Honduras - Second Agricultural Credit Project

Document of FILE The World Bank FOR OFFICIAL USE ONLY Report No. P-2757-Ho REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT AND THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN AND CREDIT TO THE REPUBLIC OF HONDURAS FOR A SECOND AGRICULTURAL CREDIT PROJECT March 28, 1980 This docoment hss 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.  HONDURAS SECOND AGRICULTURAL CREDIT PROJECT CURRENCY EQUIVALENTS L 2.00 = US$1.00 L 1.00 = US$0.50 WEIGHTS AND MEASURES Metric System ABBREVIATIONS BANAFOM - Banco Nacional de Fomento (National Development Bank) BCH - Banco Central de Honduras (Central Bank of Honduras) CABEI - Central American Bank for Economic Integration COHBANA - Corporacion Hondurena del Banano (Honduran Banana Corporation) COHDEFOR - Corporacion Hondurena de Desarrollo Forestal (Honduran Forestry Development Corporation) CONADI - Corporacion Nacional de Inversiones (National Investment Corporation) CPA - Comision de Politica Agropecuaria (Agricultural Policy Commission) FAO/CP - World Bank/Food and Agriculture Organization Cooperative Program IDB - Inter-American Development Bank IFAD - International Fund for Agricultural Development INA - Instituto Nacional Agrario (National Agrarian Institute) MRN - Ministerio de Recursos Naturales (Ministry of Natural Resources) OAS - Organization of American States OECD - Organization for Economic Cooperation and Development PI - Participating Intermediaty PU - Project Unit of BCH USAID - United States Agency for International Development FISCAL YEAR January 1 - December 31  FOR OFFICIAL USE ONLY HONDURAS SECOND AGRICULTURAL CREDIT PROJECT LOAN, CREDIT AND PROJECT SUMMARY Borrower: Republic of Honduras Beneficiary: Central Bank of Honduras (BCH) Amount: Loan - US$ 20.0 million equivalent Credit - US$ 5.0 million equivalent Terms: loan - 20 years, including 5 years of grace, at 8.25 percent per annum Credit - Standard IDA terms Relending Terms: The Government would make funds available to BCH to relend, for 30 years, with 10 years grace, at a 0.75 percent service charge per annum, to the Honduran Forestry Development Corporation (COHDEFOR) for forestry development and to the Honduran Banana Corporation (COHBANA) for studies of its organization and the use of waste fruits for animal feed. The Government would also pass funds through BCH on a grant basis to the Ministry of Natural Resources for studies of groundwater resources. The foreign exchange risk on these components would be carried by the Government. The remainder of the proceeds of the Bank loan and IDA credit would be relent by the Government to BCH for the line of credit, flood control works, training and the Project Unit (PU). The loan would be relent on the same terms as the Bank loan, and the IDA credit for 20 years, with 10 years grace, at 2 percent interest per annum. The foreign exchange risk would be carried by BCH. For the line of credit, BCH would relend funds through participating intermediaries at an interest rate of 10 percent. These intermediaries would, in turn, on-lend the funds to investors at 14 percent interest. Subloans would be made for terms of 2 to 12 years, including not more than 5 years grace. Project Description: The objective of the project is to support national programs of agricultural development and agrarian reform, thereby expanding domestic food production and consumption, increas- ing exports and import substitution, generating employment, improving incomes and strengthening institutions for agri- cultural planning and development and for natural resource TVm duscnt hkme ragtricted ditribution and may be used by recipients only in the performance d ther official dutis. Its contents may not otherwise be disclosed without World Bank authorization.  conservation. The project comprises (1) a line of credit for investments in crops, livestock, agricultural machinery and municipal abattoirs, (2) flood control and drainage works for banana and plantain development, (3) a pilot reforestation program, (4) studies of groundwater resources, COHBANA's organization, and use of waste bananas and plantains for animal feed, and (5) incremental PU expenditures and related training and technical assistance. Almost 90 percent of the expected 12,800 persons who would benefit directly from the project have present incomes which fall beneath the rural poverty line; the project would help raise their annual incomes substantially. There is some risk that changes in lending terms since the First Agricultural Credit Project -- a higher final rate to subborrowers and a smaller spread for intermediaries -- may cause initial reluctance to borrow. However, these new 1:erms reflect changes in national economic conditions and will be carefully monitored to assure their appropriateness. It will also be important to the success of the project that the ongoing restructuring of the National Development Bank, the principal lender to small-scale farmers, be closely supervised, and that the Agrarian Reform Institute successfully implement a program to regularize the land tenure arrangements for the squatters currently residing in the areas to be developed under the banana and plantain component. Estimated Cost: US$ Millions Equivalent Local Foreign Total Agricultural Development Small-Scale farmers Banana/Plantain 1/ 3.4 3.6 7.0 Other 3.9 3.3 7.2 Other investors 7.0 6.3 13.3 Forestry Development 1.3 0.5 1.8 Studies and Training 0.6 2.5 3.1 Project Unit 0.5 0.6 1.1 Baseline Total 16.7 16.8 33.5 Price Contingencies 2.5 2.5 5.0 Total Project Cost 19.2 19.3 38.5 1/ Including flood control and drainage works totalling US$2.2 million, to be financed initially by CORBANA and subsequently recovered from the ultimate beneficiaries.  - iii - Financing Plan: US$ Millions Equivalent Local Foreign Total Bank Loan and IDA Credit 5.7 19.3 25.0 Central Bank 3.1 - 3.1 Government 1.2 - 1.2 Public Corporations 2.0 - 2.0 Financial Intermediaries 3.9 - 3.9 Subborrowers 3.3 - 3.3 1/ 19.2 19.3 38.5 Estimated Disbursements: US$ Million Bank/IDA FY 1981 1982 1983 1984 1985 Annual 1.8 6.8 7.9 5.5 3.0 Cumulative 1.8 8.6 16.5 22.0 25.0 Rate of Return: 55 percent Staff Appraisal Report: Report No. 2691, dated March 21, 1980 1/ Excluding about US$ 1.5 million of family labor and contributions in kind.  I  INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN AND CREDIT TO THE REPUBLIC OF HONDURAS FOR A SECOND AGRICULTURAL CREDIT PROJECT 1. I submit the following Report and Recommendation on a proposed loan equivalent to US$20.0 million and a proposed development credit equiva- lent to US$5.0 million to the Republic of Honduras for the Second Agricultural Credit Project. The loan would have a term of 20 years including 5 years of grace, with interest at 8.25 percent per annum. The development credit would be on standard IDA terms. US$1.8 million for forestry development and for organization and banana/plantain waste use studies would be relent to the Honduran Forestry Development Corporation and the Honduran Banana Corporation, respectively, for 30 years, with 10 years grace, at a 0.75 percent service charge per annum. US$1.5 million for groundwater resources studies would be passed on to the Ministry of Natural Resources on a grant basis. The remainder of the proceeds of the loan and credit would be relent to the Central Bank of Honduras, of which about US$20.5 million would be on-lent to COHBANA for flood control works and through participating intermediaries to final beneficiaries for terms of up to 12 years, including up to 5 years grace, at an annual interest rate of 14 percent. The grant element provided to Honduras in the Bank Group package, using a 10 percent discount rate, would be 25 percent. PART I - THE ECONOMY 1/ 2. A report entitled "Memorandum on Recent Economic Devel.opment and Prospects of Honduras" (1856-HO) was distributed to the Executive Directors on January 24, 1978. Bank missions visited Honduras during January and November 1979 to review recent economic performance. The main findings of these missions are summarized below. Country data sheets are attached as Annex I. Long-term Development Trends 3. The long-term growth rate of the Honduran economy has been exceed- ingly low. Between 1950 and 1975, real per capita GNP grew by only one percent a year. Honduras' per capita GNP in 1978, US$480, is one of the lowest in the Western Hemisphere. Honduras' poverty is also evident from a variety of indicators. Malnutrition is severe: about three quarters of pre-school children are believed to suffer from protein and caloric defi- ciencies, and infant mortality is estimated at 103 per thousand live births. 1/ This section is substantially unchanged from the section on the economy in the President's Report for the El Cajon Power Project (P-2710-HO) dated February 20, 1980.  -2- It is estimated that rcughly 54 percent of the population has no access to safe piped water and about 76 percent lives without any form of sanitary waste disposal. Furthermore, these are country averages which conceal substantial regional disparities as living conditions in the rural areas, which account for two thirds of the population, are much worse than in the cities. 4. A major reason for Honduras' poor growth performance during 1950-75 was the continued dependence of t'he economy on the production and export of a few agricultural commodities, especially bananas and coffee, whose prices depend on a fluctuating world market situation and whose output may be greatly influenced by weather conditions. The latter was dramatically illustrated when extensive destruction of the banana plantations by Hurricane Fifi in 1974 reduced the volume of bananas exported in 1975 to about one half the level of 1973 and contributed to a drop in per capita income of about 3 percent. A serious lack of basic infrastructure, uneven land distribution, and deficient credit, technical services, and development programs kept non- banana agricultural growth far below its potential. Furthermore, the country's sizeable forest resources were subject to wasteful exploitation practices, widespread burning, and uncertain ownership. In addition, the mountainous topography of the country has made the expansion of the road network slow and costly. There has been progress, however, since 1960, including the establish- ment of a basic transportation network connecting the main population centers and e considerable expansion of electric power service. Government Development Efforts 5. Since 1972, development efforts have accelerated; several measures have laid the basis for the countr-y's improved longer-term economic prospects. A land reform program, begun in 1972, and strengthened and expanded through comprehensive legislation in 1975, aims at greatly improving land utilization as well as increasing the income and employment of the poorer peasants through the transfer of unutilized or poorly utilized land from large landowners to landless rural families. Another major policy development was the nationaliza- tion of timber rights in 1974. A new forestry law established guidelines for private sector forestry participation and created the state-owned Honduran Forestry Development Corporation (COHDEFOR). In the same year, the Government established the National Investment Corporation (CONADI), to promote and finance industrial projects. Furthermore, improvements in Government planning and executing capacity resulted irn a substantial increase in public fixed investment from an average 4.9 percent of GDP in 1968-72 to 6.6 percent in 1974, and 10.1 percent in 1978. I'he Government has also made an effort to increase investment in the social and productive sectors and strengthen public finances through tax reforms and better tax administration. A 1975 tax reform made the tax on coffee exports ad valorem, with marginal rates ranging from 10 percent to 20 percent depending on coffee prices; substituted a 3 percent value added tax for the sales tax; and raised the tax rates on beer, cigarettes and liquor. Partly as a result, current Central Government receipts increased from 13.2 percent of GDP in 1970 to 15.3 percent in 1978.  -3- Recent Developments 6. During 1974-75, the Honduran economy was adversely affected by one of the worst hurricanes in its history, by the oil price rise of 1974, and later on by the OECD recession. GDP remained almost stagnant, severe balance of payments difficulties arose, and the country's savings capacity was seriously reduced. Honduras, however, recovered during 1976-78. A much higher level of public investment, the gradual recovery of banana production, the extraordinary increase of coffee prices (which doubled in 1976 and again in 1977), and dynamic private fixed investment (7.4 percent real increase yearly) were the major factors responsible. Real GDP grew at about 7.4 percent a year, or almost double the long-term growth rate recorded during 1950-75. The rate of inflation reached 6.4 percent a year, mostly fueled by imported inflation and domestic difficulties with basic grain crops. 7. Although merchandise exports grew 27 percent a year in dollar terms during 1976-78 as a result of higher coffee prices and the partial recovery of banana production, imports grew at a 20 percent rate and the balance of payments continued to show large current account deficits. Expansionary policies which led to the more rapid economic and investment growth had an immediate effect on imports into the small economy. Net foreign exchange reserves, however, increased as a result of greater disbursements of foreign loans, and by the end of 1978 were US$135 million, equivalent to about two months of imports of goods and non-factor services. 8. Central Government finances during 1976-78 reflected the economic performance. Current revenues increased rapidly (21 percent yearly) but current expenditures grew almost equally fast and current savings showed only a modest improvement. As a result, the large increment in capital expendi- tures was largely financed by foreign credits. The increase in Central Government current revenues between 1975 and 1978 resulted from higher income and property tax collections; almost a tripling of export and import tax revenues (including an increase of coffee taxes from US$4 million in 1975 to US$32 million in 1978); and a rapid increase in receipts from domestic taxes. Current expenditures for wages, goods and services, and transfers showed large percentage increases. Higher wage expenditures resulted from expanded employ- ment (7 percent annually) and higher nominal wages (about 9 percent annually). About 57 percent of the new posts created were teaching positions. The Government expanded significantly operating expenditures for education, health, and defense. Budgeted expenditures for education increased by 81 percent from 1975 to 1978; health expenditures doubled; and defense expenditures increased by 80 percent. 9. In 1979, the Honduran economy continued its much improved growth performance. Real GDP growth is estimated at about 6.5 percent owing mainly to larger export volumes than in 1978 and increased public expenditures. GDY, however, increased little because the terms of trade deteriorated by about 13 percent. In spite of larger export volumes of coffee (15 percent) and bananas (26 percent), lower coffee prices slowed export earnings growth and, coupled with rapidly rising import prices, resulted in a sharp decline in the terms of trade. The annual average rate of inflation accelerated to about  _4_ 8.8 percent, mostly because of imported inflation and higher domestic prices for housing and food products, partly related to the influx of Nicaraguan refugees. Towards the end of the year, however, inflation accelerated to an annual rate of 19 percent. The current account deficit of the balance of payments increased from US$154 million in 1978 to about US$183 million in 1979 as exports of goods grew 20 percent and imports (CIF) 18 percent, fueled by higher import prices and the expansion of economic activity. While Central Government current revenues grew rapidly, they were neverthe- less outpaced by current expenditures; as a result, current savings declined from 1.1 percent of GDP in 1978 to 0.5 percent of GDP in 1979. Public fixed investment is estimated at about 9.9 percent of GDP, a slight decrease with respect to 1978. Future Prospects and Development Programs 10. Real GDP growth, while expected to remain well above historic levels, is likely to be less than in 1977-79, and to average about 5.6 percent a year during 1980-83. The main reason for the deceleration is the expected lower export growth. Exports (in constant: prices) may increase by about 7.0 percent a year, compared to 17.2 percent in 1978-79, since banana production has already recovered significantly and coffee production is completing a cyclical peak in the 1979/80 harvest. Further output expansion will be slower than in the recent past. Export growth would depend mainly on lumber exports (made possible by the current expansion of sawmill capacity) together with increased beef and sugar production, expansion of fruit and vegetable production for export, and promotion of tourism. However, the prospects for export expansion within Central America have been aff'ected by the political unrest in the region. A slower growth of the quantum of total exports coupled with higher levels of imports, partly fueled by rising public investment, will likely result in continued moderately high deficits in the current account of the balance of payments during 1980-83. Private investment is expected to show less dynamism, as CONADI's support f'or large private projects may have peaked since most of its existing projects are being completed and few significant new projects have been identified. Within certain parameters dictated by the public sector's revenue and indebtedness capability, public expenditures, both current and capital, may be a positive factor for GDP growth. Real current expenditures are expected to increase at rates slightly above those of GDP, although some restraint is needed to insure adequate public savings. Real public investment is expected to average about 10-11 percent of GDP during 1980-83. 11. The public investment program for 1980-83 calls for large invest- ments to alleviate the most significant bottlenecks to the country's develop- ment process. Full implementation of this program is not likely because of limitations in administrative capacity to prepare and implement projects, particularly in the rural and social sectors. Nevertheless, the country's overall administrative capacity has shown a marked improvement in the past few years, and it should be feasible to go forward with the major components of the program, which include large investments for infrastructure, partic- ularly for power and transport; for export diversification, mainly through forestry development; for agricultural development to advance the agrarian reform program and increase rural productivity; and for health, particularly potable water.  12. Power investments will be the largest, averaging about 40 percent of public fixed investment, mostly because of the large, lumpy investment required for the El Cajon hydroelectric project. This high share is justi- fied in view of the need to provide adequate power supply to industry and other expanding sectors of an economy expected to grow at a high-r long term rate than in the past. It should be noted that per capita generation of electricity in Honduras is currently very low (the second lowest in Central America). Moreover, development of the country's hydroelectric resources could make an important contribution to reducing the economy's dependence on imported oil. Expenditures on imported oil and lubricants were US$76.3 million (10.7 percent of the merchandise import bill) in 1978 and increased dramatically to US$113 million (13.4 percent of merchandise imports) in 1979 compared to only US$14.7 million (6.6 percent of merchandise imports) in 1970. During 1970-79, Honduras' fuel needs for electricity generation grew from about US$1 million to about US$5.8 million. Rising prices and the expanded domestic demand would bring about a much larger bill for imported oil in the future. If thermal plants rather than El Cajon were chosen, oil imports for power genera- tion alone would probably be over US$35 million by 1986 and would grow rapidly thereafter. 13. Transport investments will also be large, and include the roads for the Olancho sawmills, further rural roads, the expansion of the trunk highway system, and a new port for wood product exports. Forestry investments planned by COHDEFOR and the Industrial Forestry Corporation of Olancho (CORFINO) include five relatively large sawmills. Agricultural investments will be focused on rural development projects for three major valleys: Aguan, Guayape, and Comayagua. Health investments will be concentrated on water supply and medical facilities for Tegucigalpa, San Pedro Sula and provincial towns. These fixed investments will be supplemented by growing credit programs for agriculture and industry. 14. The Government has declared its intention to mobilize additional domestic resources needed to support prudently its ambitious development program. For this purpose, it has already implemented a tax package which will increase revenues of the Central Government by about 1.6 percent of GDP in 1980. Other measures are expected to include a reduction of annual current expenditure growth from 22 percent in 1976-78 to 17 percent in 1979 and 14.5 percent thereafter; higher tariffs for public enterprises, particularly electricity and port tariffs; and, if necessary, further reforms of the tax system. In addition, the Government has established ceilings for total public fixed investment (about 11 percent of GDP). To avoid excessive pressures on the balance of payments and the domestic price level, the Government is also expected to increase credit only slightly faster than nominal GDP. Interest rates were raised to keep them in line with external market conditions and to stimulate savings deposits. Based on its development program, the Government earlier this year negotiated with the IMF a loan package totalling about US$75 million (of which US$57 million is from the Extended Fund Facility). The three-year EFF arrangement provides Fund resources in support of sound overall economic and financial policies during the implementation of the public investment program; the latter should strengthen substantially the balance of payments in the mid-1980s by reducing significantly the fuel import requirement of the economy and by generating increased exports, particularly  -6- lumber and wood products. However, given the present and foreseeable poverty of the country, even with the above measures, Honduras needs external assistance in excess of the foreign exchange component of development projects suitable for international finance to enable the Government to implement its public investment program. The large size of this program, the political uncertainty now prevailing in the Central American region, and past volatility in Honduras' export receipts have led the authorities to agree with the Bank on annual reviews of the investment program and its financing prospects. We plan to continue monitoring closely Honduras' progress. External Financing 15. As the import needs of the economy expand, in particular the imports related to the public investment program, the current account deficit is expected to increase to about US$329 million by 1983 (about 9.7 percent of GDP) and, as a result, large capital inflows will be required. The bulk of the external financing requirements is expected to be met through public borrowing. Honduras will require an estimated gross capital inflow of US$1.1 billion during 1980-83, of which over US$360 million will be disbursed from commitments made through the end of 1979. 16. Honduras' public external debt repayable in foreign currency amounted to US$591.1 million at the end of 1978, US$917.9 million if undisbursed commit- ments are included. In the past, Honduras has managed to keep its external debt service ratio fairly low, because foreign loans were almost all on concessionary terms. The debt service ratio at the end of 1978 was 8.6 per- cent. It is important that the coluntry continue to borrow on reasonably soft average terms in view of the country's poverty, the fact that it will continue to depend on exports of a few commodities with volatile price prospects, and because, historically, natural disasters have sharply reduced the volume of exports every few years. Even if Honduras is successful in obtaining about two-thirds of the financing it needs for its investment program on terms similar to those offered by the international lending agencies, the debt service ratio is likely to rise to about 13 percent in 1986 and 15 percent in 1992. Continued maintenance of Honduras' creditworthiness will depend on the efficiency with which it chooses and implements its major public investment projects; on careful, continued demand management, including cautious use of non-concessionary borrowing; and on export promotion policies. 17. The Bank Group holds 25.3 percent of the disbursed public debt outstanding and repayable in foreign currency; excluding IDA, the Bank's share is about 18 percent. About half of the IDB's total loans disbursed and outstanding are repayable in local currency, so that IDB's share of the disbursed public debt repayable in foreign currency is only 10.5 percent. CABEI accounts for 15.0 percent of the total, the US Government for 14.2 percent, Venezuela for 13.2 percent, privately held debt for about 18.9 percent and other debt for 2.9 percent. 18. During 1970-79, the principal external lending agencies active in Honduras have committed some US$1,005 million at FY79 prices, of which the IDB provided 38.3 percent, the Bank Group 30.4 percent, CABEI 22.3 percent and USAID, 9.0 percent. IDB has concentrated on agriculture, manufacturing, water and sewerage, transport, power, education and housing; CABEI on transport,  -7- power and manufacturing, and USAID on agriculture and education (see Annex I, page 6). It is expected that USAID and CABEI will continue lending primarily in the same sectors in the future, while IDB would concentrate on agriculture, forestry, transport, industry and power. PART II - BANK GROUP OPERATIONS IN HONDURAS 19. Beginning with a loan of US$4.2 million for roads in 1955, Honduras has to date received 21 Bank loans totalling US$357.7 million and 11 IDA credits totalling US$80.1 million, both net of cancellations. The most recent operation, an $105.0 million loan and $20 million credit for the El Cajon hydroelectric project, was approved on March 11, 1980. As of January 31, 1980 a total of US$100.5 million remained to be disbursed on 13 operations for electricity, roads, livestock, education, agricultural credit, ports, regional development, industrial credit and tourism. Execution of projects financed by the Bank Group has, on the whole, been satisfactory. Annex II contains a summary statement of Bank loans, IDA credits and IFC investments as of January 31, 1980, as well as notes on the execution of on-going projects. 20. In the past, Bank Group lending was heavily concentrated in trans- port and power, where inadequate facilities hampered the development of the country. The First Livestock Development Credit approved in 1970, how- ever, marked a first step towards the diversification of our lending. Since then, this diversification has continued through operations for a Second Livestock Project; a First Education Project, which included as major compo- nents primary and secondary teacher training schools, and support for voca- tional training centers and the national agricultural secondary school; a First Agricultural Credit Project to finance livestock and crop development with emphasis on assisting agrarian reform settlements through investment credits and a substantial technical assistance program; a Second Education Project to help finance rural primary schools and agricultural vocational education; a Regional Development Project to assist small farmers and agrarian reform settlements in the Guayape Valley; an Industrial Credit Project to provide funds primarily to small and medium manufacturing firms and firms proposing priority projects in the wood industry; and a Tourism Development Project to contribute to the diversification of the sources of Honduras' foreign exchange earnings. 21. In future lending to Honduras, we plan to support the priorities of the Government's investment program by giving increased emphasis to investment in agricultural and rural development to support the agrarian reform efforts. We would also help finance activities to strengthen the balance of payments and diversify exports, while continuing to lend for physical infrastructure where there are still deficiencies to be overcome. In addition to the proposed Second Agricultural Credit Project, rural development projects are now being identified. We also expect to extend further assistance to the expansion of educational opportunities particularly for the rural population. In trans- port, we plan to place emphasis on maintenance of existing roads and on assisting the construction of a network of feeder roads to support the Govern- ment's agricultural program. In the energy field, we hope to help attract more private investment in offshore petroleum exploration through a small technical assistance loan.  -8- 22. It is expected that the Bank Group share of total external public debt disbursed and outstanding will remain at about one quarter during the 1980s. The IBRD share of public external debt service has dropped substan- tially since the early 1970s because of increasing lending by other external agencies and a slight increase in commercial borrowing. The IBRD share is now about 20 percent and is projected to remain at this level through the 1980s. 23. IFC's activities in Honduras include a 1964 loan and equity invest- ment, of US$295,000 and US$55,000 respectively, in a tannery, Empresa de Curtidos Centroamericana, S.A. In 1966 an additional equity investment of US$27,500 was made in this company. In 1969 and 1970 equity investments totalling US$75,000 were made in a pilot company, Compania Pino Celulosa de Centro America, S.A., which was established to develop an industrial project based on timber from the Olancho Forest Reserve. Although this company is no longer involved in this project, IFC has assisted the Government of Honduras in creating an organizational structure and selecting a technical partner for the project. In 1978 IFC approved a loan of US$9.0 million and an equity investment of US$1.0 million in Textiles Rio Lindo, S.A. de C.V., a locally owned textile company, to help finance an expansion and diversification project. IFC continues working wilh CONADI and local private investors in developing other investment opportunities in the country. PART III - THE SECTOR Natural Resources and Production Potential 24. Honduras has a land area of 11.2 million ha. Total cultivated land, including pastures, amounts to about 1.8 million ha, a further million ha is classified as grassland and cultivable land, and about 7.0 million ha is forest. Apart from in the valleys, soils are generally shallow and have serious deficiencies of nitrogen and phosphorus. 25. Although the natural resource endowment of Honduras is limited and not easy to exploit, the technical possibilities for raising agricultural output are substantial. Available technology has not been widely disseminated, and cropping practices are often traditional with little use of modern inputs, especially among subsistence farmers who also lack adequate market incentives and facilities. Export-oriented or industrial crops, such as bananas, tobacco, sugarcane, cotton and coffee, employ comparatively high-technology production systems and have organizations that regulate and support both production and marketing. 26. The availability of adequate, reliable water resources is also important to increased agricultural production. Although irrigation is often used for crops such as bananas, sugarcane, and to a lesser degree, tobacco, cotton and vegetables, its utilization is still far below its potential. Studies for possible future irrigation projects are being undertaken in a number of valleys, some with Bank Group financing -- for example, in the Choluteca, Guayape and Aguan Valleys. Before specific irrigation project  - 9 - implementation can be undertaken effectively, there is a need for better coordination of Government agencies, and a comprehensive water law to provide a legal framework for irrigation development. Rural Population, Income and Employment 27. About 68 percent of the population, or over 2.2 million, lives in rural areas, and about 63 percent of the total labor force is involved in agriculture. Almost 80 percent of the agricultural labor force is engaged in growing food crops for subsistence. A survey in 1967 showed that the poorest 40 percent of the population was almost entirely rural, that it earned incomes about one-fifth of the national average, and that it had a 7 percent share of total income. Employment in agriculture is highly seasonal, under-employment is pronounced, and opportunities for off-farm employment are restricted. The Role of Agriculture in the National Economy 28. Agriculture is the most important economic activity in Honduras. It contributes about one-third of GDP and generates about 81 percent of export earnings. Unfavorable weather conditions, especially Hurricane Fifi in 1974, and Honduras' withdrawal from the Central American Common Market adversely affected output during the first half of the 1970s. However, better weather as well as expansion of the area under cultivation allowed output to increase during 1976 and 1977 at an annual rate of 5.3 percent. During 1973-77, crops accounted for 67 percent of value added in the agricultural sector; livestock, including poultry, 19 percent; and forestry, 13 percent. 29. The trade balance in agriculture is favorable and increased from an average US$200 million in 1973-77 to an estimated US$411 million in 1978. Until the early 1970s, the sector was able to supply the food needs of the country, and some food staples like maize, beans and rice were even exported. This has recently changed, as the growth in production of traditional food crops slowed, and food imports (usually maize, rice, vegetable oils and milk) accounted for about 9 percent of total import value between 1973-77. 30. Bananas and Plantains - Honduras is the fourth largest banana exporter in the world, contributing 10 percent to the international trade in this product. Before Hurricane Fifi, however, it had up to 16 percent of the world market, and banana exports often contributed over 50 percent of Honduras' total export earnings. The storm damage cut this severely--the 21,530 ha under banana cultivation were reduced to 14,570 ha. Honduras has made serious attempts to restore its productive capacity, and in 1978, 17,160 ha were under cultivation by the Tela Railroad Co. (United Brands), Standard Fruit Co., associated farmers and the Honduran Banana Corporation (COHBANA). Preliminary data for 1979 indicate that impressive gains continue to be made in banana production, although there are still substantial areas not in full production. Export values have increased over the last few years from US$107 million in 1976, to US$141 million in 1978 and to US$200 million in 1979. Although plantains were not destroyed by Hurricane Fifi to the same  - 10 - extent as bananas, they have been badly affected by the Black Sigatoka disease which appeared after the hurricane. The Ministry of Natural Resources (MRN), with financial support from CABEI, has recently initiated a disease control program for all the major plantain areas of northern Honduras. - 31. Forestry. Lumber and wood products have accounted for about 12 percent of Honduras' total export value during 1973-77. Although the volume of these exports has remained fairly constant in more recent years, their proportion has decreased to 6.1 percent of total exports in 1978-79 as banana production recovered after Hurricane Fifi. Although the potential for a vastly improved forest industry exists, it faces many constraints, including the rapid depletion of the resource itself due to widespread burning of forests under the system of shifting agriculture and illegal cutting for fuel. According to a recent forest inventory, there was a 40 percent reduction of the national forest area in the 12-year period up to 1978. Furthermore, excessive clearing of forests on stesep land and marginal soils is leading to increasingly serious soil erosion of the catchment areas of Honduras' major river systems. Since COHDEFOR's creation, there has been some improvement, but the situation remains serious. Land Use and Distribution 32. An important means of raising agricultural output would be through shifting land from lower to higher value farm enterprises, such as from grassland to sugarcane and rice. It is estimated that only 28 percent of land suitable for annual crops is now used for this purpose; the comparable figure for perennial crops is 18 percent. 33. At the time of the 1974 Agricultural Census, there were some 195,000 farms, of which 78 percent wzere of 10 ha or less and occupied only 17 percent of the agriculturally used land. The skewed distribution of land-holdings and the extreme poverty of the rural population have given rise over the last decade to agrarian unrest and a series of invasions of privately- owned land, creating concern among farmers and disrupting the production process. The Government has given land reform considerable attention since the early 1970s, and through a temporary decree in 1972 and a comprehensive law in 1975 has undertaken to redistribute land through the National Agrarian Institute (INA). During 1977/78, the tense situation eased somewhat as compre- hensive regulations were passed defining INA's authority more clearly. By the end of 1978, INA had distributed 203,833 ha to a total of 35,586 families organized into 1,240 groups. The Government is aware of the difficulties involved in small-scale farmer development and recognizes that in order to achieve greater success, there is a need for better coordination among the various public institutions that operate in the agricultural sector. Institutional Framework 34. The principal agricultural planning body is the newly-created Agri- cultural Policy Commission (CPA), which consists of the Ministers of Natural Resources, Finance and Economy and the Directors of INA and the Council for Economic Planning. Duplication of effort by different agencies, excessive centralization and shortage of trained professionals are constraints in this sector. However, better techniques of administration are being considered in many Government agencies, and USAID has recently provided financing to improve sector organization.  - 11 - 35. MRN, the National Development Bank (BANAFOM) and INA have primary responsibility for agriculture and rural development. MRN handles animal health, plant quarantine, research, extension, some input services and project preparation. It has been reorganized but is still weak in extension and research. Under the First Agricultural Credit Project, MRN is receiving the assistance of foreign specialists in these areas as well as seed produc- tion. BANAFOM ts discussed in paragraph 40 below. INA, whose main responsi- bility is implementation of the agrarian reform program, acquires land and trains and provides guidance to settlers in operating their group farms until they achieve full cooperative status and gain title to the land. The First Agricultural Credit Project also includes equipment and technical assistance for INA. 36. COHBANA, an autonomous state institution, was created in 1975 to promote the development of bananas in Honduras and obtain an increasing national participation in their production, marketing and transport. The production expansion program is being developed jointly with INA to combine it with agrarian reform settlements. To date it has been successful in rehabilitating three plantation settlements, including Isletas which is being financed under IDA Credits 434-HO and 628-HO. COHBANA now has some 2,600 ha under banana production. 37. COHDEFOR, a state-owned institution, was created in 1974. COHDEFOR's mandate is to generate funds for the nation through sound economic forest development, including the industrialization, export and domestic wholesaling of forest products, as well as replacement of the resource. COHDEFOR is also responsible for organizing a Social Forestry System to offer the rural poor employment alternatives, for example, through promotion of cooperatives engaged in resin refining. Agricultural Credit 38. The agricultural sector is financed by both institutional and non-institutional sources, and, although no reliable information is available about the latter, estimates suggest that nearly 80 percent of small-scale farmers depend on private moneylenders and pay usurious rates of interest. The lack of required collateral makes it difficult for small-scale farmers to get institutional credit, and the Central Bank of Honduras (BCH) hopes to resolve this by securing a change in the banking law with regard to loan collateral and guarantees. Institutional credit is supplied mainly by the banking system, which consists principally of BCH, 13 private commercial banks, three public sector development institutions and six specialized credit institutions. During 1976-78, the total volume of agricultural credit in the country rose from US$116 million to US$152 million. 39. BCH, as the monetary authority, determines credit policy, regulates the flow of credit to the economy and acts as the regulatory body for the banking system. Currently, except for housing and special guarantee funds for small industry, BCH has set the maximum lending rate for all productive purposes at 16 percent per annum. 40. Nine commercial banks in Honduras have participated in previous IDA-financed projects, attracted by the good financial returns, a guarantee offered by BCH to cover losses that might be incurred in the event that INA  - 12 - expropriated land from a defaulting subborrower, and the effective technical assistance provided by the Project Unit (PU). BANAFOM, the state development bank founded in 1950, provides the major portion of Honduras' institutional finance for agriculture and has become increasingly involved in IDA-financed projects. BANAFOM's loan portfolio consisted of 41,951 loans at the end of 1978. It has the largest participation in small-scale farmer credit both within and outside the land reform sector. During 1978, there was an increase of 16 percent in the number and 7 percent in the value of its loans to this category of subborrower. Over the years, BANAFOM became involved in an excessive number of functional, non-banking activities which contributed to operational losses and made it difficult for its management to carry out an effective banking operation. Also, a cumbersome lending process and poor loan collection performance led to considerable delinquency in repayments. Thus, the Government had to make substantial contributions to keep BANAFOM in operation. It has now decided to divest BANAFOM of its non-banking functions and transform it into an agricultural development bank. Legislation for this purpose is currently under consideration. Furthermore, consultants financed by USAID began work in May 1979 to implement BANAFOM's reorganization and make recommendations to improve its procedures and performance. The Bank Group has maintained a continuing dialogue with BANAFOM and its consultants throughout this process. Public Policy for the Sector 41. In its second Five-Year PLan (1979-83), the Government indicates that its aims in the agricultural sector are: (a) promotion, support, regulation and control, rather than active involvement in production; (b) greater attention to the small-scale independent farmer and a thorough analysis of the past results of supporting group settlements; and (c) inte- gration of the different sector entities to avoid unnecessary duplication of work. One of the main goals is to attain production levels of basic food grains that would allow self-sufficiency and small surpluses for export. Land titling, assistance to help farmers manage ongoing settlements, COHDEFOR's Social Forestry Program, strengthening of the regional offices of all insti- tutions and the provision of grain silos, other on-farm storage and market structures will receive priority. Bank/IDA Involvement in the Sector 42. To date, IDA has provided three credits to Honduras, totalling US$23.2 million, for agricultural development. Two of these credits (179-HO of March 1970 and 434-HO of October 1973) were for commercial livestock development with the objective of diversifying and strengthening the balance of payments by increasing beef exports. The first loan was evaluated in the Operations Evaluation Audit dated February 21, 1978. It was concluded that, while the project did help increase livestock production and beef exports, it did so in part through more extensive production rather than primarily through improved production techniques. Although the second project has not yet been audited, it was noted in the above-mentioned audit that, since it was basically a continuation of the first project, there may have been a conflict with the agrarian reform which was beginning about the time the second project was appraised and which aimed to transform extensive livestock production operations to cropping when this was more suitable. The evidence  - 13 - is still not available to determine whether livestock project activities impeded the agrarian reform program to any significant extent; however, the Bank's lending objectives for agriculture in Honduras have changed since approval of these two projects. 43. The third IDA credit (628-HO), US$14 million for the First Agricul- tural Credit Project , was approved in May 1976. It has as one of its princi- pal objectives the strengthening of the agrarian reform program. It provides credit to agrarian reform settlements and commercial farmers for crop and mixed crop/livestock development, as well as technical assistance, equipment and training. Funds allocated for the credit program are fully committed, but difficulties in recruiting suitable expatriate technical personnel (which are now all hired) has resulted in a low rate of disbursement of funds for technical assistance. 44. The Guayape Regional Development Project which became operational early in 1979 is financed by US$10.5 million provided under Loan 1576-HO. It includes on-farm investments, small irrigation schemes, machinery pool services, rural road improvements, extension services and agricultural research facilities for some 1,200 small-scale farmers and 70 agrarian reform settlements (1,500 families) in the Guayape Valley. PART IV - THE PROJECT 45. The project was prepared during 1978/79 by the PU, COHBANA and COHDEFOR, and was appraised in March/April 1979. A report entitled "Staff Appraisal Report - Second Agricultural Credit Project, Honduras" (Report No. 2691-HO, dated March 21, 1980) is being distributed separately. Supplementary data are contained in Annex III. Negotiations were held in Washington on December 11-14, 1979. The Government delegation was led by the Minister of Finance, and BCH was represented by its President. Project Objectives and Description 46. The project would support national programs of agricultural and forestry development and agrarian reform, principally by: (a) expanding food crop and livestock production to provide more adequate nutrition for the national population; (b) increasing agricultural export earnings and import substitution; (c) increasing employment opportunities and improving family incomes on farms and in agro-industries; and (d) strengthening selected institutions for further planning and development of the sector and for the conservation of natural resources. It would consist of the following compo- nents: (a) a line of credit to finance crop and livestock investment plans, abattoirs and agricultural machinery; (b) flood control and drainage works for banana and plantain development; (c) a pilot forestry program in western Honduras;  - 14 - (d) studies of irrigation potential in valleys of high agri- cultural priority, of CO)HBANA's structure and management system, and of the use of waste bananas and plantains for animal feed; (e) training for COHBANA staff; and (f) incremental expenditures for the PU. Line of Credit and Flood Control and Drainage Works 47. Subloans would be granted over four years by participating inter- mediaries (PIs) to farmers, ranchers, municipalities and contractors for technically, financially and economically sound investment plans. The credit program is expected to finance (a) farm and ranch investments, mainly in sugar, rice, bananas, plantains and dual purpose cattle, but also in perennial tree crops like cacao, citrus and coconuts, land clearing for seasonal crops like soybeans and corn, and crop storage installations; (b) the construction or rehabilitation of municipal abattoirs to improve the hygienic condition of meat on the domestic market, make full use of by-products, and reduce pollution from the abattoirs' effluent disposal systems; and (c) the purchase of hieavy machinery for drilling boreholes for water, land clearing and drainage. Small-scale subborrowers are expected to be chiefly members of organized agrarian reform groups, although individual investors would also be eligible to receive investment credit. The program would be nationwide, but limitations would be introduced for the Guayape Valley to avoid any overlap with the potential beneficiaries of Loan 1576-HO (draft Project Agreement, Schedule 1, para. 3). With regard to livestock development, it is expected that most of the cooperative ranches would be in the Aguan Valley, where livestock dlevelopment is being promoted by INA on large areas of cooperatively managed land. Banana and plantain development is expected on the banks of the Ulua RLiver in north-western Honduras. In addition to credit to farmers, the project would provide credit directly to COHBANA to finance necessary engineering and civil works for flood control and drainage in this area. COHBANA would ultimately recover the cost of these works from banana and plantain farmers in the area (see paragraph 65 below). Terms and Conditions of Sublending 48. The Government would relend the proceeds of the proposed Bank loan to BCH on the same terms granted by the Bank; it would relend the IDA credit to BCH for 20 years including 10 years grace, at an interest rate of 2 percent per annum. The average cost to BCH of Bank Group funds would be about 7 percent. The rediscount rate of interest charged by BCH to PIs would be 10 percent per annum. The difference between these rates, approximately 3 percent, would constitute BCH's margin for foreign exchange risk and incremental operating costs. All funds repaid to BCH by PIs that are not needed to pay principal, interest or other charges, or to adjust for negative cash flows, would be used for additional lending for similar purposes for a period of 20 years (draft Project Agreement, Section 2.06(g)). 49. At least half of the total value of subloans would go to small-scale farmers, defined as those who either are beneficiaries of the agrarian reform or who derive at least 75 percent of family income from farming activities  - 15 - and have net farm assets (including land, farm machinery and livestock, but excluding any assets to be financed under the project) no greater than US$30,000. Subloans for small-scale farmers would finance up to 90 percent of the value of their investments. The farmers' own participation would include family labor and contributions in kind. Of the lending program, 15 percent would be provided from the PIs' own resources, 8 percent by BCH and 77 percent by the Bank Group. For other farmers, subloans would cover up to 80 percent of the investment, to be financed as follows: PIs, 20 percent; BCH, 10 percent; Bank Group, 70 percent. PIs would also be required to provide the short-term funds required by project beneficiaries to complement their investment plans. It has been agreed that BCH would maintain adequate rediscount facilities for this short-term finance, as well as the revolving fund created in 1973 to facilitate IDA-financed lending operations (draft Project Agreement, Section 3.01(e); Schedule 1, paras. 2(c), 2(h) and 11(b); Schedule 2, para 1(m)). 50. Subloans would have final maturities of from two to twelve years, including up to five years of grace, depending on each investment plan's cash flow projection. Subloans would be denominated in lempiras, and BCH would bear the foreign exchange risk. The PIs would assume the credit risk, although as established under the First Agricultural Credit Project, BCH would guarantee the outstanding principal of any subloan in the event of expropriation, under the agrarian reform, of the land on which the investment plan is being carried out. PIs would be encouraged to accept interim land titles as security for subloans. As noted in paragraph 38 above, BCH also hopes to obtain liberaliza- tion of the banking law with regard to loan collateral and guarantees. Except as approved by the Bank Group, an investor who is not a small-scale farmer would be entitled to borrow no more than US$100,000 or an amount aggregating, with subloans under Credits 179-HO, 434-HO and 628-HO, US$150,000. The corresponding ceiling for small-scale farmers would be US$25,000 or, for cooperatives, US$25,000 multiplied by the number of members of the group. The cost of breeding livestock would not normally exceed 50 percent of the value of any subloan, although in special cases the Project Director could approve larger amounts up to 70 percent, provided that over the whole project subloan portfolio, investments in livestock do not exceed 35 percent of total project investments. The project would not finance the purchase of livestock for fattening (draft Project Agreement, Schedule 1, paras. 2(i), 2(j), 2(k) 3, 9, 10, 11(a) and 11(e)). 51. PIs would be allowed to charge subborrowers 14 percent per annum on the outstanding balance of each subloan. This represents a 3 percent increase over the rate under the First Agricultural Credit Project, which is consistent with recent increases in interest rates in Honduras. The rate of domestic price increase in Honduras was 5.0 percent in 1976, 8.5 percent in 1977, 5.7 percent in 1978 and 8.8 percent in 1979. Since domestic inflation closely follows international inflation, future domestic price increases have been projected accordingly at 8 percent a year. Therefore, the 14 percent final interest rate paid by subborrowers would be significantly positive in real terms. The 10 percent annual rediscount rate of interest charged by BCH to PIs would allow the PIs a margin of 4 percent to cover administrative costs, risk and profit. This represents a reduction from the 5 percent spread  - 16 - under the First Project, which was granted to cover the additional costs PIs would incur for enlarged technical staffs and to compensate for uncertainties as to how the agrarian reform program would be implemented. The reduction to 4 percent under the proposed project is justified because of lessened uncertainty about land following issuance of land reform regulations, and because redis- count percentages have been somewhat increased (draft Project Agreement, Schedule 1, paras. 2(e) and 11(d)). 52. It has been agreed that the Government, the Bank Group and BCH would from time to time, at the request of any of them, review the lending terms and conditions to determine if they need be adjusted to ensure the continuance of the incentives for lending by PIs, especially to small-scale subborrowers, and to maintain compatability with other rates charged in Honduras, provided that the final interest rate to beneficiaries remains positive in real terms (draft Project Agreement, Schedule 1, para. 12). Forestry Development 53. The forestry component would be designed to develop, on a pilot scale, the organization and management systems necessary to initiate a major national reforestation program. This pilot phase would be in western Honduras, where it would be complementary to, but independent from, a rural develop- ment project being undertaken in the area with IFAD financing. This project component would consist of: (a) establishment of nurseries to produce pine seedlings for reforestation and broadleaf tree seedlings to be grown for firewood; (b) reforestation of 3,500 ha of pine for timber production prin- cipally on state-owned land; (c) development of a forest fire protection system; (d) formation of a forest managemenl: unit for existing forests; and (e) 12 man-months of consultant services and 24 man-months of foreign training for COHDEFOR staff. Also included would be vehicles, equipment, office facilities and furniture. Studies and COHBANA Training 54. The project would finance studies of the water resources and appro- priate development strategy for a valley or valleys of high agricultural potential and Government priority, probably largely for either the Comayagua or Jamastran Valley. It has been agreed that the Government would provide a precise proposal on the use of these funds no later than September 1, 1980 (draft Development Credit Agreement, Section 3.07). In addition, studies would be carried out on the use of waste bananas and plantains for animal feed, and on ways to strengthen COHBANA's management, administration, accounting, financial and technical capacity to enable it to deal with its increasingly important role in developing Honduras' banana industry. These studies would be carried out in accordance with a program and specifications to be approved by the Bank. The project would also include 24 man-months of training for COHBANA staff, to strengthen its capabilities in the areas noted above. Project Unit 55. The existing PU and Project Director would be maintained. The PU utould be strengthened with four new professional staff, required office equipment and furniture, farm demonstrations and field days, eight man-months  - 17 - of training, six man-years of long-term experts in animal production, pasture management and farm economics, and eight man-months of short-term crop special- ists. Thirty-six man-months of trainee staff would be provided on rotation by MRN, INA and PIs to work with the long-term consultants. Project Cost and Financing 56. Total project cost is estimated at US$38.5 million equivalent (at December 1979 prices), including US$5.0 million for price contingencies. The contingencies on the foreign exchange element were calculated assuming annual international price increases of 10.5 percent in 1980, 9 percent in 1981, 8 percent in 1982 and 7 percent from 1983-85. For local costs, it was assumed that domestic price inflation would be 8 percent per annum. Cost estimates are based on representative enterprise investment models and exclude (a) an estimated US$1.5 million of family labor and inputs in kind; and (b) the regular ongoing operational costs of the PU, to be financed from recoveries under Credits 179-HO, 434-HO and 628-HO. The average gross cost of the 133 man-months of internationally recruited consultant services included in the project is estimated at US$6,200 per man-month, including travel and subsistence expenditures, and the average cost of the 56 man-months of train- ing is estimated at US$2,200 per man-month. 57. The proposed IDA credit of US$5 million and Bank loan of US$20 million would finance 65 percent of the total project cost, representing the estimated foreign exchange component of US$19.3 million plus US$5.7 million of local costs. Local cost financing is justified in Honduras for the reasons stated in paragraph 14 above. The remaining 35 percent would be provided by sub- borrowers (US$3.3 million), PIs (US$3.9 million), BCH (US$3.1 million), the Government (US$1.2 million), and COHBANA and COHDEFOR (US$2.0 million). It is proposed that retroactive financing totalling US$100,000 be provided from January 1, 1980 to establish the forest tree nursery required for the first year of tree planting (draft Development Credit Agreement, Schedule 1, para. 4(a)). A breakdown of project costs and the financing plan are contained in the Loan and Project Summary at the beginning of this report. Implementation 58. BCH would be the principal executing agency, operating through the PU. BCH would make medium- and long-term subloans for agricultural development through public and private participating intermediaries, and public corporations would carry out the banana (COHBANA), plantain (COHBANA and MRN) and forestry (COHDEFOR) components. Studies would be carried out by COHBANA and MRN. All these agencies would sign Project Administration Contracts with BCH specifying, inter alia, the relending arrangements for loan/credit proceeds. Funds for forestry development and COHBANA's studies would be relent by the Government through BCH to COHDEFOR and COHBANA for 30 years, with 10 years grace, at a 0.75 percent service charge. Funds for the MRN studies would be passed on as a grant. It would be a condition of effectiveness that one participating intermediary had signed its contract with BCH, and a condition of disbursement for any participating intermediary or agency that its contract had been signed (draft Development Credit Agreement, Section 5.01(c) and Schedule 1, para. 4(b)). The foreign exchange risk on the forestry and studies components would be carried by the Government; that on all other components would be carried by BCH (draft Development Credit Agreement, Schedule 4(B)).  - 18 - 59. Project Executive Committee. It has been agreed that a Project Executive Committee would be formed by September 1, 1980 under the chairmanship of BCH and including the Project Dir(ector and senior permanent representatives of the Ministry of Finance, MRN, INA, COHBANA, COHDEFOR, BANAFOM and the Bankers' Association. This Committee would meet regularly to monitor and coordinate the activities of the project and review the programs, budgets, progress and annual evaluation reports of the PU (draft Development Credit Agreement, Section 3.02). In cases of issues which may affect national agri- cultural policy, it would report to the CPA for appropriate resolution. 60. Project Unit. The PU would have overall responsibility for admin- istering and supervising the project and specific responsibility for directing the agricultural credit operations. The PU would establish and disseminate to PIs technical standards and operational procedures for the preparation, assessment, control, servicing and evaluation of agricultural investment plans. It would also help PIs develop technical training courses for their staff and improve their organizational and management procedures, and would supervise and assess their performance. 61. Participating Intermediaries. Under preceding projects, all invest- ment plans required approval by the Project Director; in the proposed project, this responsibility would, to an increasing extent, be delegated to the technical staff of the PU and to those PIs whose competence is deemed accepta- ble by the Project Director. Eligibility of institutions for participation in the project, and the degree of delegation of subloan approval to them, would be determined based on their experience, financial condition, managerial, administrative and technical capability, and network of branch offices. Credit applicants would be assisted in preparing investment plans by the technical staff of PIs or by private technical consultants. Small-scale farmers would receive this assistance free; other farmers could include fees for private consultants in their investment plans, up to a maximum of 5 percent of the total amount (draft Project Agreement, Schedule 1, paras. 1, 2(1) and 5). 62. BANAFOM would be a key PI since it is the only bank specializing in serving small-scale farmers. Since BANAFOM is undergoing a major reorganiza- tion (see paragraph 40 above), it would be a condition of effectiveness that the new law to restructure it as an agricultural development bank had been approved by the Government (draft Development Credit Agreement, Section 5.01(e)). It has been agreed that BANAFOM would forward to the Bank for comment details of proposed changes to its policies and structure arising from the implementa- tion of this law (draft Development Credit Agreement, Section 3.04). Training Component 63. Training would be provided under the project to COHBANA, COHDEFOR and the PU. In view of (1) the importance of this training to project implementation and (2) the fact that it involves all major project components, and in order to avoid the slowness in organizing such programs experienced under previous projects,it would be a condition of effectiveness that these training programs had been approved by the Bank (draft Development Credit Agreement, Section 5.01(d)).  - 19 - Banana/Plantain Component 64. The banana and plantain components in the Ulua Valley would be executed by COHBANA, with MRN collaboration in the provision of inputs and services for plantains. For banana subloans, COEBANA would also act as financial intei.ediary, channelling funds from BCH to the subborrowers in accordance with its Project Administration Contract with BCH. Funds for plantain development would be channelled through BANAFOM. 65. Because the proposed areas for banana and plantain development are in contiguous areas and have joint needs for flood control and drainage, it has been agreed that a Banana and Plantain Development Administration Unit, within COHBANA, would be formed by September 1, 1980 to oversee and coordinate these services. Under the project, credit would be provided to COHBANA to finance necessary flood protection and drainage works. It would be a condition of disbursement for these works that detailed engineering studies for the first year of investments had been finished and that the Bank Group had received a satisfactory program for cost recovery from the ultimate beneficiaries (draft Development Credit Agreement, Section 3.05; Schedule 1, para. 4(c)). COrHBANA intends that this program would achieve 100 percent recovery of drainage works and an appropriate pro-rata recovery of flood control works, and would include both the cost of the works and the cost of funds. The recovery would probably be achieved through a charge levied on each box of fruit. 66. The land for the banana and plantain component is State-owned and occupied by squatters who are mostly subsistence farmers. Many were formerly employed by the banana companies and are familiar with banana production techniques. Since the banana plantations can only be managed economically in blocks, the Government has decided that these farmers are to be organized into cooperatives for both land ownership and production purposes, under the supervision of INA and COHBANA. The plantain growers would be left to operate as individual farmers, since the need for block cultivation is not essential. It would be a condition of disbursement for the flood control and drainage works that the Government had presented a satisfactory program to incorporate these farmers in the project (draft Development Credit Agreement, Schedule 1, para. 4(c)). Procurement 67. The on-farm investment items to be financed by subloans would be varied and not suitable for procurement through international competitive bidding; therefore, subborrowers would purchase their requirements through regular commercial channels. Whenever an individual order for goods, works or services (other than consultant services) exceeded US$50,000, price quota- tions would be obtained from at least three suppliers, and approval would be required from the respective PI. Foreign firms are adequately represented in Honduras and there is a good network of competitive suppliers of agricultural inputs. Also, facilities for maintenance of machinery and equipment are adequate. Civil works amounting to about US$1.6 million for banana, plantain and forestry development would be carried out through force account by COHBANA,  - 20 - MRN and CORDEFOR and/or through locally advertised competitive bidding proced- ures acceptable to the Bank. Vehicles and equipment, estimated to total US$200,000, would be procured by the PU and COHDEFOR through local competitive procedures. The remaining expenditures, such as materials and services, are not suitable for competitive bidding. Disbursement 68. The Bank Group would disburse: (a) 77 percent of amounts disbursed by PIs for subloans made to small-scale farmers; (b) 70 percent of amounts disbursed by PIs for subloans made to other farmers; (c) 77 percent of the flood control and drainage works for banana and plantain development; (d) 100 percent of foreign expenditures and 67 percent of local expenditures for forestry development, studies, training, vehicles, equipment, additional project unit salaries, farm demonstrations and field days; and (e) 100 percent of consultant services. Project Benefits 69. Under the proposed project, the number of direct beneficiaries would be approximately 12,800 persons, of whom some 11,500 would be small-scale farmers and their families. The mairt benefit would be increases in the incomes of these beneficiaries, whose! average initial per capita income of US$158 is under the estimated average rural poverty income level (US$170) for Honduras. With the project, the per capita increases in annual income at full development are estimated at about US$500 for sugarcane, US$600 for plantains, US$700 for rice, US$800 for dual-purpose cattle operations and nearly US$1,200 for banana development carried out by small-scale farmers. As a result of the project, many of the beneficiaries would also move from a situation of underemployment to one of full employment. 70. The project would also have a considerable impact via increased agricultural output, with an estimated annual incremental production value of US$21.5 million. The most economically important products would be bananas and sugarcane. About US$1.1 million is expected to accrue annually to the Government from the banana export tax after full development. Markets 71. Project production would conlsist principally of sugarcane, rice, milk, beef, bananas, plantains, timber and firewood. Sugar mills in Honduras are operating under capacity, and the Government's aim is to provide them with an adequate supply of sugarcane. Although domestic sugar consumption is increasing, most of the sugarcane wouLd go to increase exports. All rice production under the project would substitute for imports. The supply of fresh milk in Honduras is insufficient; pricing policies and consumer prefer- ence suggest that most of the project production would be sold as raw milk. The cattle produced would be mainly culled cows for domestic use, and weaned calves to be reared for beef production for export to the US. Both of these markets are currently expanding. International banana marketing is complex and dominated by international fruit companies. COHBANA has limited its activities to producing bananas and not marketing them, and the Government  - 21 - will probably continue to rely on marketing contracts with international exporting companies. Plantains produced under the project would be graded into three categories and sold to the US, other foreign markets, and domestically for consumption. It has been agreed that satisfactory marketing arrangements for plantains would be established by September 1 1980 (draft Development Credit Agreement, Section 3.03). Forestry firewood seedlings would be sold to the IFAD project at cost and pine thinnings and timber would be used by the local lumber industry. Financial and Economic Analysis 72. Financial projections of the illustrative investment models analyzed for the project indicate rates of return between 23 percent for livestock and 58 percent for rice. However, the forestry component has a rate of return of only 6 percent. The main reasons for this unattractive financial situation are the long period before substantial returns accrue (25 years) and the low stumpage value attributed by COHDEFOR. 1/ 73. The economic rate of return over 30 years for the entire project is estimated to be 55 percent. The sensitivity analysis shows that, even with large decreases in benefits or increases in costs, the economic rate of return would still be acceptable. However, the economic success of the project would be more dependent on output prices and yields than on the cost of inputs. A 50 percent decrease in benefits would lead to an economic rate of return of 9 percent while a 50 percent increase in costs would still allow an economic rate of return of 25 percent. A separate economic rate of return was calculated for the forestry component. Using shadow rates for wages and stumpage values, the return is 12 percent, thus indicating that the reforestation component is economic. Project Risks 74. In view of rapid commitment rates under the First Agricultural Credit Project, the proposed project should not face major risks in terms of farmers' willingness to borrow. There may, however, be some initial reluctance to participate in view of the changes in lending terms since the First Project -- a higher final rate to subborrowers and a smaller spread for intermediaries. These new terms reflect changes in national economic condi- tions and will be carefully monitored to assure their continued appropriate- ness. The credit component also faces a higher risk than under the First Project since a greater portion of the funds are expected to be loaned to small-scale farmers. The efficiency of BANAFOM is critical in lending operations to these subborrowers, and for this reason passage of a law on its restructuring has been made a condition of effectiveness. Implementation of a program to regularize the land tenure arrangements for squatters in the banana and plantain area will be important to the success of this component. The Government is aware of this, and INA has considerable experience from similar exercises successfully 1/ Although the State owns all forest trees in the country, COHDEFOR is required to pay private landowners a stumpage value for these trees. At the moment the value paid by COHDEFOR is only about one-third their real value.  - 22 - carried out in other areas. The risk of hurricanes in the area is also important, but investment in flood control works and a shorter variety of banana plant should minimize the long-term effect of any storm damage. Under the proposed project, Pls would have greater responsibility for subloan approval. In view of their experience under previous projects, and the supervisory role of the PU, this is not considered a major risk. Environmental Impact 75. Farming investments financed through this project are not expected to have a harmful effect. The principal plant protection chemicals would be fungicides on bananas and plantains which have been intensively tested and approved by the US, where most bananas are exported. Improvements to the drainage system of the Ulua River and to the effluent disposal systems from municipal abattoirs should have a beneficial ecological impact. In the long-term, the pilot forestry scheme should have a significant, positive impact through catchment protection in the denuded headwaters of the Ulua and other rivers. PART V - LEGAL INSTRUMENTS AND AUTHORITY 76. The draft Loan and Credit Agreements between the Republic of Honduras and the Bank and Association, the draft Project Agreement between the Central Bank and the Bank, and the Report of the Committees provided for in Article III, Section 4(iii) of the Articles of Agreement of the Bank and in Article V, Section l(d) of the Articles of Agreement of the Association are being dis- tributed to the Executive Directors separately. The draft agreements conform to the normal pattern of loans for agricultural credit projects, and their more important features and special conditions have been included in Part IV and summarized in Section III of Annex III to this report. There are three special conditions of effectiveness of the Loan and Development Credit Agree- ments: (i) that one PI has signed a Project Administration Contract with BCH, (ii) that the law to restructure BANIAFOM has been approved, and (iii) that satisfactory training programs for the PU, COHBANA and COHDEFOR have been presented to the Bank Group. It would be a condition of disbursement for each participating agency that it has signed a Project Administration Contract with BCH, and for the flood control and drainage works of the banana/plantain component, that detailed engineering studies for the first year of investment and satisfactory programs for incorporating farmers into the project and for cost recovery of the works from these farmers have been presented to the Bank Group. 77. I am satisfied that the proposed loan and credit would comply with the Articles of Agreement of the Bank and Association.  - 23 - PART VI - RECOMMENDATION 78. I recommend that the Executive Directors approve the proposed loan and credit. Robert S. McNamara President Attachment March 28, 1980  - ANNEX I Page I TABLE 3A 1owzf C lm IZNDICATORS DATA SUET OIWIJS -EElRcE ocams(DJUSTED AyCgS TOTAL . 112 1 S S EXT 11G11 AGuICUTUCA 2S.9 ?0ST RCEN GZOGRAPRIC INCOIU INCOME 1960 /b 19170 /b ESTDATE /b 30ION /c GROUP /d GROLtP /I aUp Pn CAPITA (USS) 180.0 260.0 4S0.0 1124.4 467.5 1097.7 EChU CONSmUTION PER CAPtTA (KILOGRAMS 08 OOf EIVE) 155.0 247.0 264.0 943.1 262.1 730.7 POPULATION AND VITAL STATISTICS PQOlATION, nUX-r. (MILLIONS) 1.9 2.6 3.3 D POPULTION (PERCENT O TOTAL) 22.7 28.7 32.0. 59.3 24.6 49.0 POPULATION ?I=TOWS POPUATIOV IN TZAR 2000 (aLLIMS) 7.0 STATIOARY POTULATION (MIUIONS) 15.0 MLAR STATIONARY POPULATION IS UAC 20M0 POPULATION DOSI?! PER SQ. Km. 17.0 23.0 29.0 23.5 45.3 44.6 FIR SQ. I). AGII1LTURAL LAOD 67.0 91.0 114.0 80.5 149.0 140.7 POPULATION ACC SCTUCR (PERCENT) 0-14 Ms. 45.5 46.1 47.0 40.9 45.2 41.3 15-64 Ys. 52.0 51.2 50.0 54.4 51.9 55.3 65 n5. AND ABOVE 2.5 2.7 3.0 3.9 2.8 3.5 POPULATION GROVU RATE (PEUCQNT) TOAL 3.3 3.1 3.3 2.4 2.7 2.4 UM1 5.3 5.4 5.3 3.7 4.3 4.5 CRUDE SIRTI LAT (PER THOUSAND) 51.0 49.0 47.0 32.8 39.4 31.1 CRUDE DEATH RATE (PEU THOUSAND) 19.0 15.0 12.0 8.5 11.7 9.2 GROSS REPRODUCTION ATE .. 3.4 3.4 2.4 2.7 2.2 FAMILY PLANNtN ACCPTORS. ANNUAL (TSOUSANDS) .. 12.7 23.0 aSEs (PERCZNT Of HMRIED WOMEN) . 9.0 17.7 13.2 34.7 FOOD AND NUTRITION INDEX OF FOOD PRODUCTION PER CAPITA (1969-71-100) 79.4 96.0 86.0 99.4 99.6 104.4 PUr CAPITA SUFPLT OF CALOIIES (PERCENT OF REQUIREMENTS) 84.0 99.0 90.0 107.0 94.7 105.0 PROTEINS (GRAMS PER DAY) 53.0 58.0 56.0 60.4 54.3 64.4 OF WHICH ANftAL AND PULSE 21.0 25.0 20.0 28.3 17.4 23.5 CHILD (AGEs 1-4) MO&TALITy &ATE 30.0 20.0 14.0 6.7 11.4 8.6 HEALTH LIFE EXPECTANCY AT SIRT3 (TEARS) 46.0 53.0 57.0 63.6 54.7 6..2 INFANT MORTALITY RATE (PER THOUSAND) 130.0 117.0 103.0 76.1 68.1 46.7 ACCESS TO SAFE WATER (PtRCMT OF POPCLATION) MTAL .. 34.0 46.0 63.4 34.4 60.8 URBAN .. .. 82.0 79.5 57.9 75.7 RURAL .. .. 27.0 38.6 21.2 40.0 ACCESS TO EXCRQTA DISPOSAL (PERCENT OF POPULATION) TOTAL .. 24.0 .. 58.8 40.8 46.0 UR3AN .. 64.0 .. 77.8 71.3 46.0 RURAL .. 9.3 .. 24.5 27.7 22.5 POPULATION PER PHYSICIAN .. 3710.0/f 3300.0 1841.9 6799.4 2262.4 POPULATION PER NURSING PERSON .. .. 1420.0 933.7 1522.1 1195.4 POPUILATION PER HOSPITAL BED WUTAL 590.0 570.0 660.0 563.4 726.5 453.4 URBAN .. 150.0 .. 279.4 272.7 253.1 RURAL 11810.0 .. 1140.9 1404.4 2732.4 ADMISSIONS PER HOSPITAL BED .. .. 24.0 25.7 27.5 22.1 W0US INC AVERAGE SIZE OF HOUSEHOLD OTX.L 5.7 . .. 5.0 5.4 5.3 URBAN 5.5 . .. 4.8 5.1 5.2 RURAL 5.7 ' * 5.3 5.5 5.4 IVERACE NUMBER OF PERSONS PER ROOM TOrAL 2.4 . .. 1.3 .. 1.9 URBAN 1.8 .. .. 1.3 .. 1.6 RURAL 2.7 .. .. 1.5 .. 2.5 ACCESS O ELECTRICITY (PERCENT OF DWELLINGS) WOTAL 15.0 .. 25.0 54.3 28.1 50.0 URBAN 56.7 .. 67.1 80.1 45.1 71.7 AURAL 2.0 .. 5.5 14.2 9.9 17.3  - 25- ANNEX I Page 2 TABLE 3A HONDURAS - SOCIAL INDICATORS DATA SHEET HONDURAS REFERENCE GROUPS (ADJUSTED APERAGES - MOST RECENT ESTIMATE) - SAME SAME NEXT HIGHER -MOST RECENT GEOGRAPHIC INCOME INCOME 1960 /b 1970 /b ESTIMATE lb REGION /c GROUP /d GROUP /e EDUCATION ADJUSTED ENROLLMENT RATIOS PRIMARY: TOTAL 67.0 93.0 89.0 107.3 82.7 102.5 MALE 68.0 94.0 89.0 109.1 87.3 108.6 FEMALE 67.0 93.0 88.0 107.4 75.8 97.1 SECONDARY: TOTAL 8.0 12.0 i3.0 40.5 21.4 33.5 MALE 8.0 13.0 13.0 40.4 33.0 38.4 FEMALE 7.0 12.0 13.0 39.0 15.5 30.7 VOCATIONAL ENROL. (t OF SECONDUtY) 24.0 18.0 2'.0 18.5 9.8 11.5 PUPIL-TEACHER RATIO PRIMARY 32.0 35.0 35.0 37.1 34.1 35.8 SECONDARY 10.0 .. 17.0 17.9 23.4 22.9 ADULT LITERACY RATE (PERCENT) 45.0 .- 57.0 77.4 54.0 64.0 CONSUMPTION PASSENGER CARS PER THOUSAND POPULATION 3.0 5.0 5.0 29.1 9.3 13.5 RADIO RECEIVERS PER THOUSAND POPULATION 68.0 57.0 54.0 172.1 76.9 122.7 TV RECEIVERS PER THOUSAND POPULATION 1.0 8.0 16.0 67.9 13.5 38.3 NEWSPAPER ("DAILY GENERAL INTEREST") CIRCULATION PER THOUSAND POPULATION 21.0 .. 35.0 76.1 18.3 40.0 CINEMA ANNUAL ATTENDANCE PER CAPITA .. .. .. 4.2 2.5 3.7 LABOR FORCE TOTAL LABOR FORCE (THOUSANDS) 590.0 780.0 979.8 FEMALE (PERCENT) 12.5 12.8 13.3 21.5 29.2 25.0 AGRICULTURE (PERCENT) 70.2 66.5 63.0 30.2 62.7 43.5 INDUSTRY (PERCENT) 10.6 12.5 14.7 23.8 11.9 21.5 PARTICIPATION RATE (PERCENT) TOTAL 31.5 30.6 29.8 30.9 37.1 33.5 MALE 55.3 53.5 51.8 47.3 48.8 48.0 FEMALE 7.8 7.8 7.9 13.3 20.4 16.8 ECONOMIC DEPENDENCY RATIO 1.5 1.6 1.7 1.5 1.4 1.4 INCOME DISTRIBUTION PERCENT OF PRIVATE INCOME RECEIVED BY HIGHEST 5 PERCENT OF ROUSEROUS .. .. .. 23.7 15.2 20.8 HIGHEST 20 PERCENT OF HOUSEEOLDS .. 67.81g 58.7 48.2 52.1 LOWEST 20 PERCENT OF HOUSEHOLDS .. 2.3/ . 2.9 6.3 3.9 LOWEST 40 PERCENT OF HOUSEHOLDS .. 7.3& .. 9.9 16.3 12.6 POVERTY TARGET GROUPS ESTIMATED ABSOLUTE POVERTY INCOME LEVEL (USS PER CAPITA) URBAN .. .. 240.0 265.6 241.3 270.0 RURAL .. .. 170.0 185.1 136.6 183.3 ESTIMATED RELATIVE POVERTY INCOME LEVEL (TUS6 PER CAPITA) URBAN .. .. 235.0 396.3 179.7 282.5 RURAL .. .. 75.0 308.1 103.7 248.9 ESTIMATED POPULATION BELOW ABSOLUTE POVERTY INCOME LEVEL (PERCENT) URBAN .. .. 14.0 35.2 24.8 20.5 RURAL .. .. %1.9 46.6 37.5 35.3 Not available Ilot applicable. NOTES /a The adjusted group averages for each indicator are population-weighted geometric seans, excluding the extreme values of the indicacor and the most pooulated country in each group. Coverage or countries among :he indicators depends on availability of data and is not uniform. /b Unless otherwise noted, data for 1960 refer to any year betveen 1959 and 1961; for 1970, between 1969 and 1971; and for Most Recenr Estilate, between 1974 and 1977. /c Latin America i Caribbean; /d Lower Middle Income (5281-;50 per capita, 1976); /e Incermediate Middle Income (S551-1135 per capita, 1976); /f Registered, not all practicing in the country; /g 1967. Sost Recent Estimte of GXP per capita is Eor 1978. August, 1979  -26- ~~~~ANNEX I 26 -~~~~~Page 3 Notes: Although, the dota -r draw fr- souce general ly judged the most sthuiseatto- sd re~lai, it should also be neted that they nay sne be inten- tiona.ly tapseale beso-n of the at of ot-asdno -d Aefisitinn and concpts used by llfea -cutte I n colcIgthe data. The data are, nntees usfu to-d-o-h order ofenoud, indicate treds, ted sh-st-ebe cetain -aJor difter-rt Ie eccutIs The ndj-toed gr-p ae-ge- foe enob odictoe ate poplation-weighted g-catrio ses, esoldiog the est-e ousof the indicator ted the a-t populated toutr in enh grou.p. Xco to lan ofldta, grop -reges of all ldi-nt-r foe Capital urplu- All topert-r ted of iodato-o of Access- to Wate nod horeta ,ityosni Rounng oose Dllstrltubosi ad Pteey for other osIstry grops are popn.stio--seghted gesmetrl net nith-ut enslusi of the estreneele n the most copulted couotry. ino theooraoo osutrieaonal hidosto,rsdepends oaailabilIty of data ted is not unIform. oto an esnr e io relation a zerae of one Ailoatr t -g-e. hnstre ar -otly usefu as aPp-esatono epoe' cle hnoaaistek olun f n indlostor atati-e earn thc coutry ted referee.e genuon. ALO ARiA )thssasd oq.km.) kosto toesDesa mests ssain os],ubn ae] Wgrieet-.tss - Sa.t resst estiate sf orielmsel slo seed tp,maiby peeeetw.s of their reapette pnpuitio-o bert. dsisosal1 W barmod ne p -seetlye f- crePe, pature, mkst sod kitche gard- or to the colistlino an disposal, with we sthest tees-nt, nf =n aserts iefslice. . nWoewtrby eater-bare syota er the as of pit prieles end e-.mi. GNP UPE CAPITA CoS$) - liFP pee capita satiate st meret keAt prices, ~ i Nplts b oi.in - FPps.Utisa dlided by,-ste of prsobbiseg phystoi-n -al,slltsd by am ese tsomman - VSnIl. Bank AtIa (19,76-,7Abets 1-WLI9iI1Eiisa cool st nobirity -lerl 1960, 1970, and 1978 dtbS, Flault- -s troa Person - Peplatie divIded by aste of pemti.nig ale MAtCiNBOWPIWUCAIA-Ssalcasatsofoireassysd alt.I gr~Adts morss, pestttl ases,sd sasiatem mt ss (ral an lig.ie,potrel-sm saturalga sdib-yd5- mf e-- Pmeslatbn HcositalfBed-toa,ubn an ua -P ltis (tt.]. urban tbsen. sleetr iby) in Ailngra onf -a.1 squiralt Per ospht.; itAb, end rurl iddtbedby their epstler ssts f hnepil4a.l hs.e callble ho 1970, and 1976 dt.ts public and private gas 1] ed apstalice hosapit.1 end rehoilitatisaostea Heapitasl -c eetablieb-mts prsat'stffed by an lsot oa physbla. POPiJIATION AND OffAl STPATISTICS BatLblieb-te preiding pedmoipelly cotedial car -s' ash brtssdsd R-u Total Ftpsltie. NdYesii.ins(- As of ,ysby 1; 1960, 1970, sob hospitl *1 horer,talds brath and adil es-ter ant peemetly etaffed 1977 dt.t. by *tw phalebn(las by a --dioal s it=st _us, ai,iwfe, ate.) whIch offee prhao FPAesltbon (merest of total) - Patin of rbacto acts.1 ppesl.tiio; ia-patist o-nditiss sad p-eode a limited range of medical facblitbs.. diffeest dsf tnltbs ! urhs ara Wy affect -cspa-billty of data Admlssiemo 55remt] Be TPtal somber f adaoslo.s tn or discharges from ..,g. nutesa 1960, 1970, sad 1975 data. hna.pitd divrded by the osatee of liso- lo-al.tton ho sea l0D0 - Curret poslatios pe-jatti- se b-ae sa iflSrIG 1975 tetal popoition by age and -estad their Mortaity sad fertillity Aerage Bliss of Slo.aebld (e s te household -tta 55. ad rnrl rae..P""Je~otiss paratsr for -ortilty rates c.Wie of three A htssbold ceobets fagspe slisauascaslnn qurters and leeds a_aisg life -sp-ctaey at birthe i-ee-lg with -nstey's their ants meal. A sssd-r or lsdge- y or ssy nst he ioluded in the pee captai incom 1se1l -d0 frasle life e-pootay steilisiag et hl.iue ld for sttiatics1 porynaso. 77.5 yearn The paamters foe fertility rats alas bas thes le-el Averag -eahrofprsn perrc tst urban and rura - Ar-rage culie accusig deolins is fertility asosrding ts Io-a level and past fpersn Pee runs in a] urhn andrue] occpied eentinnldwlics faly `lsaidg p-rfoe.an tch neontry Is then acahamd -a of thene reapentiey dwlig nld -pe-mset struture sad ua-pied patto. wins estiotisna of mortalt n etlity treds foe peojenticaAoeaa trtiet' (percet ofideslilo ) - total, urba, so cro.l - Coo- purposes. esn~~~~~~~~~ticecl dwellings' ettleetricty in linIng tuaer as percetage of statiosr o.. esla.tion - In a stat ios..y pcpsa-tion ther is no groth total, urha, and rura dwellings rep-ctiely. abase the birth ratsInequal to the death ste, sod alas the egs structure rmains onett. Tobe is shiered oly atde fertility rates EDUCATIONI decline to th epl-nset lerel of omit net reh..sincaeae Adjuted Asro1lst WaIna ran generti on o 00m ls it-slf e-atly. The stationary pebo- Pri-ar sebmol - total sle and female -Grss total, mal and female enrol- latlceebe-eso estimted on the basin~ of toe proJected ehatsLtiear met of all ages at the prleory lar1 anp-eretages of reapectire ypr y of the popsltion in the year 2000, and tbe rate of decline of fertIlity e-hn-a-ge popsoitiono; norjIpy -laldec childre aged 6-11 year hut eate to eeplanement becel. adjun~~.ted fo differet lnhoof prI-ar edsotlon; for ooutcle- dit hear tstaiono noltlos is remhed - The year when s.taisay pojestiss u Irea].eucto onrller7-t sop eced 100 p-rest wince sou papils nice ha. been readie,aelelwo h the offlal ace ae PPclatios D-nity iSonsdor anhnol - total. sale ted f-ale - Computed as ao-e;seoondsry Per eq. ko. - Mid-year populnaine Per qnar kilomter (100 hsotar-) sf eductIon reqaire- at least four year of sPpyro-d prls-y o-t _ootito: totalae pruidesgnra tmona,o heat her t-aiing inst-utloo for pupilo Pee no . aglulu an td - Compted an b-v for agri-nitur land -asaly of 12 to 17 year ofaeI oercpund-necue r g-eneraly only.enudd PoPulation. Age Structur (esreen.t) - ChIldren (0-lA year), s-ridog-ege Psetional euol t (percet of seesnday) - Veatho..al i-stitottoo i.eol.de (15-h6per) an etrd6 yernad eeer) so peetages of mid-year tcia iodtia,eother program shich operte iodepeedetlyors poe Ctno bi 1I1,td 1977 dt,dprmnso rcde stotse Rouslo cehito (p.rc-t) - tota - ..s.o Iceoth rates of tots.1 mid- dppitecrraicr.r.ndecdry-faltunaerold1 yea Population for .. -d,1960-70, an 1970-77. prta-y and -noodery 1ecel divided by, want eeof t-eaonr it the ooerc- pocolation Aesoh Oats (ereot --uran A- twn] guwh rates of urbse apudiag leocl- puushonfr .1h, 9-7,ad17-75. Adl(Pert a e po-et) - Literate adults ~ahloos.esd ad ones) w Crude torch ate se., thusted)- -Anua lice births per thos-td of aid- ap-retage of total adult copulation aged 15 years ed over. year Ppupultio; 1950, 1970' n 1977 dat5. Crde beat bat etonu mo)- 1saa dstho Per thousand of aid-yea CiNSiIJPTCCO poultion; 1 0, 1970, and 1977 data Passnge Cars (per thonand preition) - Po...eger can -spri-e motor - leracRepedutittte- Rt orage nanta of da-ght-r a os ill bea neting len- that e~ght pesns .ocueu . uaon he--r ted nilitary it he. ecrel repr-du-ti-e period if she e-pri.enes present age- _sh'iole specific fertilIIty rotco; uscally fir-yea averges edndg in 1960, Radio seR-r-- (c- tlicsosd ppsatn Alnl types of.-eie-e- for radi. 1970, and 1975. becs-ten to gonra publo e thoonad of puplation; -eludes ulice-od coll Pissig -Aecector,. Anoua (thicadn( - an].oner of reeveoIncutries end in year _beh egi tration of .di,, -tet oat Ac occeytoro of irth-ssotroldeetre under anapieofntional famIly effeet; data foe recet yenta se not he -op-bale ailce sootcolr planisg program olished licening. coolly Pla inob - lore (cerceot of nried sos) - Per-tnae of maried TO Reesi-so(e Phztoanpolaio -TVrcvesfrhodwtcgord noe o hild-beaing~ Age (A Years) sic u-e birth-ootlcl d-ri-e publIc Pertussdppotc;eidsunl edTrcevsivuair Ocsl arcied 0m nen age goup,ndi yea h-e regintr-tios of TV nets .on xi effect. temancper CItroultiln (pertiuas pu ltift)d- ttnthe aterg eoir-clatlon Toden o hodPrdci - Capita (1969-71-100) - laden of P er cpita drooted peimoily to recoding general neo- I in coaldered to he "Icily" esnual producico of all fod cosmodtic- rod-cti-nec-cre eeda if it ppe-r oh lea-t four tAies a -een feedtedp ion cacaedaryeabas Coasdities corer primar y gssdn Cinem Ansul Attendane per Capita ec lea B-haed -s the outer of tivketo (e.g. -ugar- In-tead of -uar) atch are edible ted -tosal -,trle-to od1Td during the year, iccluding aasocsto dII y-in ci,ora mod nbl ie (e.g. coffee end ten are eooluded). Aggregate production of eah coa..toy units. ho ato cpl f aore (crcs ofr ireneto) - Computed fro 1A000 PORCE eoergy equitalet of -et food aspyiles cailable i. country pee capita Total Lho- Force (ithusnds) - Eooconio-lly ortive per-on,inuigore per day. A-silable osppiies -cpri- domontit p-etdsio, imp-rts les forces ted uneployed but c uigh-ueiven toudento, 000. efic,Jit,-o ep_rto, and chn-geiact-c. Pen oupplien eeludo animal feed, -cedo, in vai I-cutries ror sot v-p-bsle. quat itiros-ed in ford p-oes-io,g, and 1--c in diatribstlon. Oenrgole he leret -FeaeIhrforce as Pereetage of totl tahoe forcy -rt er ohiasted 'oy Oil hbned cc phynioiogival seeds for normal dg9tyJ ft(-abrforce ic faming, fcretr, hunting end activity ted healthj ...nid-rig er etltemperature, tody eeiglitc, fishing anprersntags of total Ishc- force. ng ed ac iatrituti_nf_ppltc,sd alsn 10 pe_ont cv Industry (peecet) - LaborfreI-wg,aotuta s-Otturogn.t as.ot st houeholdbl-cel. elcrc -c,eteredgas aspretg.fttlI.aocfuoe .erc it suppl of protein (Rams pEr dat - rtin vYteo'pr Pricpto Rte pecet)-otl male. end ceasle- ariiao r apit ar_spplyof food per day. Net -spply of.fod in defased asaciviy races- ae.oputed en total, mae, and femal lahsr_focaspr .b.or. Ortaire= to foe all ountrirI-tescah-7by Ur onoproide fo- a -chgee of tonal, owls md feenle population of nil agerspeciey otias llnnv of 61 eso .toa protein pay day ted 20 gram of 1960, 1970, and 1971 data. Three are Ill's paicipetio rates reflectIng atins. td pnloe protrie, cf which 10 gram should be -iAma protein. ge-nest-ut- of the pupulatia, and longtime tread. A fee rota'iot- Thete ~tc,t-lo te one1 thatth,, lloau 5ge- oftotal pecten ted ar frcm national e_uoce_ 25 gram of teial prcti _ _e_tavrge for the _ocld, Proosd by FiO teossin been ey Rstia -_Rstlo of poylatios under i end 65 end -cr to ithoe Third World hood Survy. the lao frein g grou of 1-6u Years. her sapit~ a-etea tuoly feu atisl and pulu - Pr,onein a-ply of food icmDS Chilli ags1i oaiyRc ret-ssd(-Atslbths Per thocomd Peraatae f Privat Thoo (both in aoh and hind) - ce-cined by rioheut it age grcup 1-i yeats, to vlild-eo it this age grop; foe moat deve1- 5 percet riclhct2'0 percet, puoreno to percet, sad psocec-t 40 percet oping coun.tries data deri-ed from life tublie. of ho...eholda. IPaIC PI2CRTY TARGST G000070 bits , toetancy_ noRIth ec A- deae -b-he of years of life ntimated -bolt putery Incomo Iced~ S ( 1 -pe capita) - uha and rurlI velninga birth; l1 -,1970, and 1977. data. iait eet cselvli in os ee eo he iin Iofent ertc lity sate (per thountd) - A-..al deatho of infants umd- sa trinionsIly adequate diet puo essetial non-fond -eqai-teel is not Yea of age Pee thounad lite births,af nc.dbil.. ALcres to. i.fe W.te (seccee of, pplatic -i totl urban an rl- otlasted RetasyetyISc$ evl(1 pe capita) -uban ted rurl MBare of pepl (ttl,at,b n rrl siheaonble ances to mRal ee'laht p-er isC_m Itl_ in can-third of acerg Pee eapt oafs cater opply (i.olsdes treated surf- at ena- cc -stead htpec-onal inosm of tie coutry. Urba level is dented from the -rural locei uncontaminated nater wash so chat fro protected -horehto spring, mini ad.)utmat fr higher cot of liclag in urbanaes andominary esil) atpeoennget of lb i r-apoetics pupuatim.- i iEtmatd PRoplanin melee hbbolute PosryIca i-e rcnt ea n anubn -e a puhiho f-antin or etadpoet located not --r than rua ecnt ofppoainuhcndralabaesuote et' P0 eter fr- . h..s. ma he coniderd as beIng ithin -es,nmale access of that hos . i rura oeas es--ble ases mould imply that the h...seuife or -obe-a of tlie household do sot isre to sped a o.ono-mic ad ioSi i. ta Dlisioin dioprcpocti...tn Part of the day is ftething the al. sater reds EcoomcAalysis and heojetssan Rep-tent A.Sgest 1979  -27- iOONOUOs 2/13/80 ANNEX T Page 3 68180 5 ,ASE%Mi OFT tAEISTM SOAASOAT OF TOT-ONCE OF PAYMENTS ~ ~ I P j ~CTf F ESAFOT MSNT 07 -T F.--0 M -Mi-A -OF -,oA -OS.M -NA. -87.4 -92 0~ -A9A.0 00OITOO O 809 000 57 -0 --IO.F1:2 -T -210 -1.0 -0 0, I -52.7 -54.4 -970 -OF- I -IO A -20.3. NI., AFT.TI IMoNsTEA -2l 0N 1 40 14A 1. a 5 99 O 08 0- 7-01 44: A I0I. 1 A0000 FOO FNFIAN A T0 1.4 0A A) A7 07 F 0. 50- 2670 20. 50a 220. F. ONSATO A O7ONF -LIFATLOAN 0 0 4 1 00 5.9 0~~~~:317.79 "0 00 Fo5 -T 7 s -.O 0 -O 9. -OTOA _OT0FA S N ) ITI 7 A~ 99- 7 95 0 190. I AII.A 15.9 005 0 07. 07 0 0- 001 I0. 10 . G -aOO.OTIN --O 0- , -0.0 -9.4 -13 0 -139.2 28.0 - 416.3 -40 01 -090 NA 91, -99.' -`II 9 -M9i- TINA TIF ..F.F.T T O, 0 70 0 05 0I OTA Ao 11.0 IBO 20149 04 OAI 0. 000 4005. 090FF 1281 L.ONS 14 151 TTIOOOF0IT 0 0 -O 0 - 02 .0 -0 00B TO ONA 01 791 OFOOLECIT TO 071~ ~~ ~ ~ .0 03 `10. 0 0 0, .0 0 0 0 I OFFGSTTOF100) 0 -07 007 N T. 00 T -0 I D 9 0.9D1 0 0 0 0 0 0o 4 NlI IN "ll-El ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ M E 00 CA O T TO aI A GOOF TT 00 - 040 N N. FIEDOOT AN 0a00 TAO D'EI IOTTOOGOF OO T A I IDII VIT N T-00010010GI(TT.14100 0 00N- F O 0. .F FF000 o~~~~~~~~~I 0 o . o .FaFL EE 3ASTO20NO a OIAFTD 070 F 0B 0 .0o .0 1o 0 I'llF EITI 7 F FA9700. 005.0 0007 9 974 ~~~II DI- -T-TI.1 1, S., ~~~~~~~~~~~~~AFAFO007 EFDO -ll -I-F F99 032-0. -5 a 11 2o o~~~~~~~FOE 6909- 018 NEF------ 0--- 0----0-- 8EAOM-EGOOIFaS aTL DEFT SA_ OFTE 1T-T 1 0 OA5 -4 5 -5- GOT 911S0'00 40E0 0 7 0.3 4 0 4 109FET F9100FF007 7-7 S.F7 43. 05 I O TGFFG INOLT S OFF00 00 09 .0 00 .9 AA EO F10(IT 0 0 E9-L-0.8- 13.5': 10 7 1.4 0 GGFDOGAMFI7TGTTIIITMMOT 00 400 07100 00030 20.000 09.A00 10.000 MES NAEGT0 1.-1 1.5s 2.7A IB.7 0.9 FAA. FET SEOGFF,TTT0 OF0FIOE 0.0 9 '10 10.1 210.1 1. FT. 9AT9A ADA/OTAL-0- 21 71 Al 0.8 0.5 4 F, 5. IT I-L ~~~~~~~~~~~~~~~~~~~~-DEFE2ECA0000FMMOTDB FOTEONIO TOOT ~ ~ ~ ~ ~ ~ ~~~1 oo 1-1 II I00I-I ~ O 1 2 2 I 'IT, IV D :-I .,,T '"~~~~~~~~~~~~~~ A8S FOE IT"0FS(AO.0T00 19 0 80 0 I -8FF 1'0.0 10.0D NET TANAAIFAOF- 0.60)04 F9 F 0 T 2T1 OFOEM SOLFILTIODOI. 107.0 20.7~~~~~~~~~~~~~~~~~~~~~~II I122. 01 870Gb OFOTFOLL, F, TNIoIo FOaTOTOFO (71 0 I 01 E T. D D SGFDLOFOG 04.0 3.0 1688 DFNF.20M005 TOTAL AFOF 00.2 00.9 10.4 15 7 S.F 15 0~1, II .~ ll .~ OTOFO ANTI DEFT 0 0 SEFOFET 000~~~~~~~~~~~~~M 02F7I 0 01.1 IA 70140 00600-; DOFT I FNCT-00000 OCT 1000,00007 010.0 1003 FF40-AO a--A, IAGOT,. FL 168.1 28.5 Z...~~~~~~EF VFOO 0 0 45 00 0.,0, 00 2. S_t... 7 ? 3 DIIII./G-S~~~~~~~~~~~~~A/SCUOASNA TFFEC ITJGES-AO-T 1-008  -28- ANNiEX I H04909AS 2-13-So Page 5 ACTIUA L EST. P R O__E_C_OED0 I - CO AT ATIE S lA7A lAS 1977 AlA9 ASS9 CE ARs 1770 1978 1977 1978 1979 lARD ADS5 1990 l4 1979 045 lAss OP T1091.A. ACCOUNTSI II (MIL,LION 0'US5 AS 1975 PRICES I GAMASS DOMESTIC POIJCT 7S1.Q A9.7 1148.8 1237. 0 33.. 1420.7 1505. 1050.1 2511.A 4 7.3 5.6 ST '00. 96155 MRM TE RMS OF DEC77 87.5' 119.3 30:.8 4.~7 51.6 -19.3 -19.0 -75.4 -62.4 2.7 AmOOMSFC1014 10589 .1179. I_093 814I.1141. .3 IA. 8- 24- . 5. C. I_.T IIWA8TS 74.4 599. 47T 4.3 970 4. _R93.A A3 1134 47 a. R. 5.2 41.5 EAPOTO "011A1 -267.0 -AA. -3623. -430 -61. STI 628.9 S077. -105 3.7 17,2 T, S - 6 33 4 EOPO6T II D SOJLTIE -348 2 I 432 -4793.7 .5S34.3 -547.7 -809.9 -798 7 -188. 7.7 A 9 A5 0.3 3 0. RESCUrCE DOC_ T 475AD5. D8 3. 7.A 738 8.5 8. 135 85325 TO'TAL 'CD6579PIT 7730N349 1703 18. 148 1148.-a 120.':3' 1530. 1925.7 3 3 4,V 4. 4.71S 097 1AR4E57861I 131. 330.3 213 0 -304.7 339 304 348.3 A70. 609I 0 7 GA1 . 5.0 9a5 NATIONA4L SV:IVVS7 113.2 85.4 195 133 2511.5 174.0 239.3 283.4 415.1 45, -4E A 05 7.A9AS RO8ESTI S7110 138'240 149 1 337.1 2511.2 234.4 2,44.8 7?592 523.8 . -0.5 7 .3 7.8 13.50 lOP AT U,07H1%7 0 71,4.8 1263.0 1564.6 16119.0 2164.8 2421.9 62411.5 7191.3 9.? 18.4 11.0 1 II SECTOM C7TP:11 (5444C 01UR VS17 9 O 110 0'3, a176126 SERV JR 777 TOTS 07AV 0.23 067710 0.29 0.0 0.225 .95 IISJST8V 0.314, - T.23 )37.21 2 0 0.20 - 025 0.A24 7 290 1 SRICFS 0.31, 0 1 .3 .435 0423 0.427 42 7.9 T41 PRICES I 1775 100) 10XP81 PRICE 114017 5179 5477 95 88 14312 14.2 17.24 706.0 219.18 H 0.A 0.6 6.2 WORT8 PRICE INISEX 3A8 II7 107.90 11.5 128.7 4144.2 14214 277711 295.20 7 0 0,7 lA5~.4 TERMS TFII"AE S4 7.141 172.79 1000 11.6 111 96.354 96.9 01.06 94.57 -o A -5 0 -17 0 489 OEFLATV3A (1751 97.4 7607 I9 94 124.3 134.36 152. 140.4 215.97 296.30 9 ~ 10.5 5,s. ANNUJAL R-EP-E E-I7lN0F DATE 2 77 2.00 7.0 2.00 2.U 2.0965 '073 1774 ~~~~1075 1976 1977 1079 1979 1067 lA8s EA RENT --L-- .. ---- -- (MILL. IONS DFOLIO 1.1 P000 22.7 01.1 45.~ ~ ~~~~~ ~~~~ ~ ~~~~~0 373 41. 52.5 56.9 70.4 113.0 1.2 00660 775170910 A7005 42 2 4~~~ ~ ~~~~~5.7 4A98 893 I7. 1435 961.7 170.1 304. 2. PETROOIEUM. OIL, LVS4ICANTS 25 5 6.5 8. S3 77. ~7 78.3 192.4 1A7.A 438.1 3.OTHER ISTER6EOJ0TE ASCOTS 170 2 170. - 13. 5. 6. 23. 24. 292 52. 4. CAPITAL 0905 10.5 180 110.8a 13R. 28. 1. 290.5 295.4 510.2 5.1 TOTAL C000S 1CIF1 2V9.6 419.0 410.0 489 5809 71'4. 642.9 1039.3 1918.0 A.NOEl-FICTDA SERAICEO - 50.1 77 6 92.2 100.4 138.8 81.60.4 153.1 1. ITOT. -0000 650 N07 707 I 450.0 52,4 5-47 953.3 761.5 I11-4. 2071.6 II]' 1774 ~~~~~1975 1976 1977 1919 1979 10-0 IAAS COARENI UToAIS 1.1 86991.6S 44 70 79. Al 5 104. 7 127.9 191. 200.4 222.5 34. 1.3 FF0EE 97.4 43.9 55.9 10. 11. 2110l 19. 25. 389 1.3 12680 30.1 40 7 79.9 40. 47.3 42.3 42.1 47.1 ' '164. 14BEEF 10 109 1. 25:.8 - 2. 38.9 57.4 98.3 118. 1.5U5A60. . 7. 9. 12 5.5 13.5 256 91.9 19L544 70 6.~ ~ ~~~~ ~~~ ~~~~ ~~~~~5 6. S3 . 3 11.9 17.1 31.5 - I.7 2'0 31 10.5 16.01 118 1.8 1. 21. 46 . 2. MA9IIISC1LCVO 00003430THE. S07 7. 40 9 4. 104.0 107.1 159.0 19. 55.1 3 ALOIR TDO. 5 17.2 213 458 21.0 2. 44. 57 1 9.7 4. EDTIL 0702$1 .0.0 I 766 209.9 I771. 409. 522 929. 79. RD I 14. S. 509-077100 SOROICES ~~~~ ~ ~ ~~~~2723 33.4 35.9 3. 503 419 79 _20 1852 8 .N011 000 S DS731 73. S4. -45.8 572.5 68 41. 8 1913. V.L49 Added SELECTED -9'117AT0 IS-7 1977779 1979-Os 1085-00 0O0900 PER 606006 IsOor F9,9. 1 0x.- e - ----- - -n -- 1006 5 0 34 4.30 4.9 -179 1979 1711 IPRT OLASTIC7T1 097 117 1.017 1.0 AgPiS,,Lt-P .617 43.0 606 5. 82668666 DATI-ADL $0150 0610 019.17 15 0.15 0.1 IIISASO .169 4. 2132 177.1 64691941 941111511 SHOIIISS RATE 0.17 -~~~~0.1 0.2I 0.2 SCrAR -19 22.3 2093 189.6 IMP5ORTOP; 0E57 .4 0.40 0.45 TRIAL.90 1.0 24 100 INVESTMES/'1P 0.21 0.24 0.24 0.240 100 24 (. M1565480E GO P/ADS) 0.05 0.06 0 06 0.04 - - - P491IC 92N4NCR IS.LRRtRd !sdlAoAraI) Cosotral 9O4erTmeTSO ~1990 1970 1976 1577 1579 1975 1993 PDETAIL SCOR Aoftoual ,g. d 5.8 ~ ~~~~~~~~~~~~~~~~~~~~~~146599 040816-3 1907 99 012 ...1 fRR8AoOs/P 12. a 13.2 1. 159 15.3 14.7 15.969(4 lureE andPR0