Peru - Lower Piura Irrigation Rehabilitation Project

Document of The World Bank FILE COPY FOR OFFICIAL USE ONLY Report No. P-2642-PE REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC OF PERU FOR THE LOWER PIURA IRRIGATION REHABILITATION PROJECT November 6, 1979 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS The exchange rate is being adjusted daily roughly in line with the differences between domestic and international inflation. The exchange rate and currency equivalents in effect on October 15, 1979, were as follows: Currency Unit = Sol (SI.) Calendar 1978 October 15, 1979 US$1 SI. 160 S/. 240 S/. 1 US$0.0062 US$0.00417 Sl. 1,000 = US$6.25 US$4.17 Fiscal Year January 1 to December 31 Abbreviations ARE - Agrarian Reform Enterprise BAP - Banco Agrario del Peru (Peruvian Agricultural Bank) CENCIRA - Centro Nacional de Capacitacion para Reforma Agraria (National Training Center for Agrarian Reform) DEPECHP - Direccion Proyecto Especial Chira-Piura (Chira-Piura Special Project Unit) ENCI - Empresa Nacional de Comercializacion de Insumos (National Inputs Marketing Enterprise) EPSA - Empresa Publica de Servicios Agropecuarios (Agricultural Services Enterprise) ERP - Economic Recovery Program FUNDEAL - Cotton Development Foundation INIA - Instituto Nacional de Investigacion Agricola (National Agricultural Research Institute) MAA - Ministerio de Agricultura y Alimentacion (Ministry of Agriculture and Food)  FOR OFFICIAL USE ONLY PERU LOWER PIURA IRRIGATION REHABILITATION PROJECT LOAN AND PROJECT SUMMARY Borrower: Republic of Peru Loan Amount: US$56 million Terms: Seventeen years, including four years of grace at 7.95 percent interest per annum. Project Description: The project is the second stage of an irrigation scheme for the Chira and Piura Valleys. The first stage assured the availability of water for the area through the construction of a dam and main diversion canal. The objectives of the proposed second stage project are to increase agricultural production and productivity in the Lower Piura area and raise the incomes of about 11,800 families with emphasis on small farmers and cooperative members. This would be accomplished through improvement of irrigation facilities, reclamation of saline soils, protection against floods, assistance for farm development, including credit, and provision of technical assistance. The principal risks associated with the project are Mi) construction delays because of on-going farming operations in areas where rehabilitation and construction of the irrigation and drainage systems would take place; and (ii) failure to retain sufficient qualified staff to provide adequate extension services to small farmers because of low salaries. This documont hl a restricted distribution and may be used by recipients only in the perfoirmance of their offici.l dutis. Its contents may not otherwise be disclosed without World Bank authorization.  - ii - Estimated Cost: Local Foreign Total ------- US$ million ------- a) Main irrigation and flood control works 24.7 40.9 65.6 b) Secondary and tertiary irrigation and drainage networks 22.7 21.2 43.9 c) On-farm investments 3.1 4.7 7.8 d) Maintenance equipment -- 3.8 3.8 e) Technical services and consultants 2.7 0.9 3.6 Baseline Costs 53.2 71.5 124.7 Physical contingencies 7.9 10.6 18.5 Price contingencies 15.1 20.5 35.6 Total Project Cost 76.2 102.6 178.8 Financing Plan: Local Foreign Total ------- US$ million ------- Bank 10.0 46.0 56.0 ENERGOPROJEKT 1/ -- 46.4 46.4 Government 64.3 10.2 74.5 Beneficiaries 1.9 -- 1.9 76.2 102.6 178.8 Estimated Disbursements: 1981 1982 1983 1984 1985 --- US$ millions by Fiscal Year = Annual 7.9 13.7 14.9 11.9 7.6 Cumulative 7.9 21.6 36.5 48.4 56.0 Rate of Return: 15 percent Appraisal Report: Report No. 2530-PE, dated October 15, 1979 1/ A Yugoslav construction firm  INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE IBRD TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC OF PERU FOR THE LOWER PIURA IRRIGATION REHABILITATION PROJECT 1. I submit the following report and recommendation on a proposed loan to the Republic of Peru for the equivalent of US$56 million to help finance the Lower Piura Irrigation Rehabilitation Project. The loan would have a term of 17 years, including 4 years of grace, with interest at 7.95 percent per annum. PART I - THE ECONOMY 2. A basic economic report entitled "Long-Term Development Issues: Peru" (Report No. 2204-PE) was distributed to the Executive Directors on April 13, 1979. This part is based on the report's findings as well as those of more recent economic missions to Peru. Country data sheets are attached as Annex I. Background 3. Peru, the fourth largest country in Latin America, is divided by the Andes mountains into three distinct regions. The coastal region (the Costa), constituting about 10 percent of the country's territory, is home for about 46 percent of the population. It consists of a narrow belt of dry plains, intermittently irrigated valleys and Andean foothills. Modern economic activity is concentrated in the Costa, particularly in Lima. The Sierra, with 44 percent of the country's population, encompasses the highlands above 2,000 meters which occupy one-fourth of the country. The remaining two-thirds of the area is occupied by the sparsely populated Selva, vast tropical lowlands east of the Andes. The rugged topography limits trade between the three regions. 4. Peru's natural resources include large deposits of varied minerals located mainly in the Sierra and the southern coast. Petroleum resources, particularly in the jungle areas of the North and offshore, are believed to be substantial but their full extent has not yet been ascertained. Another major natural resource asset is the large fishing potential in coastal waters, although the magnitude of this potential is subject to sharp fluctuations. Agricultural land is limited, and most of the soils suitable for intensive agriculture are already being farmed. 5. After three decades (1930-1960) of rapidly falling mortaliLty rates, the rate of population growth had risen to 2.9 percent p.a. In the early 1960's, birth rates started a gradual fall, mainly caused by the urbanization process and by improved education. But as death rates continued to fall, population has continued to grow at about 2.8 percent p.a. Since death rates  -2- are expected to fall further, population growth is likely to remain at around 2.8 percent p.a. over the next 25 years, unless an effective demographic policy is adopted. Given the normal lag between the drop in birth rates and its impact on the growth of working-age population, the labor force is expected to grow well in excess of 3 percent per year during the next 15 years. 6. Crude oil is the dominant source of energy in Peru, supplying approximately 80% of Peru's commercial energy requirements. Although Peru's energy resource base is relatively diverse and there is scope for expanding the role of hydropower and coal in future electricity generation, petroleum will still provide the major part of Peru's energy requirements throughout the rest of this century. After being dependent on imported crude oil for many years to meet its petroleum needs, domestic oil production increased almost threefold between 1976 and 1979, enabling Peru to export oil in substan- tial quantities for the first time since 1958. Despite this encouraging production trend, domestic consumption is likely to rebound after several years of stagnation so that Peru may once again become a net importer of petro- leum in the mid 1980's unless new oil reserves are discovered. Past Development Policies 7. Since the military came to power in 1968, the Government has followed a development strategy directed at achieving economic growth and at narrowing the sharp differences in wealth and opportunities between population in various income classes and geographical regions. The Government has tried to correct class and regional imbalances by expanding the role of the State in the economy, changing the pattern of asset ownership, reducing foreign ownership of national resources, orienting industry and agriculture toward producing essential goods for the domestic market, stimulating the deconcentration of economic activity out of Lima, and reforming the educational system to make it more responsive to local economic and social needs. Through nationalization and creation of new enterprises, the State has taken direct control of over 150 enterprises in key economic sectors, and its share in total capital formation has risen from less than one-fourth in 1968-70 to about one half in 1974-1978. By imposing complex legislation, the Government has also strictly controlled the operations of the private sector. 8. As a result of these actions, the pattern of asset ownership in the economy has changed drastically. Through nationalization, the share of assets owned by foreigners fell sharply. A sweeping land reform redistri- buted 45 percent of the country's best farmlands to workers' cooperatives benefitting some 25 percent of all rural families. Through other laws, industrial workers were given shares in the firms which employed them and, in the mining sector, a share in profits. The Government has also given a strong autarkic orientation to its agricultural and industrial sector policies and strengthened the incentives for industries outside of Lima. 9. The Government's programs have benefitted large numbers of Peruvians, but they have hardly reached the poorest half of the population which continues to live in abject poverty. It is estimated, for example, that about three quarters of rural families, mostly "minifundistas" (those farming less than  -3- 2 ha) and the landless seasonal workers, have not been reached by social programs. The Government imposed controls on prices of a number of domestic- ally produced goods and heavily subsidized imported petroleum and foodstuffs. Most of the subsidized products, however, were more important in the consump- tion basket of high and middle-income Peruvians than in that ,f the poorest groups. Moreover, the maintenance of artificially low prices for some products--such *as meat and cereals--actually hurt the poor who produced these items, and affected production negatively. 10 In the final account, one of the most significant achievements of the Government was the promotion of the cultural and political integration of the country. Owing in great part to the land reform, an important segment of, the rural population has become better organized and is able to communicate its priorities in a more forceful and articulate way. Unfortunately, although many of the policies and structural changes carried out since 1968 were meant to achieve rapid growth and more equality, the cost of these measures proved to be excessive and their implementation inefficient. The Economic Crisis 11. Until 1977, the military Government followed expansionary fiscal and credit policies. A rapid increase in spending by the public sector (including large defense outlays) was not matched by a parallel increase in revenues. Pricing, interest rate and foreign exchange policies until 1976 encouraged consumption and discouraged savings, exports and, sometimes, overall production. As a result of these policies, aggregate demand considerably exceeded aggregate supply. This excess demand, in turn, led to widening external gaps and to strong inflationary pressures, with a resulting loss of international reserves and a massive build-up of external debt. 12. This imbalance was aggravated by circumstances beyond the control of the authorities. Anchovies, the fishing industry's principal product, virtually disappeared as the annual catch dropped from around 10,00C metric tons in 1968-71 to an average of 2,300 metric tons in 1975-78. Between 1974 and 1978, furthermore, Peru's terms of trade worsened sharply. Export prices, particularly for copper and sugar (which together accounted for almost one- fourth of merchandise exports), fell from their very high 1974 levels at a time when import prices soared. Petroleum reserves, which in the ea,rly 1970's were predicted to lead to a quick, major expansion in export earnings, took much longer than expected to come on line. 13. Public sector savings dropped steadily in relation to GDP from 4.4 percent in 1970 to dissavings of 2.6 percent in 1977. A major cause for this was a massive erosion of the tax base owing to excessive tax incentives, loopholes in the tax system and weak enforcement. At the same time, there were rises in the budgetary cost of subsidies for foodstuffs and petroleum products, and sharp increases in military imports and local expendit:ures. Much of public investment, furthermore, was increasingly concentrated on capital-intensive projects with long gestation periods and little immediate contribution to the growth of output or employment.  - 4 - 14. Inflation accelerated from 5 percent per year in 1970 to 38 percent in 1977. Interest rates on domestic banking system loans, however, remained substantially negative in real terms, discouraging financial savings and stim- ulating capital flight. Moreover, the exchange rate remained practically constant between 1968 and 1975, thus contributing to the overall disequilibrium. National savings fell dramatically from 16 percent of GNP in 1970 to 8 percent in 1977, when they financed only about one-half of investment. Following a period of rapid expansion in 1968-74 during which GDP grew by more than 6 percent per year, the growth rate dropped progressively and became negative in 1977. 15. The growing disequilibrium described above was reflected in the balance of payments. The current account deficit averaged US$1.1 billion per year in 1974-77, equivalent to nearly 9 percent of GNP. To finance this deficit, Peru accumulated a massive external debt. Peru's total private and public external debt--including short-term indebtedness--stood at almost US$8.3 billion by year end 1977, equivalent to two-thirds of GDP and four times exports. Much of this debt was contracted on fairly short maturities with three-fourths of the public sector's long-term debt--which is estimated to have totaled US$6.3 billion--scheduled to be repaid over the 1978-82 period. 16. Beginning in 1975, successive economic teams made several efforts to cope with the mounting economic crisis. A major stabilization program was initiated in June 1976, when the sol was devalued from SI. 45 to S/. 65 per U.S. dollar, fiscal and credit policies were tightened and interest rates were raised . This program was initially successful in reducing the fiscal deficit and the loss of foreign exchange. Nevertheless, it was abandoned later in the year as a consequence of strong popular opposition and a lack of consensus within the Government regarding the gravity of the financial situation. Further attempts to stabilize the economy were initiated in March, July and September 1977 but they were not successful. A stand-by arrangement was negotiated with the IMF and approved in November 1977, but its targets were not met. While these efforts proved to be false starts, they succeeded in somewhat reducing the gap between national savings and investment from a peak of 11.5 percent of GNP in 1975 to 8.5 percent in 1976 and 7.4 percent in 1977. 17. By mid-1978 the economic crisis had reached grave proportions. The drop in GDP had intensified and inflation had further accelerated to an annual rate approaching 100 percent. Moreover, the private sector was finding it increasingly difficult to open letters of credit for new imports and the banking system's net international reserves had dropped to a negative level of US$800 million. It had become clear that the public sector was fast approach- ing the point where it would no longer be able to fully service its external debt. Peru was no longer creditworthy. Financial instability had reached the point where practically all economic activities were adversely affected. Stabilization Efforts 18. A new economic team was named in May 1978. Since then, the Govern- ment has adopted a number of important measures aimed at strengthening public finances, stimulating exports and stemming the loss of international reserves. By means of a crawling peg, the sol was devalued from SI. 130 to the U.S.  - 5 - dollar in May to almost S/. 200 to the U.S. dollar by year-end 1978; since then the sol was devalued a further 20 percent. Most subsidies were elimi- nated, thus closing an important drain on public savings. Other price controls were relaxed. In addition, a number of tax measures were adopted and Government expenditures were restrained. Interest rates on bank loans were raised from 16 to 31.5 rorcent per year. Peru reached agreement with foreign corimercial banks to reschedule US$185 million of principal payments due in the second half of 1978 until January 1979. The Government also negotiated a stand-by arrangement for SDR 184 million, which was approved by the IMF on September 15. In July 1979, this stand-by was replaced by a new stand-by arrangement for SDR 285 million, (of which, SDR 232 million will be financed from the Fund's supplementary financing facility) in support of the same financial program. Peru's debt outstanding to the IMF as of June 30, 1979 was equivalent to SDR 439.8 million. Finally, the Government refinanced the bulk of the public external debt due in 1979 and 1980. 19. The Government's financial stabilization program, supported by the stand-by, aims at a dramatic improvement in public sector finances in 1979. Public sector current account savings are to rise from - 0.7 percent of GDP in 1978 to 4.0 percent of GDP in 1979. To this end, the Government adopted a 1979 budget that aims at a 10 percent real increase in tax revenues, while severely holding down current outlays. Payments for wages and salaries are budgeted to fall by some 12 percent in real terms, partly as a result of a planned reduction in excessive civil service employment. The elimination of subsidies on food and petroleum products, initiated in mid-1978, wilL further contribute to the control of current expenditures. The largest cut Ls for defense outlays. On the revenue side, measures already adopted--incLuding a 10 percent import surcharge, a higher tax on traditional exports and an increased tax on interest charged on bank loans--are expected to permit attainment of the revenue target. On the other hand, real capital eXpenditures are budgeted to rise by over 20 percent. In short, execution of the program has been very good, and as of June 30, 1979 central government current savings exceeded the budgeted savings by 13.3 percent. In spite of this progress, however, inflationary pressures remain strong, with the consumer price index rising at an annual rate of 65 percent. Debt Restructuring 20. Major debt-relief operations carried out in late 1978 enabled Peru to reduce substantially the debt-service burden for 1979 and 1980, postponing repayment to the 1982-1986 period. In May 1978, the Soviet Union rescheduled the equivalent of about US$140 million of maturities originally due in 1978-80. These amounts are to be repaid over a 10-year period including three years of grace. In November, at a Paris Club meeting, the OECD countries agreed to reschedule 90 percent of principal payments due by the public sector to governments and guaranteed suppliers in 1979 (US$250 million) and 1980 (US$263 million). These amounts are to be repaid over a period of eight years, including three years of grace. The Paris Club agreement states that 1980 maturities will be rescheduled provided that Peru agrees with the IMF, by December 31, 1979, on a financial program for 1980. The Paris Club creditors also agreed to reschedule 90 percent of the principal payments due in 1979 and 1980 (about US$30 million in each year) on private sector debt guaranteed or insured in the creditor countries. In addition, Peru has negotiated smaller amounts of debt relief with non-OECD countries.  -6- 21. As regards the large medium-term public debt to commercial banks, in keeping with an agreement concluded in December 1978, Peru has been repaying in 1979, the bulk of the US$185 million rolled over from 1978 (para 17 above). The banks will refinance 90 percent of the maturities due in 1979 (US$321 million) to be repaid between 1982 and 1986. The agreement reached between the Government of Peru and the commercial banks also gives the Government the option of refinancing part of the maturities currently due in 1980. The government, however, has recently indicated that it intends to forego the debt relief obtained for 1980, in view of the much improved balance- of-payments situation (c.f. para 26). Social Situation 22. The economic crisis of recent years has been reflected in two conse- cutive years of negative growth. Total Gross Domestic Income fell by 0.6 percent in 1977 and a further 0.6 percent in 1978. In this two-year period GDP per capita dropped by over 8 percent. This situation, in turn, has been reflected in incomes and employment. Nearly one-half of Peru's labor force is believed to be unemployed or underemployed, i.e., earning less than the minimum wage or working less than 35 hours a week and wishing to work more. According to government estimates, the purchasing power of salaries had fallen 40 percent by 1978 compared to 1970 and that of wages by over 16 percent. In these circumstances, the social situation has been unavoidably tense, and several general strikes have taken place during the past year. 23. In July, 1979 the military government promulgated a new constitution, written by a popularly elected assembly. The government has called for elections in May, 1980 and the transfer of authority to a civilian government is scheduled to take place in July, 1980. At present the authorities are maintaining an informal dialogue with the leaders of the major political parties in an effort to ensure the continuity of economic policies following the political transition. The Economic Recovery Program 24. With the financial stabilization program and the debt restructuring described above, the Government has brought the fiscal and external gaps under control. These efforts, however, have not yet helped to overcome the deep economic recession. To this end the Government conceived an Economic Recovery Program (ERP) which would reverse the decline in GDP and lay a basis for a financially sound economic recovery. The ERP includes, in addition to the above-mentioned stabilization actions, measures to open up the economy, stimulate industrial sector efficiency, promote non-traditional exports, strengthen the tax system by broadening its base, and generally improve the efficiency of resource allocation in the private and public sectors. In this connection, the Government formulated a Public Sector Investment Program that aims at redirecting public investment towards projects of clear economic priority and positive effect on production and employment. In support of this program the Bank approved a US$115 million program loan in May, 1979. Progress in carrying out the ERP is generally satisfactory with performance in some critical areas--e.g., export promotion--actually exceeding expectations.  -7- 25. The improved economic management since mid-1978 and, in particular, measures adopted under the ERP, have led to a marked turnaround in balance of payments performance. The resource gap, which had reached nearly 5 percent of GDP in 1977, turned into a surplus in 1978 and the drop in net international reserves of recent years was reversed. This was mainly due t^' a recession- induced drop in imports and to lower defense purchases. Non-traditional exports rose as a consequence of the adoption of a more realistic exchange rate. The capital account, in turn, strengthened owing to the beginning of debt relief operations and to some repatriation of Peruvian capital. 26. The Government's program has also led to a strong balance of payments performance in 1979, which is essential for economic recovery and to restore net international reserves, still at negative levels. This was achieved by continuing to maintain an export-oriented foreign exchange policy, rea,listic interest rates and by the promotion of non-traditional exports. The Peruvian Government also intends to improve foreign debt management by, inter aLlia, making greater use of aid from official bilateral and international donors to the extent possible. Much of Peru's large foreign short-term debt (estimated at over US$2 billion as of year-end 1978) is expected to be rolled over or refinanced as the gradually improving economic situation permits new trade- related credit lines to be opened. The trade balance should be strengthened by a further sharp drop in military imports in 1979, by favorable world prices for minerals and by the availability of a large petroleum surplus for export. The recent completion of the Trans-Andean pipeline should allow Peru to export an average of nearly 80,000 barrels per day in 1979-82, adding some US$775 million per year to gross export earnings. Even though about one third of the projected gross petroleum exports would leave the country as profit remittances, this still implies a major improvement over recent years, when Peru was spending in excess of US$200 million per year on fuel imports. On balance Peru can be expected to enter the 1980s with a strong trade surplus. 27. In the mid-eighties, if economic activity recovers to an annual growth rate of about 6 percent, the imports needed for sustaining the develop- ment effort may exceed somewhat the pace of exports. This is particularly so because the exportable petroleum surplus may start to decline in 1982 unless important new discoveries are made soon. In addition, the debt restructured in 1978-79 will impose a heavy payment burden in 1981-86. It is possible, therefore, that balance of payments support will once again be needed in the mid 1980s unless a further debt restructuring operation takes place. Against this background, there is a need for continuing high levels of official development assistance including, when possible, some degree of local cost financing. Assuming the ERP continues to be carried out and the auth,orities maintain prudent financial policies, Peru is creditworthy for Bank lending. PART II - BANK GROUP OPERATIONS IN PERU 28. The Bank has made 35 loans in Peru for a total amount of US$676.1 million, net of cancellations. About 36 percent of the Bank's lending to Peru has been for transportation (mainly highways and ports), 17 percent for  - 8 - the May 1979 Program Loan, 16 percent for agriculture, 13 percent for electric power, 11 percent for mining and industry and about 7 percent for education and urban development. 29. Of the US$335 million undisbursed as of September 30, 1979 over 60 percent is attributable to six project loans made since 1976 and an addi- tional 34 percent to the Program Loan. The slow start-up of the project loans -- only two of which were "repeater" operations -- as well as the slow progress of previous operations has been due, in large part, to weak project execution capacity and to a shortage of counterpart funds that worsened as the economic situation deteriorated during this period. As a result, disburse- ments have averaged only about US$25 million per year over the past few years (Annex II contains a summary statement of Bank loans as of September 30, 1979, and notes on the execution of on-going projects). In an effort to improve this situation: (i) the Executive Directors have approved modifications in the Education and the Lima/Amazon Corridor Projects (see Annex II for further details), (ii) the provision of adequate counterpart funds for 1979 has been assured, and (iii) the Government has set up a special commission to monitor loan execution and resolve administrative problems. With these actions and since start-up problems facing some of the newer projects have now been largely overcome, the pace of disbursement is expected to increase over the next year. 30. Program Loan disbursement has started slowly because of the unfore- seen increase in foreign exchange available in Peru as a result of booming exports and continued depressed import levels as well as substantial debt rescheduling. In order to accelerate disbursements, the list of eligible imports has been expanded to include additional high priority industrial inputs and the Central Bank has taken measures to induce commercial banks to make greater use of Program Loan resources. As a result, the Central Bank has begun to commit these funds. As of October 23, US$6.2 million had been disbursed and several applications were pending. 31. The main objectives of Bank lending to Peru have been to assist in (a) the creation of the physical and social infrastructure needed to sustain and foster development; (b) the expansion of productive capacity in crucial sectors; (c) the consolidation of structural and institutional changes, particularly land and education reforms; and (d) the strengthening of agencies to implement and operate projects effectively. In the past, Bank lending concentrated on infrastructure in the transportation and power sectors. More recently, in the face of mounting economic difficulties, the Bank's emphasis has shifted to more directly productive fields -- mining, agriculture and industry -- to aid Peru in surmounting its balance of payments problems. 32. The next operations that would be ready for Bank consideration are a small rural development project to increase agricultural and livestock production of agrarian reform settlements in the Sierra and a project to increase production at the Talara and jungle oil fields of the National Petroleum Company (PETROPERU). Preparation has begun on a sixth agricultural credit project and a mining operation, and a highway maintenance project is planned.  - 9 - 33. Bank loans constituted about 6.5 percent of Peru's total outstanding debt, including undisbursed, at the end of 1978, and absorbed about 3.6 percent of the country's external debt service in 1978. Assuming increased recourse to long-term bilateral and multilateral aid by Peru, the Bank's share in the country's outstanding public foreign debt by 1985 could reach 12 percent and its share of *ebt-service would be around 5.5 percent. 34. IFC commitments to date have been US$26.5 million (US$15 million to the Southern Peru Copper Corporation for the Cuajone Copper Mining Project) of which US$14.8 million is held by the Corporation. A summary statement of IFC investments as of September 30, 1979 is presented in Annex II. 35. The other principal aid agencies lending to Peru -- IDB and USAID -- are expected to continue giving special attention to agriculture with IDB emphasizing agricultural credit and AID stressing rural development. Total loan commitments as of April 30, 1979 by IDB and USAID were US$476.1 million and US$169.9 million, respectively, and their respective shares of debt service as of end-1978 were 1.0 percent and 0.5 percent. PART III - THE AGRICULTURE SECTOR Land and Water Resources 36. Peru has a limited natural resource base for agriculture. Of the country's total land area of 1,285,000 km2, only about 2.9 percent is cultivable and another 17 percent is natural pastureland. Substantial additionaL land could be brought into production but only at a high cost either for expensive new coastal irrigation schemes or by providing basic infrastructure for more remote areas, mainly in the Amazon region east of the Andes. 37. Of the country's three principal regions the 130,000 km2 Costa, which consists mainly of desert terrain, is the major agricultural area. This region accounts for about 10 percent of the total land area and 46 percent of the country's population. Agriculture in the Costa is limited to river valleys where irrigation is possible. Most of Peru's one million irrigated hectares are located in the zone. Where water is available, condi- tions are generally favorable for high crop production because of good soils and near optimal solar radiation and temperatures. The region enjoys; rela- tively close proximity to the urban markets, a good transportation nettwork and other infrastructure. It is relatively prosperous, producing over 4CI percent of the country's crops including sugar, rice, cotton, maize, potatoes, citrus crops, olives and grapes. 38. The Sierra, where 44 percent of the population lives, consists of steep mountains, and high valleys. Of the zone's 332,000 km2 about seven percent are farmed and 52 percent are used for grazing. Because of the rugged topography and severe climate, productivity is low and there is little scope for putting new land into production. There is a potential, however, for increased livestock production through the introduction of improved pastures and modern range management.  - 10 - 39. The Selva region east of the Andes accounts for 64 percent of the total land area but only 10 percent of the country's population. There is abundant water, since Peru's major river systems flow through the area and rainfall is high, but soils are generally poor, particularly in the lower Selva. In an area known as the Ceja de Selva (the foothills between the Andes and the lower Selva), soils are of better quality and agricultural and livestock development has begun. It has been hampered, however, by poor transport and other infrastructure. The Government has begun to give priority to development projects in this area since it offers one of the few prospects for expanding the agricultural frontier. Agriculture in the Economy 40. In 1978, agriculture contributed about 13 percent to Peru's GDP but it employed more than 42 percent of the labor force and accounted for about 18 percent of total merchandise exports. From the mid-1960s to the mid-1970s, investment in agriculture was low mainly because of uncertainty and rural unrest during a period when a major agrarian reform was proposed and undertaken. Government price, production and marketing control systems also tended to discourage investment and production by setting urban oriented prices for foodstuffs and imposing production limits on non-food crops. As a result, the value of food production in constant prices increased by an average of only 1 percent per annum during this period. During the same period, population increased by an average of 2.9 percent per annum. Conse- quently, the country's dependence on imported foodstuffs grew substantially, mainly in dairy products, legumes, vegetable oils and grains such as wheat and maize. At the same time, the volume of agricultural exports -- which consist primarily of coffee, cotton and sugar -- declined and by 1975/76 was only about 60 percent of its 1962/63 level. A principal cause was the sharp contraction in cotton production because of erratic prices and government policies emphasizing food production. Also, sugar exports were curtailed by rapidly increasing domestic consumption. In spite of these trends, Peru continued to maintain a positive though shrinking balance of trade in agri- culture through the mid-70s. In 1977/78, this positive balance grew as food imports were reduced because of the country's balance of payments problems and the value of exports grew, primarily because of the increase in coffee prices. 41. The Government has recognized that improvement of the agricultural sector's performance is critical to the country's economic progress and to the well-being of the rural population. It has, therefore, recently taken steps to stimulate production and increase producers' incomes. In 1978, producer prices were substantially increased, restrictions on production were relaxed and consumer subsidies on food products were discontinued. It is still too early to estimate the impact of these policy changes on agricultural production. There are indications, however, that it has been positive. For example, the 1979/80 cotton crops is projected to increase by 20 percent over the previous year's level. Agrarian Reform 42. In June 1969, the Government approved a land reform law aimed at expropriation by the end of 1977 of 14,500 estates covering 10.3 million ha.  - 11 - By the end of 1978 the agrarian reform was substantially completed but had benefitted only about 25 percent of the country's 1.8 million rural families. 43. Rather than dividing them up among individual farmers, the agrarian reform left intact the large cotton and sugar estates in the Costa and cattle and sheep ranches in the Sierra. These former estates are now run on a commercial basis under various forms of cooperative association. By and large, these agrarian reform enterprises (AREs) work fairly well in situations where large production units already existed and where the workers were acquainted with the technologies used. Production has been maintained, in most cases, although it has not increased substantially, and the incomes of agrarian reform beneficiaries have improved somewhat. 44. Effective management is a problem for many of these enterprises, since a large number of technicians and administrators previously working on the private estates left and were replaced by less qualified staff. Also, cooperative members, all of whom receive wages, have tended to press for pay increases and additional fringe benefits which in some cases have caused financial problems and limited the investment capacity of the enterprise. To deal with these problems the Government has conditioned the granting of credit to enterprises on the hiring of qualified professional managers. With this measure the enterprises' management and financial situations are slowly improving. 45. Altogether, about 75 percent of the rural population -- mostly landless workers and farmers with less than 2 ha -- were left untouched by the agrarian reform. In a sense, these groups are now worse off than before: for the landless workers, employment opportunities on the large cooperative farms have now become more scarce, and Government has channelled its agricultural support services almost exclusively to the agrarian reform enterprises. Adequate services and credit for small farmers would be provided under the project recommended in this Report. Institutional Framework 46. The Ministry of Agriculture and Food (MAA) is generally responsible for formulating and carrying out Government agriculture sector policies and activities. These include the agrarian reform, providing extension services, research and the execution and operation of agricultural projects. Operations at the field level are carried out by 13 regional offices which are subdivided into zone offices. 47. Generally, the MAA at both the central and regional levels has suffered from budgetary limitations and administrative red tape. Because of low salaries, the MAA has also had difficulty in retaining qualified personnel, thus limiting its coverage and effectiveness. Compounding the situation, a considerable number of qualified technicians have left the country because of the economic difficulties Peru has experienced. In an effort to strengthen the MAA, the Government has recently raised salaries somewhat to attract qualified and experienced technicians to key managerial positions.  - 12 - 48. To help overcome the administrative problems facing regional offices, the Ministry has set up a number of special project units, reporting directly to the Vice Minister, with broad authority to implement large projects or programs. Among these are the Chira-Piura Special Project Unit (DEPECHP) which manages the construction and operation of the Chira-Piura irrigation scheme. Other departments and government agencies under MAA are: the National Training Center for Agrarian Reform (CENCIRA); the Agricultural Services Enterprise (EPSA) which markets basic agricultural products; the National Marketing Enterprise (ENCI) which supplies agricultural inputs and markets cotton; and the National Agricultural Research Institute (INIA). 49. The Peruvian Agricultural Bank (BAP), a Government-owned institution, provides 85 percent of agricultural credit in Peru, with the balance coming from other banks. About 90 percent of BAP's annual lending consists of short-term production credit, mainly to agrarian reform enterprises. BAP long-term lending has generally been financed by Bank or IDB loans. BAP has executed five Bank-financed agriculture credit loans and acted as banking agent for the on-farm development credit component of the 1977 First Irrigation Rehabilitation Project (Loan 1403-PE). BAP's lending operations have grown in recent years owing to rising demand from agrarian reform enterprises and declin- ing participation of private banks. The volume of long-term development credit, however, has increased to a lesser degree because of BAP's lack of resources and the reluctance of individual farmers to invest. Although a high level of arrears has been a problem, BAP's situation has been improving recently as AREs have become better established. Irrigation 50. Prior to the land reform in the late sixties, the construction and maintenance of Peru's irrigation and drainage infrastructure was undertaken mainly by private farmers. Maintenance was not adequate and systems were developed on a piecemeal basis because large-scale investment and management on a regional basis were beyond the capacity of the private sector. As a result, many irrigation systems had deteriorated or were too inefficient to adequately manage water resources. 51. Under the General Water Law of 1969, all water became the property of the state. The Directorate of Water and Soils of the MAA is now responsible for the management of water resources, which it allocates in consultation with the farmers' water user associations. The Government, through the MAA, has undertaken the rehabilitation of existing systems and development of new small and large scale irrigation projects. Among the larger projects is the Chira- Piura scheme, whose second phase the loan recommended in this Report would help finance. The Government has also begun addressing the growing problem of waterlogged soils and salinization resulting from the lack of drainage facilities. About 250,000 ha of irrigated lands are now affected to varying degrees by these problems and the affected area is expanding. The land, however, can be reclaimed by leaching and construction of proper drainage. A reclamation program initiated under the First Irrigation Rehabilitation Project (Ln. 1403-PE of May 1977) aims at the rehabilitation of some 19,000 ha in six coastal valleys. The project is in the early stage of implementation; the first year was devoted mainly to establishing the executing agency and preparing final engineering designs.  - 13 - 52. Under the General Water Law, farmers would -- in accordance with their financial capacity -- pay water charges to cover full operation and maintenance, plus a reasonable amount of the investment costs of the worKs. The General Directorate of Water and Soils is responsible for establishing water rates and reviewing them annually. Also, some maintenance is carried out by the water users' associations which are authorized to impose charges to pay for the work. Until recently, water charges imposed by the Government were nominal, effective collection of these was low and receipts did not cover 0 & M costs. Moreover, the monies that were collected went to the national treasurer and not to the irrigation districts where farmers could see a return for the fees they paid. This situation is beginning to improve (see para. 81). Sectoral Development Strategy 53. The Government's sectoral development strategy as reflect:ed in its 1978-1982 Medium Term Public Investment Program is (i) to continue develop- ment and rehabilitation of irrigated coastal areas where the potential for increases in production is great and large investments in irrigation infrastruc- ture have already been made; (ii) to begin to develop the potentia:Lly rich Ceja de Sierra, east of the Andes; and (iii) to increase development of smaller scale irrigation projects. The Government is also interested in increasing the flow of agricultural credit and strengthening its now weak extension service to provide better support to both small farmers and agrarian reform settlements. Finally, an effort is being made to assist the rural poor, particularly in the Sierra through rural development projects. In support of this objective, the Bank has appraised a small project in the southern Sierra region near Puno. The experience gained in its execution should provide the basis for future projects of this type. Bank Lending 54. In order to help spur Peru's agricultural development, the Bank has made 10 loans to Peru totalling US$107.5 million. Five of them, in the period 1954-1973 and totalling US$55.0 million, were for agricultural credit and were channelled through BAP (105-PE, 162-PE, 257-PE, 415-PE and 933-PE). In general, BAP performance has been good; disbursement of the last loan (933-PE) has been completed and preparation of a sixth loan is underway. Twro loans (67-PE and 98-PE), totalling US$3 million, were for farm machinery imports. Another two (Loans 114-PE of 1955 and 418-PE of 1965), totalling US$24.5 million, financed irrigation works and land settlement in the San Lorenzo area within the Chira-Piura basins. The first irrigation rehabilitation project, Loan 1403-PE for US$25 million, was referred to in paragraph 51. 55. Loan 418-PE is the only one of the Bank's Peru agriculture sector operations which has been subject to a Performance Audit (SECM-48 of January 18, 1978). The San Lorenzo project, which Loan 418-PE helped finance, represented a pioneering effort at agricultural development for the Bank. The project was delayed and the loan took eleven years to disburse, primarily because of managerial problems, inadequate counterpart financing and incorrect estimates of water availability. Peru and the Bank learned some valuable lessons from the project, which have been taken into account in the design of the Lower  - 14 - Piura Project. These includes the need to (i) have and finance well-designed agricultural support programs including extension and research; (ii) make adequate provision for maintenance of the works; and (iii) have a strong, well established project management unit. In spite of the problems associated with the San Lorenzo project, the Project Performance Audit Report concluded that it achieved its basic goals of increasing agricultural production and the incomes of the rural poor. PART IV - THE PROJECT 56. The project would be the second phase of a plan to improve water availability and rehabilitate the irrigation systems of the Chira and Piura Valleys (see IBRD Map 14158). The first phase, prepared by consultants financed partially by the Bank, was completed in 1978. Feasibility studies for the second phase were prepared by the Chira-Piura Consultants' Association, a local consortium, with the assistance of the FAO-IBRD Cooperative Program. Bank missions visited Peru to appraise the project in November 1978 and February 1979. The Appraisal Report (2539-PE dated October 15, 1979) entitled "Staff Appraisal Report of the Lower Piura Irrigation Rehabilitation Project," is being distributed separately. Supplementary data are contained in Annex III. Negotiations took place in Washington from September 5 through 11 and the Peruvian Delegation was headed by Mr. German Rodriguez, Director of DEPECHP. The Project Area 57. The lower Piura Valley project area is situated near the coast about 1,000 km north of Lima on the Chira-Piura plains, which cover about 167,000 ha of potentially arable land, some 137,000 ha of which are presently under irri- gation with surface and groundwater. The Chira and Piura Rivers are the main surface water sources; however, without regulation water is unevenly distributed and its availability is erratic. Previous works constructed in the 1950s and 1960s, partially with Bank financing (Loans 114-PE and 118-PE), increased the areas under irrigation and alleviated water shortages in the middle and lower Piura Valleys, but did not solve the problem entirely. The next stage was construction of the Poechos dam and reservoir and of the Chira-Piura diversion canal by the Yugoslavian firm, ENERGOPROJEKT, which also arranged financing. This ensured a permanent water supply from the regulated Chira River to the middle and lower Piura Valley. 58. The Chira and Piura Rivers have their headwaters in Ecuadorian territory and the operation of the Poechos dam is in accordance with a 1971 agreement between Ecuador and Peru. Water in the reservoir is now maintained at a level that does not cause flooding in Ecuadorian territory and the operation of the proposed project will not require any increase in the water level. 59. The lower Piura Valley, with 34,720 net irrigable ha, extends south- ward from the city of Piura. The Pan-American Highway connects it with Lima, the rest of the country and Ecuador. The Valley has a desert climate with low and erratic rainfall. Soils in the valley are generally good and the topography is flat except for some scattered dunes.  - 15 - 60. The riverbed of the Piura River, which runs through the ValLey, is slightly higher than the surrounding terrain and does not have an open outlet to the sea. There is occasional flooding, drainage is deficient and percolation of irrigation water has led to high groundwater levels. The combination of deficient drainage, low rainfall, high evapoi.Aon and a shortage of irrigation water in the past has resulted in salt accumulation over the entire project area. About 7,300 ha are highly salinized and out of production. The remaining 27,400 ha are affected by salinity. With water now available from the Poechos reservoir, the soils can be reclaimed by leaching if better drainage is provided. 61. Two main collector drains and a network of secondary open drains were constructed as part of the first phase of the Chira-Piura project. The drains are capable of evacuating all percolated water from irrigation but require a network of field drains to feed them. Maintenance of the drains has so far been inadequate and their water carrying capacity is being redLuced by aquatic vegetation and sand from moving dunes. 62. The lower Piura Valley has several independent irrigation subsystems constructed early in this century by former landowners. The system is anti- quated and in poor operating condition because of inadequate maintenance. Water flow is slow, making timely irrigation impossible. Also, water head is often insufficient to irrigate by gravity and pumping from the canals is therefore necessary. Low conveyance efficiencies cause serious water losses, further raising already high groundwater levels. 63. Of the 34,720 ha of net cultivable land in the project area, about 27,400 ha are now under cultivation with a cropping intensity of 106 percent. Long staple, high quality Pima cotton is the major crop, covering 21,000 ha; grains (corn, sorghum and some rice) occupy about 3,300 ha, and pasture and subsistence crops cover 4,700 ha. Because of the poor condition of irrigation infrastructure and inadequate technical assistance, average yields per ha are relatively low. Livestock consists of some 3,600 dairy cows, about 50% of which belong to small farmers, and a large goat population belonging to small farmers and landless peasants. 64. The project area has about 11,800 farm families. It includes 12 AREs on former estates with 17,500 ha (about half of the project areta) and 2,800 member families. Members of the AREs are permanently employed and the average annual per capita income of its members is about US$250. The enterprises have professional management and are generally well run. Existing Government extension services and credit programs are mainly directed toward them. Their financial situation is sound and none had any debts in arrears with BAP at the end of 1978. 65. There are about 8,900 small farmers (those with plots of under 5 ha) occupying 45 percent of the project area. The average farm size is under 2 ha and annual per capita income of this group is about US$180. Of this, however, about US$100 is provided by off-farm employment. Because existing sources of agricultural employment can only absorb about 50 percent of the labor offered by small farmers, seasonal unemployment is a problem. Small farmers have little access to agricultural services and credit and their production tech- niques are poor, problems the proposed project has been designed to deal with.  - 16 - 66. About 110 families have medium-sized farms (80 between 5-15 ha and 30 between 15-5 ha). They tend to have access to credit and to be relatively efficient farmers. Their average annual per capita income is about US$630. All farms over 50 ha were expropriated under the agrarian reform. Agricultural Services 67. The Government provides extension services in the project area through the MAA, the Cotton Development Foundation (FUNDEAL) and CENCIRA, which provides audio visual programs. Existing services are not well coordi- nated or staffed and, as noted, reach only a limited number of farmers. Research activities are undertaken by a number of entities (e.g., DEPECHP, the Regional Center for Agricultural Research and FUNDEAL). In general, production oriented research is weak, as is the link between research and extension. BAP provides 95 percent of the agricultural credit in the area; 96 percent is short term credit, mainly for cotton. Cooperatives receive 80 percent of the credit, medium-size farms 15 percent, and small farms 5 percent. With moderate expansion of their working shifts, the marketing agencies (ENCI and EPSA) would be capable of handling expected incremental production generated by the project. Project Objectives and Description 68. The objectives of the proposed project are to increase agricultural production and productivity in the project area and raise the incomes of about 11,800 families with emphasis on small farmers and cooperative members. This would be accomplished through improvement of irrigation facilities, reclama- tion of saline soils, protection against floods, assistance for farm develop- ment, including credit, and provision of technical assistance. 69. The project would consist of: (a) irrigation works, including (i) construction of a diversion dam on the Piura River; (ii) construction and lining of a main irriga- tion canal 40 km long; (iii) rehabilitation and lining of about 190 km of secondary and tertiary canals and rehabilitation of about 1,170 km o5 lateral and sublateral canals; and (iv) construction of 2,900 m of administrative buildings for the irrigation district; (b) drainage works, including construction of 15 km of main drains, 415 km of collector drains and about 1,000 km of field drains; (c) flood protection works, including improvement of existing flood protection dikes, construction of 54 km of new dikes along both banks of the Piura River, and realignment of some stretches of the river; (d) development credit for land leveling, soil leaching and improve- ment, irrigation ditches and other on-farm investments; (e) maintenance and office equipment, vehicles for the land reclamation and extension services, and a soils and water analysis laboratory;  - 17 - (f) technical services, including (i) expansion and strengthening of the agricultural extension and research services, with special emphasis on assistance to small farmers; (ii) establishment of a land reclamation service; and (iii) training of Peruvian technicians abroad; and (g) consultant services to (i) assist the project execution authority in project design and construction and provision of technical services; and (ii) carry out feasibility studies for subsequent rehabilitation projects. 70. Irrigation, Drainage and Flood Protection Works. The diversion dam and main irrigation canal would be constructed to replace the Piura River as a water carrier, thus eliminating the problems mentioned in para. 60. Ninety percent of secondary and tertiary canals would be reconstructed, lined and elevated to provide sufficient water head. Unlined lateral and sublateral canals would be rehabilitated or constructed on about 50 percent of the AREs' land and in practically the entire small farmer area. The basic drainage network and flood protection dikes for the project area would be completed. 71. On-farm Investments - Development Credit. Land leveling and construc- tion of irrigation ditches would be carried out on most small farms (15,600 ha) and on about 5,300 ha of land held by medium-size farmers and AREs. Soils would be leached in the entire project area and gypsum would be applied to some 1,000 ha of alkali soils. Other investments would include farm improvements and, for selected small farmers, dairy livestock. Up to 90 percent of the cost of on-farm investments would be financed under the project through long- term development credit channelled through BAP. 72. Technical Services. Agricultural extension activities would be undertaken by DEPECHP in coordination with the MAA zone office. Five! adequa- tely staffed offices, each serving about 2,000 farmers, would be estaLblished in the project area. In addition, service to the 12 AREs would be provided by four experienced specialists. CENCIRA, under an agreement with DEPECHP, would establish a program to train project extension agents. This agreement would be signed within six months of loan signature and the Government would adequately fund CENCIRA to implement the program (Section 3.05 (a)(i) of the draft Loan Agreement). 73. INIA, under an agreement with DEPECHP, would increase its applied research in the Chira research station with the assistance of consultants financed under the project. INIA would develop and improve production tech- nical packages for the several project crops and undertake irrigation and drainage research. The extension service would test on a commercial scale the technological packages developed by INIA and disseminate them to farmers. An agreement between DEPECHP and INIA would be signed within six months of loan signature and the Government would adequately fund INIA to implement this program (Section 3.05 (a)(ii) of the draft Loan Agreement).  - 18 - 74. The land reclamation service of DEPECHP to be established under the project would: (a) monitor the effect of drainage on the water table; (b) design and construct field drains; and (c) design and supervise construc- tion of on-farm development works. The service would be staffed by Peruvian technicians assisted by consultants in irrigation, drainage and land reclama- tion. 75. Consulting Services. The project would include 75 man months of consultants' services at an expected average cost of US$8,000 per month for the following: (a) assistance in the design and construction of field drains and in the preparation of a plan for monitoring the drainage system; (b) development of a plan for optimal use of Chira-Piura water; (c) development of a plan for the operation and maintenance of the irrigation and drainage systems; and (d) assistance in expanding the extension service and developing crop production packages. 76. In addition, consulting services would be provided to prepare the final design of Bank financed works, to supervise construction of all project works and to prepare a possible future irrigation rehabilitation project in the Chira-Piura area. Terms of reference for this study, satis- factory to the Bank would be prepared by December 31, 1980 (Section 3.10 of the draft Loan Agreement). The consultants and the terms and conditions of their employment would be acceptable to the Bank (Section 3.03 of the draft Loan Agreement). Project Cost and Financing 77. The total cost of the project is estimated at US$178.8 million (including a tax of US$1.4 million on civil works) of which US$102.6 million or 58 percent are foreign costs. The proposed Bank loan of US$56.0 million would cover 31 percent of total project cost. ENERGOPROJEKT.', which will construct the main infrastructure works, has arranged paralled financing of US$46.4 million (equivalent to 26 percent of total project cost). Together the Bank and ENERGOPROJEKT would, therefore, almost cover the project's foreign exchange cost. The Government and ENERGOPROJEKT have signed the financing agreement and completed negotiation of the construction contract. Execution of the construction contract will be a condition of loan effective- ness (Section 6.01(b) of the draft Loan Agreement). 78. The ENERGOPROJEKT parallel financing would cover 50 percent of the estimated US$92.8 million cost of the diversion dam, the main irrigation canal and the flood protection works (items a(i), (ii) and c of para. 69 above), representing about 81 percent of their foreign exchange cost. The Government would provide the balance of the financing for these components. The Bank loan would help finance the remaining project components with an estimated  - 19 - cost of US$86.0 million and would cover these components' full foreign exchange cost (US$46 million) as well as US$10 million in local costs. (See para 27 regarding the need for local cost financing). The Government would contribute US$74.5 million (42 percent of project costs) and beneficiaries US$1.9 million (1 percent of project costs). Project Execution 79. MAA would carry out the project through DEPECHP, an agency of MAA with headquarters in Piura. DEPECHP would, with the assistance of consul- tants, design and supervise construction of the civil works to be financed with the proposed Bank loan and would itself carry out all force account works. Final design and construction of the main infrastructure works would be carried out by ENERGOPROJEKT under the supervision of DEPECHP. In order to better coordinate project activities DEPECHP would take over responsibility for agricultural extension, land reclamation and maintenance of the irrigation and drainage facilities in the project area from the MAA. It has been agreed that MAA would transfer these activities to DEPECHP (Section 4.04(i) of the draft Loan Agreement). The MAA's irrigation district: office would continue to operate the irrigation and drainage systems and would be provided by the Government with all funds and other support necessary for this (Section 4.04(ii) of the draft Loan Agreement). 80. Since adequate maintenance of the drainage network is critical to ensure the success of the soils reclamation and to increase production, it has been agreed that DEPECHP, assisted by consultants, would prepare and put into execution a maintenance plan for the irrigation and drainage networks acceptable to the Bank not later than June 30, 1980 (Section 3.04 of the draft Loan Agreement). Cost Recovery 81. The MAA is responsible for the collection of water charges. Although the water law states that beneficiaries should pay the full cost of operation and maintenance of the irrigation works and a reasonable proportion of the investments, in the past only nominal O&M charges were actually imposed and there were no cost recovery charges. This situation has now changed. The MAA is beginning to enforce the law and to return the proceeds of )&M charges to the irrigation districts. In keeping with this policy, the Government would: (a) increase O&M water charges in the project area to cover 100 percent of O&M costs of the facilities to be rehabilitated or constructed under the project; (b) by December 31, 1983 and thereafter, transfer sufficient funds to the irrigation district from the water charges collected ito cover all O&M costs of the irrigation and drainage systems in the district; and (c) re- cover, over a 50 year period, as much as possible of the investment costs in accordance with farmers' payment capacity (Sections 4.06 (a) and (c) of the draft Loan Agreement). Starting by December 31, 1982 and at least once every two years thereafter, the Government would review the level and structure of water charges and adjust them to take account of inflation and the ability of users' to pay (Section 4.06(b) of the draft Loan Agreement).  - 20 - 82. Cost recovery estimates are based on the a-sumptions that (a) small farmers would not repay any capital costs because, even with the project, their incomes at full development would be below the estimated US$2,790 relative poverty level per family at that time; and (b) that AREs and medium-size farmers would repay investment costs over a 50-year period withcut interest, T'>-ich world bring the total level of charges for these farm categories to about 10 percent of their net value of production. Based on these assumptions, the average cost recovery index for the project would be 48 percent. On-Lending Arrangements 83. On-farm investments to be carried out under the project would be financed by medium- and long-term subloans to farmers and AREs. The Government would transfer loan funds to BAP as an equity contribution. BAP would grant subloans in soles on the basis of development plans prepared with the assistance of DEPECHP for up to 90 percent of the value of the investment, with the balance contributed by the beneficiaries. The subloans would have terms of up to 15 years including grace periods of up to five years, depending on the time required to attain full production increases from the investment. BAP, with its own resources, would also provide incremental short-term produc- tion credit to all project beneficiaries (Schedule 5 of the draft Loan Agree- ment). The Borrower would enter into an agreement with BAP, acceptable to the Bank, for the provision of subloans on the terms and conditions set out in this paragraph. The signing of this agreement would be a condition of loan effectiveness (Sections 3.02(a) and 6.01(a) of the draft Loan Agreement). 84. The minimum interest rate on subloans would be the same as BAP currently charges for investment credit -- 31 percent plus a 2 percent com- mission charge. While this lending rate is at present negative in real terms, if the Government's economic recovery program is successful in reducing inflation, it is likely to become positive during project implementation. Inflation was about 75 percent in CY1978. It is projected to average 60 percent for 1979, and to drop to about 40 percent in 1980. The Government would periodically review the lending rate in consultation with the Bank to take account of relevant changes in the rate of inflation and capital market conditions (Section 3.02(c) of the draft Loan Agreement). Procurement and Disbursement 85. Contracts for construction of secondary and tertiary lined canals and main complementary drains, totalling US$40.4 million, would be let through international competitive bidding (ICB) in accordance with Bank guidelines. Maintenance equipment, totalling US$4.7 million, would also be procured under ICB. For bid evaluation, a 15 percent margin of preference or the prevailing custom duties, if lower, would be allowed for equipment produced in Peru. ENERGOPROJEKT would construct the works it helps finance. 86. Contracts for construction of unlined canals and buildings, totalling US$6.7 million, would be let in accordance with local competitive bidding (LCB) procedures in accordance with Bank guidelines. Local bidding is recommended in this case because lateral and sublateral canals would be constructed using  - 21 - labor-intensive methods. Local firms have experience in such operations and international firms are unlikely to be interested. Because they are locally produced, pipes for field drains totalling US$3.3 million, would be procured through LCB. Construction of field drains (excluding supply of pipes), totalling US$3.4 million, would be carried out at irregular intervaLs as the project advances and would therefore be undertaken by force account or negotiated contracts. On-farm works financed through development credit and totalling US$11.4 million would be done under negotiated contracts between farmers and local contractors. Vehicles and other equipment, totallLng US$600,000, would be purchased in small amounts during project execution and would, therefore, be procured under LCB (Schedule 4 of the draft Loan Agreement). 87. In accordance with the financing arrangements described in paragraphs 77 and 78, disbursements against those components the proposed Bank loan would help finance would be made over a five year period and would cover: (i) 65 percent of expenditures for civil works, engineering and supervision; (ii) 70 percent of subloans for on-farm investments; (iii) 100 percent of foreign expenditures for internationally procured goods or 80 percent of expenditures for locally procured goods; (iv) 65 percent of the expenditures for incremental staff and operating expenses of the land reclamation and agricultural extension services; and (v) 100 percent of expenditures for consulting services and overseas training (Schedule 1 of the draft Loan Agreement). Project Benefits 88. The project would significantly increase agricultural production. With improved irrigation practices, better drainage and salinity control, the physical area under cultivation is expected to increase from 27,470 ha to 34,720 ha and cropping intensities from 106 percent to 135 percent. Projected yields are expected to rise 50 to 120 percent above those without the project. Cotton will continue as the major crop and incremental production would, at full development, generate export earnings of about US$16.7 million per annum and export taxes of US$3.7 million per year. Principally as a result of double cropping, production of grains and legumes would also increase substantially and would reduce imports of these by about US$7.0 million per year. 89. The incomes of the 11,800 project area families would be substan- tially increased by the project through improved production and the creation of about 3,800 man-years of labor (about half the excess labor now existing in the project area) at full development. Small farmer incomes would rise by about 75 percent, cooperative member incomes by 135 percent and for the 110 medium sized farm families incomes would rise by 240 percent over what they would be without the project. In addition to the direct improvement in income, the project would assist small farmers by providing access to agricultural services and credit for the first time. It would contribute significantly to the consolidation of the agrarian reform process by improving production and productivity on th# AREs in the project area. Of total project costs, 45 percent would be expended for the benefit of small farmers, 50 percent for AREs and 5 percent for medium sized farmers.  - 22 - 90. The project's economic rate of return is estimated at 15 percent with shadow prices for labor and foreign exchange. Sensitivity analysis indicates that the project would still produce an ERR of 12 percent (the esti- mated opportunity cost of capital in Peru) with either benefits reduced by 17 percent, the capital cost increased by 23 percent or operating costs increased by 156 percent. Project Risks 91. The project does not present major risks. DEPECHP has good expe- rience in constructing works of the type included in the project. Farmers have substantial experience in growing the project crops and are open to advice from extension workers. The AREs have passed the critical stage of establishment and organization, and their recent performance is sound. Establishment of the land reclamation and extension services and provision of short- and long-term credit should effectively help to increase small farmer agricultural production. Possible risks involved are: (a) construction delays because existing farming operations will have to be accommodated while rehabilitation and construction of the irrigation and drainage systems take place; and (b) because of low salaries, failure to attract qualified staff for the agricultural extension and land reclamation offices, which would seriously impair delivery of services to farmers. The first risk will be dealt with through careful planning of construction and close supervision. The second risk is easing because salaries have increased somewhat. The project is not expected to present any environmental risks. PART V - LEGAL INSTRUMENTS AND AUTHORITY 93. The draft Loan Agreement between the Republic of Peru and the Bank and the Report of the Committee provided for in Article III, Section 4(iii) of the Articles of Agreement are being distributed to the Executive Directors separately. 94. The draft agreement conforms to the normal pattern for loans for irrigation projects. The main features of the Loan Agreement are referred to in the text and listed in Section III of Annex III. Special conditions of loan effectiveness would be that the Government and BAP enter into an agree- ment for making project funds available for subloans for on-farm investments and the Government and ENERGOPROJEKT execute the construction contract for the main infrastructure works (paras 77 and 83). 95. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank.  - 23 - PART VI - RECOMMENDATION 96. I recommend that the Executive Directors approve the proposed loan. Robert S. McNamara President Attachment November 6, 1979 Washington D.C.  - 24 - A flE:X I TASLE 3A Page 1 of 5 PERU - SOCIAL INDICATORS DATA SHEET REFERENCE GROUPS (ADJUSTED AYERAGES LAND AREA (-aOUSAND SQ. KM.) ??R - NOST RECENT ESTIMATE) - TOTAL 1285.2 SAME SAM NEXT rbHI1eR AGRICULTURAL 2t).0 MOST RECENT GEOGRAPHIC INcOME INCOME 1960 /b 1970 /b ESTIMATE /b REGION /c GROUP /d GROUP /l GNP PER CAPITA (US5) 250.0 420.0 740.0 1124.4 1097.7 1942.6 eNERGY CONSUMPTION PER CAPITA (KILOGRAKS OF COAL EQUIVALENT) 445.0 619.0 642.0 943.1 730.7 1646.7 POPULATION AND VITAL STATISTICS TOPOIATION, MID-YEAR (MILLIONS) 10.2 13.5 16.4 URJAN POPULATION (PERCENT OF ToTAL) 46.3 57.4 62.8 59.3 49.0 51.2 POPULATION PRIOJECIONS POPULATION IN TEAR 2000 (MILLIONS) 29.0 STATIONARY POPULATION (MILLIONS) 55 .0 YEAR STATIONARY POPULATION IS REACHED 2085 POPULATION DENSITY PER SQ. "M. 8.0 11.0 13.0 23.5 44.6 28.2 PER SQ. 1M. AGLICULTURAL LAND 33.0 44.0 54.0 80.5 140.7 100.5 POPULATION AGE STRUCTURE (PERCENT) 0-14 YRS. 44.2 45.0 43.9 40.9 41.3 35.4 15-64 YRS. 52.0 51.9 53.0 54.4 55.3 56.3 65 YRS. AND ABOVE 3.8 3.1 3.1 3.9 3.5 5.1 POPULATION GROWTH RATE (PERCENT) TOTAL 2.6 2.9 2.8 2.4 2.4 1.7 URBAN 4.7/1 5.0 4.5 3.7 4.5 3.0 CRUDE BIRTH RATE (PER THOUSAND) 47.0 42.9 39.0 32.8 31.1 27.5 CRUDE DEATH RATE (PER THOUSAND) 19.0 14.7 12.0 8.5 9.2 9.1 GROSS REPRODUCTION RATE 3.1/h 2.9 2.8 2.4 2.2 L.8 FAMILY PLANNINC ACCEPTORS, ANNUAL (THOUSANDS) .. .. USERS (PERCENT OF ARUIED WOMEN) .. .. .. i7.7 34.7 FOOD AND NUTRITION INDEX OF FOOD PRODUCTION PER CAPITA (1969-71-100) 110.0 102.0 90.0 99.4 104.4 102.0 PER CAPITA SUPPLY OF CALORIES (PERCENT OF REQUIREMENTS) 97.0 99.0 100.0 107.0 105.0 120.8 PROTEINS (GRAMS PER DAY) 50.0 61.5 61.7 60.4 64.4 80.9 OF WBHIC ANIM4AL AND PULSE 25.0 24.0 25.3 28.3 23.5 31.3 CRILD (AGES 1-4) MORTALITY RATE 28.0 20.0 16.0 6.7 8.6 5.1 HEALTH LIFE EXPECTANCY AT BIRTH (YEARS) 48.0 53.0 55.7 63.6 60.2 65.6 INFANT MORTALITY RATE (PER THOUSAND) .. 122.0/f .. 76.1 46.7 45.5 ACCESS TO SAFE WATER (PERCENT OF POPULATION) TOTAL .. 35.0 47.0 63.4 60.8 69.4 URBAN .. 58.0 72.0 79.5 75.7 85.1 RURAL * 8.0 15.0 38.6 40.0 43.0 ACCESS TO EXCRETA DISPOSAL (PERCENT OF POPULATION) TOTAL .. 36.0 .. 58.8 46.0 70.1 URBAN .. 52.0 .. 77.8 46.0 88.3 RURAL 1 16.0 .. 24.5 22.5 33.2 POPULATION PER PHYSICIAN 2200.0/E 1920.0 1580.0 1841.9 2262.4 1343.2 POPULATION PER NURSING PERSON 3620.071 3200.0 .. 933.7 1195.4 765.0 POPULATION PER HOSPITAL BED TOTAL 490.0/i 470.0 500.0 563.4 453.4 197.6 URBAN ' 410.0 340.0 279.4 253.1 260.2 RURAL . 3450.0 1300.0 1140.9 2732.4 1055.0 ADMISSIONS PER HOSPITAL BED . 19.0 . 25.7 22.1 17.3 HOULSING AVERACE SIZE OF HOUSEHOLD TOTAL 4.9 5.5 4.9/1 5.0 5.3 4.7 URBAN 4.8 *- 5.1/1 4.8 5.2 4.4 RURAL 4.9 .. 4.7/1 5.3 5.4 5.1 AVERAGE NUMBER OF PERSONS PER ROOM MOTAL 2.3 2.3 1.9/1 1.3 1.9 1.1 URBAN 2.0 .. 1.771 1.3 1.6 1.2 RURAL 2.7 .. 2.4/1 1.5 2.5 1.2 ACCESS TO ELECTRICITY (VERCENT OF DWELLINGS) -.OTAL 26.0 32.1 32.:/1 54.3 30.0 66.0 URBAN 50.7 54.371 0.1 71.7 95.1 RUAL~ 4.0 .. 277W, 14.2 17.3  - 25 - ANNEX I TABLE 3A Page 2 of 5 PERU - SOCIAL INDICATORS DATA SHEET REFERENCE GROUPS (ADJUSTED AyLRAUIS PERU - MOST REC&YT ESTIMATE) - SAKE SAME NEXT HIGHER MOST RECENT GEOGRAPHIC INCOME LiCOME 1960 /b 1970 /b ESTIMATE /b REGION ic GROUP /d GROUP /e EDUCATION ADJUSTF- ENROLL.MENT aATIOS PRIMA.-L: TOTAL 83.0 107.0 110.0 107.3 102.5 101.7 MALE 95.0 114.0 116.0 109.1 108.6 110.0 FEMALE 71.0 99.0 107.0 107.4 97.1 92.8 SECONDARY: TOTAL 15.0 30.0 49.0 40.5 33.5 51.2 MALE 18.0 34.0 54.0 40.4 38.4 56.4 FEKALE 13.0 26.0 44.L 39.0 30.7 43.7 VOCATIONAL ENROL. (1 OF SECONDARY) 20.0 17.0 23.0 18.5 11.5 18.3 PUPIL-TEAC8ER RATIO PRIMARY 34.0 40.0 40.0 37.1 35.8 27.1 SECONDARY 12.0 U3.D 23.0 17.9 22.9 25.3 ADULT LITERACY RATE (PERCECT) 61.0 .. 72.0 77.4 64.0 86.1 CONSUMPTION PASSENGER CARS PER THOUSAND POPULATION 8.0 17.0 17.6 29.1 13.5 53.4 RADIO RECEIVERS PER THOUSAND POPULATION 101.0 134.0 131.0 172.1 122.7 225.9 TV RECEIVERS PER THOUSAND POPULATION 3.0 29.0 32.0 67.9 38.3 102.6 5EWSPAPER ("DAILY GENERAL INTEREST") CIRCULATION PER THOUSAND POPULATION .. 124.0 96.0 76.1 40.0 78.5 CINEMA ANNUAL ATTENDANCE PU CAPITA .. .. .. 4.2 3.7 3.6 LABOR FORCE TOTAL LABOR FORCE (THOUSANDS) 3100.0 4300.0 4600.0 FEMALE (PERCENT) 21.0 20.7 21.9 21.5 25.0 24.5 AGRICULTURE (PERCENT) 52.5 44.8 40.0 30.2 43.5 28.9 INDUSTRY (PERCENT) 19.6 20.1 20.0 23.8 21.5 30.6 PARTICIPATION RATE (PERCENT) TOTAL 31.3 29.1 29.2 30.9 33.5 33.8 MALE 49.2 45.8 45.3 47.3 48.0 51.3 FEMALE 13.2 12.1 12.8 13.3 16.8 16.3 ECONOMIC DEPENDLECY RATIO 1.6 1.5 1.6 1.5 1.4 1.3 INCOME DISTRIBUTION PERCENT OF PRIVATE INCOME RECEIVED SY RIGHEST 5 PERCENT OF IOUSEHOLDS 39.0/k .. .. 23.7 20.8 RIGHEST 20 PERCENT OF ROUSEHOLDS 64.4/k 61.0/1 .. 58.7 52.1 57.6 LOWEST 20 PERCENT OF HOUSEHOLDS 2.5/k 1.97T .. 2.9 3.9 3.4 L0WEST 40 PERCENT OF HOUSEHOLDS 8.07k 7.07T .. 9.9 12.6 11.0 POVERTY TARGET GROUPS ESTIMATED ABSOLUTE POVERTY INCOME LEVEL (USS PER CAPITA) UR8AN .. .. 235.0 265.6 270.0 RURAL .. .. 180.0 185.1 183.3 ESTIMATED RELATIVE POVERTY INCOME LEVEL (USS PER CAPITA) URBAN .. .. 293.0 396.3 282.5 550.0 RURAL .. .. 200.0 308.1 248.9 403.4 ESTIMATED POPULATION 3ELOW POVERTY ICOME LEVEL (PERCEYTT) URBAN .. .. 49.0 35.2 20.5 RURAL .. .. .. 46.6 35.3 Not available Not applicable. NOTES /a The adjusted group averages for each indicator are population-weighted geometric means, excluding the extreme values of the indicator and the mosc populated country in each group. Coverage of countries among the indicators depends on availability of data and is not uniform. /b Unless otherwise noted. daca for 1960 refer to any year between 1959 and 1961; for 1970, between 1969 and 1971; and for Most Recent Estimate, between 1974 and 1977. /c Latin America & Caribbean; /d Intermediate Middle Income (5351-1135 per capita. 1976); /e Upper 1ddle Income (51136-2500 per capita, 1976); /f 1970-75 /g 1956-61; /h 1960-65; /i 1964; 1962; ,k Personal income within labor force; /. 1972. Most Recent Estimate of GNP per capica is for 1978. August, 1979  -26 - ANNX I WINI.Y OV SWA PaIAge 3 of5 otes ihahte aaaede eesucsgeeaIsds the setatoiaieadrlala, it shoud also he sated that they my oot be inter.-- tT~u' swarblebecause of the lank of tatdardlaed defialtionsa nd omoe.pta usad by differeit oountriea is -o11etiag the data. The data ar, onoathelws, ..eefol to descr ibe ordere of aesitud., indicate irsds. and oharantarice eertain elor dif"ere-.a betsewe ountrie... mthe ~ ~4)g5groupversa for eah jodloator are poplAti-o-wigbted geostrio seos., es.doin g the extrasvaue of the hedioator and the most posauted oossio.iWiWj676Thiito lagh of dat., grop aveges of all tedicatore for Capital twapiua Oi1 Eaportara and of edjoatorn of Aoo..a ha Water wAd korets Miaposal, HOusig.X I-ono Distlitbtion and Ruwerty for other oontry grosopa are poplautioss-eaightad geusetrie --s without ascimse of the etrem vaIn.. aad the Lat poplated o.-try. Sine. the oerg of ositriss tha iadstgee dend. - a-ilablit ofdata sa-.stutu. ato st he aseri.ed in rouating ammsa_f_' _ of a rtoa0B* Gheasencsar mUeaeslseeeaxitee o meta insabslowe tevaoerf s iadioat.r at a Is the, U docutry And reereese Coup. YAM AMA (thouand q.ka.) Acs obrt ipsl(eecto osala oa,ubn a ua W-ir Total surface oes. copriessng lead are and inland waters.. fpol ttl ra,adrrl evdb crt ipsla WI&l-,tas.l-_Met recent eatilt. of iearoutura areausd te7 rsrily perce.tagS. of their respetive p-oulationsa. Zoe-ta disposalIsay inolude or preaenatly for crope, pasItures, seket end hitoha garden o to the otleoti- and dinposal, eith or without treatnot, of h.asn e-rete lie fallow, and wate--wter by wtatr-bone sy.tas or the use of pit privies and s,ails ilat.latione. iMP PER CAPITA (904) - Ge? per oapIta estisatas at currsnt garket Prices, fr=ltimng,ar Phrsi.a - Population divided by cuter of practioicg phyatobin -6IoLiIh~ convereice sathod as World sunk Atlas (1976-78 banic); qulifiiiti'Afc.i.od1al school at aniversity icel1. 1760, 1970, an 1975 data., Vk04a. r,p apng,,flfrp - Poplistion divided hy ootr of prectlioig ale 1[!!T CWIB*gIC PEp CAPITA - Anul caution of ooeial eoegy gtf dhe wt. -.s , pratical oircus, * d acIetactcuae (ca iite perls, natra gs and bydr-, insolear end gn-Pauaiope cis s- ttl ra,adrrl- FPtp.l.to (total, urba, theesa olnrity io b.ilogrnss of o.. I equivaet per capita, 1960,adrrl iie yterrastr ~ro hopitlmcaaloi 1970, and 1976 data, public end private general and speoilined hoatpital sld rebabilitation ocoter. iHospitals are eatabliahsents permanently staffed by at least ..r phyciciao. PiRUIATION ANFD VITAL STATISTICS iatabliahseits providing peiincpaIly custodial care are nut iooloded. Rural Totaj5psation. bMYA7Agj Ceillione) - As of july 1: 1960, 1970, and hospitals, howeve, msolude health aud ssdioal conters not peresnotly ataffed 1977 data. ~~~~~~~~~~~~~~~~~~~~~by a phaicicsi (bot by a sedioal assitatnt, nura, sidife, eta.) whiob of for UrbanPplto (rctof toa)-Ratio of urban to total popuation; io-patiant aoondation end provide a lisited range of sdioal fecilitie.. dlffero diftoitiona o ura rasny effect Omprability of data iLdsfleionsparopptali.3d - Total cuter of deiesioaa to or di-obargec fro. acing utis 1960, 1970, and 1975 data,hsitl i db th`e outer of beds. Poislt ion projotiooa Powltio 10y- 000- Crret ppoplation projetions are based 00 HOUSING 195total pp ation by age and eeo end their mortality and fertility Ovre iro jueod(esc prhueod oa.ubo n rurl - rae.Poeton pareset-r for mortality rates ..Wris. of thrce A hoshl ossn fagopo oivdaewosaeliigqatr o leel asuhg lIfe copectany at birth inceaieg with -ontsye their solo scale. A boarder or lodger -y or my oot he i-olded In tie per capita oom level, end femle life eoprctsny atablisiug athbouseho for etatatical purpocee. 77.5 years. Tlhe paract,a, for fertility rate als have throw le-el ivrAc cutebr of oeen rrt total, uban, and rura - Overge -ub-r aesgdecitne io ferttityp accoding to Icce bowl asd past of" prno per rote io al r.,ad rura occpied voneotiona.l deelling, sally, otanoig perfora-c Eac ooutry Is thee assigned one of th..e repectirely. bur1ings roolde oo_-pereoet totruure and -ooocpiod pV-ts. olne o!iotinain of mortality and fertility trends for projwotioo doeet lcroty(eco fdelig)-ttl ranedrrl-Co litionary ocutlaton - i aeltatio-sy ppolu.itioo there is no grooth total, urban, and -rura deellingo repectio-ly. lo h it ate iseqa to the death rate, aod also the age otucture reins -ovetnt. Thi ii achieved ouly after fertility rates EDUCATION decline to the replacnet level of on,tonot rwpr-&ction rote, h.. Adjus-ted Esoroliseot Ration each geoeration of - ropiace itself roatly. The statitery pope- Pr "yscol-totl,slead feal -Grose total, sale nd fr-al -arol- laioioeeasetiatwd on the taxi, of the projected chaccereio ot ofhall ge ut1theprienryrlevl a p-eoetagee of reprotiv- preury ofth poplato lo the lyear 2000, sod the ratw of decline of fertility school-age pop1solticos; sorally 1ooludee childreo aged 6.11 yeoro but rate to rep__eet leve. adjuetd for different leogthe of prisary eduotiow; forcnoe, uith Gear sttiour ooultion is reahed - The your oh.. etatiory population unvra ed.ctioc -orowt ne oooeed 110 p.eroet i-v -oa popils do asbe reced, are below or above the official school agw. ,pcoclato lenity isonay cool - ;totl, sole epd frele - Cospued no nbc-; -ec-oe-Y Per cc. he.- Mid-year population per eqoare kiloeter (110 heotares) of eductinreuiw at leat four yeara of approced prisary -tostrocto; total -m provIdes gneeral ccoticna.l, or teacher training i--truvlo- for p,polo Peo . h. agricultural land - Coaputed so uboe for agri~oltoralI 1usd sualy of 12 to 17 yeuro of age; c-r-p-~deooec-ures er d,oorroly only. roclo~~~~~~~~~~~~~Idod. Poualo g tructure (Perent) - Children (0-14 pear), vorkig-age Vocatiooal enrolet (percento eooay Vocational.lootituti-o L-1i.de (1.1 er), and retired (i5 year and over) as percetages of aid-year tcocl-outil rohrpora hv prt oveiol ra population; 1760, 1970, end 1977 data. departawo,to of seoodary Institutionu. Posuation Growth Rate groust) - total - Annual gArowth rateo of total aId- Pl-ieanobe, ratio - iriovy dnd eeondar -eTotal niudeoto et1o1cc In pear popultions for I950-60, 1990-70, sod 1970-77.prar and secondi4r lees divi5dedb n.eab of t..ber. io the -orr- Pop,ulaton Growth Haei (puest) - urban - Anooo1 growth ratwa of urban ponding levele. populations for 1950.6O, 19D0-70, and 1970-75. Adult Iiterary rate (pero -Li t-rte dolos (nble to read end -rite)n Crude Birth Hale (per thousand) - Annual live births per thouand of aid- a peroentge of tota.l ndut roomooltioe agd 15 years had o-er. yea popeoltico; 19b0, 1970, end 1977 data. C. D. Rate ~pr thousand) - Annual deaths p-r thousand of id-yer IOST C jdj'1itii IiTl.l9 970an dWl977 data. Pasege cars )orr thossoad popaletion) Passenger cars coePrior setor cr Irs Ncu atonate.bo-rA~ ge onabr of d-ughteI ooac ill lea orting less than eight porsooc; voolde. sioblso.ee, heares and rilitary In her uorinl reproductive period if she eoperirtce preceot g00- ehioleo. speifi fertility ratre; usally fiv-year n-nage ending Is 1960, o'dlo Resier (ocr thouoad ponulation) - All typen of receiver for radio 1970, and 1975. broadcasts to geealpblic pe housand of population; -oluden unli-..oed Pairs Ptsnnlng A - . =ctrs. Annua )tbo-ando) - OnA-l nuber of reeivers In Contrive and in year ehe.r-gistration of aoio sets coo in aceptor obith-contro device under -pi-e of natioe ... sasoly effect; data for r-cet yo- eny not be -cp-rolc si-o w-toutrc Planning prg-sa bholiohed licening. fasIy Panong Usrs percent of-cried sevn) - P-ernotagr of corned TV Roeivers tper th-aund poslat ion)-T rcr o brondonut to go...r-1 _se o hidbaringag (15-_. yearo) who on hirth-conircl devicec p~ublicper thouand population; coclude unlic-o-d TV recivers ic -octrirs to all -errid ecc in sum age group. and in year. a he registration of TV -eto wac in effect. NesaerCrulto (pr honad oplaio) -ioo the ovrageoiulto iPd.0 ori Mi-dUC of da11 li,'l~ I1 -Id.o proptily eea ltru nesP Tpr' efjod 000priodical publicaItIon Indc o rod Podutio pefCait (1697-10s-Cde oiercpst devetrd prieaily to recording gor ew. It iscnIdered to he 'doily' sosoa podutin f alfo cdt,.rdutioc -olue seed LId if it opperur at leat four tins. -kr. feedand7 to oiclendar year basis. C-iditisco..erP rinary goods CL-na Annua Attlend`soo. c Canita no Yna-b--d .. tin n-bnr fctirOnce (egtegran nteaIdofnar Ihic are edihle and contain ouriss1od durig tie-year, icoludiog adeiosio. to driv-in cin-s end oobiln (e.g coffe no e ar colded). Aggregate production of each country units.. Is based on national ave producer Itorsights. per oagit. Mupini of caore (ocen_t of r~osirsets) - Cospted fy.. LAO~R FORCE energy ivln ofqst food npplw ar ailble Iusn C..toy Per -apita Tnlta I ore thoso-do) - Poocoi-ally notiv preotes, inciodico aod per d00y. Aesiable soppliws -V,piss dosotic production, laprts less for andFunemployed hut coolding husc-i-ro otudeoto, etc. lefioit;.-o epreanchunges In otook. Net -uppl-c eoiudc esoisul feed, oeedn, in car.on coutries rc nout -opsa-ble. quatities used to food Processing, and losses i diotribut iss. Requir- F.-eenlpecown) - Petl lobor fore us p-eretage of toto1 labor force. aet e_re i_tlte by PAl based on physilogical needs for-Irl - tho force in fealin, foretry, bunting sod soivLity ooddhealth consdering ..ir. seca teaperaturo, bdwei,bto, finhi,ga percetg of total labor force age ad cr0 distribtnin of popuei-o, sod n11o.ing 10 p-ro-t foe Idsr.pret ao oc nsnn,cntuhc, tbuatrn n ocitenIt hosehsid lee,-lctiit,wae anId gas sol pecntao" f osl abr or Per upit ouply o proein ares pertd- - Fro trio conotoot of pe_atiiaiu ee orct) - total, sale,sod feeaele-irtic iptlo'o capita cet suppl offoodper d et eupply offod Is derioed soatch-ae r opsted as total, sale, end feen1e lobr foronopr above. RO.quirentoi fon all -otni-in -stoliebed by USDA provide fora-oae fttl aead e rpplto fsoae respetic-ly; adici- alosc f 60 gras of total Protris per da and 20 gras of 1C)0, 197, and 1975 data. TheseareITO's pticipotion rates reflectin aI=a and poise protein, of hbioh 10 gEn- hbould be antee protein. ag-e trucur of tie populntion, and long tier trend. A ecetisate These standards are lone than thos c f 75 guas of total protein and aefr soioal soe 27gras of alea protein so an average for the ene1d, proposed by PAl Esos.... Depeandency Ratio-Pai of popuition under 15 sod 65 sod ovr to 50tie ThIrd Wocld Psod Survey, the labr f-s6 i j grou-p of 1,-64 Year. Pe!r eapitu p-oteitsop fros coia and poise - Protein supply of food derived fru niasnd pulse io ru pr dyp. I.C DIBTRHmPTIOU Child (ears 1-h)iitlt Rate )oer thousand) - Aousa doatbe per th-uond Percentaed of Private Thee (both in cash and hond) - OR-eivd by richest in age group 1-4. yearn, t.ochildren t thin age group; for tns drool- 5 prcet. richest 20 p.erort, poorest 20 percest, sod poorrat 10 porowot oPiog coutries Oats deri -d Pro lftaesof houseolds. itATHPVRTTAiTGUP life HaEctasocat' birh (er) craeahr of year of life "stIate Mbc .-ePoety t-one leve (us$ per capita) -uban and rurl reamng t bith;199,17,n. 97I dt.Aslt poverty i-nce leve is that ineo lee e hc inbeal Iofant MOortality Pate (per t Ann)-..Iua doathe of infants under one cutr itionu11y adeqote diet plu essen..tial ton-food requi-eeto :5 sot year of age per thouand lire births. affordable. Acces to Safe eater (-ereen of -osltin otlEran n url- ttiated Relative hetyI-nee-lvl (US$ per capita) - urban and rurlI W.ster of people (total, urban, and sral su.rasnleanrs t Rural relative poory -c Ice1 is on-thied of a--ege par ospita safe water eupply (inoloode rete..td surface caters or satrrated but personal incmn of the country. Urban leve is decOced fr- thu r-ru 1e-r uucotmoinsted eater suh notht.fete protected bor.sholee,sog, eith adJoat-xt foe higher coat of llivig in uban areas. sod .soitae mile) as percentages of their rpapetid- popultions. . In solte Phouatt Below Abanlute PorryIe ee-(ert ra and an urbanaeaapublic fsomtnin or etsnpoet Ioated not sor then rsal-Percet of populaio (urban t and ural sho ar aslte ) e 20O mterefrom a hous way be onsidere d a. being within esasasabrle..t.p:br -coes of tha houss. In rura areas reasonble -cwe would imply that the h-.scif. or Sees.r of the household do nut have to spend a oon-omi and Social Sata Dietica dIsproportionate part of the day iu fetching the feamily awter needs E .onoejo Analysts and Projections Repartent A,uget 1979  ANNEX I - 27 - Page 4 of 5 PERU ECONOMIC DEVELOPMENT DATA A C T U A L I p R U 0 E C T U D GROH RATE (X p.. 1976 1965- 1970 1975 1976 1977 1978 1979 1980 1987 1965-76 1976-78 1978-8) X of IATIONAL ACCGONTS (m i of US Iollars at 1977 prtces) Gross Domestit Product 7470.9 9793.5 12668.7 13007.i 12848.5 12975.1 12859.5 13464.2 20101.8 5.2 -0.1 6.4 1 Dotes from T-rms of Trads -81.1 274.3 -59.2 -80.9 0.0 -209.7 242.0 250.1 533.9 -8.6 Gross Domestic Ilhos. 7389.8 10067.8 12609.5 12926.2 12848.5 12765.4 13101.5 13714.3 20635.7 5.2 .C.6 7.1 99.4 Imports 2207.8 2247.2 3343.6 2575.3 2694.4 1931.2 2153.8 2347.6 3697.7 2.4 -18.0 9.7 22.1 Ropects 2081.1 2562.2 1911.5 1989.7 2137.8 2448.6 2963.9 3024.4 3424.5 -0.4 10.9 4.9 15.3 I"port', Tesms dTrade Adjusted 2000.0 2836.5 1852.3 1906.8 2137.8 2289.9 3205.9 3274.5 3958.3 -0.4 8.3 8.2 14.7 Rsso_rce G.p, T-s of Trade Adjootcd 207.8 -589.3 1491.3 966.5 556.6 -307.0 -1052,1 -926.9 -260.7 2.3 7.4 Total Cos-pptioo 6142.0 8127.1 11282.0 11402.7 11471.5 10821.2 10214.4 10607.4 16413.4 5.8 -2.6 6.1 87.7 olvest`ect 1455.6 1351.4 2818.8 2490.0 1933.6 1636.0 1835.0 2280.0 3961.5 5.0 -18.9 13.4 19.1 NotiRool Savinjo 1093.1 1786.2 1116.0 1185.2 1007.4 1455.7 2116.4 2341.8 3575.4 0.7 10.8 13.7 9.1 DoMestic Savins 1247.8 1940.7 1327.5 1523.5 1377.0 1943.7 2587.1 3106.9 4222.2 1.8 13.0 11.7 11.7 Dross Domestic Product, correct prices 4262.7 6216.8 1359(l.9 13658.0 12848.5 10106.2 -- - -- 11.2 -14.0 -- PRICES IN US DOLLARS (1177 - 100) EIp-rt Prico Index 37.1 47.3 87.6 87.7 100.0 98.0 124.5 132.4 191.9 8.1 5.7 __ ITnport Price ITdec 38.6 42.7 90.4 91.4 100.0 107.2 115.1 122.3 166.1 8.2 8.3 __ Toros of Trade Ocdso 96.1 110.7 96.9 95.9 100.0 91.4 108.2 108.3 115.6 0.0 -2.4 __ DP DeflAtor 57.1 63.5 107.3 175.2 100.0 77.9 -- -- -- 5.7 -13.9 __ Accoal1 Avorage Excho_ge Rate (Soles per 3) 26.8 38.7 40.8 56.1 82.0 165.8 224.0 -- -_ OUTPUT, LABOR PORCE AND GNP by Sector Lab.r Force GNP per Capita PRODUCTIVITY IN 1970 PRICES Io Mil. af US ollara Percent of TotalD Gro-th Rata In Tho-soods Percect of Total Drosib Rote in US Dollrs of Aver.ac Gcowth Rate 1561 1976 1961 1976 1961-76 1 1976 1961 1976 61-7 1976 1961 1976 1961-76 Agriculture 988.9 1138.9 22.1 13.7 1.7 1766.6 2109.4 52.8 43.4 1.4 521.8 539.9 41.8 31.5 0.2 I.dostry 1465.3 3167.7 36.4 38.0 5.3 616.4 1019.1 19.1 21.0 3.4 2377.2 3108.3 190.8 181.2 1.8 ecrvice. 1666.3 4030.9 41.4 48.3 6.0 907.0 1731.6 28.1 35.6 4.4 1837.2 2327.8 147.5 135.7 1.6 TotallAverege Z1!fl 8237.5 100.0 100.0 5 .0 3237.0 4960.1 100.0 100.0 26.I7 124. 9 17151.5 8010 .0 2.2 CENTRAL GOVERNM4ENT FINANCE O Projected (as porc.t of Corroct GDP 1965 1970 1975 1976 1977 1978 _97- 1980 1981 1982 Corret Rov-c 17.2 16.1 15.9 14.5 14.6 15.8 16.8 17.3 17.5 17.6 Current ERpsnditure 14.3 13.4 16.3 146.0 1.3 17.3 14.1 13.7 14.5 14.5 Correct Doviogo 0.9 2.9 -0.5 -1.5 -3.7 -1.5 2.7 3.5 3.0 2.9 Capitol lopedpitore 4.5 4.1 5 0 4.8 3.9 3.4 4.1 4.9 4.7 4.5 Exterool A.iastonce (Not) 1.2 0.6 3.0 2.0 3.3 0.9 -1.9 -2.5 _2.0 -1.4 CURRENT EXPENDITURE DErTAILS Acte1 Pr-lic. Eot. DETAIL ON 1977/82 Uevelopmcot Ploc as porcect of total Curroct EBpeod.) 1569 1973 1976 1977 PU5IC1 SETOTR Us $ Milli.. % Totcl INVESTMEUNT PR20GRAM Edoc-tion 30.6 27.9 50.0 18.1 Health 9.0 6.3 6.2 4.7 Agri-ltcro 1262 2 19.4 AgrIcltor- 3.6 4.4 1.8 1.3 IUdcstry, T-uriom od =iig 1375.1 21.3 Othor Economic Services 3.2 4.0 5.2 3.2 Rnersy 1794.4 27.8 GDoeral Devlcce, 46.4 42.7 46.9 54.1 Trtccport cod OCoco,c8catloc 992.4 13.8 1oterast o= Debt 5.4 11.3 10.8 15.1 Soil cod Locl Ictcro-t Projoote 1128.3 17.5 Other _ 1.8 3.3 6.2 3.5 Totld Curret Expooditure 100. 100.0 00.2 10 n0. Total 6452.4 100.0 MONEY AND CREDIT 1973 1974 1975 1976 1977 1978 (Milliocs of Score oxtotacdiog at the sod of period) MRney cd Quoci-M oc.y 87506 107012 126174 151062 198500 320950 Bank Credit to Public So.tor 20811 19773 43567 104900 198900 289800 Back Crodit to Private SDctor 60361 73152 59786 1349() 173800 238200 Momey me perce. t of GDP / e4.4 23.9 22.8 19.7 18.9 19.2 GDoRral Prior Indec In Soles (1977=1002- 37.8 44.1 53.4 71.') 100.0 157.5 Aoooal porcceot e chacce icn Gseoral Price IDd.o in SDlce 14.2 16.7 21.1 34.6 39.1 57.5 Rock Credit to Public Soctor 77.0 -5.0 120.3 106.9 69.0 45.7 Deck Credit to Priv-to Soctor 16.0 21.2 30.9 37.2 49.4 37.1 a/ Itplicit GDP Deflator   .28 - P.age 0f 5 PERU 37 11020 02 1707 III0.120050 7 TAN0)1 AND0 727 ACTUAL EST. O J EOTEZiD 19 72 197 197 197 196 1977 1978 17 190 1951 1982 193 1984 1983 11U0ARY tOF BALANCE OF P070E00S fopor- (I..ludIng NSF) 152.9 1347.2 1828.2 1674. 1746 23. 29. C. 005.6 i457.5 5179.8 5855.4 6525. 6575.7 Imports (Including NFl) 1102.9 ~~~~~~~~~~~14 08. 2462.3 3022.5 2628.0 29.4 27.1 77. 281.1 5779.9 5941.9 4599.3 5128.91 8140.8 ReoreBalanc (AcUflo )f00t5. -674.1 -1347.9 -983.4 -5 58.6 329. 1210.8 1173.7 i107.4 1167.9 12994.1 1057.8 432.9 list Factor Servius Income ~~~~~-120.9 -180.9 -218.15 -250.:3 -366.4 -426.4 -577.7 -955.5 .i016.3 .1012.8 -io88.9 -1197.3 -1i8,.8 -1197.0 Osi Intersel Payments ~~~~~~~-74.2 -100.7 -15. -14.0 -324.0 -371.8 -693.2 - 62.2 -646a6 - 617.8 - 386.9 -567.3 - 541.2 -5341.6 of htch onpblic Dc.T loom -52.0 -93.1 -117.2 -186.6 -498.8 -248.0 -321.1 -474.9 -519.4 -521.4 - i2.8 - 05.5 -491.3 -494.1 Dirc l -setn Inco- -46.7 -80.7 -42.7 -26.3 -42 .4 -56. -14.5 -293.3 -37.0 - 400.0 -500.8 -610.0 -642.6 -5. let C,rr.rt Trausfere 39.2~~~~~~: 42.1 45.1 484 7.J1. 56.0 60.0 64.8 68.9 73.06 Bi. 88.1 952 Solace Os Corteoct Account -31.~~~~'l7 -91.6 -0. -138.8 .1191.9 -926.2 -181.9 325.3 182.3 i64.6 166 180.64 70 6. tat Diret F-rnlo Io-etr- 34.2 49.4 143.8 715.37 170.8 54.1 21.0 - 26.3 28.5 -20.1 20.0 73.0 26.5 70.6 Scat P,cblio 8610 bent ~~~~~~~~ 280.0 667.4 1078.0 1090.2 1144.4 1026.4 6866.5 1746.4 1075.2 1032.8 1484.6 1138.7 7377.1 1967.1 A_ rlato 130.4 -504.9 -518.4 -249.4 -505.4 -406.4 -678.9 -558.6 - 889.7 -2030.1 -13.7.4 ..1201.2. .1267.6 -3.086. NtBen orrcelg 149.6 362.5 759.0 830.8 939.0 620.0 367.6 787.8 18_5.4 22.7 -127 --6. 09.5 778.9) Net other 841 Lo- Di. -eeen 20.1 47.8 80. 84.9 87. 3 4.3 61.8 81.4 973.9 107.8 132.7 153.0 170.2 187.2 lSorniaocIcc -~~~~ ~ ~~~~~50.8 -38. -47. -56.7 -75. .74.4 43. - 702 -89.9 -80.3 - 14.2 -134.2 -156.7 181.9 Net lorroetog -30.7 9.3 52.7 27.8 ~~~~ ~ ~~~~ ~ ~~~~ ~~~~~~~12.7 0. -11. 3.2 4.0 9.4 18.7 i8.8 13.5 5.7 thor-treCapItol 203.7 .124.7 245.5 -150.0 .-551.0 .97.5 .715.5 - of.o 150.0 - 100.0 - 50.0 - 50.0 0 0 BOter Capinol (Bell -4.8 -91.6 -90.56 -15.6 8.0 0.0 -2.0 0 0 a 0 8 0 Change to Reserve (--Imornose) s/ -~~504 -33 28. 501 504 567 -20 - Boo.0 -193.3 -786 - 102.2 - 109.8a 1117 -145.7 Levl f eeson(a en o oe prId)*2 480.3 413.6 697.2 185.1 -55. 5 -7095.0 -623.0 137.4 370.7 447.3 595 659.3 7171.8 91. BfE010ANI8SEi 08A20 1972 1973 1974 0975 1878 1977 3978 1979 1980 1985 uGIv_R!ONsE! ,0- ge 7) Ps,Iet oTxo Food 75.1 85.4 98.4 165.5 218.3 163.4 162.9 241.:6 276.3 637.0 30. 7 -13.8 22.1 6.8 .10. Oth-rumeuce goods 15.9 43. 41.4 8. 126. 151 85.3 125.3 144.9 315.0 6. -19 2055. 4 5. Pesrolou, c-do aid de-lv-tv- 37.3 47. 99.4 262.4 260.6 268 .9 34.8 43.4 73.0 456.0 652.6 -63. 4010.0 . Inctr-ediutn goode 534.6 538.1 564.1 062.6 802.0 624.9 554.9 69.5.1 821.4 1744.6 25.8 -4.0 17.8 23.2 264 uapinai goode 17.4 3177 469.2 030.2 675.2 448.6 458.8 587.1 717.4 1761.6 36.0 -17.6 21.2 17.4 28. .tdjuetueote and oon-monntsry gold 051.7 198.0 038.5 160.1 216.5 473.0 304.6 727.9 241.0 6 227 9 242.5 9.3:18.6 1 - 6.2 17.6 4.0 Tota -ode lf..4b.) 8B2.a 1032.0 1906.9 2390.1 2100.0 2164 .0 1600 .1 1972.9 2224. 4 ~ 766.6 26.8 -12.7 1.3.8 80.3 70.6 outfactor -ori-o 280.8 367.2 5533.4 631.9 528.0 530.6 449.6 557.7 646.3 1374.2 16.1 -5.7 16.6 19.7 22.4 Told1 gode nod coof-eco -sel-s 1102.0 1400.0 2462.3 3022.0 2628.0 2680.4 2070.1 2478.1 2871.1 6190.6 24.2 -11.2 16.8 500.8 100.0 Flserl210. 137.7 201.8 155.8 187.7 179SD 191.0 273.3 212.8 341.5 -5.2 4.0 8.6 8.6 35.2 Coffer ~~~~ ~ ~~~~ ~ ~~~~ ~~48. 63.6 314.8 53.2 101.0 196.3 168. 120.6 187 i.419. 219.0 - 89.2 2. Othoragrtclt-rl o.de 108.6 203.:7 337.1 383. 24. 176.6 158.6 278.9 272.4 317. 0.7 -1. 18.4 8.3 7.9 topper ~~~~~~ ~~~~~~ ~~~~~18. 325.0 301.0 15. 230 392.3 408.6 76. 8. 48768 3. 19. 18.4 21.7 SlIcer ~~~~ ~ ~~~~ ~ ~~~~~60.2 70.3 1489 144.3 145.1 172.5 286.9 272.5, 266.4 434.3 24.1 19.4 11.2 81 6.6 Ste olmse16. 2. 702.9 231.3 3196 335.7 796.~6 453 512 715.5 13.9 -3.5 13.41970. Petroleu, -ode nod d--riv-co 6.5 15.0 28. 37. 59.3 52.2 1798 028 3.8 672928.7 932494 Neeceoto..ed goode 32.7 65.2 1516.51 15.2 133.01 221.8 338.1 562.7 1853.9 1599.1 42.0 57.5 22.8 08.3 21.7 Ton1 g00de 945.0 101.8 1303.3 1298.6 1359.5 1729.6 1940.6 3046.6 3426.7 5610.0 9.5 19.5 16.4 80.7 85.4 8Nc-f-atloeei..o. 207.9 235.4 325.8 383.5 385.1 412.2 459.3 522.9 378.2 963.7 16.7 9.2 11.2 19.3 14.6 OTet 800d5 cod -u-fsot-reev-n 1177.9 2340.7 B828.2 1674.1 1744.6 2137.8 2399.9 36089.3 4034.8 63753.7 10.9 17.3 15.5 100.0 100.0 102N COMMITMENTS2 86 B-l - en. IBRD 0 49 0 26.0 0 174 1 60 0 ~~~~ ~ ~~~~ ~ ~~~~~~~~~~~~~~~1973 1973 1974 1975 1978 1977 1978 12A .0 0 0 .0 .80 .8 18001016 osO 10G-TERM 700120 DEBT (Dteboreed Gel,) Otbrh hiotnl. . 25. 42.0 113.4 42.1 Ocvsooeosnte ~~~~~~ ~~~~~200.01 358.85 534.0 274.05 645.1 419.91 Tota Debt Bonstaodioe (000 end 185.4 217.3 1308: 83. 139.1 404.2 o h nid 1068.2 1431.5 2213.1 2988.7 35. 691 56. Fe aiIesttto-oo 161.2 636.1 386.0 432.89 798.2 ..7. 7 ooodlg ndlshbcr-o 1338.:2 2542.5 5547.9 4012.6 0784.2 4634.7 6557.6 Bcods . .2 . 0 .0 1.3 PobIlo Debt Serelt -182.4 -390.1 -431.7 -436.1 -454.4 -851.6 - 0 Tuta MIT1 Loos 446.7 1308.7 1310.8 033.2 1862.5 1898.1 ton-et -52.0 .93.1 -113.2 -186.6 -198.8 a665.o .321.-0 Other 88617 ve.e (ob-r ovoilbtO) .0 .2 .0 .8 .0 .0 DETI 050D00 (Public Debt 10TERNAL 0E87 (lisbuned -tly) D-nedv a fBo 31. 187 Aetept Prrceo~"t Oolbt Sorvico nniuFI 1141 Dalt) 15.6 29.5 23.6 26.0 28.0 30.9 33.3 1880 195-r .7V' cbt Sovc/O 2.4 4.3 3.7 3.2 73 513. B-kl Grou 102.6 5 Debt cnvtlsrres Rono.n 10.7 20.9 04.4 20.2 22.9 34.7 50.2 Ottna 1Selto-rl 7324 . Otoereosente ~~~~~~ ~ ~~~~~~~~~~~~~~2274.4 42. TERNS (Pobli0 tall) ppli.- ~~~~~ ~~~~~~~~~82.4 12. Inc. onTtal 000/Tota 000 5 .0 6.4 51 6.7 5.4 5.5 16.4 FOo-oiol o-tloions- 2152.4 401 Toe1flttrvo/TOto1 000 17.4 20.8 19.:5 14. 12.3 14.0 15.9 00Ef0aEN8Y 070000 FOR PUBL1C H1 4LT 57765.7 105.0 Total PuhLT~to 881 Db 78.2 Gonsttb./Iofc-rl (tool. N702 25.4 47. 43.8 35738.0 476 1. Othar sair Debt Saf Srecefer/Omportn (trot. 8702 6.8 19.2 26.3 21.3 18.7 23.4 3.2~~~~~~~~~i... O) S 19 2 6 3 8.723. 3: StTr-_forGocenDOtbor--et 34.8' 40.4 60.9 39.6 30.0 49.2 7.7 020 0.. Iro Dia. 3.5 1.3 0.8 1.4 3.6 0.5 2.0 dlGroup D0h. roe tb. 35 13 0.8 1.4 2.1 2.5 2. of Adjusted foo Ontevon of pnyceonna support bane ond rod Isootlon. 0000 001(800 12.5 0.7 6.0 4.6N 4.0 3.7 6 4 3.7 8/ txooudes25 7155.8 lilcoon ofprovae-- noa delt -ocotod ho It os met pu Orcp D01ID0D 12.5 9.2 6.8 4.6 4.80. 3.7 0080 ebtI Snrsooe/Set S-rios 8.6 4.1 4.1 4.2 4.3 3.4 2.8 5010: Themar differece ia --ssOioOo o aro -tPito floa-0 bo-et puIlloo. p_5,0 on-oeBo erPetsroeBhSrvc 8.41414.4.34 38 on br-emthat limit the oom-broh&t1 of prtn of the hoOt ut.toodg fi,.~o4ou h also thit -oe ujth the floon ohon -c the "Bo1lnufco. o...soeto'.ti   - 29 - ANNEX II Page 1 of 5 THE STATUS OF BANK GROUP OPERATIONS IN PERU A. STATEMENT OF BANK LOANS (as at September 30, 1979) 1/ --- US$ million --- Amount Loan (less cancellations) Number Year Borrower Purpose Bank Undisbursed 25 loans fully disbursed 268.2 949 1973 Republic of Peru Education 24.0 15.2 1025 1974 Republic of Peru Roads 26.0 1.8 1196 1976 Republic of Peru Transport 76.5 65.6 1215 1976 Republic of Peru Power 36.0 20.4 1281 1976 CENTROMIN Mining 40.0 36.1 1283 1976 Banco Vivienda Urban Dev. 21.6 18.8 1358 1977 COFIDE Industry 35.0 28.8 1403 1977 Republic of Peru Agriculture 25.0 25.0 e-11 1978 Republic of Peru Preinvestment 8.8 8.3 1693 1979 Republic of Peru Program Loan 115.0 115.0 Total 676.1 335.0 of which has been repaid 141.0 Total now outstanding 535.1 Amount sold 18.3 of which had been repaid 18.3 - Total now held by Bank 2/ 535.1 Total undisbursed 335.0 1/ No IDA credits have been made to Peru. 2/ Prior to exchange adjustments.  - 30 - ANNEX II Page 2 of 5 B. STATEMENT OF IFC INVESTMENTS (as at September 30, 1979) Type of Amount in US$ million Year Obligor Business Loan Equity Total 1960 Industrias Reunidas, S.A. Home Appliances 0.3 0.3 1960 Luren S.A. and Ladrillos Calcareos, S.A. Bricks 0.3 0.3 1960 Durisol del Peru, S.A. Building Materials 0.3 0.3 1960;1962 Fertilizantes Sinteticos, S.A. Fertilizers 4.1 4.1 1962;1968 Cemento Andino, S.A. Cement 2.2 0.2 2.4 1964;1967 Cia. de Cemento Pacasmayo Cement 1.1 0.5 1.6 1975 Southern Peru Copper Corp. Mining 15.0 15.0 1978 Cia. de Minas Buenaventura Mining 2.0 0.5 2.5 Total gross commitments 25.3 1.2 26.5 less cancellations, terminations, repayments and sales 11.3 0.4 11.7 Total commitments now held by IFC 14.0 0.8 14.8 Total undisbursed 2.0 0.5 2.5  - 31 - ANNEX II Psge 3 of 5 C. PROJECTS IN EXECUTION I/ Loan 949-PE: Education Project; US$24.0 million Loan of December 5, 1973; Effective Date: March 5, 1974; Closing Date: June 30, 1981. The project has experienced serious difficulties and is now about 40 months behind schedule. In the first 3-1/2 years after effectiveness, there was little progress owing to delays in establishing and staffing the project unit, weaknesses in the unit itself and a long delay in adopting the educational reform which was to determine curricula. This last difficulty was resolved with the reform's implementation in 1977, but project execution is still being hampered by weaknesses in the project unit and cumbersome bureau- cratic procedures. In order to resolve these problems, the project lhas been modified to reduce its scope, increase the Bank disbursement percentage and improve administrative procedures to speed execution (see President's memorandum R79-59 of March 27, 1979). Loan 1025-PE: Sixth Highway Project; US$25.0 million Loan of July 1, 1974; Effective Date: August 21, 1974; Closing Date: June 30, 1980. Loan 1025-PE finances improvement of the Lima-Pucallpa highway which connects the Amazon basin to the Pacific Coast. In view of the unusually difficult terrain and limited government implementation capacity, the project was divided into two stages which are financed by separate loans, 1025-PE and 1196-PE (see below). Because of initial delays and substantial cost increases, the scope of the project was reduced in February 1978 (see President's memo- randum R78-36), and the Closing Date postponed. Construction is now well advanced and should be completed this year. Loan 1196-PE: Lima-Amazon Transport Corridor Project; US$76.5 million Loan of May 27, 1976; Effective Date: August 18, 1976; Closing Date: December 31, 1980. The project's river ports component has progressed slowly because of technical problems which delayed completion of design, but it is now about to get underway, although with some cost increases. There have been serious delays in contracting for civil works under the road component because of slow procedures and limited government implementation capacity. These problems now appear to be largely overcome and all project components should be under construction by the end of the year. The project has been modified so as to increase the financing for urgently needed road maintenance and eliminate improvement of those road sections which cannot be completed within a reason- able time (see President's memorandum R79-88 of April 27, 1979). 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 understand- ing that they do not purport to present a balanced evaluation of strengths and weaknesses in project execution.  - 32 - ANNEX II Page 4 of 5 Loan 1215-PE: Fifth Power Project; US$36.0 million Loan of September 20, 1976; Effective Date: November 18, 1976; Closing Date: December 31, 1981. The slowdown of demand in ELECTROLIMA's market in the wake of the current economic difficulties as well as procurement problems have delayed somewhat the project's power distribution component and completion is expected about a year behind schedule. Serious delays were also experienced in getting the technical assistance program of the loan underway; however, some consultants have now been retained, and with strong support promised by newly appointed officials in the Ministry of Energy it is expected that the program will begin to progress normally in the near future. Because of the delays, the closing date has been extended. Loan 1283-PE: Urban Sites and Services Development Project; US$21.6 million Loan of October 12, 1976; Effective Date: January 10, 1977; Closing Date: June 30, 1980. Administrative difficulties, particularly the need to reconcile Peruvian procedures with Bank guidelines for procurement, have delayed the project by about one year. Project execution has now begun and its pace is expected to pick up this year, as most design work has been completed. Loan 1281-PE: CENTROMIN Mining Project; US$40.0 million Loan of December 6, 1976; Effective Date: May 24, 1977; Closing Date: December 31, 1982. Initiation of the copper mining component, which the IDB is co- financing with the Bank and which amounts to about 90 percent of total project cost, has been delayed by about one year because of the lack of local counter- part funds. The Government has now decided to proceed with the project with support from a supplementary IDB loan which will help cover part of the financing shortfall. Engineering and procurement activities on this part of the project have been initiated. Construction of the mine-water treatment plant has also experienced some delays but is now advancing satisfactorily. Loan 1358-PE: Industrial Credit Project; US$35.0 million Loan of January 28, 1977; Effective Date: March 30, 1977; Closing Date: June 30, 1981. Since Peru's economic recession has led to a contraction of investment and to lower than anticipated demand for the loan, disbursements are lagging behind schedule. In view of this, the Borrower--the National Development Bank (COFIDE)--has agreed to finance projects identified by commercial banks and other financial institutions, which would also guarantee these loans and provide some loan servicing. The initial response has been encouraging and the credit line is now being committed more rapidly.  - 33 - ANNEX II Page 5 of 5 Loan 1403-PE: Irrigation Rehabilitation Project; US$25.0 million Loan of May 20, 1977; Effective Date: August 2, 1977; Closing Date: June 30, 1983. DEPERTC, the executing agency, has completed the design for civil works in two of the six valleys where irrigation systems are to be improved and construction has started. The project's implementation is slightly behind schedule but is expected to catch up over the next 12-18 months as construction proceeds. Loan S-11: Water Supply and Power Engineering Project; US$8.8 million Loan of December 22, 1978; Effective Date: June 27, 1979; Closing Date: December 31, 1981. Consultant's studies have commenced and are proceeding on schedule. Loan 1693-PE: Program Loan; US$115 million loan of May 17, 1979; Effective Date: May 24, 1979; Closing Date: July 17, 1979. The economic recovery program supported by the program loan is pro- ceeding in a generally satisfactory manner with progress in some areas; --, e.g., import liberalization and promotion of non-traditional exports--exceeding the Bank's expectations. Because of a better than expected export performance, Peru's foreign exchange constraint has been greatly relaxed resulting in a lag in disbursements of the program loan. As of October 22, 1979 disbursements stood at US$6.2 million.  - 34 - ANNEX III Page 1 of 2 REPUBLIC OF PERU LOWER PIURA IRRIGATION REHABILITATION PROJECT SUPPLEMENTARY PROJECT DATA SHEET SECTION I: TIMETABLE OF KEY EVENTS a) Time taken by the country to prepare project: Nineteen months b) The agency which has prepared the project: Government consultants and FAO/CP c) Date of first presentation to the Bank, and date of the first Bank mission to consider the project: February 1977 February 1978 d) Date of departure of Appraisal Mission: November 14, 1978 e) Date of completion of negotiations: September 11, 1979 f) Planned date of effectiveness: March 1980 SECTION II: SPECIAL BANK IMPLEMENTATION ACTIONS None SECTION III: SPECIAL CONDITIONS It has been agreed that the Government would: a) cause MAA to make DEPECHP responsible for agricultural extension, land reclamation and maintenance of the irrigation and drainage works in the project area and provide the support and funding necessary to enable the MAA's irrigation district office to operate the irrigation and drainage systems (para 79); b) cause DEPECHP to employ consultants, acceptable to the Bank under terms and conditions satisfactory to the Bank, to prepare final designs of Bank-financed works and to supervise construction of all project works (para 76); c) insure that DEPECHP, would, not later than June 30, 1980, prepare and put into implementation a maintenance plan for the project area irrigation and drainage networks acceptable to the Bank (para 80);  - 35 - ANNEX III Page 2 of 2 d) cause DEPECHP to enter into operational agreements with and adequately fund: (i) CENCIRA to establish a program for training of the extension service staff (para 72); and (ii) INIA to develop production technological packages for the several project crops and assist the project in irriga- tion and drainage research (para 73); e) by December 31, 1980 prepare terms of reference satisfactory * to the Bank for a feasibility study for a possible future irrigation rehabilitation project in the Chira-Piura area (para 76); cause DEPECHP to retain consultants, under ternls and conditions and with qualifications acceptable to the Bank, to assist in: (i) planning, designing, and constructing field drains and on-farm development works, and monitoring the effects of the drainage system; (ii) developing a plan for optimal utilization of the Chira-Piura water resources; (iii) developing and putting into operation a maintenance plan for the project area drainage network; (iv) establishing the extension service and developing technical packages for crop production; and (v) carrying out feasibility studies for a possible future project (paras 75, 76); f) increase O&M water charges in the project area to cover 100 per- cent of the O&M costs of the facilities to be rehabilitated or constructed under the project; by December 31, 1983 begin trans- fering to the irrigation district sufficient funds from the water charges collected to cover all O&M costs of the irrigation and drainage systems in the district; and recover, over a 50 year period, as much as possible of the investment costs in accordance with farmers' payment capacity (para 81); g) maintain the interest rate on project subloans at a minimum of 33 percent inclusive of commissions and review from time to time, in consultation with the Bank, the subloan interest so as to take account of relevant changes in inflationary trends and capital market conditions (para 84); and h) Special conditions of loan effectiveness would be that the Borrower and BAP had signed an agreement for channeling project funds for on-farm investments and for making subloans to farmers/ enterprises on terms and conditions acceptable to the Bank and that the Government and ENERGOPROJEKT had executed the construc- tion contract for the main infrastructure works (paras 77 and 83).   ]BRD 14158 -4.30' T TAn-b.A 81-00 N 80'30 D - t - 51500 IR 14?5 ( ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ - mir PCSFCt-lQ*S i-- .D POECH05 A 0550DM IVR O S POECH~{ SA 0VRNG 5 5 \ \s C h / 4' .< l 4 .- ' C IVt A PA C/ F/C '\ .\ iS N W ; Ft f a S 0~~~~~~~PlFt -55?Ol / { t S ,1 . 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