Peru - Sixth Agricultural Credit Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. P-3583-P REPORT AND RECONMENDATION, OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN IN AN AMOUNT EQUIVALENT TO US$130 MILLION TO THE BANCO AGRARIO DEL PERU WITH THE GUARANTEE OF THE REPUBLIC OF PERU FOR A SIXTH AGRICULTURAL CREDIT PROJECT May 18, 1983 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS The exchange rate is being adjusted daily roughly in line with the differen- tial between domestic and international inflation. The exchange rate and currency equivalents in 1982 and as of March 31, 1983 were as follows: Currency Unit = Sol (S/.) Calendar 1982 March 31, 1983 US$1 S/. 697.57 S/. 1,238.57 S/. I US$ 0.0014 US$ 0.0008 S/. 1,000 US$ 1.43 US$ 0.81 FISCAL YEAR January 1 to December 31 ABBREVIATIONS ARE - Agrarian Reform Enterprise BAP - Banco Agrario del. Peru (State-owned Agrarian Bank of Peru) bpd - barrels per day ERP - Economic Recovery Program IDB - Inter-American Development Bank INIPA - Instituto Nacional de Investigacion y Promocion Agropecuaria (National Institute for Agricultural and Livestock * Research and Extension) MA - Ministerio de Agricultura (Ministry of Agriculture) USAID - United States Agency for International Development  FOR OFFICIAL USE ONLY REPUBLIC OF PERU SIXTH AGRICULTURAL CREDIT PROJECT LOAN AND PROJECT SUMMARY Borrower: Banco Agrario del Peru (BAP) Guarantor: Republic of Peru Amount: US$130 million equivalent, including a capitalized front-end fee. Terms: Repayable in 17 years, including four years of grace, at the standard variable interest rate. Onlending Terms: BAP would onlend the proceeds of the proposed loan to the beneficiaries--individual farmers and cooperatives--in soles denominated subloans. The foreign exchange risk would be borne by the Government. Effective interest rates would average 71 percent for loans to commercial farmers, with rates for small farmers of from 48 percent. Most subloans for working capital would have terms of up to 12 months, while those for capital investment would have terms ranging between three and 15 years, including grace periods of up to four years. Project Description: The objectives of this project would be to strengthen BAP, substantially increase the flow of agricultural credit in support of the Government's efforts to accelerate the growth of the sector and improve the living conditions of Peru's farmers. The project would provide both working capital and medium- and long-term investment credits to individual farmers and cooperatives for all types of crop and livestock operations. It would also include agroindustrial projects. Over 21,000 farm families would receive investment loans, and BAP's on-going working capital program would be increased by about 25,000 operations during the project execution period. The project would include technical assistance and training to improve the efficiency of BAP's operations. Finally, studies would be undertaken to (i) design a rediscount facility in BAP to help stimulate commercial bank lending for agriculture; and (ii) complete preparation of a sugar rehabilitation project. The principal risk facing the project would be a drop in demand for agricultural credit because of the recent substantial increase in BAP's interest rates. Financial analysis, 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 - however, indicates that increased interest rates can be absorbed by farmers, given the profitability of the investment projects to be financed. BAP is an experienced and reasonably well-run institution and there is little risk associated with its ability to carry out the project. Estimated Costs: (net of taxes) Local Foreign Total ----US$ million----- Investment Subprojects 41.5 54.3 95.8 Working Capital 64.3 27.5 91.8 Tech. Assistance and Training 0.6 3.4 4.0 Base Cost 106.4 85.2 191.6 Price Contingencies 26.4 20.7 47.1 Total Project Cost 132.8 105.9 238.7 Front-end Fee - 0.3 0.3 Total Financing Required 132.8 106.2 239.0 Financing Plan: Local Foreign Total ----US$ millions ---- BAP 38.0 - 38.0 Government 57.3 - 57.3 Beneficiaries 13.7 - 13.7 Bank 23.8 106.2 130.0 Total 132.8 106.2 239.0 Estimated Disbursements: Bank FY 1984 1985 1986 1987 1988 ------------US$ million------------- Annual 30.0 38.0 32.0 24.0 6.0 Cummulative 30.0 68.0 100.0 124.0 130.0 Appraisal Report: Staff Apprais,al Report No. 4325-PE of May 16, 1983,  REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE IBRD TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO BANCO AGRARIO DEL PERU (BAP) WITH THE GUARANTEE OF THE REPUBLIC OF PERU FOR A SIXTH AGRICULTURAL CREDIT PROJECT 1. I submit the following report and recommendation on a proposed loan to the Banco Agrario del Peru (BAP) with the guarantee of the Republic of Peru for the equivalent of US$130 million to help finance a sixth agricultural credit project. The proposed loan would have a term of 17 years, including four years of grace, at the standard variable interest rate. The Government would bear the foreign exchange risk under the loan. PART I - THE ECONOMY 2. An economic report entitled "Peru-Major Development Policy Issues and Recommendations" (Report No. 3438-PE) was distributed to the Executive Directors on May 4, 1981. This part is based on the report's findings and on those of an economic mission to Peru in July/August 1982 and of follow-up missions in November 1982 and February 1983. Country data sheets are attached as Annex I. Natural and Human Resources 3. Peru, the fourth largest country in Latin America, is divided by the Andes mountains into three distinct regions: the coastal region (Costa), with 46 percent of the population and most of the country's modern economic activity; the mountain region (Sierra) with 44 percent of the country's population; and the sparsely populated tropical rain forests east of the Andes (Selva). The country's rugged topography limits trade between the three regions. 4. Peru's natural resources include large deposits of minerals-- particularly copper, iron, silver, and zinc--located mainly in the Sierra and the southern Costa. There are also large phosphate deposits, located in the northern Costa. Petroleum resources found in the jungle areas and offshore are also substantial, but their full extent has not yet been ascertained. Another major natural resource is the large fishing potential in coastal waters, although the magnitude of the catch is subject to sharp fluctua- tions. Only a small portion of Peru's total land area is arable, and most of the soils suitable for intensive agriculture are already being farmed. 5. Although Peru's energy resource base is relatively diverse, with scope for expanding hydro and coal based power generation, petroleum is expected to remain the major energy source in Peru through the rest of this century. In the wake of the discovery of oil fields in the Selva, Peru's domestic oil production more than doubled between 1977 and 1982 to over 195,000 barrels per day (bpd), and it became a net exporter of about 62,000 bpd. To enable Peru to remain a net petroleum exporter, the Government has embarked on a strategy of accelerated secondary recovery and exploration  - . - efforts to increase production and of rational pricing policies to contain demaYnd groTwth. Irices for domesticaliy consumed petroleum products have been increased at regular intervals; by April 1983 a gallon of regular gasoline cost US$11. 1 i1 n addeliti5on new legislation was enacted offering special tax incentives to domestic and foreign investors, and the response has been positive. (D. As a resualt of three decades of rapidly falling mortality rates, Peru s populat-ion growth accelerated during the 1930-1960 period. Since the early 1960s, birth rates have fallen gradually, mainly caused by the urbani- zati.on- process and improved education. But with declining death rates, popu- lation continued to grow at about 2.5 percent p.a. between 1972 and 1981 and is currently estimated at about 17 million. Preliminary census information, still being confirmed, indicates a dran.atic-improvement in population prospects. The 1981 census indicates that fertility declined by 20 percent during the past decade and that the current rate of population growth has dropped to 2 2) percent pna* The census also indicates that the reduction in population arowth is most marked among the 65 percent of the population living in urban areas. The Government is conscious of the need to continue to slow dow : Peru s population growth rate and is supporting a family planning program. _ Past Develo'ment Policies and Performance (1968-80) 7. Two successive military Governments, in office from October 1968 until July 1980, followed a development strategy aimed at promoting economic growth and improving distribution of income and wealth. The pattern of asset ownership ir. the economy changed drastically through nationalization of production and distribution activities, and through a sweeping land reform. Llowever, many of the policies carried out after 1968 had an excessive cost, and their imolementation was inefficient. Irn particular, expansionary fiscal and credit policies between 1968 and 1977 produced strong inflationary pressures and widening external gaps, To finance the fiscal and current account deficits, Peru's external debt more than doubled between 1973 and 1977, reaching almost US$8.4 billion (including short-term indebtedness); about two- hirds of GDP. 8. In 197778, Peru's economic situation deteriorated substantially: per capita GDP dropped by over six perc,ent, inflation accelerated to an annual r-ate of about 100 percent and the banking system's net international reserves dropped to a negati-ve level of US$1 billion. By mid-1978, the country was in the midst of a severe financial crisis, as it was no longer able to service its foreign obligations, and the private sector could no longer open new letters of credit for imports. 9. Beginninig ini May 1978, the Government adopted a numlber of important measures a4med at strengthening public finances, improving the balance of payments and curbing inflation. The Government also negotiated a stand-by 1/ Population data presented in Annex I will be updated in 'Later President's Reports when confirmed figures are available from the census.  - 3 - arrangement with the IMF in support of the stabilization program, and carried out major debt-relief operations. This enabled Peru to reduce the debt service burden for 1979 and 1980 by postponing repayment of about US$1 billion to the 1982-1986 period. 10. To overcome the economic recession, in late 1978 the Government adopted a comprehensive Economic Recovery Program (ERP), which, in addition to the above-mentioned stabilization actions, included measures to open u: the economy, promote non-traditional exports, strengthen the tax system by broadening its base, and generally improve the efficiency of resource allocation in the private and public sectors. These policy changes--together with a declining domestic market because of the recession--resulted in a major reorientation of industrial development, with a large increase in the value of manufactured exports from about US$200 million in 1977 to the US$750-800 million range in 1980-81. The Government also drew up a public sector investment program that aimed at redirecting investment towards projects of clear economic priority and with positive effects on production and employment. In support of the ERP, the Bank approved a US$115 million Program Loan in May 1979. 11. The Government's stabilization-cum-economic recovery program resulted in a strong improvement in public sector finances in 1979. The overall public sector deficit was reduced from 5.7 percent of GDP in 1978 to 1.7 percent in 1979, and the more careful management of public finances had a positive impact on the balance of payments. At the same time, an increase in petroleum exports and a substantial improvement of Peru's terms of trade generated a surplus in the current account of the balance of payments in 1979 and equilibrium in 1980. At year end 1980, the net reserve position had improved to about US$1.3 billion. Growing incomes as a result of good external sector performance and, in 1980, a reacceleration of public sector expenditures, resulted in renewed growth of GDP, at an average rate of 3.9 percent in 1979-1980. However, the public sector deficit increased again to six percent of GDP in 1980, and inflation exceeded 60 percent. 12. In July 1979, the military Government promulgated a new constitution, written by a popularly elected constituent assembly. Elections were held in May 1980, and following his electoral victory, President Fernando Belaunde was inaugurated on July 28, 1980. His Government faced a challenging economic and social situation with severe structural weaknesses which had been only temporarily attenuated by the improvements in the terms of trade and the resumption of growth. The new Government named an economic team committed to a program of structural transformation of the economy based on (i) opening up of the economy and increased reliance on market mechanisms; (ii) encouragement of private sector initiative and reduced public sector participation in economic activities (including divestiture of some of the State-owned enterprises); and (iii) reorientation of public sector activities, improving the efficiency of public sector investment and management, and redirecting public sector resources to the areas with greater needs (mainly infrastructure and social sectors). Its reliance on, and promotion of, private initiative, in particular, distinguish the present Government's philosophy and economic program from that of its immediate predecessors.  13. The Government made important headway in a number of areas. It was successful in accelerating import liberalization by eliminating, non-tariff barriers and lowering tariffs, and in streamlining export incentives. At the same time, new legislation was enacted for the agricultural, mining and petroleum sectors, offering greater incentives to investors. Substantial changes were made in the financial sector, through upward adjustments in the interest rate, reduction of legal reserve requirements and approval of banking legislation promoting further liberalization and competition in the financial system. The Government also made progress in correcting major price distortions by reducing food subsidies, eliminating some price controls and adjusting periodically public utility, and petroleum product prices. Finally, the Government endeavored to rat:ionalize public investment and its financing--an effort that was supported by a Bank-sponsored Consultative Group meeting in May 1981--and initiated actions to strengthen public sector institutions. Recent Developments and Outlook 14. In 1981, the first full year of the new Government, Peru had to face a rapidly deteriorating international environment: world demand for Peru's main exports declined, interest rates on the country's external debt increased to an all-time high, and the terms of trade fell by 16 percent as a result of lower export prices. The overall negative impact of these external events on Peru's balance of payments was estimated at US$740 million. A substantial recovery of agricultural output (with a growth rate of 10.6 percent) and an even faster growth of construction (mostly public) allowed GDP growth of near four percent. However, industrial output stagnated, mining fell by four percent, the public sector deficit increased to about eight percent of GDP and the current account of the balance of payments closed with a deficit of US$1.5 billion. Also, inflation accelerated to 73 percent and exceeded the rate of mini-devaluations. 15. Peru entered 1982 with large internal and external disequilibria that required serious stabilization efforts by the Government. Economic activity was slowing down, world commodity prices continued to fall from their low 1981 levels, and the public sector deficit, partly related to low export prices, had also increased because of growing expenditures and delays in some price adjustments (mainly domestic prices of petroleum products and rice). In spite of increasing social tension, the Government adopted an austerity program designed to reduce the public sector deficit and regain external equilibrium. At the same time, the minidevaluations were accelerated and exceeded domestic inflation by a wide margin, thus restoring part of the competitiveness lost in previous years. In June 1982, the IMF approved an SDR 850 million compensatory-cum-EFF arrangement to support Peru's stabilization and structural adjustment efforts. 16. Despite the austerity program, the 1982 public sector deficit was equivalent to 8.8 percent of GDP. The current account deficit in the balance of payments was reduced slightly (to US$1.4 billion) in spite c,f lower export prices, and all formal performance criteria under the EFF were met. However, GDP growth slowed to less than one percent, industrial output fell more than two percent, and inflation continued at more than 70 percent.  17. The still sizable public sector and current account deficits, combined with the reduced availability of external loans from international commercial banks, forced the Government to accelerate the adjustment process in 1983. New measures, recently adopted, include a large cut in public investment, acceleration of price adjustments of publicly supplied goods and services, and faster reduction of food subsidies, with the objective of reducing the public sector deficit to 3.8 percent of GDP. Also, the Government is following a restrictive monetary policy, and mini-devaluations are in line with domestic inflation. In addition to the stabilization measures, the Government is committed to continue the process of structural adjustment of the economy through financial and trade liberalization, encouragement of private investment and improved resource allocation in the private and public sectors. The Bank has an ongoing and frank dialogue with the Peruvian Government on these issues. 18. Economic activity during 1983 is expected to decline, with a fall in real GDP of about five percent. All subsectors, except for mining, are expected to fall, partly because of the restrictive monetary and fiscal policy but partly because of bad weather, continuing weak international demand for non-traditional exports and low commodity prices. 19. During the first months of 1983, Peru suffered several natural disasters, including heavy flooding in the northern part of the country, a severe drought in the south, massive landslides in the central area, and a change in the Humboldt current that will reduce the fish catch; all will impose an extra burden on Peru's economic and social situation. A preliminary estimate of the costs of replacing the infrastructure damaged by the natural disasters amounts to US$400 millon (about 26 percent of the 1982 public investment budget). In addition, output losses are expected to be substantial. In the petroleum sector, flooding of the Talara oilfields and damages to the trans-andean pipeline are expected to cause a 4.6 percent drop in oil production (to an average of 186,000 bpd), and an eight percent fall in petroleum exports. 20. Inflation during 1983 will also be affected by the landslides, which have closed major road links causing food shortages in the capital. Given the inflation rate during the first four months of the year (averaging 7.9 percent monthly), inflation during the calendar year 1983 is likely to increase to a level of about 90 percent. However, as the fiscal deficit is reduced and the restrictive monetary policy continues, monthly inflation rates are expected to decline gradually, to an annual rate of 65-70 percent * during the second half of 1983. 21. Based on cautiously optimistic assumptions with regard to economic management, the country is expected to resume economic growth in 1984, and to achieve a medium-term growth of about 4-5 percent per year and a manageable balance of payments situation. Peru's balance of payments could, however, become precarious if the exportable surplus of oil declines. While measures are being undertaken to speed up petroleum exploration and to increase manufactured exports, the results of these endeavors may not come in time to countervail the potential foreign exchange shortfalls. Against this background, there is a continuing need for official development assistance, including local cost financing. The prospects for Peru's economic recovery will be closely related to economic performance in the industrial countries.  - 6 - However, domestic policies will be a major determinant in restoring internal and external equilibria and returning to the long-term growth path. In this respect, the Government has so far demonstrated its intention and ability to take measures to deal with the problems ifaced by the Peruvian economy, even when they entail short-term sacrifices. PART II - BANK C-ROUP OPERATIONS IN PERU 22. The Bank has approved 54 loans to Peru for a total amount of US$1,392.3 million, net of cancellations. About 27 percent of the Bank's lending to Peru has been for transportation (mainly highways arid ports), 18 percent for agriculture, 24 percent for the energy sector, 13 percent for mining and industry, about nine percent for education, health, and urban development, eight percent for a program loan in support of the ERP in 1979 and one percent for technical assistance. 23. Annex II contains a summary statement of Bank loans and their disbursement status as of March 31, 1983 and notes on the execution of ongoing projects. As of this date, US$693.1 million was undisbursed. Disbursements on Bank-financed projects moved slowly in the late 1970s, primarily because of weak project execution capacity and a shortage of counterpart funds that worsened as the economy deteriorated during this period. Disbursements have improved, however, with vigorous efforts by the Bank and Government to correct the situation by, inter alia, (i) opening a Bank resident mission in Peru; (ii) restructuring a number of slow moving projects; (iii) Government provision of adequate counterpart funds; and (iv) Government creation of a special commission to monitor loan execution and resolve administrative problems. These actions are bearing fruit. Disbursements on project loans amounted to US$44 million in FY80, US$70.5 million in FY81 and US$75.8 million in FY82. This compares with average yearly disbursements of US$27.5 million during FY77-79. 24. The main objectives of Bank lendling to Peru are to assist in (i) the creation of the physical infrastructure needed to sustain and foster economic development; (ii) the expansion of productive capacity in crucial sectors, i.e., petroleum, agriculture and mining; (iii) the strengthening, through technical assistance loans and regular operations, of public sector management and of local capacity to prepare, implement and operate projects effectively; and (iv) the improvement of 'Living conditions for l-he urban and rural poor. In the past, Bank lending concentrated on infrastructure in the transportation and power sectors. More recently, the Bank's emphasis has shifted to more directly productive fields--mining, petroleum, agriculture and industry--to help Peru to strengthen iits balance of payments. Lending for social sector projects has also grown and will be further stepped up in the future. The next operations that would be ready for the Executive Directors' consideration include projects in primary education, power and urban development. As part of its assistance strategy, the Bank convened a Consultative Group Meeting for Peru on May 25-26, 1981 to help the Government arrange financing for its public investment program.  - 7 - 25. Bank loans constituted an estimated 6.4 percent of Peru's total public external debt outstanding and disbursed at the end of 1981, and absorbed about 3 percent of the country's public external debt service in 1981. Assuming increased recourse to long-term bilateral and multilateral aid by Peru, the Bank's share in the country's outstanding public foreign debt by 1985 could reach about 10 percent, and its share of debt-service would be around 4.5 percent. 26. IFC commitments as of March 31, 1983 were US$56.3 million (including US$15 million to the Southern Peru Copper Corporation for the Cuajone Copper Mining Project) of which US$34.6 million is held by the Corporation. A summary statement of IFC investments as of March 31, 1983 is presented in Annex II. 27. The other principal lending agencies active in Peru are the Inter- American Development Bank (IDB) and the United States Agency for Inter- national Development (USAID). Their total commitments as of December 31, 1982 were US$1.0 billion and US$378.4 million, respectively, and their shares of public debt service as of end-1981 were estimated at 0.8 percent and 0.7 percent, respectively. In its future operations, IDB is expected to emphasize lending for agriculture, industry, mining, roads, and small scale irrigation. USAID is expected to stress rural and urban development and health. PART III - THE AGRICULTURE SECTOR Land and Water Resources 28. Peru has a limited natural resource base for agriculture. Of the country's total land area of 1,285,000 km2, only about 3.7 million ha or 2.9 percent is arable and another 17 percent is natural pastureland. Additional land could be brought into production, either by expensive new coastal irrigation schemes or by providing basic infrastructure for more remote areas, mainly in the Ceja de Selva, the jungle highlands in the Amazon region east of the Andes. 29. Of the country's three principal regions, the 130,000 km2 Costa, which consists mainly of desert terrain, is the major agricultural area. Agriculture in the Costa is limited to river valleys, and most of Peru's one million irrigated hectares are located in this zone. Most irrigation and drainage systems, however, are old and inefficient, and the Bank is currently financing two irrigation rehabilitation projects designed to help deal with this problem (Lns. 1403-PE of 1977 and 1771-PE of 1980). Where water is available, conditions are generally favorable for crop production because of good soils and near optimal solar radiation and temperatures. As a result, productivity and farm incomes in this region are relatively high. The Costa produces over 40 percent of the country's crops, including the major export crops--sugar and cotton--as well as rice, maize, potatoes, citrus crops, olives and grapes.  - 8 - 30. The Sierra consists of rugged mountains and high valleys. Of the zone?s 335,000 km2, about seven percent are farmed and 43 percent are used for grazing. The Sierra has about half the arable crop land in Peru, but-- because of the difficult topography, the severe climate and generally primi- tive farming techniques--productivity is low and there is little scope for putting new land into production. Most agricultural production is for subsistence, and there is little use of fertilizers or other inputs. There is a potential, however, for improving crop and livestock productivity through research, extension and the increased use of production inputs. The Bank is assisting in this effort with the Agricultural Research and Extension Loan (Ln 2150-PE of 1982). 31. The sparsely settled Selva east of the Andes accounts for 64 per- cent of Peru's total land area. The region comprises two quite different sub-zones: the Ceja de Selva--the highlands on the eastern slopes of the Andes; and the Selva Baja--the jungle area around the Amazon and its tribu- taries. Most of the soils in the Selva ]3aja are classified as marginal and are suitable only for grazing and forestry. However, soils in the Ceja de Selva are of better quality and can be used for cropping. Arable land in this zone is estimated at 4.5 million ha of which less than 15 percent are currently being exploited but spontaneous settlement is growing rapidly. Fruits, coffee and tea are the main crops, although there is good potential for livestock, rice and oil palm in some areas. The Government: is giving priority to projects in this area since they constitute the best prospects for expanding Peru,s agricultural frontier. The Bank is supporting this effort with the Alto Mayo Rural Development Loan (Ln 2219-PE of 1982). Agricultural Sector Performance and Government Policies 32. The agricultural sector in Peru underwent a major decline during the 1970s. In part, this was due to a serious drought from 1978-80, but the sector's poor performance was brought about primarily by the policies of the previous military Governments. These included: (i) an agricultural pricing policy which did not provide adequate incentives to producers; (ii) imposition of an inefficient State-run marketing system; (iii) insecurity of land tenure owing to a far-reaching land reform; (iv) failure to effectively organize and manage agrarian reform enterprises; (v) insufficient credit and the dismantling of the extension and research support services for the sector; (vi) a requirement that food crops be grown in place of non-food export crops, primarily cotton, for which Peru enjoys a comparative advan- tage; (vii) the concentration of public investment in large-scale coastal irrigation projects with very long gestation periods; and (viii) failure to support agriculture sector educational and training institutions, so as to insure that they had the teaching staffs and equipment necessary to produce an adequate supply of well-trained professionals. 33. In 1981, agriculture contributed about nine percent to Peru's GDP and employed about 40 percent of the labor force, as compared with 17 and 48 percent, respectively, in 1970. The value of food production in constant prices increased by an average of 0.7 percent per annum during the 1970s. The value of crop production actually declined at an average annual rate of -0.6 percent in the 1970s, while livestock production increased at 3.3 per- cent, largely because of the rapid growth of the poultry industry. During  - 9 - the same period, population grew at an average of 2.9 percent per annum. As a result, nutritional standards suffered, and the country's dependence on imported foodstuffs increased. 34. The volume of food imports--consisting mainly of wheat, rice and other grains, dairy products and vegetable oils--increased by a total of over 20 percent between the early 1970s and 1980. At the same time, agriculture's contribution to exports--mainly sugar, cotton and coffee--fell dramatically. By 1980, the volume of major agricultural exports stood at only about 22 per- cent of the 1970 level. In spite of these trends, Peru continued to maintain a positive though shrinking balance of trade in agriculture through the 1970s. By 1981, however, the surplus had turned to a deficit totaling about US$230 million. 35. By the late 1970s, the military Government had recognized the gravity of the problems facing the agricultural sector and the potential long term economic and social impact of its decline. It began, therefore, intro- ducing measures to reverse this trend. Consumer price subsidies on most products were reduced or eliminated so as to make higher farmgate prices possible. The requirement that food crops be grown was eased, and the rebuilding of agricultural service agencies began. The Belaunde Government has accelerated this effort. It has eliminated most consumer subsidies--the major remaining one is a subsidy on rice which is now being phased out. Export taxes have been reduced substantially and are scheduled to be fully phased-out by 1983. An agricultural promotion law was passed in 1980, which: (i) concludes the agrarian reform expropriation process; (ii) provides selected tax incentives to investment; (iii) permits the private import and export of most agricultural products and inputs; and (iv) opens up marketing to private participation. In addition, the Government has reorganized and strengthened sectoral institutions to improve the provision of services and the execution of projects. The Bank is actively assisting in this effort and has recently made loans for the National Institute for Agricultural and Livestock Research and Extension (INIPA) and the National Agrarian University to support improvements in research and extension activities and higher agricultural education (Lns. 2150-PE and 2208-PE of 1982). The proposed loan to BAP to expand and strengthen its credit program represents another major step toward accelerating the growth of the agriculture sector. 36. The Government's investment strategy for agriculture, as reflected in its 1981-1985 public fixed investment program, is (i) to continue development and rehabilitation of irrigated coastal areas where there is a large sunk investment in deteriorated, inefficient irrigation infrastructure; (ii) to develop the potentially rich Ceja de Selva; and (iii) to assist the rural poor, particularly in the Sierra, through rural development projects. The Bank is supporting this strategy through the loans mentioned in the dis- cussion above and summarized in paras. 51-52. 37. The Government's policy improvements, together with better weather conditions in 1980-82 had a significant beneficial impact on agricultural production. Between 1980 and 1981, agricultural output grew by over 12 percent, with production increases of 67 percent in rice, 38 percent in corn and 21 percent in potatoes. Output increased by an additional five percent  - 1() - in 1982. Future growth in output, however, will depend on the success of Government efforts to improve support services, as well as on its ability to promote the efficient development of the agricultural frontier in the Ceja de Selva area. Agrarian Reform 38. The most important factor influencing agricultural production in Peru in the 1970s was the agrarian reform. The reform was enacted in June 1969 and affected all farms larger than the equivalent of 50 ha of irrigated land on the Costa. By February 1980, 11.6 million ha of land in about 16,500 farms had been expropriated by Government under the land reform programs; this represented 48 percent of the total land in agriculture in Peru. An area of 8.9 million ha was distributed to almost 400,000 families; these represented less than a quarter of the rural population. Although about eight percent of expropriated land was adjudicated to individual families, most large estates were distributed intact to various forms of cooperative agrarian reform enterprises (AREs), generally consisting of more than 2,000 ha per unit. This was true of the large coastal sugar and cotton estates, as well as the cattle and sheep ranches in the Sierra. The balance of the expropriated land (2.7 million ha) remains under State control for possible future adjudication or other public use. 39. While the agrarian reform achieved a more equitable distribution of agricultural land in Peru, it was accompanied by low levels of investment owing to the instability of land tenure which the program created. The land reform also caused many of Peru's most technically sophisticated farmers to leave agriculture. These factors--coupled with the negative impact of Government policies summarized in para. 32 and the poor organization, manage- ment and lack of cooperative spirit in the new AREs--were a significant cause of declining production. In an effort to correct ARE problems, the Govern- ment is requiring improved management as a condition for providing them with assistance and credit. It is also preparing a rehabilitation project for the sugar AREs, which are among the most important and have serious difficulties, with assistance from a US$500,000 Bank Project Preparation Facility (PPF) advance; additional assistance for this is included in the loan proposed in this report. For AREs in the Sierra, Government efforts and financial support have not been successful in inducing most farmers to participate fully in the cooperatives, and they continue to work their individual plots. Some AREs in this region have already been disbanded by their members, and more are likely to follow. 40. Even though the agrarian reform improved the lot of its benefi- ciaries, the approximately 78 percent of the rural population not benefited by the agrarian reform is probably worse-off than before. During the 1970s, the military Government concentrated most of the financial and manpower resources made available to agriculture on the agrarian reform. Credit went largely to AREs, and the Government's previous research and extension opera- tion was dismantled to provide manpower to carry out the agrarian reform process. For landless workers, employment opportunities on the large cooperative farms have become more scarce.. The Government is now trying to rectify this situation by strengthening suipport services and expanding the availability of credit for smallholders.  - 11 - Institutional Framework 41. The Ministry of Agriculture (MA) is generally responsible for formulating the Government's sectoral policies and programs. Under a 1981 reorganization, the task of carrying out public sector agricultural and rural development programs was made the responsibility of: (i) four administra- tively autonomous institutes under the MA -- the most important of which Ls INIPA, whose program to provide extension services to AREs and small fir7-,rs is being expanded rapidly with support from a Bank loan (see para. 35), as well as from the IDB and USAID; (ii) a number of independent project authori- ties which administer major irrigation projects; (iii) regional developme-it corporations which are responsible for small-scale local projects; and (i :) special project units located in the Prime Minister's office, which prepare and carry out rural development projects in the Ceja de Selva. 42. Specialized services to the sector are provided by a public market- ing company and the State-owned Agrarian Bank of Peru (BAP), which is the main source of agricultural credit (discussed below). Until recently, the marketing company had a monopoly on marketing rice, cotton and fertilizers and on importing grains and powdered milk. Restrictions on private marketing of most of these items have now been ended, although the Government will retain a presence in marketing as a check on private traders. Agricultural Credit and the BAP. 43. Only about ten percent of the 1.8 million farm families in Peru have access to credit through the banking system, about 93 percent of which comes from BAP. During the 1970's BAP's credit went primarily to support the agrarian reform program, while individuals, who represent about 75 percent of all farmers, received little assistance. In recent years, BAP has sought to provide a fairer share of credit to individual farmers. Since 1978 lending to individuals has increased from 40 to 52 percent of the total value of its loans and is expected to continue increasing in line with the priorities of the present Government. About 65 percent of agricultural lending goes to the Costa, 20 percent to the Selva, and 15 percent to the Sierra. 44. Almost all of BAP's lending which totaled US$640 million in 1981, is short-term. Because it has limited domestic sources of longer term funds, BAP's term lending is generally restricted to programs financed by inter- national lending agencies. About one-third of BAP's funds come from a Central Bank credit line, one-third from Government transfers (much of this financed by foreign borrowing) and one-third from BAP's own resources, including savings deposits. Commercial banks accounted the remaining seven percent (US$50 million equivalent), all short-term. This is down from 35 percent of total bank credit to agriculture before 1970. Non-banking credit comes from such sources as money lenders, equipment suppliers and distri- butors of farm products and inputs. The amount involved is not known. 45. Commercial bank agricultural lending declined in the 1970s, primarily because of the uncertainty created by the agrarian reform, and a prohibition on the mortgaging of agricultural land, which eliminated the  -1 12 - principal source of security for loans. The Government would again like to attract the commercial banks to agricultural lending in order to increase the flow of resources to the sector. The proposed sixth credit loan would include financing for the design of a rediscount facility to encourage commercial banks to become more involved, once again, in lending to agricul- ture (see para. 57). 46. The BAP was created in 1975 as the successor to a previous govern- ment agricultural bank. As in the case of other State development banks, the BAP comes under the jurisdiction of the Ministry of Economy, Finance and Commerce. The Minister appoints four of' the seven BAP Board members, including the President, who is also the chief executive offic:er of BAP. The other three members of the Board represent the agriculture sector. BAP has a staff of about 3400, including 650 professionals and a national network of 19 branch offices and 65 agencies. There is substantial decentraLlization, and only operations of over US$1.3 million e!quivalent for AREs and US$160,000 equivalent for individuals are submitted to BAP's head office in Lima for approval. 47. In general, BAP is a well-managed institution. Given its decentralized branch system, however, BAP needs to upgrade its information system to provide more timely and complete reporting to management on such matters as debt collection, subloan supervision, cash management, and distri- bution of lending by crop to help assure proper planning. Although BAP's problem with arrears appear manageable (overdue balances were nine percent in 1980 and increased to 16 percent in 1981, with increased lending), this is difficult to gauge exactly because of the inadequate information system. Improvement of this system has, therefore been included as an element of the proposed project (para. 56). Also, BAP is short of personnel trained in project, economic and financial analysis, and this problem will grow acute with the expansion of its program. The project, therefore, would also include a large-scale training component. 48. BAP only reaches a relatively small number of farmers and the growth of its lending program has been modest--3.4 percent per year in real terms over the past five years. The fundamental problem has been BAP's interest rates which were substantially below the rate of inflation. The Government had to cover the resultant decapitalization of BAP with scarce budget resources, which severely limited the growth of BAP's operations. Until recently, the average effective rate for all BAP's loans was 45 per- cent, compared with a 73 percent rate of' inflation in both 1981 and 1982. In order to correct this situation and to lay the foundation for an expansion of its credit program to meet the needs of the sector, BAP--on April 1, 1983--put into effect a new interest rate system which substantially raises interest rates for most farmers. Under this new system, rates would average 71 percent for commercial farmers with over 20 ha. Lower farmers would receive about 2/3 of BAP lending. Lower rates (about 48 percent on working capital subloans and 61 percent on investment credit) would be charged to smaller farmers with farms of under 20 ha (see para 65-66 for details). This change will substantially reduce the need for Government transfers to BAP, although assistance will still be required to help fund the expansion of BAP's credit program under the proposed project.  - 13 - 49. Over the 1983-86 period BAP plans to increase, in 1982 constant prices its short-term lending program by 17.6 percent and its medium-long term lending by 93 percent. This would mean an overall increase in BAP's operations on the order of US$300 million in the 1983-86 period. The pro- posed Bank loan would finance about 40 percent of this expansion program. The balance of the program would be financed by the IDB, BAP and the Govern- ment. The BAP expansion plan is realistic in light of sectoral demand and BAP's financial and program execution capacity. 50. Although BAP earned profits in 1981 and 1982 (US$23 and US$30 mil- lion equivalent, respectively), this was largely because the Government provided foreign loans (from the IDB and commercial banks) as cost-free transfers and BAP had access to a Central Bank line of credit at a highly subsidized rate. The revised interest rate system described in para. 48 would enable BAP to earn a profit but this, however, will not be sufficient to fully fund the projected increase in BAP's lending program. BAP will still, therefore, require capital transfers from the Government for this purpose (see para 62 below). Previous Bank Operations 51. In order to help spur Peru's agricultural development, the Bank has made 14 loans to Peru totalling US$249.0 million. Five of them, in the 1954-1973 period and totalling US$55.0 million, were for agricultural credit and were channelled through BAP and its predecessors (105-PE, 162-PE, 257-PE, 415-PE and 933-PE). In general, BAP's performance in executing these opera- tions was good. The Performance Audit Report (Sec M81-465 of June 2, 1981) for the fifth project (Ln. 933-PE of 1973) concluded that the project's rate of return exceeded that estimated in the appraisal report (30 percent vs 26 percent). It noted, however, that the Bank did not use the loan as an effec- tive instrument in discussions on interest rate levels with the Government. Processing of the proposed sixth loan was held in abeyance until the Govern- ment indicated that it was prepared to take satisfactory action on the interest rate issues (para 48). Also, the fifth project suffered from the deterioration of the research and extension services in the 1970s. The Bank research and extension loan, approved in FY1982, is financing the rebuilding of these services. 52. Two loans (67-PE of 1952 and 98-PE of 1954), totalling US$3 mil- lion, were for farm machinery imports. Another two (Loans 114-PE of 1955 and 418-PE of 1965), totalling US$24.4 million, financed irrigation works and land settlement in the San Lorenzo area within the Chira-Piura basin. The Performance Audit Report (Sec M78-43 of January 18, 1978) for the San Lorenzo project financed by Ln. 418-PE concluded that the project achieved its basic goals of increasing agricultural production and the incomes of rural poor. The audit noted, however, the need for provision of better maintenance of works, of a strong project unit, and agricultural support programs for irri- gation projects. These findings were taken into account in the design of the two most recent Bank-financed irrigation rehabilitation operations: the First Irrigation Rehabilitation project and the Lower Piura project (Loans 1403-PE of 1977 and 1771-PE of 1979 for US$25 and US$56 million, respec- tively). In 1980, the Bank approved its first rural development loan, a US$15 million operation for the Puno zone in the Sierra (Loan 1812-PE).  - 14 - Finally, in 1982 the Bank provided a US$40.6 million loan to support re-establishing the agricultural research and extension system and a second rural development loan of US$30 million for the Alto Mayo area of the Ceja de Selva (Loans 2150-PE and 2219-PE). The status of Bank-financed agricultural projects currently in execution is discussed in Annex II. PART IV - THE PROJECT 53. This project has been under discussion with the Government since 1977 but, as mentioned above, processing of a Bank loan was held in abeyance until the Government was prepared to introduce an acceptable system of agri- cultural interest rates. The project was appraised in September 1982, after the Government indicated that it would take action to resolve this issue. The appraisal mission's report, entitled "Staff Appraisal Report--Peru Sixth Agricultural Credit Project" (No. 4325-PE of May 16, 1983), is being distributed separately. Annex III contains a Supplementary Project Data Sheet. Negotiations were held in Washington from April 20-25. The Peruvian Delegation was headed by Mr. Fernando Arellano, Financial Manager of BAP. Project Objectives and Description 54. The principal objectives of this project are (i) to strengthen BAP; (ii) to substantially increase the flow of agricultural credit through BAP--both for working capital and investment--in support of the Government's efforts to accelerate the growth of the sector; and (iii) to improve the living conditions of Peru's farmers. As explained in Part III of this Report, the Government, over the past few years, has taken a series of policy and institutional measures designed to revive the agriculture sector after a decade of stagnation. Efforts to increasie the flow of agricultural credit--an essential element of such a revival program--have been impeded, however, by heavily subsidized agricultural interest rates. The elimination of most of this subsidization would enable BAP to expand its currently limited coverage of the sector, while strengthening its own financial posi- tion. 55. The project, to be carried out between 1983 and 1987, would consist of a line of credit of about US$220 million (US$126 million from the proposed loan, US$37 million from BAP, and $57 million from the Government) for lending throughout Peru. About US$105 million of this would be for 20,000 medium-long term loans for investment in irrigation infrastructure, land improvement, establishment of perennial crops, livestock development, equip- ment and agroindustry. With contribution totaling about US$14 million from beneficiaries, close to US$120 million in subprojects would be financed. This would account for about 50 percent of total project costs. BAP would also expand its working capital program in order to meet increased demand generated by the expansion of farm operations under the investment lending program, as well as to reach farmers who have not previously been recipients of agricultural credit. Under the project, BAP's working capital loan portfolio is expected to grow by about US$115 million by 1986, half of which would be financed by the proposed Bank loan and half by the Government. The  - 15 - project would make funds available for about 25,000 working capital loans, which would be additional to BAP's current lending program. Working capital lending would account for about 48 percent of total project costs. 56. The project would include technical assistance to strengthen BAP's information system and training program, which would account for about two percent of total project costs. As noted in para. 47, BAP's information system requires upgrading. Under the project, about 20 staff months of consultants services would be provided to design and install an informatiin system that would provide BAP's management with the data necessary to implove decision-making in such areas as debt collection, subloan supervision and lending operations. Acquisition of the equipment required for such a sys em would be included under the project. As also discussed in para. 47, BAP-; -staff requires training in economic and financial analysis. About 60 staff-months of consultants services would be needed to analyze BAP's training needs and to help design and carry out training programs to meet them. These consultants would be hired by March 31, 1984 (Section 3.02(b) of the draft Loan Agreement). Emphasis would be on training in loan appraisal, project formulation, accounting and management and would also include personnel from the MA and INIPA. About 30 staff-months of training abroad would be financed under the project. The cost of consultants' services is estimated at about US$10,000 per staff-month for internationally recruited and US$4,000 per staff-month for the locally recruited personnel. The qualifications and terms and conditions of employment of all consultants financed under the proposed loan would be satisfactory to the Bank (Section 3.02(a) of the draft Loan Agreement). 57. The project would include US$500,000 for technical assistance to design a rediscount facility (most likely to be located in BAP, since it has expertise in agriculture lending) which would make resources available for commercial bank lending to agriculture. Because commercial banks have not been active lenders to agriculture (see para 45), BAP will have to continue to be the major source of such credit over the next few years. With the recent increase in most agricultural interest rates to commercial levels-- which eliminates below market interest rate competition from BAP--and the Government policy of stimulating private agriculture, it may be possible, however, to encourage commercial banks to begin agricultural lending and thus expand the resources available for agricultural development. If a redis- count facility is established, the Bank would be prepared to consider amend- ing the loan documents to permit the use of funds from the proposed loan for rediscounting commercial bank agricultural credit operations. 58. Finally, additional financing would be made available under the project to carry out a feasibility study for the rehabilitation of the major sugar AREs. This study is being administered by a commission made up of Government and sugar ARE representatives. As mentioned in paragraph 39, a PPF advance was approved for the study but its cost, based on proposals submitted by consultants in February 1983, will be greater than expected and about US$300,000 in additional financing will be necessary. BAP would enter into a subsidiary agreement with the Government by October 31, 1983 under which the funds would be made available to the Government for the study (Sections 3.06 and 3.04 of the draft Loan and Guarantee Agreements,  - 16 - respectively). The execution of the subsidiary agreement, satisfactory to the Bank, would be a condition of disbursement for this component of the project (para. 4(d) of Schedule 1 to the draft Loan Agreement). Project Execution 59. BAP would be responsible for the execution of all project compo- nents, except the sugar rehabilitation study. BAP would appoint a project coordinator to serve as the principal liason between BAP and the Bank. He would be responsible for (i) the collection of data on, and analysis of the results of the project; (ii) the application of the operating policies and procedures specified in the Loan Agreement; and (iii) reporting to the Bank on project execution. BAP would keep the position of Project Coordinator staffed at all times with an official who would have experience and qualifi- cations acceptable to the Bank (Section 3.07 of the draft Loan Agreement). It would be a condition of loan effectiveness that this position be filled (Section 7.01(a) of the draft Loan Agreement). In order to provide a basis for planning its annual operations, BAP would, by September 30 of each calendar year, prepare and submit to the Bank a draft lending program for the following year. This plan would be drawn up in accordance with a methodology acceptable to the Bank and would provide an estimate of the investment programs BAP would help finance, their short and medium-long term credit requirements, and the financial resources required to carry out this program. The Bank would be provided with an opportunity to review and comment on this program prior to its approval by the Government (Section 3.08 of the draft Loan Agreement). Project Cost and Financing 60. Total project cost is estimated at US$238.7 million (net of taxes), of which US$105.9 million, or about 44 percent, represents foreign costs. Base costs are in September 1982 prices and price contingencies have been estimated on the basis of projected annual international inflation of eight percent in 1982 and 1983, 7.5 percent in 1984, seven percent in 1985 and six percent in 1986. Local price contingencies have been calculated in US dollar equivalents on the assumption that variations in the exchange rate would compensate for the difference between local and international inflation. 61. Total financing required for the project is US$239 million, which includes a US$324,190 front-end fee. The proposed Bank loan of US$130 mil- lion equivalent would cover about 54 percent of total project costs (includ- ing all the foreign exchange expenditures for investment subloans and half the amount of the working capital component, which includes US$23.8 million of local costs) as well as the capitalized front-end fee. Local cost financing is justified by: (i) the importance of this project tio the restoration of growth of the agriculture sector; (ii) the major policy advance--the raising of most agricultural interest rates to market levels--instituted in conjunction with the project; and (iii) the current fiscal and balance of payments difficulties faced by Peru. Bank financing of half the proposed increase in BAP's working capital program would permit BAP to increase its support to the sector during a period of economic austerity and thus enable the Government to move ahead with a critical element of its program to increase agricuLtural production. Given Peru's  - 17 - generally sound agriculture sector policies and a macroeconomic program which is designed to help the country weather the difficult economic conditions it now confronts, such Bank assistance is warranted and is consistent with the Bank's recently approved special action program. 62. BAP would finance US$38 million equivalent of project costs and the Government would finance US$57.3 million. Project benficiaries would cover the balance of project costs of US$13.7 million equivalent. The Governnment would cover the foreign exchange risk under the proposed loan and BAP and the Government would, by December 31, 1983, make arrangements for this purpose satisfactory to the Bank. (Section 2.03(a) of the draft Guarantee Agreement). Sublending Terms and Conditions 63. All individual farmers, agricultural cooperatives and AREs in Peru would be eligible to participate in the proposed project. Subloans would be denominated in soles. While BAP provides terms of up to 24 months for work- ing capital loans, based on past experience about 90 percent of these are expected to be for less than 12 months. Investment loans would be for between three and 15 years, including up to four years of grace. Individual subloan terms would be determined on the basis of cash flow analysis. Sub- borrower contributions to the costs of their investment project would be based on farm size and location. Bank approval of a credit operation would be required when a subloan to an individual borrower or cooperative would result in an outstanding credit balance exeeding US$200,000 or US$1 million equivalent, respectively (Para. B.4 of Schedule 5 to the draft Loan Agreement). 64. All subloans would be appraised in accordance with guidelines acceptable to the Bank. As a basis for subloan appraisal, sub-borrowers would prepare farm development plans with the assistance of BAP's field officers. If the subloan is too small to justify preparing a farm development plan, it would be appraised with reference to representative farm models on the basis of a cash flow analysis. All subloans would have to be technically feasible and economically and financially justified. Also, enterprise sub-borrowers (AREs, cooperatives or private) would have to have satisfactory management and a good credit standing (Paras. B.1 and 2 of Schedule 5 to the draft Loan Agreement). Interest Rates 65. BAP's standard interest rates would be charged under the project. A new level and structure of interest rates was put into effect by BAP on April 1, 1983. BAP's previous interest rates averaged about 45 percent for all loans. With this new interest rate structure, all loans over S/. 20 mil- lion (about US$16,000) would be at rates averaging 71 percent, which would be close to positive in real terms given expected inflation in the 65-70 percent range for the remainder of 1983 (see para. 20 above). Loans at these rates would go to commercial farmers and, in 1983, the are expected to account for about 2/3 of BAP's lending. Lower interest rates would apply to loans under S/. 20 million (about US$16,000), and would average about 48 percent for working capital, and 61 percent for investment loans.  - 18 - The SI. 20 million figure is a ceiling and represents the maximum amount of financing that a farm of up to 20 ha might require. Thus, the subborrowers at these rates would have farms of 20 ha or less. This is administratively the simplest way to identify the target group of smaller farmers who would be the intended beneficiaries of the interest rate subsidy. The S/. 20 million limit would be adjusted from time to time by BAP, but could not be increased by more than increases in a domestic inflation (Section 4.04 of the draft Loan Agreement). 66. These interest rates would be reviewed each semester by BAP in order to insure that its rates remain in line with other commercial rates in Peru.' The average rate of a representative sample of commercial banks would be used as a benchmark. If there were greater than a three point or five percent movement, whichever is higher, in commercial rate since the previous semester, BAP's weighted average interest rate would be adjusted accordingly. The first review of interest rates would be done by January 15, 1984 and rates would be adjusted, if necessary, by March 31, 1984. Subsequent reviews and adjustments (if required) would be undertaken every six months thereafter. The Bank would be advised promptly of the results of each review (Section 4.03 of the draft Loan Agreement). In addition to maintaining comparability between BAP interest rates and commercial rates, BAP's rates to commercial farmers should not fall significantly below the rate of inflation in Peru. In order to assure that this does not happen, BAP would take action to correct its rates if they fell more than ten percent below the rate of inflation (as reflected in the consumer price index) and remained so for more than three months (Section 6.01(a) of the draft Loan Agreement). 67. Because BAP will continue to finance loans at subsidized rates for small farmers, it is still subject to possible decapitalization. In order to protect BAP against this risk, the Governuent has agreed that it would provide an annual equity contribution to BAP, as necessary, to maintain the current value of BAP's equity in real terms (Section 2.03(b) of the draft Guarantee Agreement). In addition, BAP's debt equity ratio (which was one to one in 1982) would be limited to no more than five to one, in order to assure that it maintains a reasonable level of capitalization as it borrows to expand its operations (Section 5.04 of the draft Loan Agreement). Procurement and Disbursement 68. Procurement of civil works, materials and equipment by subborrowers would be through normal commercial channels, as it would not be practicable to arrange for bulk procurement and international competitive bidding (ICB) considering the large number of sub-borrowiers and the wide range of items to be financed under the project. An adequate selection of farm machinery and equipment is available through local and international suppliers and servic- ing and supply of spare parts is satisfactory. For farm machinery and equip- ment, BAP would require its borrowers to obtain quotations from at least three sources of supply whenever feasible. BAP would make available to sub-borrowers a catalog of suppliers of agro-industrial machinery from Bank member countries, as well as their agents or their representatives in Peru. Equipment needed for carrying out the improvement of the information system, which would be determined by a feasibility study, would be procured under ICB  - 19 - in accordance with Bank Guidelines. No disbursements would be made for such equipment until an information system study, satisfactory to the Bank, has been completed (Paragraph 4(c) of Schedule 1 to the Loan Agreement). In comparing local and foreign bids, local manufacturers would be given a margin of preference equal to the prevailing duty rate or 15 percent of CIF costs of imported goods, whichever were lower. Manufacturers from countries of the Cartagena Agreement (or any other regional trade group satisfactory to the Bank, of which Peru is a member) other than Peru would be given a margin of preference over other foreign manufacturers equal to the difference in impsrt duties charged by Peru, or 15 percent of CIF costs of imported goods, whichever is lower. 69. Disbursements from the loan would be made against eligible expenditures as follows: (a) under term loans, 45 percent of amounts disbursed to individual farmers and cooperatives for irrigation infrastructure, land improvement, construction, perennial crops and livestock; (b) under term loans, 90 percent of amounts disbursed for machinery, equipment and vehicles; (c) 50 percent of amounts disbursed under working capital subloans subject to a predetermined limit that would be set each year (see para. 70); and (d) 100 percent of total expenditures for consulting services and 100 percent of foreign and 80 percent of local expenditures for equipment for the information system. Disbursements would be made against certified statements of expenditures for (a) and (b). All other disbursements would be fully documented. 70. The working capital lending to be financed by the proposed loan would be incremental to BAP's existing operations. Bank loan funds would, therefore, only be disbursed against the real increase in BAP's working capital lending as estimated in the approved annual lending program (para 59) up to an annual ceiling to be agreed upon between the Bank and BAP by December 31 of each year until the project has been completed. If after a review of the results of BAP's actual working capital lending during the previous year, the Bank determines that the projected targets were not achieved, the ceiling for the disbursement of working capital for the current year would be reduced until the shortfall is made up (Section 3.09 and Para. 4(b) of Schedule 1 to the draft Loan Agreement). Once BAP's new information system is installed (see para. 56), it will be administratively feasible to direct incremental working capital subloans under the project to those who are intended to be the beneficiaries of this program: (i) farmers who are expanding their operations with new investments or technological change; and (ii) farmers who have never previously received BAP credit. Therefore, in addition to the requirement that working capital lending financed under the proposed Bank loan be incremental, after the information system begins operating disbursement of Bank loan funds will only be made for working capital subloans to these categories of beneficiaries (Paras. 4(b) and B.5(b) to Schedules 1 and 5 of the draft Loan Agreement, respectively)^  - 20 - Project Benefits and Risks 71. The project would significantly increase the financial resources available to the agriculture sector, in support of Government efforts to stimulate sectoral growth. The project would provide medium-and long-term investment credit, which is currently scarce in Peru and would increase the level of BAP's working capital operations. About 21,000 investment and 25,000 working capital operations would be financed. This would enable BAP to reach new borrowers, primarly smaller private farmers who have not previously had access to institutional credit. 72. In conjunction with this operation, most of BAP's interest rates have been raised to commercial levels, substantially reducing subsidies. This will eventually lead to a more efficient allocation of resources in the agriculture sector and will stem the decapitalization of BAP and make more financing available to the sector. BAP's operations would be made more efficient with the installation of an imtproved information system and the strengthening of its training program. Also, a rediscount facility designed to attract commercial banks to agriculture lending and increase the flow of credit to the sector would be developed under the project. 73. The value of production under the project is estimated to increase from about US$30 million to about US$64 million in the tenth year of project development. The economic rates of return on subprojects are expected to range between 17 percent (for Sierra livestork operations) to 49 percent (for small farms on the Costa). The crops whose production would be substantially increased under the project include beef (337 percent increase), beans and soybeans (300 percent), fruits and vegetables (68 percent), sorghum (59 per- cent) and rice (48 percent). At full development, the project would improve Peru's trade balance by about US$30 million per year through increased exports (mainly cotton) and import substitution (rice, feed grains). 74. For the families that would benefit from the medium-and long-term credit program, the range of annual family income from farming activities is projected to increase from a current level of US$340-US$5100 to US$690-US$6250 at full development. In addition, many farmers would benefit from the expansion of the working capital program. Farm employment is expected to increase by over 5,000,000 person-days per year as a result of the project. 75. There is some risk of a drop in the demand for agricultural credit because of the substantial increase in interest rates. Financial analysis, by both the Bank and BAP, however, indicates that the increased interest rates can be absorbed by farmers, given the profitability of the investments to be financed. The elimination of price controls over the past few years has enable farmers to pass on cost increases, so that increases in input and credit costs do not endanger their incomes. There is little risk associated with BAP's ability to execute the project. It is a reasonably well-run institution and its performance should irmprove with the technical assistance to be provided.  - 21 - PART V - LEGAL INSTRUMENTS AND AUTHORITY 76. The draft Loan Agreement between BAP and the Bank, as well as the draft Guarantee Agreement between the Republic of Peru and the Bank and the Report and Recommendations of the Committee provided for in Article III, Section 4 (iii) of the Bank's Articles of Agreement are being distributed to the Executive Directors separately. 77. Special conditions of the project are referred to in the text and listed in Section III of Annex III. A condition of loan effectiveness would be that the project coordinator position in BAP be filled. Condition of disbursement would be: (i) for the sugar study component of the project, that a subsidiary agreement between BAP and the Government be signed; (ii) for equipment for the information system, that a study for this system satis- factory to the Bank be completed; and (iii) for working capital subloans, that disbursements be within the ceiling agreed upon by the Bank and, after the information system is installed, that such subloans go to farmers who are expanding their operations or who have never received BAP credit. 78. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank. PART VI - RECOMMENDATIONS 79. I recommend that the Executive Directors approve the proposed loan. A. W. Clausen President Attachments Heav 18, 19R3 Washington, D.C.  - 22 - ANiNE I Page 1 of 5 TABLE 3A PERU - SOCIAL INDICATORS DATA SHEET PERU REFERENCE GROUPS (WEIGHTED AVERAGES AREA (THOUSAND SQ. KM.) - MOST RECENT ESTIMATE) a TOTAL 1285.2 MOST RECENT MIDDLE INCOME MIDDLE INCOME AGRICULTURAL 305.5 1960 /b 1970 /b ESTIMATE /b LATIN AMERICA & CARIBBEAN EUROPE GNP PER CAPITA (US$) 290.0 470.0 930.0 1902.0 2323.9 ENERGY CONSUMPTION PER CAPITA (KILOGRAMS OF COAL EQUIVALENT) 417.3 662.7 716.1 1259.9 2107.4 POPULATION AND VITAL STATISTICS TOPULATION, MID-YEAR (THOUSANDS) 10181.0 13461.0 17379.0 URBAN POPULATION (PERCENT OF TOTAL) 46.3 57.4 67.4 65.7 47.9 POPULATION PROJECTIONS POPULATION IN YEAR 2000 (M4ILLIONS) 27.3 STATIONARY POPULATION (MILLIONS) 48.8 YEAR STATIONARY POPULATION IS REACHED 2080 POPULATION DENSITY PER SQ. KM. 7.9 10.5 13.2 35.2 83.3 PER SQ. KM. AGRICULTURAL LAND 33.3 45.0 55.5 92.5 155.4 POPULATION AGE STRUCTURE (PERCENT) 0-14 YRS. 43.6 44.3 42.9 39.7 31.1 15-64 YRS. 52.0 51.7 53.8 56.1 61.2 65 YRS. AND ABOVE 4.4 3.9 3.5 4.2 7.7 POPULATION GROWTH RATE (PERCENT) TOTAL 2.4 2.8 2.6 2.4 1.6 URBAN 5.1 4.9 4.2 3.8 3.5 CRUDE BIRTH RATE (PER THOUSAND) 46.5 41.5 35.9 31.4 23.6 CRUDE DEATH RATE (PER THOUSAND) 20.0 14.8 10.9 8.4 9.2 GROSS REPRODUCTION RATE 3.3 3.0 2.4 2.1 1.6 FAMILY PLANNING ACCEPTORS, ANNUAL (THOUSANDS) USERS (PERCENT OF MARRIED WOMEN) .. .. FOOD AND NUTRITION INDEX OF FOOD PRODUCTION PER CAPITA (1969-71-100) 96.0 102.0 77.0 110.0 116.0 PER CAPITA SUPPLY OF CALORIES (PERCENT OF REQUIREMENTS) 98.3 97.2 97.5/c 108.4 125.1 PROTEINS (GRAMS PER DAY) 64.0 60.1 59.27W 66.0 92.7 OF WHICH ANIMAL AND PULSE 28.0 25.1 24.07F 34.0 35.9 CHILD (AGES 1-4) MORTALITY RATE 37.8 20.2 9.5 5.6 9.2 HEALTH LIFE EXPECTANCY AT BIRTH (YEARS) 47.4 53.1 58.1 64.2 67.6 INFANT MORTALITY RATE (PER THOUSAND) 162.9 119.7 87.7 64.2 65.1 ACCESS TO SAFE WATER (PERCENT OF POPULATION) TOTAL 14.6 35.0 48.3 65.6 URBAN 30.2 58.0 60.0 78.9 RURAL 0.8 8.0 25.0 43.9 ACCESS TO EXCRETA DISPOSAL (PERCENT OF POPULATION) TOTAL .. 36.0 34.0 59.3 URBAN .. 52.0 51.0 75.3 RURAL .. 16.0 .. 30.0 POPULATION PER PHYSICIAN 2011.7 1904.9 1532.4/c 1617.3 1105.4 POPULATION PER NURSING PERSON 2205.0/d 1000.5 676.17W 1063.5 634.4 POPULATION PER HOSPITAL BED TOTAL 425.1 469.6 538.3/c 477.4 286.8 URBAN 273.8/e 524.9 426.47W 679.8 192.0 RURAL .. 3055.2 5705.2/c 1903.4 ADMISSIONS PER HOSPITAL BED .. 19.0 23.0/c 27.3 20.0 HOUSING AVERAGE SIZE OF HOUSEHOLD TOTAL 4.9 4.8/f URBAN 4.8 4.97 .. RURAL 4.9 4.67 .. AVERAGE NUMBER OF PERSONS PER ROOM TOTAL 2.3 1.9/f URBAN 2.0 1.77?I RURAL 2.7 2.47 . ACCESS TO ELECTRICITY (PERCENT OF DWELLINGS) TOTAL 26.0 32.0/f URBAN 50.7 54.3/f .. RURAL 4.2 2.77 .  - 23 - ANNEX I Page 2 of 5 RTABLE 3A PERU - SOCIAL INDICATORS DATA SHEET PERU REFERENCE GROUPS (WEIGHTED AVERAgES - MOST RECENT ESTIMATE) - MOST RECENT MIDDLE INCOME MIDDLE INCOME 1960 /b 1970 /b ESTIMATE /b LATIN AMERICA & CARIBBEAN EUROPE EDUCATION ADJUSTED ENROLLMENT RATIOS PRIMARY: TOTAL 83.0 103.0 112.0 104.3 102.4 MALE 95.0 111.0 115.0/c 106.4 107.1 FEMALE 71.0 96.0 1o8.07 103.3 99.0 SECONDARY: TOTAL 15.0 30.0 50.0/c 41.3 60.2 MALE 18.0 34.0 53.0Tc 40.4 66.4 , FEMALE 13.0 26.0 46.0/c 41.8 54.0 VOCATIONAL ENROL. (D OF SECONDARY) 19.9 17.1 18.3/c 33.7 31.6 PUPIL-TEACHER RATIO PRIMARY 33.6 35.5 40.2 29.9 25.8 SECONDARY 12.3 17.3 29.2 16.7 22.2 ADULT LITERACY RATE (PERCENT) 61.0 72.5/f 79.7 79.1 75.9 CONSUMPTION PASSENGER CARS PER THOUSAND POPULATION 7.8 17.1 18.6/c 42.8 51.0 RADIO RECEIVERS PER THOUSAND POPULATION 108.0 135.1 147.5 270.5 157.2 TV RECEIVERS PER THOUSAND POPULATION 3.2 29.3 50.2 107.7 123.7 NEWSPAPER ("DAILY GENERAL INTEREST") CIRCULATION PER THOUSAND POPULATION .. 123.3 51.4/c 63.7 112.3 CINEMA ANNUAL ATTENDANCE PER CAPITA 6.4 .. ., 2.7 4.0 LABOR FORCE TOTAL LABOR FORCE (THOUSANDS) 3186.8 3891.8 5149.2 FEMALE (PERCENT) 21.2 20.8 23.2 24.4 36.6 AGRICULTURE (PERCENT) 52.5 48.0 40.0 31.3 38.7 INDUSTRY (PERCENT) 19.6 18.4 18.5 23.9 25.9 PARTICIPATION RATE (PERCENT) TOTAL 31.3 28.9 29.6 33.6 44.5 MALE 49.6 45.8 45.5 50.4 56.3 FEMALE 13.2 12.0 13.7 16.8 32.8 ECONOMIC DEPENDENCY RATIO 1.5 1.7 1.6 1.3 0.9 INCOME DISTRIBUTION PERCENT OF PRIVATE INCOME RECEIVED BY HIGHEST 5 PERCENT OF HOUSEHOLDS 39.0/ HIGHEST 20 PERCENT OF HOUSEHOLDS 64. 47i 61.0/f LOWEST 20 PERCENT OF HOUSEHOLDS 2. 5T 1.97 - LOWEST 40 PERCENT OF HOUSEHOLDS 8.07j 7.07 . POVERTY TARGET GROUPS ESTLMATED ABSOLUTE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN .. .. 235.0/c RURAL .. .. 180.0Fc 184.1 ESTIMATED RELATIVE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN .. .. 293.0/c 518.0 RURAL .. .. 200.O7T 371.1 406.6 ESTIMATED POPULATION BELOW POVERTY INCOME LEVEL (PERCENT) URBAN .. .. 49.0/c RURAL .. Not available Not applicable. NOTES /a The group averages for each indicator are population-weighted arithmetic means. Coverage of countries among the indicators depends on availability of data and is not uniform. lb Unless otherwise noted, data for 1960 refer to any year between 1959 and 1961; for 1970, between 1969 and 1971; and for Most Recent Estimate, between 1978 and 1980. /c 1977; /d 1964; /e 1962; /f 1972; /g Personal income within labor force. May, 1982  -24- ANNEX I WINIUM DF SLAL INICATMPage 3 of 5 Note, Althhugh the dct. Are 4rm from assec slaorally lodWe the toot *tcb ltett-ta cod rAblei. it should .kes he t-td 0 th, Y h cy oYat b. tOte- -ttato.. ly Oaarsbaoan of the 1eeb of ee.aadertot afltote ....os w sed h b df f-ores c-aslolM L. c.ollstin the dtet. The da.. .... M55 chatI.... eafa1 to d-cthe orders of el j . dloet. toasts. sod chas-stotle coret Rs dOf ft.-!a meea octle The, estoat. Stoops eAl (1) tho tm oto .acry crtch at cte. .sAjeot.t ott,LA 121 A tco~ory 5509 sp t . toeatethigh? arraelo thea the c-tOry gtaap of cht: ssjchn sotttry (wept f ar '118k lant 1 eotteraL " gs whet "itddo loos North Aftos. acd tiddl. Ueat La ch-at hattoe of Etaa hatls-tlt-4a cftll. . L the tatta. art" date ott. -es.. are yP.Pl.ttot eiltgbs erithooto aa.e. for -ash ledhoato aed sh-t oly -h.. eclor tty ot che _Otctnla to a geeti ha. d"to fer chat hodlcat-r SIa.. ch. -rve.at of corottila Lse Oh,. ltlodato., d.p-tda .s the -vetibtlity of data cod 4 o:~at alo..teethe. met he lterah-d he se1Atoa ccssof -s totleetot to ctho These llayrgs.at cotl osIa.. ol is -Mafis tha rais of oaetsdsaar a a he loog ch. -seerr ocdtorefarses Votoo. ARI (th..osadat q...) ?ooelo50Oohe o ;ytotaL orO Art rural - Potpalatlo (,et.L, Tota - Tetol -aora. ar. os6oa- lest clase- act dsles s..s. 1079 data. _vso ost tstrl d1"Ltsty oheo _esestrai octt of h.apita1 heat eAstU.ltool.1_t L ---t of lari-t.c.1ra oare sast ota-tily or p.aronotlt solo la pfLt. cad PrOn-ts ge -rlad ePacialLsd hoapLtal cdr for cr59.. yatcn arhat -aa kitche gasd-s or to It. (sIlos; 1979 data. !:tlet ate.Osptl r aalaast aetsl tfa 0Y as Isaa one yhY.eLcaa 9..tatbilthoasesysr s pn Lpaly ...te GNP Pt! CAPITA (OtOl - GNP par -apfta .iasat.t at - -,as n11,ate -toe a- dIl. t_t A.r -c t LIaded. tar1 hseiptsa h.svr or Loa health oulatad by a. Mt"rsa ice ea Wtaeld las hOles (1978-90 heLel; 1960. o.d -d Loel ....... se pt.asaetLy tetffd by a phyalshas Ihot by 10, Led18 date. set.Loe A a Allta .oo.a.. Rldelfa. -ss) ehich ol.a Lt-pat taosacoe dalestprstds A lIWted -erci of sfdi.1 fasilitle.. Fo atatt- lOccIO COPStO'T17 FOR CPITA -fooe tooscctti.o sf -erslal aoery (coL ti.al faTP-.. eohaO hsaptteL -lsld. 090a pnirsLpa1/aa... c I hoattaa sod Ilattita. patrolc' ! tatosel tagt asd hydro-, nslL.. ato e.sthcral also- as oa optl.ba rrrlhooploal and odical sod tetatlty11 trtolty) Ls killogs.a of ccclI eqojlvAla par sastta; 1960. 1970. Ao 17 cata.- loeladhoop ttL era otlded olY ao4a tocal. eata. Ad!Etetios "t eSol."" ted - Total_M fatr f aacla dsorateh-Sge (reh-epitala ditodde by sch Osade of ado.. PCttJL,Ttol AND VITAL STTOISTICS Totl oesetOs.Ol-Tsr thotede)- e f laly 1; 1960, 1507, .sd 19800 H07S1NG I1,rhafPopteasI= irarostfot sosall - eatto of cohat. to ...a Ipsyclato-; Ihea-ah.l oo.tett ofA osof Islrduala sh Htea N;r quetete dl aaod....t ar f tsatan MY affect .. otabhlitty of data s c0h. eLai. al. board.t or loJger nay or -y Oct ha loaoded to a .s toos ,.s; 1960, 1970. aad 1960 data, the hocchold f.srC a tatl re porPoeca. POaahcPoettote hs.acor of esre or FF rcetoteI cohn, Ltd totaI - csg S.ee Porolatlot I scar 2000 . Crat ppcet prolcostlna -r hand o 1980 lo fycse a oet 01oht.Ld lotal eceuptad --orettcaa total1 ttptatoa by age Mnt as 4a chair eataly sad fattlllty ra=e dellcg. r.aepetlrly. ltralltSg aculda oc-araataet otrosaa Prjs eParast... for ctolity rats. o st of throc mfd cts sooLad pata. Log llf. sPosoasoY o birth tOorcaltig alth c-tsry pa,t capItalce ceat.. tHtlactrtYcs (ssao f dasllletl - total. urbot. cr4 rorl1 leve, ca d feels Itfa ePsooc,o, stb lilato As 77.5 ar.The ysra- '"Ictlea d-alinga "chb elactoLcty L.Is , ito q-aret .. P..r..etap asters for f-tarIlI, rte alec have theno Iaa .. csI ogdLelie . I of total. rb... eat rara dall -atahet s_ly. tactility a...otdtg to l.ce Maa an. IRd Paot flastly ylIe.-inSPact.o ca Utec -cory 1. rhas caLcee me of th.a. ohs. -o Ltbanlo of aotallitY EDUCATION ast ftarLIltY tea. for pro)actta P-cPoa.-..Adl-etad It...Ilooa tl501.t S-t .. cry oslcl - Soc atasles-y yplat thear La os arooh ei... ..evchool - -ote, eels ood fatola - Croca tot.l sal -1 e.d fral the bL1th rat. Ia eq- t th. d.hcoct at. ecd also Oh. age -ttrotooata- -ntoll-tt of all age. at the yl.ary L-1a as p-rcro-oS of tatpactiv eels. cesetast.Th" . Is ahta'd eel, aftar matlIt cocoas 51 to pria oy shool-ag, -1oOte.;stlY Wlocdsa childrar aSed 6-L1 tOe r-ylasass 1-01 of -itt ta tcapr_dastl.oc a, flat-. nob esaalosi ter a djoeto:d for diffarast le-0h. of pri-ey aOscattoo; tea .1 _aeso' Pe"ea oel af ettly Th s-tte -tory.LI.,sotat. cot euost h ..obas ..r.I docetto arl.ot y rossad 100 p-ersa setta-d 00th % Ocba1e cf she pro_asacd"tharast.rsee of the pop.1e s- tots !.om -P"ylaar 'helovorah1ova oh. offic. teshool AeS. Is the yasr 2000, -d oh. crat of ocolt-of f7 TotlLoy rat. tocreyla... Socod.y school Oct01. talc cod faRot. - Co.eotdcsohotc;aaodt _ -olee.1 oaoterqloa bet foot Y-.raf aPtv-dyrat lotttSttoO; Y.o. atetlas retlto arche- h esomaetoayyrlto o'oos toc., t1"eOloL. or tea.cherIoooo eoorlo e al1 .tea.11 hll b acce....eeLlY of 12 Os 17 yate. of Lea; o....ao.to-d- Pots a ....teraly Ma o h.-Oid-y-a ppyt-Lcott per sqaae kllasco (110 ha--ers If loalclstlae sretof ..,..dant( - V-.OoatloclIelel total are; 1960. 1970 cod 1979 data, toled. Ocahotltl, iodsetrll. or oth.r yoe.ohich cyse-t idadpad- Per., h.ertctrlls - Camotad sa ahoy for LerlO .olttl ltd -tty otrL dayccttst ofccotdrlasoto. R wt 16. 91 t 17 dlae. Prrltehrrai tsr. cc soder- fore tdt saIld ho tOsol.tlo Ae tcS oo oasetl-Chlta (0-Id Yaa ... k.g-e (10- yrar a se May(rt Lcded by otaef 'tacera15 the 640 ...sl cod tetrat (65 years ad ... L coaOaa of ai-erPop- orectgale Latbas; 1960. 1970. ad 1980 date. Adslt Ii-cat,s rate (.I'r..S)e - Ltlt.r.taaeslta last. as tct ad ord-toal tooatsOoeh aelacel- oa aaa eetbrtso totld I-eAaya-tec- of tota Odol pr aat Sa gd 15 Y.c.. e er peatyoylato tot 10-0. 1007.aod 1970-60 topclat lot Groth SAta (terest - other - heecal ttoshrloala of -1hal popo- CONS0 TItTON _itl .. fot 199040.. 1 _960- A0. eat 170-0. 2caoc oe(a hocterltoi-Peagrct OpIsns Crude Birth Rtet (Par Ihaecdl - tascal Iia bitche yar th-oesad of id-y..r ..c.ele aathsrgt ae a ocL=od ",srlacc tera splOe;1960, 1970, cod 1990 deO., lIlt cahiolc.. Crod. D.ath R-s ( 9r hocesdl - Aaoaa dactha par ibosead of aid-taco. Oc10 taa par (s 1h pat totsoorlonol - All tyyoa of rAn -v:reflo -adI. posals 960.r170, cad 1900 data. Irotett getlphllo Pa r cooos ofpstato;oldeo- Ctse hstdoslc R.t. - Aleag ota of dsaght.rs a a ill bac.s-ssedrcIe.I isstl adlot y.ate he elcSatteri. of radI hat oorall -ap-dootla partd If ab. op-arlan p.....t gsee-e if is fe- -cetS . Iof f.t,; data for r-cet yLt0 Oct ant h. -ec-bl. slots clllty taocelao-"Y flt-ycse strarsal ettdis L. 1960. 1970. eod 1990. sct -atrlsaaholi.h.d licasao .& Uotily Ptaalct. - Aootoa Ooc(ypA'4s A-Iersl ec o.b f actpora TV or...t.hosad caroLaclis; TV rotev1r fer broodo...t to of bitth-tatsldvla atrarhrEaotrtIslfeRtyp Ftoo praoa. acaL p l yar thoo..ead pcPolatlot; e-ldeelcss V eavr tslr Pleco .es ...rso ot of arriclase -' _acat.ga of -rrtle 10 c.oatOrta ad 10tet y cErs a.eletra.... o.f T cosca " Is tffct. 50C of. chd-b-targ ep (15-44 y..crel ebs . btrth-se -rl de-i... to NettosPer ltoslellss1y. (Per thl...a.d ocpal.,LanI Sh-,a the -oesag Ott- all sertled eon hose Sg. r.,. coltlos f d ....geera lsstreo.ta.-apar' daft sed ..A pystidlea Poblft.tioa da-osd petooltly 0 rsdng-gaalse-. It ia .-eed ... taOO oND OtOITIfle toh dIy if tapaat leca tou t_e coah.k Itdat of Food Prodo.stlo rat CLolte 1697-00 E.". of Pc, capIta -tcL Cioana tstol sooasoc IratCSo st(a -l tc the octetl of PIedceglOa of al food tadse. predeta,to slodsa east sd f cad and tlolete ..d -t ls cr hs Y.ar, lanledLOg ae oeto drtse-Lo cii,ee aco .Iaed Yar ee eae COSttd' coser pejeay good (a .aoe s c..d ebil. -ita.. lactead of eogatl ahihet edIble a noaal .sric t (e.g.cf a tcate ...1.4edl. Adgocasta prod.cet. of eash -tcert It haa .. LAB0R F0RCE _nobascI _oace psodoer p,Ise e.iehta; 1961-65. 1970, cad 1900 data. T-1c Lohor Fortc Ithoaseadcl - Ocosoecally -it-v eroa Lesedlog pan day, h-ioblla. .ppllU. cprc dosetllo plodratloe. -sat .eat coarable; 1960. 1970at10 et eaat. a hcegaa L. etth.. ltcsla sastte aflfead ..aede. Fa-I. (ser-st - ?el aa oo aP.rs..sace of -.te labr for. q-t ist .tla d 10 foo p-aneech. ea t.lee -s dltib a . aqoi- Aefl-icul r(Pa-ootl - hLaot for"e is fatele, forestry. OcatLog cad Mait :eeeaetlatd by FAO hacat es phy.lLaclguel .-eda far --Ie cAtt- fi.ihlgaeyerc teg of sotal lahe Terse; 190 1070 cod 198 data. sty ct Z eclth coaelds-LcASvssin cl aicrsa body asbha., age lads..",oesst Locor f-rs I- - I,c,catotts aaaot Lt=mdethto f pcpeIatles. cod Lllaieg 10 polsasl 8crmes soan e.ct.ot. i iaster cod gs. caycatt f total bahr ftets hasasheld 1-ss; 1961-65. 1970 aed 1977 dccc. 190. 19 70 end190 dasa. parg46..(PpX ofooeelrce ear dY) - Proasta ctascas of Par -epoc. picttsti.1lcatt ptat oe.e la.ad fossle - PettoLPetias or c.tacpptttfsod pa day. Oa saplt f too ia sefis .o abov. ta- aclotteeorr" sa cattl aa n teetl laber f.... .. qolresg to l oaoc.etbhllehad by USD6 Proide for cli.m ooeoee f ctotl, eel. ood f-le popreltlos of all aecs rpaepctlay; eloatte of ~00 e oftota prctehe Par dsY std 20 eras of asleal cad 190I90,cd1960dt.Ttc r sce t 10 atOpatlas coar P,les.Psec.of ohah 10 gram ebood he calel orsoals. Then eten- -stlaoltog s-nttorr o-f tepplt a omtie Itred. A art. Are lee thea thoe. of 75 soas of oota1 proat. eodA 23 eras of ft. s-slata eAl tn . .tIo.e . ncoe. aslel ootah anLa arcg tos the -Ld. P-sPc..at by tAO is th. ThIrd tcoooso. =aedean, Rat10 R.".t of posolatiet adet 15 asd 65 sadea W.,ld Food Sor"e; 1910 970 aed 1977 date, to she total taboo (0cc.. Par ..,Lt. Proaats orl re ale cod rcl.. -Proo. sYt f food d.- tiied (re ell ea seeh rsPar day; 191615, 1970 crM 977 data. INOCltE DISTlIWI7TOt Child Iee 14) loash Lace (Par thoosWt - Aoaa-L teethe par Oht..... d L Po. ttaas of roat ls (both It -ath 0-0 khIi - totelvd y rlhohee cge r 1 ta te,a hildldre ia thie a9gg ...ap; 005O setdaelpha coaP .ysos .rlc.et 201 part-ro pooroct 20 pt-snt, Ltd psoreat 40 p-oet- toOt. deta derI-ed fr- if It.csblsa; 1960. 170 Led 190 dat, of ho...aholdo. L,1f. SE--oc-t at Stith (sea-e- - udta-ree. out- of tsar. of life asoo The -olee atte r ayMepcsat nooe f Pe--rt 1I`oe At bIrth; 196. 1970 act 9l80 dat. - an sheod ha istetyreteri rIch ooo.earblatctlt Itfast Oc-ols late lcar tho....od) - Aeseal leathe;f ofet cde oe sc (elad AalosPo -y[5c "o I (1 s a e --o r end t-tal of sca Par -h t.a.s.d Llas bilrhe; 1960, 190L n 190dt.Osccayvry1005Io I httccaltlSl, 0 h L aIdedL ACc..e ro Sate dete fcareen of'C lale -toe.ch. rlll- aod coral -fn--otrittlooey AdqcI.a d1st pIt .. ..... Ll to-otrqalresoce i. oat hroyspa(total, oNh. etr ir)t,t aashesca oel todbe octet .-h ae that Irs..poatdhrsls pic,ai alayele a ttlrlsv oet ho-mteal 00-thIr of rera aryetoupioc P...rcctLge of their -ep-sto orc- ssa oauberc. 0 ProbIc Pocrce1 lan- of theocor Irbes leol ia dett-d free the rota.l toa-oLl or eOesdpoao locatd -t oorc tootI 200 aetet. fre tnc aph Isel s-t,oLbasStfot higrh ot0 lro hottce ...eldcadc halt! ahIreotth hle- aotobl of that h...e. I 1 In ua rc clae Porulotlcs .. halsfoclitaPov `t "o )o ".l (rteos ut ra.-blaa -I aod 11Py thcat the K.--'otf* or -ebsal of the ho...ohold end rurel Pacroto of pop.l.tios (urhaa eat toa) h.o re ".bhOOlC.t do 000 h..e to eed a dlepopor.tolonc pert ef the tay on fetching the toot'. Acosee Es Osret Dtp.Ioeal I rrsocfnolaln-ttl eroas. Jot rural (fuebe of pacle' tsa,.o... O toa) ae dO ht - -tet dtspoe.al a ystcetOag.e of chair r-p-ssl- Poyaitati_s ftasreo dL.pc...Isey LInclud she -1l1-oad. act diapcal.l.sth on etftactoteaon. f bt`a asar't reef taee-aot. by -C.ar-bota eyet or sOtoe at. of t pi le etd cha- Porelatlcs urePhalc - "Pos'tls dlvidsd ot .ocat of pacattaLng phy.l- E-ecoct ad SOIL.I lana Di-i..lo chase qeaIfed& r, e-di.eI anboo at cal-aatoy J.-I. _coanal Acaltlysl asd trolotolose icycp- - "oIche e Orruehet P.roc- sp tei dIOlded.by o..rcahe fof . petle g HAY 1962 saleV eaMAelrdaa cae c aceat tasseY prastloal et aeLd Otoels lalllarlce.  - 25 - Page 4 o.f 5 ECONOMIC DIEVELOPMENT DATA A C T C A I ESTIMATED PROJECTED GROWTH RATE (0 pi.c. 1977 NATIONAL ACCONT-S 1965 1970 1970 1076 0077 1978 1979p 1980p 1080 1950 19-6-76 1976-80 1990-95 1 of (aillians of U0 dolDars at 1977 prices) GDP Grase Domestic Prad-ct 8902.5 10693.6 13376.8 13647.1 13639.6 13570.8 14079.0 14516.4 15082.5 18792.5 3.9 1.6 5.3 100.0 Gas from Terms of Trade -610.9 130.0 -246.9 -179.4 0.0 -235.9 679.9 872.1 317.0 558.2 r n. n.e 0 Cross Domestic Encome (GDY) 8291.6 10982.6 13129.9 13467.7 18 39 6 13334 9 14 75.9 1539 5 15399.5 1935.7 44 3.4 4.7 100.9 Esp rls 1840.2 2190.1 2995.4 2697.7 2706.9 1999.7 2090.9 3004.6 3455.3 3724.7 3.5 2.7 4.4 19.9 Eap ats 2314.3 2616.8 1906.9 1908.8 2129.5 2431.2 2730.1 2578.5 2632.6 2979.6 -1.7 7.8 2.9 15.6 Gxports, Daesm of Trade Adjasted 1703.4 2746.8 1660.0 1729.4 2129.5 2195.3 3410.0 3450.6 2949.6 3537.8 0.1 18.9 0.5 15.6 Res.arae Gap, Terms of Trade Adjasted (-: sarplss) 136.8 -556.7 1325.4 968.3 577.3 -306.6 -1323.2 -446.0 505.7 186.9 n.a n.. 0.m 4.2 Total C-aeaopttao 6461.3 9669.0 11313.3 11694.9 12172.2 11272.3 11635.5 12545.7 12990.5 15787.9 5.4 1.9 4.7 69.2 Ial Co8upt 1967.1 1597 9 3142.0 2741 2 2044.7 175o.0 1902.2 239. 8 2914 7 3749 7 3.1 -3.3 9 3 15. Domestic menigs 91830.3 2154.6 1916.6 1772.9 1467.4 2062.6 3125.4 2944.9 2409.0 3562.9 -0.3 12.5 4.6 10.8 p/ pr_liefoery PRICES IN US DOLLARS (1977 - 100) Export Price Indea 32.9 46.5 87.4 90.6 100.0 97.7 148.6 175.4 164 3 243.4 Impart PrEi- Indoe 44.7 44.3 100.4 95.7 100.0 108.1 119.0 131.0 146.7 205.1 Ter-m af Trade Endoa 73.6 105.0 87.1 94.7 100.0 90.4 124.9 133.9 112.0 118.7 Anaual Aceragei Exhange Rtes (Soles per 55 26.8 38.7 40.8 57.4 83.8 156.3 224.6 288.7 416.0 7.e GDP BY SECTOR SABOR FORCE LABOR PRODUCTIVlTY OUTPUT, LABOR FORCE AND PRODUCTIVITY Ie Utl1. of DR Percens of OrcMth Prcet of Growth Percent of Gr-wth ES 0973 PRECRO Dollore Total lRate IE Thausands Total Rase Ee US Delisre AreragS Rste 1970 1980 1970 1980 70-80 190 190 1970 1980 70-80 1970 1980 1970 1980 70-80 Agricalt-re (ifl. fiahleg) 1534.2 1457.8 17.3 11.8 -0.5 2011.9 2248.0 48.0 40.0 1.1 762.6 648.5 36.1 29.4 -1.6 Iadastry (mfaing, sacef., esctr.-, constr.) 3226.3 4712.4 36.5 38.1 3.9 769.1 1037.2 18.4 18.5 3.0 4194.9 4543.4 198.6 206.2 0.8 8ervices (alI others) 4084.8 6198.1 46.2 50.1 4.3 1407.6 2328.3 33.6 41.5 5.2 2902.0 2662.1 137.4 120.8 0.9 Total/Average 8845.3 12368.3 100.0 100.0 3.4 4188.6 5613.5 100.0 100.0 3.0 2111.8 2203.3 100.0 100.0 0.4 CENTRAL EOOERNMENT FINANCE E8TIMATED PROJECTED (as percent af Carrent GDP) 1965 1970 1975 1976 1977 1978 1979 1980 1981 9682 Cuarrent ReIe,ar 13.2 14.6 14.0 13.4 13.5 14.3 16.0 18.4 16.6 17.2 CurreatEpe-dltare 12.4 12.1 14.4 14.8 16.9 15.8 12.8 16.2 16.5 15.7 C_crent svigo 0.8 2.5 -0.4 -1.4 -3.4 -1.5 3.2 2.2 0.1 1.5 Capital Epedlitures 3.9 3.7 4.5 4.5 3.5 3.1 3.7 4.7 4.6 4.1 Ostereal Assistacce (Net) 1.0 0.5 2.3 1.8 3.0 0.4 -0.7 0.3 0.3 0 CORRENT EXPENDITURE DETAILS AC T U A L (as perceot of Total Curreont Epesditure) 1968 1973 1976 1977 1978 DETAIL Or 19N1/35 Developent Plan PD8LIC SECTOR US $ 2 Total Education 30.6 27.9 22.9 18.1 16.1 INVESTMRNT PROGRAM Million Eealth 9.0 6.3 6.2 4.7 6.0 1981 Prices Agricultare 3.6 4.4 1.8 1.3 3.4 Ot4r Eco..noc Services 3.2 4.0 5.2 3.2 2.7 Agriculturr, FiPhing 1557.2 14.1 Geaerl ed erices (incladiog detenfe) 46.4 42.7 46.9 54.1 45.2 Iodestry, T-ourit sod Miniag 924.1 9.3 Dnterest so Dabt 5.4 11.3 10.8 15.1 24.1 Eergy 288.1 24.2 Other 1.9 3.3 6.2 3.3 2.3 Tr-sp-rt -od Casaai-stios 2547.2 23.0 Other 1.8 3.3 6.2 3.5 2.5 30~~~~~~~~~~ScIal sod Local Iatersest Projects 3367.6 230.4 Tatat Correct E.poadit-rso 100.0 100.0 100.0 100.0 100.0 3367.6 30.4 T 0 T 4 L 11084.2 100.0 NONEY AND CREDrT 1973 1974 1975 1975 1976 1976 1977 1977 1978 1978 1979 1979 1988 1981 p (Billions af solas oatstendiag at the e-d of period) Moe-y sod Qumsi-Moy 98.3 120.0 141.8 142.4 166.3 168.9 216.2 220.5 344.1 361.1 686.4 725.9 1305.1 1973.5 Baky Crcdit to Pubic Seetor 27.2 26.9 49.7 60.3 101.4 115.3 149.3 198.9 262.2 303.7 204.1 237.0 371.5 682.2 Bank Credit to Privare Sector 73.2 84.5 108.2 109.8 134.5 138.0 067.8 173.8 233.1 243.2 392.9 442.5 901.8 1521.9 Vnderlyi8g E-mhange Rate (S/. per U8) 38.7 38.7 38.7 65.0 65.0 85.0 85.0 160.0 160.0 225.0 225.0 390.0 390.0 390.0 Sooy as Percene of GDP 25.0 24.3 22.6 22.7 20.0 20.1 18.9 19.3 18.7 19.6 19.9 21.1 23.5 20.7 consumer Pricr Iodex io Solos (1977=100) 37.5 43.9 54.3 72.4 100.0 057.8 264.7 421.4 Ac.a.l Percentage Chasge En: Consumer Price lnd_IS oles 9.5 16.9 23.7 33.5 38.0 57.8 67.7 59.2 75.4 Brnk Credit to Public S-ctar 53.7 -1.2 84.8 68.2 29.5 31.8 -32.8 56.8 83.6 Bank Credit to Pricate Sector 27.7 15.5 28.1 22.4 23.4 34.1 57.4 81.2 89.8 LESS   L L ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~ - - A I " K~~~~~~~~~~~~~~~~~- ---- --- . . . . . . . . . . . . . . . .~~~~~~ ~ 9! Z ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~  I I  -27- ANNEX II Page 1 of 7 THE STATUS OF BANK GROUP OPERATIONS IN PERU A. STATEMENT OF BANK LOANS (as of March 31, 1983) Amount Loan (less cancellations) Number Year Borrower Purpose Bank Undisbursed --- US$ million --- 28 loans fully disbursed 448.9 949 1973 Republic of Peru Education 23.0 0.3 1196 1976 Republic of Peru Transport 76.5 12.7 1215 1976 Republic of Peru Power 35.6 0.3 1283 1976 Banco Vivienda Urban Dev. 21.6 5.1 1358 1977 COFIDE Industry 35.0 2.9 1403 1977 Republic of Peru Agriculture 25.0 17.0 S-ll 1978 Republic of Peru Preinvestment 8.8 1.3 1771 1980 Republic of Peru Irrigation 56.0 42.4 1806 1980 PETROPERU Petroleum Prod. 32.5 12.6 1812 1980 Republic of Peru Rural Dev. 15.0 11.9 1888 1980 Republic of Peru Preinvestment 7.5 4.6 S-19 1980 SIDERPERU Technical Asst. 5.0 3.9 1963 1981 CORPAC Aviation 58.0 56.8 1968 1981 COFIDE Industry 60.0 42.4 2018 1981 ELECTROPERU Power 25.0 22.4 2064 1981 Central Reserve Bank Industry 26.0 26.0 2091 1982 Republic of Peru Transport 93.0 93.0 2117 1982 PETROPERU Industry 5.3 5.2 2139 1982 SEDAPAL Water Supply 40.6 39.7 2150 1982 Republic of Peru Agriculture 40.6 39.2 2179 1982 ELETROLIMA Power 81.2 81.2 2195 1982 PETROPERU Petroleum 81.2 81.2 2204 1982 Republic of Peru Technical Asst. 10.2 10.2 2208 1982 Republic of Peru Education 17.3 17.3 2211 1982 Republic of Peru Health 33.5 33.5 2219 1982 Republic of Peru Rural Develop. 30.0 30.0 Total 1,392.3 ( of which has been repaid 208.3 Total now outstanding 1,184.0 Amount sold 18.3 of which has been repaid 18.3 - Total now held by Bank 1,184.0 Total undisbursed 693.1  - 28 - ANNEX II Page 2 of 7 B. STATEMENT OF IFC INVESTMENTS (as of March 31, 1983) Type of Year Obligor Business Loan Equity Total 1960 Industrias Reunidas, S.A. Home Appliances 0.2 - 0.2 1960 Luren S.A. and Ladrillos Calcareos, S.A. Bricks 0.3 - 0.3 1960 Durisol del Peru, S.A. Building Materials 0.3 - 0.3 1960; 1962 Fertilizantes Sinteticos, S.A. Fertilizers 4.1 - 4.1 1962; 1968 Cemento Andino, S.A. Cement 2.3 0.2 2.5 1964; 1967 Cia. de Cemento Pacasmayo Cement 1.1 0.5 1.6 1975 Southern Peru Copper Corp. Mining 15.0 - 15.0 1978/83 Cia. de Minas Buenaventura Mining 6.0 0.5 6.5 1980 Cia. Minera San Ignacio de Morococha, S.A. Mining 2.7 0.5 3.2 1981 Sogewiese Leasing 3.0 0.1 3.1 1981 Consorcio Energetico de Power Huancavelica Transmission 4.5 - 4.5 1982 Palmas del Espino Palm Oil 15.0 - 15.0 1982 Sociedad Minera Gran Bretana S.A. Mining 3.0 0.5 3.5 Total gross commitments 57.5 2.3 59.8 less cancellations, terminations, repayments and sales 21.1 0.6 21.7 Total held by IFC 33.4 1.2 34.6 Total undisbursed incl. participants' portion 25.0 - 25.0  - 29 - ANNEX II Page 3 of 7 C. STATUS OF PROJECTS IN EXECUTION 1/ (As of March 31, 1983) Loan 949-PE: Education Project; US$24.0 million Loan of December 5, 1973; Effective Date: March 5, 1974; Closing Date: Feburary 28, 1983. The project has experienced serious difficulties and is now about 40 months behind schedule owing to start-up problems including weaknesses i- -he project unit and cumbersome bureaucratic procedures. In order to resolve these problems, the project has been modified to reduce its scope, increase the Bank disbursement percentage, create a revolving fund and improve administrative procedures (see President's Memorandum R79-59 of March 27, 1979). As a result, the pace of project execution improved substantially and the project has now been completed except for preparation activities for a second education project, An extension of the closing date until February 28, 1983 was approved for such preparation activities only, and full disbursement is expected shortly. Loan 1196-PE: Lima-Amazon Transport Corridor Project; US$76.5 million Loan of May 27, 1976; Effective Date: August 18, 1976; Closing Date: December 31, 1983. Construction of the project's river ports component is almost completed, although with some cost increases because of start-up difficuli:ies. There were serious delays in contracting for civil works under the road component because of slow procedures and limited Government implementation capacity. These problems have been largely overcome and construction is now underway on all project components. The project has been modified so as to reallocate funds for the purchase of road maintenance equipment and eliminate improvement of those road sections which cannot be completed within a reasonable time (see President's Memorandum R79-88 of April 27, 1979). Although the project is moving well, an extension of the closing date was made to permit its completion. Loan 1215-PE: Fifth Power Project; US$36.0 million Loan of September 20, 1976; Effective Date: November 18, 1976; Closing Date: December 31, 1982. The slowdown of demand in ELECTROLIMA's market in the wake of economic difficulties as well as procurement problems, have delayed the project's power distribution component and completion is expected about a year behind schedule. Serious delays were also experienced in getting the technical assistance program of the loan underway; however, all consultants have now been retained, and with strong support from the current staff in the Ministry of Energy and Mines the program is now well advanced. The Closing Date will not be extended further and disbursement is expected to be completed shortly. 1/ These notes are designed to inform the Executive Directors regarding the progress of projects in execution, and in particular to report any problems which are being encountered, and the action being taken to remedy them. They should be read in this sense, and with the understanding that they do not purport to present a balanced evaluation of strengths and weaknesses in project execution.  -30 ANNEX II Page 4 of 7 Loan 1283-PE: Urban Sites and Services Development Project; US$21.6 million Loan of October 12, 1976:; Effective Date: January 10, 1977; Closing Date: December 31, 1983. Administrative difficulties, particularly the need to reconcile Peruvian procedures with Bank guidelines for procurement, delayed the project by about one year. All components are now moving ahead well and disbursements stand at over US$13.0 million. Because of past delays, however, the Closing Date was extended to permit completion of the project. Loan 1358-PE: Industrial Credit Project; US$35.0 million Loan of January 28, 1977; Effective Date: March 30, 1977; Closing Date: June 30, 1983. Peru's economic recession led to a contraction of investment and to lower than anticipated demand for the loan in the late 1970s. In view of this, the Borrower--the National Development Bank (COFIDE)--agreed to finance projects identified by commercial banks and other financial institutions, which would also guarantee these loans and provide some loan servicing. With this action and improving economic conditions over the past two years, demand for the credit line has increased, and it is now fully committed. Loan 1403-PE: Irrigation Rehabilitation Project; US$25.0 million Loan of May 20, 1977; Effective Date: August 2, 1977; Closing Date: June 30, 1983. Because of the weakness of the project unit, there was a long delay in completing the designs for civil works in the six valleys where irrigation systems are to be improved. The unit has been substantially strengthened over the past few years, the design phase is now complete and construction has started. The project, however, is now several years behind schedule. Loan S-11-PE: Water Supply and Power Engineering Project; US$8.8 million Loan of December 22, 1978; Effective Date: June 27, 1979; Closing Date: December 31, 1983. The main components of this project consisted of the feasibility study for the Mantaro water transfer scheme and a master plan for Lima's water system. The Mantaro study has been completed, and all other components are being implemented satisfactorily. The closing date was extended to permit completion of the project. Loan 1771-PE: Lower Piura Irrigation Rehabilitation Project; US$56 million Loan of February 4, 1980; Effective Date: May 28, 1980; Closing Date: December 31, 1985. Project implementation is underway and proceeding satisfactorily.  ANNEX II - 31 - Page 5 of 7 Loan 1806-PE: Petroleum Rehabilitation Project; US$32.5 million Loan of April 28, 1980; Effective Date: September 30, 1980; Closing Date: August 31, 1984. The project got underway more slowly than expected because of the weak implementation capacity of PETROPERU. All project components, however, have now begun and execution is proceeding well. The closing date has been extended to permit completion of the project. Loan 1812-PE: Puno Rural Development; US$15 million Loan of April 28, 1980; Effective Date: July 9, 1981; Closing Date: June 30, 1985. t Although there was a delay in making this loan effective, project activities are now underway. Consultants for the extension program have been hired and irrigation system designs are being prepared. Loan 1888-PE: Bayovar Engineering and Technical Assistance Project; US$7.5 million Loan of August 21, 1980; Effective Date: December 22, 1980; Closing Date: June 30, 1983. The feasibility report for the phosphate fertilizer project has been completed and final project preparation activities are now underway. Loan S-19-PE: SIDERPERU Technical Assistance Project; US$5.0 million Loan of December 15, 1980; Effective Date: April 16, 1981; Closing Date: June 30, 1985. A consultant's report evaluating SIDERPERU's expansion plans has been reviewed. A plan of action to deal with the findings of this report is being discussed with SIDERPERU. Loan 1963-PE: Aviation Development Project; US$58.0 million Loan of August 19, 1981; Effective Date: January 21, 1982; Closing Date: December 31, 1986. Procurement activities for equipment have begun. Loan 1968-PE: Second Industrial Credit Project; US$60.0 million Loan of August 19, 1981; Effective Date: February 25, 1982; Closing Date: June 30, 1985. About US$30 million of this loan has thus far been committed and US$17.6 million has been disbursed. Loan 2018-PE: Power Engineering Project; US$25 million Loan of August 19, 1981; Effective Date: February 25, 1982; Closing Date: June 30, 1985. Final design of a number of projects included in this loan, including the Yuncan hydroelectric project, are now underway. Loan 2064-PE: Small-Scale Enterprise Project; US$26 million of June 16, 1982; Effective Date: August 17, 1982; Closing Date: December 31, 1985. Initial subloan requests are now under review.  - 32 - ANNEX II Page 6 of 7 Loan 2091-PE: Eighth Highway Project; US$93 million Loan of June 4, 1982; Effective Date: March 17, 1983; Closing Date: June 30, 1986. Loan effectiveness was delayed because of the difficulty encountered by the Government in meeting the loan agreement condition of installing qualified candidates for senior positions in the Highways Directorate. This problem has now been resolved and project activities are getting underway. Loan 2117-PE: Oil Refinery Engineering Project; US$5.3 million Loan of September 17, 1982; Effective Date: January 20, 1983; Closing Date: June 30, 1985. Consultants are now being contracted. Loan 2139-PE: Lima Water Supply Project; US$40.6 million Loan of June 4, 1982; Effective Date: September 15, 1982; Closing Date: June 30, 1988. Initial project execution activities are underway. Loan 2150-PE: Agricultural Research and Extension Project; US$40.6 million Loan of September 17, 1982; Effective Date: February 18, 1983; Closing Date: March 31, 1988. Some project consultants, to be retroactively financed, have been contracted and other project activities are getting underway. Loan 2179-PE: Sixth Power Project; US$81.2 million Loan of September 17, 1982; Effective Date: May 12, 1983; Closing Date: June 30, 1987. Initial project execution activities are now underway. Loan 2195-PE: Petroleum Production Enhancement Project; US$81.2 million Loan of September 17, 1982; Effective Date: ; Closing Date: June 30, 1987. Initial project execution activities are now underway. Loan 2204-PE: Public Sector Management Project; US$10.2 million Loan of December 16 1982; Effective Date: April 21, 1983 ; Closing date: December 31, 1985. Consultants services have been contracted and work is underway on the programming and budgeting and debt management components. Loan 2208-PE: Higher Agriculture Education Project; US$17.3 million Loan of March 28, 1983; Effective I)ate: ; Closing Date: December 31, 1988. The conditions for effectiveness of this loan are now in the process of being satisfied.  - 33 - ANNEX II Page 7 of 7 Loan 2211-PE: Primary Health Project; US$33.5 million Loan of March 28, 1983; Effective Date: ; Closing Date: June 30, 1989. The conditions for effectiveness of this loan are now in the process of being satisfied. Loan 2219-PE: Alto Mayo Rural Development Project; US$30.0 million Loan of March 28, 1983; Effective Date: ; Closing Date: December 31, 1988. * The conditions for effectiveness of this loan are now in the process of being satisfied.  ANNEX III Page 1 of 2 PERU SIXTH AGRICULTURAL CREDIT PROJECT SUPPLEMENTARY PROJECT DATA SHEET SECTION I: TIMETABLE OF KEY EVENTS (a) Time taken by country to prepare the project: 6 months (b) Project prepared by: BAP (c) First presentation to the Bank: June 1980 (d) Identification of the project: June 1980 (e) Departure of appraisal mission: September 1982 (f) Date of Completion of Negotiations: April 25, 1983 (g) Planned date of effectiveness: October 1983 SECTION II: SPECIAL BANK IMPLEMENTATION ACTIONS None SECTION III: SPECIAL CONDITIONS It has been agreed that: a) as a condition of loan effectiveness, the position of project coordinator would be filled with an official whose experience and qualifications are acceptable to the Bank (para. 59); b) consultants for the design of the training program would be hired by March 31, 1984 (para. 56); c) BAP and the Government, by October 31, 1983, would enter into an agreement for making funds available for a sugar rehabilitation study; the execution of this agreement would be a condition of loan disbursement for the study (para. 58); d) BAP would, by September 30 of each year, submit to the Bank a draft lending program for the next year and provide the Bank an opportunity to cormment on it (para. 59); e) the Government would make annual contributions to BAP as required to maintain the current level of BAP's equity in real terms and would cover the foreign exchange risk under the Loan (paras. 62, 67); f) BAP's interest rates would be reviewed each semester by BAP's management; if average commercial rates have moved by more than three points or five percent, whichever is higher since the previous semester, BAP weighted average interest rates would be adjusted accordingly (para. 66);  - 35 - ANNEX III Page 2 of 2 g) BAP's debt equity ratio would be limited to no more than five to one (para. 67); h) for short-term lending, disbursements would be made to finance the real increase in BAP's program; an annual ceiling for Bank loan disbursement for short-term lending would be agreed upon by BAP and the Bank by December 31 of each year based upon BAP's annual lending program; in the event of a shortfall in the projected increase in short-term lending, the ceilings would be reduced until the shortfall is made up. In addition, after BAP's information system is installed, Bank loan disbursement would be made for short-term loans (i) to farmers who had not previously received BAP credit; (ii) which are complementary to investment lending under the project; and (iii) for farmers who are changing production technology or cropping pattern (para. 70); and i) a condition of disbursements for the equipment for the information system would be the completion of a study for the system satisfactory to the Bank (para. 68).