establiahed by mbSA Ecoonomic Research Senvlcen Vital airthrciecihcad.Il.,e provide for A minia llwac of 60 gras of tonal Protein Per, day, Anod Crue brthrot pe thused. vefge MnUeAl lIve birth. per thouand of 20 gra of animal And Pulae protein, Of which 10 grne nhOuld be animal mid-year PoPuluIot,; tan-year arirhlatic a-rnes ending in 1960 end 1970, protein; theae etadarde Are linr than thoec of 75 grasa of total protein and five-year overage ending in 1975 for, eint rece_t eatinate. ad2 rso nmlpoens naeaefrtewrd rpsdb o tc,ae dathrol percboeao. aerace - Annual deatha per thousa nd of mid-year in the Third World Food Suryey. POPUlation; re-ya3c. arithmatic yavragec ending in 1960 Anod 1970 And fina- per Canito protein supply fr-om anmal end pulae - protain aupply of food IyeAr average endIng in 1975 for most r.eet eatimtae. deivd from sa. asan.uec nga prdy InanthmortalIty raebirtho.. - An-uo1 desthe of infants under one yeor of age Death rate (Ithoul acee 1-4 - Annual destha par tho....od fat Age grnsp 1-4 pifr --thowac lIo birthn yeare, to children in thia age group; euggeeted ne An Jndic...or of Lifeexpctacy t brth(Tr-) - Aoroge nunber of years of life raesining At malnutrition. birth; usually flva-year overge, ending in 1960, 1970 and 1971 for develop- ing. coPrdntries - Education Oron repoducion ote - oerge number of liva daughters A woma will bear Adlunted enrollment ra.tio - pfimsc schol - Eurollant of all AgSI es per- in bar norma re-productive period if eke experiencee precen..t age-opcific centage of primry _cco-g population; inclodes children aged 6-11 yearn fertilitzy roet.; ucu_lly Fion-yeuc overagea ending in 1960, 1970 and 1975 hut adjusted far different lengtho of primary education; for coot,ie. aith for1ti de repih crutri(o. cnive-nre e ducation, enrollment may emenad 1% since os Mpuple are below popuatin gowli coe (5 .total - Compound Annual growth rates, of old-year or abov the official echool age. Population for 1950-hE, 1960-70 and 1970-75. Adbuated enreliment ratio - ecoundary 8chooI - Computed aa shove; secondary population groth rate (%) - urban - Computed like growth r.at of total aducation requires at beat four yeora of epprovad primary, ins tructriot; populacion; dIfferent definition of urban .rae nay affect otoparability of provide. g8nars1, vocationa or . barce train,ing instructions for pupilo datap.l.i among fo totaiee. f 12 to 17 yearn of age; correepondents enur.ee are generally excluded. Urba poulaion % o toal)- Sorio of urban to total Populationo; different Years of echooli:a provded (first end second levels) - Total yAcre of definitione of orbO on rea- may affect comparability Of data among countri.e. schooling; At Jayar lee, -ecetlossa instructIon may he partially or gee otructce (percent) - Children (0-14 yearc), onklng-ege (15-.64 years), fonsPltioma ennlac lo ccaayd-Vctimliatctsa nld so-dpretired (65o yer aR.tri . .necg.o idya epsain taehoicel, industrial or Other progrin which operate independently or a Afge . deedec tratio -4 bi f Population ooder 15 and 65 And over to those depertaenta of secndary institutione.. Eof-i ages15dthougy 4 Adult literacy rate (%5 - Lit.rear adule (able to road And -it.) as .e.- icoomi deendocyratio -Iatio of PoPulation undee 15 and A5 snd over to ..entage of total Adult Population Aged 13 neure end over. rho labor force in age group of 15-64 yeses. rally plonic-A epoe cmlative, thou) - Cumlative number of acceptors Hoon iou of birth-co-t-oI dcl- ce cder ...epiceo of na tional fatly Planning program Persona per room (urban) - Average nuaber of peran_ per cso it occupIed s-incpeincepion, convef Ar. --- Pr-tga- 11. unno -ntional dweili.ng in urban areae; d_elliOge seclude o-e.c ahilydplannig -S (15c 44 (% . of arrod women) - ecnae fmridwmnotructurea and unoccupied part.. ch id-baring 9 ager(15-. yar)at s it-control devic.. to all married OccuPied dwllimna withont Piped eater ft - Occupied covninldwellings eumec in ane age group. ~~~~~~~~~in urban end rural ereaa without inside or outside piped water facilitien E.pl.y-.t -~~~~~~~~~~~~~~~~anprcneg f all occupied dveliinge. T.t.1opeb,r focAccese Eooic1y ty p__ to laletricity f7t of al delin. - Conventionsl decellinge with Total laoe ocn tosadd cnmcll ciepros imolodlng armed electricity in living quartrer aa percent of total dwellings In orh_ Ind focnan cMployad but excluding hooasvivea, etideota, eC..; definitiono rural er-A. in various coutrioc Are norcoparable. Rurel de11in,a conncted to electricity Ct)-Coptdeabvtorul Labor f.or in agriculture )- AgricuItura1 labor lforce (in farming, foreetry. dwellings only. -Me . o.f,- hunting And fiohing) sa percentage of totei labor iorce. U.omployed (% of 1abor force) - U)-lnpiyed Are uanslly definad se persons who Consoteption Are Able and willing to take A Job, out of a job or A given day, restned out Radio receIve,rs (pet thou pop) - ill tyPes of rciesfon radio broadcaece of A Job, sod seeking work for A apecified minimum period not excee.ding one to general public per thon.aed of population; ee.1udee unlicenedreoea mek; may not be comparable between counries due tc different: definitton in cOuntrisa and in year when -egisrstion of radio ecte was in effect; Of uneployed And arce of dsta, e.g., Aeiploytaet offina statiatie, .-pie data for recen years may not be omparable ainn moat o0untriee ebolished ocvy,compulaory unaemployment insuranc, Icnsng Pnaaenae:r.cr (per thou eop) - Poseengan car. cmpri.e entor core oacing IncasdIstrIbution - Percentage of private inocaso (bath in caeh end kind) leeta ight Pernom; cecladea enbulace, hearses end military received by richest 5%, richest 20%, poureet 20%, and Poaree 40% of honee- vehicle.. hold.. ~~~~~~~~~~~~~~~~~Electricity (kwh/yr par cap) - Anua-I consoaPtion of induacria1, coaaerolal, public and private electricity in kilowatt hours par capita, generolly Diatribotion ef land -"nrbip - Percen.tage, of lend ownd by wealthiet 10% bpaee.d on Prndetlon data, withob. llmee for losse in grids but allo- and pooreer 101 of land osners. ~~~~~ing f or imprta and eAporte of electrIcity. H-1th and Ntriti- ~~~~~~~~~~~~Nemprlnt (ba/yTr per ap). - Per capita annual CtonPwtion in kilogrne, Population per Physician - Population divided by osSer of pranticingt"s - t rdcinp" a e,t.o a~rtt PhYeicians qualified fro A medicaI achami At univecity leveal. ANNEX I Page 3 of 4 pages ECONOMIC INDICATORS GROSS NATIONAL PRODUCT IN 1976 ANNUAL RATE OF GROWTH (%, constant prices) US$ million % 1966-71 1971-76 1976 GNP at Market Prices 17,631 100.0 5.1 6.6 6.4 Gross Domestic Investment 5,519 31.3 5.9 12.5 6.3 Gross National Saving 4,413 25.0 2.4 10.8 6.6 Current Account Balance -1,106 -6.3 Exports of Goods, NFS 3,115 17.7 -0.5 5.6 18.0 Imports of Goods, NFS 4,270 24.2 4.1 6.5 1.5 OUTPUT, LABOR FORCE AND PRODUCTIVITY IN 1976 Value Added Labor Force V. A. per worker US$ million X Million % US$ Z__ Agriculture 5,156 29.0 8.1 50.0 637 58.0 Industry 6,029 33.9 2.3 14.2 2,621 238.7 Services 6,607 37.1 5.0 30.9 1,321 120.3 Unemployed . . 0.8 4.9 . _ Total/Average 17,792 100.0 16.2 100.0 1,098 100.0 GOVERNMENT FINANCE General Government Central Government (P billion) % of GDP (P billion) % of GDP 1976 1976 1971 1976 1976 1971 Current Receipts 20.9 15.8 11.3 18.3 13.8 9.2 Current Expenditure 18.2 13.7 10.1 16.1 12.2 7.6 Current Surplus 2.7 2.0 1.2 2.2 1.7 1.6 Capital Expenditures 4.9 3.8 1.6 4.5 3.4 1.3 MONEY, CREDIT AND PRICES 1972 1973 1974 1975 1976 August 1977 (P million outstanding end period) Money Supply 6,500 7,300 9,000 10,300 12,100 12,80l Bank Credit to Public Sector 3,900 2,400 2,000 5,800 8,900 9,201) Bank Credit to Private Sector 12,600 16,200 24,200 28,500 23,600 34,900 (Percentage or Index Numbers) Money as % of GDP 11.5 10.1 9.0 8.9 9.2 General Price Index (1972 = 100) 100.0 117.6 154.4 166.8 180.1 Annual percentage changes in: General Price Index 8.2 12.2 39.8 7.4 5.5 Bank Credit to Public Sector -2.1 -38.5 -16.7 190.0 53.4 Bank Credit to Private Sector 21.7 28.6 49.4 17.8 17.9 /a All conversions to dollars in this table are at the average exchange rate prevailing during the period covered. not applicable ANNEX I Page 4 of 4 pages TRADE PAYL4ENTS AND CAPITAL FLOWS BALANCE OF PAYIENTS MERCHANDISE EXPORTS (AVERAGL 19)4-76) 1974 1975 1976 US million X (US$ million) Coconut Products 539 z1.4 Exports of Goods, NFS 3,431 3,076 3,330 Sugar Products 613 24.5 Imports of Goods, NFS 3,784 4,116 4,383 Forest Products 298 11.8 Resource Gap (deficit = -) -353 -1,040 -1,053 Mineral Products 437 17.3 Fruits & Other Agric. Products 178 7.1 Interest Payments (net) 26 -53 -185 Other 14anufactures 456 18.1 Other Factor Payments (net) -154 -149 -138 Total 2,521 100.0 Net Transfers 276 318 269 Balance on Current Account -205 -924 -1,107 EXTERNAL DEBT, DECEMBER 31, 1976 /c US million Direct Foreign Investment 28 125 144 Net MLT Borrowing Public Debt, including Guaranteed 2,216 Disbursements 456 677 1,407 Nonguaranteed Private Debt 1,812 Amortization 312 318 368 Total Outstanding and Disbursed 4,028 Subtotal 144 359 1,039 Other Capital (net) /a 143 -80 -236 DEBT SERVICE RATIO FOR 1976 /d ,0 __ Increase in Reserves (+) 110 -521 -160 Public Debt, including Guaranteed 7.2 Gross Reserves Nonguaranteed Private Debt 10.5 (end year) /b 1,978 2,079 2,205 Total Outstanding and Disbursed 17.7 Petroleum Imports 573 710 801 IBRD/iDA LENDING, November 30, 1977 (US~ million) RATE OF EXCHANGE IBRI) IDA Annual Averages End Period Outstanding and Disbursed 400.0 28.7 1975 1976 Jan-Aug 1977 Aug 1977 Undisbursed 725.0 3.5 Outstanding, incl. Undisbursed 1,125.0 32.2 US$1.00 = P 7.275 7.447 7.418 7.403 P 1.00 = US$ 0.138 0.134 0.135 0.135 /a Includes SDRs, short-term private loans, Central Bank liabilities, use of IMF credit, and errors and omissions. /b Gross reserves of the Central Bank. /c Excludes short-term debt and IMF standby credit and is on a disbursement basis. /d Ratio of Debt-Service to Exports of Goods and Nonfactor Services. ANNEX II Page 1 of 12 pages THE STATUS OF BANK GROUP OPERATIONS IN THE PHILIPPINES A. STATEMENT OF BANK LOANS AND IDA CREDITS As of November 30, 1977 Loan or Credit Amounts ($ million) Number Year Borrower Purpose Bank IDA Undisbursed Fifteen loans and two credits fully disbursed 218.5 19.5 637-PH 1969 Republic of the Philippines Irrigation 34.0 0.3 720-PH 1971 Rice Processing 11 and Storage 14.3 5.0 809-PH 1972 National Power Corporation Power 22.0 4.4 349-PH 1973 Republic of the Philippines Education II 12.7 3.5 891-PH 1973 " Fisheries 11.6 1.6 939-PH 1973 Ports 6.1 3.6 950-PH 1973 " Second Highways 68.0 14.8 984-PH 1974 Aurora-Penaranda Irrigation 9.5 6.3 998-PH 1974 " DFC-DBP I 50.0 7.9 1034-PH 1974 National Power Corporation Power 61.0 29.0 1035-PH 1974 Republic of the Philippines Population 25.0 20.4 1048-PH 1974 " Shipping 20.0 15.6 1052-PH 1974 Philippine National Bank DFC 30.0 19.9 1080-PH 1975 Republic of the Tarlac Philippines Irrigation 17.0 12.3 1102-PH 1975 Rural Development 25.0 23.0 1120-PH 1975 Small and Medium Industries 30.0 9.3 1154-PH 1976 Magat Irrigation 42.0 35.1 1190-PH 1976 " DFC-DBP II 75.0 63.3 1224-T-PH 1976 Education III 25.0 20.5 1225-PH 1976 " Livestock II 20.5 13.5 1227-PH 1976 Chico Irrigation 50.0 48.6 1272-T-PH 1976 Manila Urban 10.0 9.7 1282-PH 1976 " Manila Urban 22.0 21.3 1269-PH 1976 Second Grain Processing 11.5 11.5 1270-PH 1976 Second Fisheries 12.0 10.9 1353-PH 1977 Third Highways 95.0 94.9 1367-PH 1977 " Jalaur Irrigation 15.0 15.0 1374-PH 1977 Fourth Education 25.0 24.8 1399-PH 1977 Central Bank of Fourth Rural the Philippines Credit 36.5 36.5 1414-PH 1977 Republic of the National Irriga- Philippines tion Systems Improvement 50.0 50.0 1415-PH 1977 " Provincial Cities Water Supply 23.0 23.0 1421-PH 1977 Second Rural Development- Land Settlement 15.0 15.0 1460-PH 1977 National Power Corporation Seventh Power 58.0 58.0 Total Ja 1,227.5 32.2 728.5 of which has been repaid (Bank and third parties) 102.5 - Total now outstanding 1,125.0 32.2 Amount sold 22.0 of which has been repaid (third parties) 12.6 9.4 - Total now held by Bank and IDA (prior to exchange rate adjustments) 1,115.6 32.2 Total undisbursed 725.0 3.5 728.5 /a A loan of 58 million was approved by the Executive Directors on December 22, 1977 and it is expected to be signed towards the end of January. ANNEX II Page 2 of 12 pages B. STATEMENT OF IFC INVESTMENTS As of November 30, 1977 Fiscal Amounts ($ million) Year Company Loan Equity Total 1963 & 1973 Private Development Corporation of the Philippines 15.0 4.4 19.4 1967 Manila Electric Company 8.0 - 8.0 1967 Meralco Securities Corporation - 4.0 4.0 1970 Philippine Long Distance Telephone Company 4.5 - 4.5 1970 & 1972 Mariwasa Manufacturing, Inc. 0.8 0.4 1.2 1970 Paper Industries Corporation of the Philippines - 2.2 2.2 1971 & 1977 Philippine Petroleum Corporation 6.2 2.1 8.3 1972 Marinduque Mining and Industrial Corporation 15.0 - 15.0 1973 Victorias Chemical Corporation 1.9 0.3 2.2 1974 Filipinas Synthetic Fiber Corporation 1.5 - 1.5 1974 Maria Christina Chemical Industries, Inc. 1.5 0.5 2.0 1974 Republic Flour Mills Corporation 1.2 - 1.2 1975 Philippine Polyamide Industrial Corporation 7.0 - 7.0 1976 Philagro Edible Oils, Inc. 2.6 0.2 2.8 1977 Acoje Mining Company, Inc. 2.3 1.2 3.5 1977 Sarmiento Industries, Inc. 3.5 - 3.5 Total gross commitments 71.0 15.3 86.3 Less sold, acquired by others, repaid or canceled 23.2 12.0 35.2 Total commitments now held by IFC 47.8 3.3 51.1 Undisbursed 5.0 0.1 5.1 ANNEX II Page 3 of 12 pages C. PROJECTS IN EXECUTION /1 Loan No. 637 Upper Pampanga River Irrigation; $34.0 Million Loan of August 18, 1960; Date of Effectiveness: October 15, 1969; Closing Date: December 31, 1977 This is the first major irrigation project in the Philippines and will supply water year-round to nearly all its 84,000 ha command area. Some delays were caused by the 1972 floods, but construction has progressed satisfactorily since then. All works have been substantially completed. The Closing Date has been extended to December 31, 1977, to allow for disbursements of about $300,000 for a communications system. Project costs have increased 72% over appraisal estimates, largely as a result of rapid inflation, the effects of successive devaluations of the peso, and design changes in the dam (which accounted for about one quarter of the increase in costs). However, the project has reached full development sooner than was anticipated at the time of appraisal. Also, there are added benefits from early closure of the dam resulting in water storage and releases sooner than planned, and nearly 7,000 ha have been added to the project. Finally, there has been a considerable increase in the projected world market price of rice. As a result the estimated rate of return is about the same as at appraisal. Loan No. 720 Rice Processing and Storage; $14.3 Million Loan of February 4, 1971; Date of Effectiveness: May 10, 1971; Closing Date: June 30, 1979 This project provides long-term credit through the Development Bank of the Philippines to finance a program for the development and modern- ization of the rice Lad corn processing industry. Originally the project was restricted to rice and to the private sector, and the emphasis was on the construction of new integrated large capacity rice mills. Due in part to poor harvests and in part to large cost increases for rice mills, the demand for subloans for new integrated rice mills turned out to be small /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 this sense, and with the understanding that they do not purport to present a balanced evalua- tion of strengths and weaknesses in project execution. ANNEX II Page 4 of 12 pages and, as explained in the President's Memorandum, dated June 8, 1972 (R72-40), the Loan Agreement was amended to shift the project emphasis to rehabilita- tion of existing rice milling facilities. The Loan Agreement was further amended in April 1974 to: (a) expand the scope of the project to include corn in addition to rice, (b) enable local governments and the National Grains Authority to borrow funds under the project, and (c) streamline procurement procedures (President's Memorandum SecM74-244 of April 15, 1974). As a result of these amendments, the project is now generally progressing satis- factorily, although mounting arrears are a source of concern and DBP is now stepping up its supervision and collection efforts to deal with this. Bank loans for subloans have been fully committed; however, because of the long construction period of the large subprojects, full disbursement will be delayed until mid-1978 and the Closing Date has been postponed to June 30, 1979. Loan No. 809 Fifth Power; $22.0 Million Loan and $10.0 Million Credit Credit No. 296 of April 3, 1972; Date of Effectiveness: July 1, 1972; Closing Date: June 30, 1978 The project is helping the National Power Corporation (NPC) to finance the construction of a second thermal unit of 150 M4W at Bataan and transmission facilities in Luzon. Although there has been some minor delay due to the late delivery of transformers, the project is proceeding satis- factorily. The erection of transmission lines has also been completed. The loan is expected to be fully disbursed before the Closing Date, which has been postponed from June 30, 1976 to June 30, 1978. A tariff increase was approved in October 1976, but this was insufficient to enable NPC to achieve the expected rate of return of 8% on its net fixed assets in operation. Further tariff increases are currently under consideration. Credit No. 472 Aurora-Penaranda Irrigation; $9.5 Million Credit and Loan No. 984 $9.5 Million Loan of May 14, 1974; Date of Effectiveness: August 22, 1974; Closing Date: June 30, 1979 The project diverts water from the Aurora basin into the Pantabangan reservoir to provide year-round irrigation for 30,000 ha of rice land in Central Luzon. Although the need for foundation and abutment area grouting on the two diversion dams was more extensive than originally expected, progress on the transbasin diversion was excellent. Diversion of 75% of Aurora water, on closure of the first dam in July 1975, was an early benefit for the Central Luzon rice growing area. The second dam was closed on April 1, 1976, about one year ahead of schedule. In the service area, lack of competition and high bids delayed awarding of contracts, but five small local construction firms are now at work. Urgent work is being done by government forces. Project costs have increased about 54% over appraisal estimates, largely as a result of rapid inflation. Although there are added benefits from early diversion resulting in additional water for irrigation sooner than planned, and nearly 5,000 ha have been added to the project, the rate of return is expected to fall from 17% at appraisal to around 14%. The Credit has been fully disbursed and disbursement on the Loan has begun. ANNEX II Page 5 of 12 pages Loan No. 891 Fisheries; $11.6 Million Loan of May 21, 1973; Date of Effectiveness: December 5, 1973; Closing Date: June 30, 1979 This project is designed to provide long-term credit to the private sector through the Development Bank of the Philippines for marine and inland fisheries development. The demand for subloans has been adequate, and the organization to implement them has been properly established. The project is progressing satisfactorily, and all funds were fully committed by July 1976 and are likely to be disbursed by the Closing Date. A moderate arrears problem has developed, which DBP is tackling by increasing its supervision and collection efforts. Loan No. 939 Second Ports; $6.1 Million Loan of October 24, 1973; Date of Effectiveness: December 19, 1973; Closing Date: December 31, 1977 Progress on civil works construction for both General Santos and Cagayan de Oro has been slow, due mainly to frequent breakdowns of the contractor's dredger in General Santos, and the slow mobilization of con- tractor's plant in Cagayan de Oro. These problems have been resolved and progress on civil works construction at both plants is improving. By June 1977, work was 36% completed in General Santos, and 6% in Cagayan de Oro. The present estimated total project cost is 75% higher than the appraisal estimate due to worldwide price increases. However, foreign exchange costs are lower than appraisal estimates as the contractors are locally based. Total traffic at the project ports is in line with appraisal forecasts and a reasonable financial rate of return is being earned. By June 1977 the Philippine Port Authority had taken over 7 of the 18 national ports. Loan No. 950 Second Highway; $68.0 Million Loan of December 12, 1973; Date of Effectiveness: December 27, 1973; Closing Date: December 31, 1978 Overall progress on construction has been generally satisfactory, with about 90% of the project works completed. However, progress on one of the national roads is not satisfactory and this is expected to delay project completion by about 12 months compared to the appraisal estimate. UNDP- financed road feasibility studies were completed in June 1975, and detailed engineering for the Third Highway Project (Loan 1353-PH) was completed in August 1976. Detailed engineering for the proposed Fourth Highway Project was substantially completed in October 1977. The total cost of the project has risen substantially (about 40% above appraisal estimate) because of inflation following the oil price increase in late 1973. About $12 million still remains undisbursed and hence the Closing Date has been extended to December 31, 1978. ANNEX II Page 6 of 12 pages Loan No. 998 Industrial Investment and Smallholder Tree-Farming; $50.0 Million Loan of June 12, 1974; Date of Effectiveness: September 9, 1974; Closing Date: December 31, 1981 The proceeds of the Loan were relent to the Development Bank of the Philippines (DBP). The industrial portion of the Loan ($48 million) has been used by DBP to finance direct imports for medium and relatively large industrial projects. DBP is using the balance ($2 million) to finance about 1,300 smallholders in a pilot tree-farming project in Mindanao. Subloans are expected to be fully committed by mid-1978. Loan No. 1034 Sixth Power; $61.0 Million Loan of July 31, 1974: Date of Effectiveness: November 15, 1974; Closing Date: December 31, 1978 The project is helping the National Power Corporation (NPC) to finance a 100 MW hydro plant at Pantabangan and transmission lines for the further expansion of the Luzon grid and feasibility studies by consultants for a future power project. The generating plant has been commissioned. However, the transmission component of the project is behind schedule because necessary design work has been delayed due to NPC's heavy construction program. For this reason the Closing Date may have to be extended. Costs have increased by 21%, largely due to inflation. Credit No. 349 Second Education; $12.7 Million Credit of January 5, 1973; Date of Effectiveness: April 11, 1973; Closing Date: December 31, 1978 The Credit provides $12.7 million to finance improvements to existing middle and higher level agricultural education institutions, curric- ulum development, and new technical and vocational institutions in rural areas. Physical progress is now good under the project and disbursements have reached 75% of planned levels. All but 6 of the 32 project institutions have been completed; the remainder will be completed by the end of 1977. Three fourths of the technical assistance program has been completed. Cost overruns of 13% are expected in dollar terms because of inflation and earlier lack of cost control over civil works; the amount of equipment purchased has been reduced to compensate for cost overruns. ANNEX II Page 7 of 12 pages Loan No. 1035 Population; $25.0 Million Loan of July 31, 1974; Date of Effectiveness: November 13, 1974; Closing Date: December 31, 1979 The project is assisting the Government in expanding rural health infrastructure, and in providing staff training facilities and technical assistance for the development of a management information system and for training. Under the direction of the Project Management Staff in the DeparL- ment of Health, overall project implementation is progressing well. Training activities are ahead of schedule in all 12 regions. The civil works component is behind schedule but is expected to be completed ahead of the appraisal report timetable due to simplification of construction design. Progress under the project is satisfactory. Loan No. 1048 Inter-island Shipping; $20 Million Loan of October 29, 1974; Date of Effectiveness: January 15, 1975; Closing Date: June 30, 1979 The Government is relending the proceeds of the Loan to the Development Bank of the Philippines (DBP) for onlending to beneficiaries for the acquisition of new and used ships and for IIiijor repairs and con- versions. Commitments were initially slow because of lack of demand from the private sector due to the lengthy period required for the processing of loans, restrictive collateral requirements by DBP, and unfavorable lending terms offered by DBP in comparison with those extended by other lending institutions in the Philippines. However, these problems are now being resolved and subloan commitments have begun to move again. Loan No. 1052 Private Development Corporation of the Philippines; $30 Million Loan of November 12, 1974; Date of Effectiveness: February 7, 1975; Closing Date: June 30, 1979 The project assists in the financing of economically desirab! -J financially viable industrial subprojects. As of November 2, 1977, commicnment: b for subloans totaling $19.1 million had been made. While subloan commitments have been somewhat slower than originally expected due to the generally slow pace of business activity, the implementation of the project is satisfactory. Loan No. 1080 Tarlac Irrigation; $17.0 Million Loan of January 27, 1975; Date of Effectiveness: April 27, 1975; Closing Date: December 31, 1980 The project is assisting the Government to improve 21,000 ha of land under three existing national irrigation systems and expand irrigation on 13,000 ha of additional land in Central Luzon. Progress on the groundwater, ANNEX II Page 8 of 12 pages water management training and NISIS components of the project has been good. All major civil works contracts are now awarded and remaining work is all under way. Also, most equipment contracts are awarded. Progress under the project is satisfactory. Loan No. 1102 Rural Development; $25.0 Mi7lion Loan of April 16, 1975; Date of Effectiveness: July 28, 1975; Closing Date: June 30, 1981 The project is assisting the Government to carry out a rural devel- opment project on the island of Mindoro. This includes constructing and improving 150 km of national highways and 280 km of provincial roads, rehabil- itating and upgrading Calapan Port, improving and extending two national irrigation systems to serve 12,000 ha of rice land, and 3,000 ha under communal irrigation systems, providing an agricultural program involving seed testing laboratories and rat control, providing protection programs in four watersheds, schistosomiasis control, and assistance to Mangyan tribes. Pro- gress is satisfactory on irrigation and after substantial initial delays, is improving steadily for the road component. These two components are being implemented by agencies having experience with Bank-funded projects, and construction has begun on Calapan Port. With the exception of the Mangyan Assistance Program, however, there was little early progress under the other programs because of inadequate budgeting by the various agencies for the new programs. More adequate budgets have now been approved and all work is expected to proceed rapidly. Loan No. 1120 Small and Medium Industries Development; $30.0 Million Loan of June 5, 1975; Date of Effectiveness: August 20, 1975; Closing Date: August 31, 1979 The DBP portion of the funds has been fully disbursed. After a slow start, commitment and disbursement of funds under the Industrial Guarantee Loan Fund are now proceeding well. However, the Rural Industrial Cooperative Program ($2.3 million) which is being implemented by the National Electrifica- tion Administration is, because of its experimental nature, facing management and staffing problems. Disbursements on this component have therefore been slow. Overall progress of the project is, however, satisfactory. Loan No. 1154 Magat Multirurpose Project; $42.0 Million Loan of August 7, 1975; Date of Effectiveness: November 4, 1975; Closing Date: June 30, 1982 The project is assisting the Government to improve and expand irrigation on 35,000 ha of land in the Cagayan Valley of Northern Luzon. Consultant's work on the engineering and economic evaluation studies is almost completed. The water management training is under way and satis- factory progress is being made on civil works. ANNEX II Page 9 of 12 pages Loan No. 1190 Industrial Investment; $75.0 Million Loan of January 28, 1975; Date of Effectiveness: April 6, 1976; Closing Date: March 31, 1980 The proceeds of the Loan are relent by the Development Bank of the Philippines for subloans to finance direct imports for medium and relatively large industrial projects. Commitments of funds, which were initially much slower than expected due to a slowdown of investment in the industrial sector as a whole have recently improved. The Executive Directors approved a proposal to reallocate $25 million of the funds for small and medium industries on February 25, 1977, and an amendment to the Loan Agreement to this effect was signed on March 16, 1977. As of November 2, 1977, commitments for subloans amounting to $17.5 million had been made. In addition, $5.4 million had been disbursed against the allocation for small and medium-scale industries. Loan No. 1224 Third Education Project; $25 Million Loan of April 8, 1976; Date of Effectiveness: July 29, 1976; Closing Date: June 30, 1981 The project covers the first phase (1976-80) of the Government's eight-year textbook program and provides for the development, production and distribution of 27 million textbooks. It also provides for curriculum development, teacher training and technical assistance. Progress under the project is satisfactory. Disbursements are more than twice the planned level. Loan No. 1225 Second Livestock; $20.5 Million Loan of April 8, 1976; Date of Effectiveness: September 13, 1976; Closing Date: June 30, 1982 The project is designed to increase domestic production of livestock products. As of June 30, 1977, disbursements were $5.0 million, which is about 70% above appraisal estimates. However, arrears under the First Livestock Project are quite high and DBP is now taking steps to improve subloan appraisal and supervision as well as project monitoring. ANNEX II Page 10 of 12 pages Loan No. 1227 Chico River Irrigation Project; $50.0 Million Loan of April 8, 1976; Date of Effectiveness: July 19, 1976; Closing Date: June 30, 1981 The project will assist the Government to improve and expand irrigation on 19,700 ha in the Cagayan Valley. Consultants for the Erosion Control Study and for input-output monitoring have been engaged. A start has been made on civil works for rehabilitation of the Chico West and Tuga- Gobgob areas. Bids have been received for the three road links included in the project and contracts have been awarded for two of them. Government evaluation of the third is still under way. After substantial initial delay, the road component of the project is now progressing more satisfactorily. Loan No. 1269 Second Grain Processing Project; $11.5 Million Loan of July 2, 1976; Date of Effectiveness: November 12, 1976; Closing Date: June 30, 1981 The project provides long-term credit through the Development Bank of the Philippines to assist in modernizing and expanding the Philippine grain processing industry. Initial progress under the project is satisfactory. Subloan commitments are expected to begin shortly, now that Loan No. 720 is fully committed. Loan No. 1270 Second Fisheries Project; $12.0 Million Loan of July 2, 1976; Date of Effectiveness: November 12, 1976; Closing Date: June 30, 1981 The project provides long-term credit through the Development Bank of the Philippines to assist in increasing fish production for domestic con- sumption. Initial progress under the project is satisfactory. Loan No. 1272T Manila Urban Development Project; $10.0 Million and Loan No. 1282 $22.0 Million Loans of June 9, 1976; Date of Effectiveness: December 9, 1976; Closing Date: September 30, 1981 The loan will finance: (a) improvements in basic sanitary services for families living in the Tondo Foreshore and Dagat Dagatan areas, and (b) improve- ments in transportation and traffic in the Greater Manila Area. Construction on 1,500 of 2,000 serviced lots at Dagat Dagatan is nearing completion. The high school and health clinic in Tondo have been constructed and the subdivision of lots in the Tondo priority area is also nearing completion. A paper on the status of this project will be submitted to the Executive Directors in December. ANNEX 11 Page 11 of 12 pages Loan No. 1353 Third Highway Project; $95.0 Million Loan of January 12, 1977; Date of Effectiveness: March 30, 1977; Closing Date: June 30, 1981 The project will assist the Government in improving the national and rural road systems and their maintenance. Most construction contracts have been awarded. The major problem is delayed implementation of the road restor- ation/maintenance component of the project. However, priority attcLition has been given to this problem and, as a result, these components are expected to accelerate during the coming year. Loan No. 1367 Jalaur Irrigation Project; $15.0 Million Loan of February 14, 1977; Date of Effectiveness: May 12, 1977; Closing Date: December 31, 1982 This Loan will assist the Government in rehabilitating about 22,000 ha of existing irrigation schemes and constructing new irrigation and drainage facilities for about 2,900 ha of rice land on the island of Panay. Construction work on the existing main and secondary canals improvement has now begun. Loan No. 1374 Fourth Education Project; $25.0 Million Loan of March 25, 1977; Date of Effectiveness: June 9, 1977; Closing Date: December 31, 1981 This project is to assist the Government in developing agricultural education and training. It includes assistance for: specialized facilities for forestry, animal science, and veterinary medicine; a regional agricultural college in the Visayas; and training for extension workers and farmer leaders. Implementation of all aspects of the project is on schedule. Loan No. 1399 Fourth Rural Credit Project; $36.5 Million Loan of April 11, 1977; Date of Effectiveness: June 2, 1977; Closing Date: December 31, 1980 The project provides medium and long-term credit through partici- pating banks to finance farmers and local entrepreneurs for farm mechanization, livestock, fisheries, and cottage and agro-industries. The project became effective on June 2, 1977. Initial implementation was delayed because of the time required for preparation, but commitments are expected to increase in the coming months. The major problem is to minimize disqualification from participation due to high arrearages and to encourage eligible rural banks to participate. ANNEX II Page 12 of 12 pages Loan No. 1414 National Irrigation Systems Improvement Project; $50 Million Loan of May 13, 1977; Date of Effectiveness: August 9, 1977; Closing Date: December 31, 1981 This project consists of rehabilitation of irrigation facilities serving 28,000 ha and extension of irrigation facilities to 22,000 ha of farmland in Northern Luzon and Leyte, and a schistosomiasis control program in Leyte. The Loan became effective on August 9, 1977. Loan No. 1415 Provincial Cities Water Supply Project; $23 Million Loan of May 13, 1977; Date of Effectiveness: September 9, 1977; Closing Date: March 31, 1982 This loan will finance: (a) water supply improvement and expansion in six provincial cities; (b) feasibility studies for water supply improve- ment in ten additional cities; and (c) feasibility studies for Manila sewerage. The Loan was made effective on September 9, 1977. Progress is generally satisfactory according to the review of the preliminary engineering studies and detailed design of the water supply construction. The water supply feasibility studies for ten cities and the Manila sewerage design study are expected to begin in January 1978. Loan No. 1421 Second Rural Development (Land Settlement) Proiect; $15.0 Million Loan of June 10, 1977; Date of Effectiveness: October 27, 1977; Closing Date: December 31, 1982 The project will assist the Government to strengthen its planning and implementation capability for its land settlement program and will also upgrade three existing land settlement areas. The Loan became effective on October 27, 1977. Loan No. 1460 Seventh Power Project; $58.0 Million Loan of August 9, 1977; Date of Effectiveness: Not Yet Effective; Closing Date: June 30, 1982 The project will assist the Government in expanding the transmission system in Luzon, establishing the first stage of a communications system and control center, and training NPC staff. The terminal date of effectiveness has been postponed to January 6, 1978 to allow additional time for NPC to appoint management consultants; the consultants' contract is expected to be signed in the next several weeks. Loan No. Smallholder Tree Farming and Forestry Project; $8.0 Million Loan of ; Date of Effectiveness: Not Yet Effective; Closing Date: December 31, 1982 This Loan was approved by the Executive Directors on December 22, 1977 but has not yet been signed. ANNEX III PHILIPPINES FIFTH PDCP CREDIT PROJECT Supplementary Project Data Sheet Section I - Timetable of Key Events a. Time taken to prepare project: January 1977 - August 1977 b. The agency that prepared the project : PDCP c. Date of the first presenta- tion to the Bank and date of the first Bank mission to consider the project : February 1977 d. Date of departure of appraisal mission : August 1977 e. Date of completion of nego- tiations : December 28,1977 f. Planned date of effectiveness: On or before April 28, 1978. Section II - Special Bank Implementation Action None Section III - Special Conditions Adoption of liquidity guidelines by PDCP's Board is an additional condition of effectiveness of the proposed loan (para. 55).
Группа Всемирного банка · Memorandum & Recommendation of the President
Philippines - Fifth Development Corporation Project
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