Philippines - Textile Sector Restructuring Project

Document of F z- The World Bank FOR OFFICIAL USE ONLY Report No. P-3254-PH REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC OF THE PHILIPPINES FOR A TEXTILE SECTOR RESTRUCTURING PROJECT March 31, 1982 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.,  CURRENCY EQUIVALENTS Currency Unit = Peso (P (100 centavos) P 1.00 = US$0.123 US$1.00 = P 8.1 GLOSSARY AND ABBREVIATIONS BOI - Board of Investments of MTI DBP - Development Bank of the Philippines MTI - Ministry of Trade and Industry PTRI - Philippines Textile Research Institute SAL - Structural Adjustment Loan FISCAL YEAR Government: January 1 to December 31 DBP: January 1 to December 31  FOR OFFICIAL USE ONLY PHILIPPINES TEXTILE SECTOR RESTRUCTURING PROJECT Loan and Project Summary Borrower: Republic of the Philippines Beneficiaries: Development Bank of the Philippines (DBP) and Board of Investments (BOI). Amount: $157.4 million equivalent. Terms: Repayable in 20 years, including 5 years of grace, with interest at 11.6% per annum. The loan includes a capitalized front-end fee of about $2.4 million. Relending Terms: $150 million of the loan proceeds would be relent by the Government to DBP at an interest rate at least equal to the interest rate charged by the Bank on the proposed loan. DBP would, in turn, onlend to selected textile firms at itssborrowing cost plus a margin not exceeding 4.5%. Based on the Bank s present lending rate of 11.6%, the cost to the subborrowers would be around 16.0%, which is a positive rate in real terms and is in line with the current market rate for similar funds. The lending rate from the Government to DBP would be reviewed every six mDnths and, if necessary, revised to keep the ultimate cost to the subborrowers in line with the market rate for comparable funds. The Government would charge DBP a front-end fee of 1.5% on the relent amount and a commitment fee of 3/4 of 1% per annum on the undisbursed portion; DBP would pass on these fees to its subborrowers, who would also bear the foreign exchange risk on their borrowings. $5 million of the loan proceeds would be allocated by the Government to the Ministry of Trade and Industry to finance technical assistance. The Government would bear the foreign exchange risk on this amount. Project Description: The proposed project is part of the Government s textile restructuring program, which aims at transforming the existing textile industry into a competitive and efficient industry. The program, which includes changes in the policy framework, technical and structural improvements in textile operations, sectoral manpower development, and financing of investment requirements for the textile industry, is complementary to the Government's ongoing industrial reforms aimed at improving the efficiency of the industrial sector. The project would provide finance for: This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  - ii - (a) physical rehabilitation, modernization and expansion of those textile subsectors which meet the guidelines of the restructuring program; (b) training for management and staff of individual participating textile firms, and provision of necessary technical assistance; (c) establishment of training facilities and programs to benefit the textile industry as a whole; and (d) consulting services to assist the Government in: (i) evaluating and supervising participating firms; (ii) monitoring the impact of the restructuring program and developing a textile technology information service; and (iii) undertaking studies for improving the sector's performance. The success of the program would depend largely on the response of the industry to the measures being planned and the adequacy of coordination between involved agencies. The main risk is that the proposed policy changes are not carried out due to pressure from groups that are adversely affected. However, the Government's strong commitment to and support of the restructuring program together with the ongoing exchange of views with individual textile firms, are expected to assist in implementing the necessary measures.  - iii - Estimated Cost of the Textile Foreign Local Total Restructuring Program /1 $ million-------- A: DBP Individual textile sub- 485.0 97.0 582.0 projects Technical assistance and 10.0 2.0 12.0 training B: MTI/BOI Technical assistance and 5.0 1.0 6.0 training Total Program Cost 500.0 100.0 600.0 Front-end fee on Bank loan 2.4 - 2.4 Total financing required 502.4 100.0 602.4 Financing Plan: Foreign Local Total - million ------- Bank Loan 157.4 - 157.4 DBP and subborrowers - 100.0 100.0 Suppliers' credits 345.0 - 345.0 502.4 100.0 602.4 Estimated Disbursements: Bank FY: 1983 1984 1985 1986 1987 1988