Peru - Chanchamayo - Satipo Rural Development Project

Document of The World Bank FOR OFFICIAL USE ONLY W E COPYi Report No. P-3747>PE REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMEN- TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN IN AN AMOUNT EQUIVALENT TO US$40.0 MILLION TO THE REPUBLIC OF PERU FOR THE CHANCHAMAYO-SATIPO RURAL DEVELOPMENT PROJECT March 8, 1984 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 1983 and as of January 20, 1984 were as follows: Currency Unit = Sol (S/.) Calendar 1983 January 20, 1984 US$1 SI. 1,629 S/. 2,352 SV. 1 US$0.0006 US$0.0004 SI. 1,000 US$0.61 US$0.43 FISCAL YEAR January 1 to December 31 ABBREVIATIONS BAP - Banco Agrario del Peru (Peruvian Agricultural Bank) bpd - barrels per day EFF - Extended Fund Facility IDB - Inter-American Development Bank INADE - Instituto Nacional de Desarrollo (National Development Institute) INFOR - Instituto Nacional Forestal (National Forestry Institute) INIPA - Instituto Nacional de Investigacion y Promocion Agropecuaria (National Institute for Agricultural and Livestock Research and Extension) MA - Ministerio de Agricultura (Ministry of Agriculture) PEPP - Proyecto Especial Pichis Palcazu (Project Execution Unit) UNA - Universidad Nacional Agraria (National Agrarian University) USAID - United States Agency for International Development  FOR OFFICIAL USE ONLY REPUBLIC OF PERU CHANCHAMAYO-SATIPO RURAL DEVELOMENT PROJECT LOAN AND PROJECT SUMMARY Borrower: Republic of Peru Amount: US$40.0 million equivalent, including a capitalized front-end fee. Terms: Repayable in 17 years, including four years of grace, at the standard variable interest rate. Project Description: The objectives of this project--which would be carried out in the central Peruvian jungle highlands east of Lima --are to improve productivity, income and living condi- tions for about 20,000 families, including 2,000 native Indian families, in the area. Principal components of the project would be: (i) provision of extension, credit and other agricultural support services--including mar- keting; (ii) improvement of about 427 km of rural roads and provision of associated maintenance equipment; (iii) provision of land titles; (iv) improvement of forestry management; (v) assistance for native communities; and (vi) support for project management, studies and techni- cal assistance in various fields. Special Risks: The complexity of the project and the number of compon- ents to be implemented pose the risk of delays in imple- mentation. However, the executing agency has experience in successfully carrying out a similar project and tech- nical assistance would be provided to assist this unit with project implementation. The project involves de- velopment of an environmentally sensitive area encompass- ing indigenous settlements, which raises the risk of ad- verse environmental and social effects. Special care has been taken with project design to protect against this. In addition, the project's environmental and social im- pact would be carefully monitored during execution. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  - ii - Estimated Costs * Local Foreign Total ------ US$ million ------ (a) Agricultural Credit 10.6 5.7 16.3 (b) Road Improvement and Maintenance 9.6 6.9 16.5 (c) Other Agricultural Support 6.3 2.3 8.6 Actitivies (d) Land Titling 3.2 0.4 3.5 (e) Forestry Support 3.1 0.6 3.7 (f) Native Communities 0.6 0.3 0.9 (g) Project Management, Studies and 2.6 0.3 3.0 Technical Assistance Base Cost 36.0 16.5 52.5 Contingencies: Physical 2.0 1.4 3.4 Price 8.1 3.4 11.5 TOTAL PROJECT COST 46.1 21.3 67.4 Front-End Fee on Bank Loan - 0.1 0.1 TOTAL FINANCING REQUIRED 46.1 21.4 67.5 Financing Plan Local Foreign Total ------ US$ million ------ World Bank 24.3 15.7 40.0 Government and Beneficiaries 10.1 - 10.1 Peruvian Agricultural Bank 11.7 5.7 17.4 TOTAL 46.1 21.4 67.5 Estimated Disbursements Bank FY 1985 1986 1987 1988 1989 1990 ---------- US$ million ----------- Annual 3.0 5.0 7.0 8.0 8.0 9.0 Cumulative 3.0 8.0 15.0 23.0 31.0 40.0 *1 Includes US$7.6 million in taxes (see para. 58).  - iii - Rate of Return: The economic rate of return is estimated at 18.6 percent for those components of the project with directly quantifiable benefits. These represent 87 percent of total project costs. Staff Appraisal Report: Report No. 4724-PE, dated March 6, 1984   INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE IBRD TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC OF PERU FOR THE CHANCHAMAYO-SATIPO RURAL DEVELOPMENT PROJECT 1. I submit the following report and recommendation on a proposed loan to the Republic of Peru for the equivalent of US$40.0 million to help finance the Chanchamayo-Satipo Rural Development Project. The proposed loan would have a term of 17 years, including four years of grace, at the standard vari- able interest rate. 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 findings of that report, on that of an economic mission to Peru in July/August 1982 and of follow-up missions in February and September 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 popu- lation; and the sparsely populated tropical rain forests east of the Andes (Selva). The country's rugged topography limits trade among the three re- gions. 4. Peru's natural resources include large deposits of minerals--par- ticularly 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, and substantial petroleum resources in the Selva and off- shore, but their full extent has not yet been ascertained. Another major natural resource is the large fishing potential in coastal waters, although the catch is subject to sharp fluctuations. Only a small portion of Peru's total land area is arable, and most of the soils suitable for intensive agri- culture 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 ex- pected to remain the major energy source through the rest of this century. After discovery of oil 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 ra- tional pricing policies to contain demand growth. Prices for domestically  -2- consumed petroleum products have been increased at regular intervals. In addition, new legislation was enacted offering special tax incentives to do- mestic and foreign investors. 6. As a result of three decades of rapidly falling mortality rates, Peru's population growth accelerated during the 1930-1960 period. Since the early 1960s, birth rates have fallen gradually, mainly caused by the urbaniz- ation process and improved education. But with declining death rates, popu- lation has continued to grow at about 2.5 percent p.a. between 1972 and 1981 to 17 million. Preliminary 1981 census information indicates that fertility declined by 20 percent during the past decade and the current rate of popula- tion growth has dropped to 2.2 percent p.a. The census also indicates that the reduction in population growth is most marked among the 65 percent of the population living in urban areas. The Government is quite population- conscious and is now supporting a family planning program. Past Development Policies and Performance (1968-78) 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 in the economy changed drastically through nationalization of pro- duction and distribution activities, and through a sweeping land reform. However, many of the policies carried out after 1968 had an excessive cost, and their implementation was inefficient. In particular, expansionary fiscal and credit policies between 1968 and 1977 produced strong inflationary pres- sures and expanded external borrowing, raising Peru's external debt to almost US$8.4 billion (including short-term indebtedness); about two-third's of GDP. By mid-1978, the country was in the midst of a severe financial crisis; inflation had accelerated to an annual rate of about 100 percent and the banking system's net international reserves dropped to a negative level of US$1 billion. Peru was no longer able to service its foreign obligations. 8. Beginning in May 1978, the Government adopted a number of important measures aimed at strengthening public finances, improving the balance of payments and curbing inflation. The Government also negotiated a stand-by ar- rangement with the IMF in support of the stabilization program, and carried out major debt-relief operations, postponing repayment of about US$1 billion due in 1979/80 to the 1982-1986 period. The Government then adopted a com- plementary Economic Recovery Program, which included measures to open up the economy, promote non-traditional exports, strengthen the tax system, 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 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 emphasizing projects of clear economic priority and with positive effects on production and employment. To support the program, the Bank approved a US$115 million Program Loan in May 1979.  - 3 - 9. 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 gen- erated 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 im- proved to about US$1.3 billion. Growing incomes as a result of good external sector performance and, in 1980, a reacceleration of public sector expendi- tures, 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 per- cent of GDP in 1980, and inflation exceeded 60 percent. 10. After a new constitution was written by a popularly elected constituent assembly, elections were held in May 1980, and the winner, Presi- dent Fernando Belaunde, was inaugurated on July 28, 1980. His Government faced a challenging 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 was committed to structural transformation based on opening up the economy; encouragement of private sector initiative and reduced public sector participation in economic activ- ities; and improved efficiency in the remaining public sector activities. Its reliance on, and promotion of, private initiative, in particular, distin- guish the present Government's philosophy and economic program from that of its immediate predecessors. 11. The Government 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 of the interest rate, and reduction of legal reserve re- quirements. The Government also made progress in correcting major price dis- tortions by reducing food subsidies, eliminating some price controls and ad- justing periodically public utility and petroleum product prices. Finally, the Government endeavored to rationalize public investment and its financ- ing--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 12. Unfortunately, the 1981-83 world recession made Peru's adjustment difficult. In 1981, the first full year of the new Government, the world demand for Peru's main exports declined, interest rates on the country's ex- ternal debt increased to an all-time high, and the terms of trade fell by 10 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 almost 12 percent) and an even faster growth of construction (mostly public) allowed GDP growth of near four percent. However, industrial output  -4- 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$1.7 billion. 13. By 1982, economic activity was slowing down, world commodity prices continued to fall, and the public sector deficit had also increased. The Government adopted an austerity program designed to reduce the public sector deficit and regain external equilibrium. Peru's mini-devaluations were ac- celerated 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. The current account deficit in the balance of payments was reduced slightly (to US$1.6 billion) in 1982, in spite of lower export prices, but GDP growth slowed to less than one percent, industrial output fell more than two percent, the public sector deficit rose to 8.8 percent of GDP, and inflation continued at more than 70 percent. 14. The still sizeable public sector and current account deficits, combined with the reduced availability of external loans from international commercial banks, encouraged the Government to try to accelerate the adjust- ment process in 1983. The new measures included a large cut in public in- vestment, acceleration of price adjustments of publicly supplied goods and services, and faster reduction of food subsidies. Also, the Government followed a restrictive monetary policy, and mini-devaluations from January to August 1983 again exceeded domestic inflation. 15. Peru's economic difficulties, however, were compounded by natural disasters suffered during the first half of 1983. Heavy rains flooded the northern part of the country; there was also a severe drought in the south, massive landslides in the central area, and a reduction in the fish catch. Most of these were linked to a change in El Nino, a current in the Pacific Ocean off the Peruvian coast, which also affected weather in other parts of the world. These disasters were costly; replacing the damaged infrastructure may require over US$500 million (about 40 percent of the 1983 public invest- ment budget). Output losses were also substantial. Agricultural production was particularly hard hit in the north of Peru where cotton crops were de- stroyed. Flooding of the Talara oil fields and damage to the trans-Andean pipeline caused a 4.6 percent drop in oil production (to an average of 186,000 bpd), and an eight percent fall in petroleum exports. 16. The combined impact of the natural disasters, low commodity prices, limited access to external borrowing and the high debt burden produced a severe economic recession in 1983; GDP fell by about 10 percent, with all sectors showing a decline in output. At the same time, inflation accelerated to 125 percent, partly because of the natural disasters but also because of inflationary expectations fueled by the minidevaluations. The current account deficit in the balance of payments was reduced, to about US$1 bil- lion, but only because of much lower imports. Financing of even this reduced deficit required a renegotiation of the commercial bank debt (in March 1983) and of the debt to Paris Club member countries (in July 1983). The commer- cial bank debt was rescheduled in the context of a "jumbo" loan that also provided for US$450 million of fresh money. Public sector revenues also  - 5 - declined substantially in 1983 because of the recession, and the public sector deficit far exceeded the Government's programmed target. In August, as the inflation rate accelerated, the Government revised its pricing and foreign exchange policies. It began to preannounce the exchange rate a few months in advance, and greatly reduced the rate of increase of most con- trolled prices. While this halved the inflation rate for the final three months, it appreciated the sol and led to some major price distortions. 17. By the end of 1983, it was clear to the Government that its EFF program could not be placed on track, so it negotiated with the IMF an 18- month standby to replace the final period of the EFF. The IMF Board will likely consider the new standby in April 1984. As part of its new program, the Government has already raised a key interest rate for depositors to real positive levels, raised electricity and other utility rates in real terms and undertaken a severely restrictive monetary program. On the strength of the negotiated standby, Peru's commercial creditor banks agreed to a rescheduling of US$1.5 billion amortization due them between January 1984 and July 1985. There of course, remains a continuing need for official development assis- tance, including local cost financing. Peru's economic recovery will depend greatly on recovery in the developed countries--the chief market for its im- portant mineral exports and newer manufactured exports. Nevertheless, good domestic policies can also assist this recovery. Provided the Government maintains its new program, the country is expected to resume economic growth after 1984, achieving a medium-term growth of about four-five percent per year and a manageable balance of payments situation thereafter, and Peru will remain creditworthy for Bank lending. PART II - BANK GROUP OPERATIONS IN PERU 18. The Bank has approved 55 loans to Peru for a total amount of US$1,522.3 million, net of cancellations. About 24 percent of the Bank's lending to Peru has been for transportation (mainly highways and ports), 24 percent for agriculture, 22 percent for the energy sector, 12 percent for mining and industry, about nine percent for education, health and urban de- velopment, eight percent for a program loan in support of the Economy Recov- ery Program in 1979, and one percent for a technical assistance operation. 19. Annex II contains a summary statement of Bank loans and their dis- bursement status as of September 30, 1983. As of this date, US$790.5 million was undisbursed. Disbursements on Bank-financed projects moved slowly in the late 1970s, primarily because of weak project execution capacity and a short- age 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 re- solve administrative problems. These actions are bearing fruit. Disburse- ments on project loans amounted to US$44 million in FY80, US$70.5 million in FY81, US$75.8 million in FY82 and US$85.7 million in FY83. This compares with average yearly disbursements of US$27.5 million during FY77-79.  -6- 20. The main objectives of Bank lending to Peru are to assist in: (i) the expansion of productive capacity in crucial sectors, i.e., petroleum, agriculture and mining; (ii) the strengthening, through technical assistance loans and regular operations, of public sector management, including more ef- fective economic policies; (iii) the creation of the physical infrastructure needed to sustain and foster economic development; and (iv) the improvement of living conditions for the 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- --petroleum, agriculture, mining, and industry--to help Peru to strengthen its balance of payments. Lending for social projects has also grown and will be stepped up further in the future. In addition, Peru has been approved as eligible for the Bank's Special Action Program (SAP) and seven projects are receiving support under that program. The next operation that would be ready for the Executive Directors' consideration is in 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. 21. Bank loans constituted an estimated 6.5 percent of Peru's total public external debt outstanding and disbursed at the end of 1982, and ab- sorbed about 3 percent of the country's public external debt service in 1982. 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 ten percent, and its share of debt-service would be around 4.5 percent. 22. IFC commitments as of September 30, 1983 were US$40.8 million (in- cluding US$15 million to the Southern Peru Copper Corporation for the Cuajone Copper Mining Project) of which US$15.5 million is held by the Corporation. A summary statement of IFC investments as of September 30, 1983 is presented in Annex II. 23. The other principal lending agencies active in Peru are the Inter- American Development Bank (IDB) and the United States Agency for Internation- al 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, energy, mining, roads, and small-scale irriga- tion. USAID is expected to stress rural and urban development and health. PART III - THE AGRICULTURE SECTOR Land and Water Resources 24. 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  -7- 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. The proposed project would be located in this area. 25. Of the country's three principal regions, the 130,000 kma 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 irrigat:ion 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 (Loans 1403-PE of 1977 and 1771-PE of 1979). Where water is available, conditions are generally favorable for crop production lbecause 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 zrops, olives and grapes. 26. 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--be- cause of the difficult topography, the severe climate and generally primitive 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 poten- tial, however, for improving crop and livestock productivity through re- search, extension and the increased use of production inputs. The Bank is assisting this effort through the Agricultural Research and Extension Loan (Loan 2150-PE of 1982) and, in the Juliaca area of southern Peru, through the Puno Rural Development Project (Loan 1812-PE of 1980). 27. The sparsely settled Selva east of the Andes accounts for 64 per- cent of Peru's total land area (about 81 million ha). The region comprises two quite different sub-zones: the Ceja de Selva--the highlands cn the eastern slopes of the Andes; and the Selva Baja--the jungle area a,round the Amazon and its tributaries. Most of the soils in the Selva Baja aLre classi- fied 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 crop- ping. Arable land in this zone is estimated at 4.5 million ha, of which 600,000 ha are currently being exploited. Fruits, coffee and tea are the main crops, although there is good potential for livestock, rice and oil palm in some areas. Development has been hampered, however, by poor transport and other infrastructure. The Government has given priority to development pro- jects in this area, since they constitute some of the best prospects for ex- panding Peru's agricultural frontier (paras. 33-36). The Bank is assisting this effort with the Alto Mayo Rural Development Loan (Loan 2219-PE of 1982.) Agricultural Sector Performance and Government Policies 28. 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 adverse Government  - 8 - policies. 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) failure to effectively organize and manage agrarian reform enterprises; (iv) insufficient credit and the dismantling of the extension and research support services for the sector; (v) a requirement that food crops be grown in place of non-food export crops, primarily cotton, for which Peru enjoys a comparative advantage; (vi) the concentration of public investment in large-scale coastal irrigation projects with very long gestation periods; (vii) insecurity of land tenure owing to a far-reaching land reform; and (viii) failure to support agricultural 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 profes- sionals. 29. In 1982, agriculture contributed about 9 percent to Peru's GDP and employed about 40 percent of the labor force, as compared with 17 and 48 per- cent, respectively, in 1970. The value of food production in constant prices increased by an average of 0.7 percent per annum during this period. 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 percent, largely because of the rapid growth of the poultry industry. During the same period, population grew at an average of 2.5 percent per annum. As a result, nutritional standards suffered, and the country's dependence on imported foodstuffs increased. 30. 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--which came mainly from sugar, cotton and coffee-- fell dramatically. By 1980, the volume of major agricultural exports stood at only about 22 percent of the 1970 level. In spite of these trends, Peru continued to maintain a positive though shrinking balance of trade in agri- culture through the 1970s. The deficit in 1981, however, amounted to about US$230 million. 31. By the late 1970s, the military Government had recognized the grav- ity 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 pro- ducts were reduced or eliminated so as to make higher farmgate prices possi- ble, the requirement that food crops be grown was eased, and the rebuilding of agricultural service agencies began. The Belaunde Government has acceler- ated this effort. It has eliminated remaining consumer subsidies except for a subsidy on rice which is now being phased out. An agricultural promotion law was passed in 1980, which: (i) concludes the agrarian reform expropria- tion process; (ii) permits some mortgaging of agricultural land to facilitate increased commercial credit; (iii) provides selected tax incentives to in- vestment; (iv) permits the private import and export of most agricultural products and inputs; and (v) opens up marketing to private participation. Finally, the Government has reorganized and strengthened sectoral institu- tions to improve the provision of services and the execution of projects.  The Bank is actively assisting in this effort and has recently made loans to support improvements in agricultural research and extension activities (para. 26) and to help the National Agrarian University (Loan 2208-PE of 1982). 32. These policy improvements, together with better weather conditions, have had a significant beneficial impact on agricultural production between 1980 and 1982. During this time, agricultural output grew by over 14 per- cent, with production increases in rice, corn and potatoes. However, there is a limit to how much can be achieved through improving productivity in the traditional agricultural areas in the Costa and the Sierra. Because of this, Peru's agricultural frontier needs to be expanded. Rural Development in the Ceja de Selva 33. Because it is one of the few areas with good, arable land which is relatively unexploited, developing the Ceja de Selva is one of Peru's highest priorities. Spontaneous development of high-potential parts of this area has already begun as settlers have moved from the less productive areas in the Costa and Sierra. The problem is that this development has, in the past, been generally uncoordinated and is placing increasing pressure on the local environment. The Government is promoting the controlled growth of the area by supporting about ten rural development projects, four of which are already underway. These projects were previously under the Prime Minister's Office and have now been placed under the recently-formed National Development Institute (INADE), a cabinet-level agency. The total cost of this program is estimated at over $500 million and funding is being provided from a number of sources including IDB, USAID, the Governments of Spain, Canada, Belgium, Switzerland and Germany. These rural development efforts are concentrated in two areas: the Mayo Valley in northern Peru and the Selva Central, east of Lima. 34. The Mayo Valley, which has an area of about 770,000 ha, is about 800 km north of Lima and is being developed rapidly by settlers from the Costa and the Sierra. The areas's population has now reached about 70000 and production comes mainly from small-scale farmers. This region is seen as having good potential for production of rice, fruits, tea, beef and oil palm, some of which may be exported. Part of the area--around the lower reaches of the Huallaga Valley--is currently being developed with financial assistance from USAID. In addition, the upper Mayo area is being developed with finan- cial support of the World Bank (para. 27) and the International Fund for Agricultural Development. 35. Development of the Selva Central is important because it is rela- tively close to Lima and its climate, soils and topography allow it to be used for a range of agricultural purposes. The area already produces over 25 percent of Peru's output of coffee, oranges, bananas and avocados. The long- range development plan for the Selva Central envisages a large expansion in this production. The development would involve six major valleys which ulti- mately would open over 3 million hectares of agricultural land to produc- tion. As a first step, USAID is assisting the Government with the execution of a rural development project in the Palcazu Valley. More recently, a  - 10 - similar project has gotten underway in the Pichis Valley with IDB financing. The project unit in INADE which is responsible for this effort--the Pichis- Palcazu office (PEPP)--has prepared the proposed Chanchamayo-Satipo project. 36. Development of the Ceja de Selva is also being supported through a series of projects designed to improve transportation links with the rest of the country. The first of these operations was the Bank-financed Lima-Amazon all-weather road connecting the Sierra with the Selva. Linked with this, the Government is gradually constructing the "Marginal de la Selva", which would be an all-weather road running from the north to the south of the Selva on the eastern slopes of the Andes. The Bank is supporting the improvement of some priority sections of the Marginal de la Selva under its Eighth Highway Project (Loan 2091-PE of 1982). IDB is also helping to improve road access to the Selva under a recent highway project. Finally, the Bank-financed Aviation Development Project (Loan 1963-PE of 1981) is supporting the improvement of four airports at important regional centers in the Selva. Institutional Framework 37. The Ministry of Agriculture (MA) is generally responsible for formulating the Government's sectoral policies and programs. The National Institute for Development (INADE) has responsibility for preparing and carrying our rural development projects in the Selva (para. 33). Under a 1981 reorganization, the task of carrying out public sector agricultural and rural development programs was made the responsibility of: (i) four adminis- tratively autonomous institutes under the MA--including the National Insti- tute for Agricultural and Livestock Research and Extension (INIPA) and the National Forestry Institute (INFOR); (ii) a number of independent project authorities which administer major irrigation projects; (iii) regional devel- opment corporations which are responsible for small-scale local projects; and (iv) special project units under INADE like PEPP. In addition, the Govern- ment has acted to improve training programs through the National Agrarian University (UNA). The Bank is assisting in this effort through the Higher Agricultural Education Project (Loan 2208-PE of 1982). 38. Specialized services to the sector are provided by a public market- ing company and the Agrarian Bank of Peru (BAP), which is the main source of agricultural credit. Until recently, the marketing company had a monopoly on marketing rice, cotton and fertilizers and on importing grains and powdered milk. These monopoly operations are being phased out although the Government will retain a presence in marketing as a check on private traders. This will be done through PROCOMPRA, a recently-formed marketing program under the Min- istry of Agriculture. BAP is a Government-owned institution with branches in all parts of the country. It provides about 93 percent of the institutional credit to the agriculture sector with the balance coming mostly from commer- cial banks and State development banks. In 1982, BAP's loan portfolio was about US$300 million, but this represented only 67 percent of the 1976 port- folio in real terms and was not sufficient to meet the sector's needs. Between 80 and 90 percent of BAP annual lending is short-term production credit, and--in 1982--45 percent of its new loans went to cooperatives, 46 percent to farmers with more than 20 ha and nine percent to small farmers.  - 11 - 39. In the past, BAP only reached a relatively small number of farmers and the growth of its lending program was 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 1983, the average effective rate for all BAP's loans was 45 percent, 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--in April, 1983--put into effect a new interest rate system which substantially raised interest: rates for most farmers. Under this new system, rates averaged 67 percent for commercial farmers with over 20 ha with lower rates for smaller farmers. The Bank is supporting an expansion in BAP's lending and regular adjustment of interest rates under its Sixth Agricultural Credit Project (Ln. 2302--PE of 1983). Under that project, BAP is required to adjust its interest rates in line with changes in commercial rates and use its best efforts to move toward real positive rates. For this purpose, BAP adjusted interest rates in October 1983 raising average effective rates from 67 percent to 86 percent. Although inflation for all of 1983 reached 125 percent there was a downturn in the final quarter, when inflation occured at an annualized rate of 73 percent. BAP's rates for that quarter were thus positive in real terms. The Bank continues to monitor rate adjustments in the context of the Sixt:h Agri- cultural Credit Project. Sectoral Investment Strategy 40. The Government's sectoral investment strategy, as reflected in its 1981-1985 public investment program, is: (i) to continue development: and re- habilitation of irrigated coastal areas where there is a large sunk invest- ment in deteriorated, inefficient irrigation infrastructure; (ii) to develop the potentially rich Ceja de Selva; and (iii) to assist the rural poor, par- ticularly in the Sierra, through rural development projects. The Government is also committed to building up its agricultural credit and research and ex- tension programs to provide better support to the agriculture sector. Previous Bank Operations 41. In order to help spur Peru's agricultural development, the Bank has made 15 loans to Peru totalling US$379.0 million. Five of them, in the 1954- 1973 period and totalling US$55.0 million, were for agricultural credit and were channelled through BAP (Lns. 105-PE, 162-PE, 257-PE, 415-PE and 933-PE). In general, BAP's performance in executing these operations has been 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 per- cent). It noted, however, that the Bank failed to use the loan as an effec- tive instrument in credit policy issue discussions (e.g., interest rate levels) with the Government. Processing of a further loan was held in abey- ance until early 1983 when a mutually satisfactory agreement on interest rates was reached and the Bank made a loan for the Sixth Agricultural Credit  - 12 - Project (para. 39). Also, the fifth project suffered from the deterioration of the research and extension services in the 1970s. The research and exten- sion project (Ln. 2150-PE of 1982) will help finance the rebuilding of these services. 42. Two loans (67-PE of 1952 and 98-PE of 1954), totalling US$3 million, 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 Loan 418-PE concluded that the project achieved its basic goals of increasing agricultural production and the incomes of the 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 irrigation 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). They have also been taken into account in the design of the Bank's rural development operations. In 1980 the Bank approved its first rural development loan, a US$15 million operation for the Puno zone in the Sierra (para. 26). This was followed, in 1982, by a US$30 million loan for the Alto Mayo area in the Ceja de Selva (para. 27). PART IV - THE PROJECT 43. This would be the second Bank-financed rural development project in the Ceja de Selva. The project was prepared by PEPP in conjunction with rep- resentatives of the various regional agencies expected to participate in the project. A feasibility study of the proposed project was completed in early 1983 with the assistance of the FAO/IBRD cooperative program. The Bank help- ed finance this preparation work with funds provided under the Eighth Highway Project (para. 36). A Bank mission visited Peru to appraise the project in May 1983. The appraisal mission's report entitled "Staff Appraisal Report, Chanchamayo-Satipo Rural Development Project" (No. 4724-PE, dated March 6, 1984) is being distributed separately to the Executive Directors. Annex III contains a Supplementary Project Data Sheet. Negotiations were held in Washington from February 1 to February 3, 1984 and the Peruvian Delegation was headed by Mr. Reategui, of the Ministry of Economy, Finance and Commerce. The Project Area 44. The project area consists of 730,000 ha in the Selva Central (see map IBRD 17482 attached). The area to be developed lies in valleys ranging from 500-3,000 meters above sea level in the eastern foothills of the Andes. It consists of about 400,000 ha of largely settled land surrounded by about 330,000 ha of thinly populated steep slopes on the north, east and south which the Government has proposed to set aside in three reserves for forest protection and production. The three main towns in the region are San Ramon, La Merced and Satipo, and have a combined population of about 25,000 people.  - 13 - The population of the project area amounts to about 160,000--nearly 80 percent of which is rural--and has grown rapidly during the seventies as transportation links have been established and spontaneous migration has accelerated. Development, however, has proceeded in an uncoordinated manner, and this migration is placing increased pressure on local resources. lJnless future growth is more carefully managed, especially the forestry resources in these valleys, which are needed to protect the slopes from erosion, agricul- tural production is in danger of declining. For this reason, the proposed project comes at a critical time for the development of this area. 45. About one-quarter of the project area is relatively good land especially suitable for perennial crops, while the remainder is forest which needs to be protected to prevent erosion. The climate is tropical and there is abundant annual rainfall (1,800 to over 3,000 mm). The main crop produced in the area is coffee, but the annual production of this valuable crop has declined to about 12,000 tons per year, about half prior levels, because of crop damage--a result of leaf rust--and poor growing practices. In addition, about 10,000 tons of citrus fruit, papaya, avocado, pineapple, bananas and some subsistence crops are grown; the bulk of these are sold in the Lima market. Average farm size is less than 19 ha and average income in the area is about US$300 per capita; about 65 percent of the settlers have incomes below the absolute poverty level. There are 89 communities of native In- dians, mostly from the Campa tribe, living in the area. These communities comprise about 2,000 families with an average land holding of about 14 hec- tares. (An additional 37 communities on the periphery of the area will be titled under the project.) The project has been designed to ensure that the Indian communities benefit from the development of the area through direct participation in the project components, while still preserving their cultur- al identity. Project Objectives and Description 46. The objectives of the project are to improve incomes and living conditions for about 20,000 rural families in the project area by expanding local agricultural and forestry production and improving the region's infra- structure base. Some 5,500 farming families--including over 500 Indian fam- ilies--would participate directly in the agricultural development components of the project. All families would benefit from the infrastructure improve- ments in the area. The project would coordinate area development carefully so that: (i) the physical environment--especially forestry resources--would be protected; and (ii) local native communities would be incorporated into area development. 47. The project would consist of: (a) an agricultural credit program for the farmers in the area; (b) construction and improvement of access roads and support for establishment of a road maintenance program; (c) provision of complementary production support activities, in- cluding agricultural research and extension services and mar- keting facilities;  - 14 - (d) strengthening forestry management and conservation; (e) land titling; (f) improvement of living conditions in the native communities; and (g) support for project management as well as studies and technical assistance. 48. Agricultural credit would account for 31 percent of project costs. Under this component medium- and long-term credit of about $17.8 million equivalent would be provided to finance land clearing, purchase of farm tools, equipment and draft animals which would be used to increase agricultural production. In addition, about $2.8 million equivalent of short-term credit would be provided to help farmers purchase seeds, fertilizers and chemicals, rent needed machinery, hire labor and pay for transport to markets. BAP would finance the credit component from available resources; it would lend at its normal terms as adjusted from time to time in consultation with the Bank under the terms of the Sixth Agricultural Credit Project (para. 39). BAP has a regional office in La Merced, two other local offices in the project area and is opening two further offices. BAP would enter into a contract, satisfactory to the Bank, with INADE as a condition of loan effectiveness which would specify, inter alia: (i) the terms and procedures under which the credit would be made available; and (ii) the estimated amount of lending to be provided (Sections 3.02 and 6.01(b) of the draft Loan Agreement). 49. The access road component would also represent 31 percent of total costs. Using contractors, PEPP would upgrade about 427 km of existing roads wzhich are currently little more than dirt tracks. All roads would be upgrad- ed to an all-weather standard in order to provide year-round access to the main towns in the area, the principal farm communities and the main produc- tion areas. The project also includes engineering services for final design and supervision of construction of these roads. Detailed engineering for the first year road works has been completed and was financed under Loan 2091-PE (para. 36). Civil works under this component would also include construction of a 90 meter bridge across the Perene River in order to open up access to an underdeveloped area on its eastern bank. 50. Satisfactory maintenance of these roads is important and, there- fore, the Government would agree to ensure that roads in the project area would be maintained and repaired. This maintenance would be the responsibil- ity of the local government authorities--with initial help from a maintenance support unit (see below). To assure this, agreements would be signed by local authorities committing them to maintain roads under their responsibil- ity (Section 4.03(b) of the draft Loan Agreement). The road maintenance unit would be established and initially operate under PEPP. The project would  - 15 - also assist this effort through provision for: (i) purchase of road maintenance tools and equipment; (ii) construction and outfitting of two small equipment repair shops; and (iii) technical assistance and training for road maintenance staff. Road maintenance would ultimately be the full responsibility of a local authority. To do this, PEPP would present to the Bank for comment, by March 31, 1988, a program to transfer the maintenance support unit to an appropriate local authority, and this transfer would then be carried out by March 31, 1989 (Section 4.03(c)(v) of the draft Loan Agreement). In addition, from 1985 onwards, the maintenance support unit's annual program and budget for the forthcoming year would be presented to the Bank for comment (Section 4.04 of the draft Loan Agreement). 51. Other production support activities included in the project would represent 16 percent of total costs. The most important of these, represent- ing 12 percent of total costs, would strengthen agricultural research and ex- tension services in the area. More specifically, it would provide for cons- truction and improvement of two local offices for INIPA at San Ramon and Satipo and three additional facilities needed to support extension work in the area. The project would also provide support for equipping and staffing these facilities, vehicles and housing for INIPA staff and in-service and ex- ternal training programs. The design of this extension component follows the lines of the training and visit system of extension being supported in other regions of Peru under the Bank-financed Agricultural Research and Extension Project (para. 26). Agricultural research activities in the area would also be supported through the improvement and equipping of a research station operated by UNA (para. 37). UNA would carry out studies on improving produc- tion as well as strengthening control of crop diseases and pests in the area. The project includes both UNA's and INIPA's incremental operational costs, including training. In order to ensure satisfactory execution of this component, INADE would as a condition of loan effectiveness, sign agreements with INIPA and UNA specifying their responsibilities under this component. These agreements would be satisfactory to the Bank (Sections 3.03(a)(i) and 6.01(c) of the draft Loan Agreement). 52. In addition, production would be assisted through improvements to marketing activities. These would represent four percent of project costs. UJnder this subcomponent, two rural grading and packing centers would be es- tablished in La Merced and Satipo. Each of them would have a capacity for processing about 14,000 tons per year of local fruits which would then be sold in the Lima market. The Executive Directorate would arrange for cons- truction of the centers either through PROCOMPRA (para. 38) or directly. If the centers are constructed directly, the producers' associations would finance them through loans from a Peruvian development bank. The centers would be owned and managed by these local producer associations when com- pleted (Section 4.06 of the draft Loan Agreement). Assistance for these associations in marketing would be financed under the project. 53. The forestry component would represent seven percent of total costs and would be aimed at strengthening the effectiveness of forest management and conservation efforts in the area. This is important because many of the forest areas are needed to protect the area from erosion and landslides and the remaining forestry resources can be a valuable crop if developed in a manner which ensures regular renewal of the timber. In order to do this, the  - 16 - project would establish nurseries--to grow new trees for replanting in the area--and provide for construction, equipping and incremental staffing of a local office for the National Forestry Agency (INFOR) as well as six forestry police control points. INFOR would expand its ongoing forestry research and reforestation program through expansion of staff and setting up an extension service which would operate in the area. INFOR is a semi-autonomous agency with extensive experience in this type of activity in other parts of the country. INFOR would enter into an agreement with INADE as condition of loan effectiveness detailing its responsibility under this component. This agreement would be satisfactory to the Bank (Sections 3.03(a)(ii) and 6.01(c) of the draft Loan Agreement). The component also includes the purchase of the necessary vehicles to help with forestry control and funds for a public awareness program aimed at educating the local population on the need to protect forestry resources. Finally, under this component the MA's forestry department would, carry out an inventory of forestry resources in the project area, identifying production and protection zones, and, by December 31, 1985 prepare a management plan for the protection zones. Until it is completed, no further logging concessions would be provided in these zones. For areas designated as suitable for production, management plans developed by prospec- tive concession holders would have to be approved by the MA before logging could begin (Section 3.10 of the draft Loan Agreement). 54. The land titling component--also representing seven percent of total costs--would support a program designed to provide titles to almost all settlers in the project area, including the native Indian communities that do not yet have title. This is important if settlers are to have the security to use long-term credit to improve the productivity of their holdings. Under this component, the project would provide additional staff as well as vehi- cles and equipment so this work could be carried out. At the same time, the component would also support a land titling program designed to help about 37 native communities on the periphery of the project area. This is needed if these communities are to have their holdings protected in advance of coloni- zation which can put pressure on their areas. 55. Support for the native communities would be provided under all the previous components and a special effort would be made under the land tit- ling, agricultural extension and credit and forestry components to make sure that priority was given to these communities. In addition, the project would include some programs, amounting to two percent of total costs, designed to help improve living standards in these communities. These would improve the quality of their water supply, assist in self-help construction--particularly schools--and assist with promotion of small-scale industrial activities. 56. Finally, the project would include support for project management which would represent six percent of total costs. It would include assist- ance for PEPP's local office in San Ramon through construction and equipping of offices, housing and dormitories for staff. It also includes vehicles, contracting of additional staff and incremental operating and maintenance costs. 57. Technical assistance provided under the project would cover engi- neering services as well as about 32 staff months of expatriate support and 20 staff months of local consultant support. The average monthly cost of  - 17 - consultants, including travel and subsistence, is estimated to be about US$10,000 for foreign experts and US$2,000 for local experts. All consultants financed under the loan would have qualifications acceptable to the Bank and would be hired in accordance with Bank guidelines under terms and conditions acceptable to the Bank (Section 3.04 of the draft Loan Agreement). Project Cost and Financing 58. Total project cost is estimated at US$67.5 million. This includes US$7.6 million in indirect taxes (such as the sales and gasoline taxes). Investments in this area are, by law, exempt from stamp and income taxes. Provision will also be made for exemption from duties on equipment imported under the project. The foreign exchange component of the project is esti- mated at US$21.4 million or about 32 percent of total project costs. A total of US$3.4 million has been included for physical contingencies, reflecting an average of six percent of the base cost of the project. Price contingencies are based on projected international and local price increases (in dollar terms) of seven and a half percent in 1984, seven percent in 1985 and six percent thereafter. Local cost contingencies were calculated in US dollar equivalents on the assumption that variations in the exchange rate would com- pensate for the difference between local and international inflation. 59. Total financing required for the project is US$67.5 million includ- ing a US$99,751 front-end fee. The proposed Bank loan of US$40 million equivalent would represent 59 percent of the estimated financial requirements for the project (66 percent of costs net of all taxes), including $15.6 million in foreign costs, the front-end fee and US$24.3 million in local costs. Bank financing of local costs is justified by: (i) the importance of the project in developing a potentially highly productive frontier region in Peru; (ii) the need to improve social conditions in the project area; and (iii) the current fiscal and balance of payments difficulties faced by Peru (paras. 15 and 17). The remaining US$27.5 million equivalent in project costs would be provided by the Government, BAP and beneficiaries. Retroac- tive financing of up to US$350,000 (less than one percent of the loan amount) would be provided under the proposed loan to cover start-up expenditures after January 1, 1984 for activities such as initiation of office construc- tion and hiring of key project and extension staff (para. 4(a) of Schedule 1 of the draft Loan Agreement). Project Execution 60. INADE would be responsible for general coordination and direction of the project. PEPP would be directly responsible for executing all compo- nents of the project except for the agricultural credit, research and exten- sion and forestry components which will be carried out with the assistance of specialized agencies (see para. 61). Assignment of executing responsibility to a project unit of this type, rather than one within a technical ministry, has proved to be the most effective way of executing rural development pro- jects in Peru. PEPP already has experience in the successful management of the USAID-financed rural development project in the Palcazu Valley and the IDB project in the Pichis Valley. This should help ensure that the proposed Chanchamayo-Satipo project would be implemented smoothly. PEPP has establish  - 18 - a project directorate in La Merced which would have responsibility for day-to-day execution of the project and PEPP would continue to maintain a liaison office in Lima (Section 3.01(b) of the draft Loan Agreement) because experience with similar projects has shown that this is needed to ensure that the project is properly coordinated with other ministries and agencies. The project would be managed by the Project Director who would be located at La Merced. He would be under the general supervision of the executive director of PEPP in Lima. Suitable project and executive directors, who are fully sa- tisfactory to the Bank, have already been appointed, but the Bank would be consulted on the qualifications and experience of any proposed replacement for these positions (Section 3.01(c) of the draft Loan Agreement). 61. PEPP would consult with officials of the various government agencies normally responsible and for the road activities, the Project Directorate would receive assistance as needed from the Ministry of Transport and Communications regarding technical issues which might arise during project implementation (Section 3.09 of the draft Loan Agreement). In addition, three components of the project depend on the active participation of legally autonomous agencies. In these cases, INADE.would sign formal agreements with these agencies covering their responsibilities (paras. 48, 51 and 53). Satisfactory draft agreements have already been provided to the Bank. Disbursements and Procurement 62. The proposed loan would be disbursed over six and a half years against the following eligible expenditures: (i) 90 percent of expenditures on civil works; (ii) 100 percent of foreign and 90 percent of local expendi- tures for vehicles and equipment; (iii) 100 percent of total expenditures for consultant services, training and studies; and (iv) a gradually declining percent (from 80 to 10) of salaries and incremental costs resulting from pro- ject activities. All vehicles, equipment and civil works would be too diverse to be packaged for ICB and would therefore be procured through local competitive bidding procedures acceptable to the Bank. Some minor civil works would be done under force account if necessary with prior approval of the Bank for each case. Equipment which cannot be grouped into packages exceeding US$50,000 would be purchased through local shopping, up to a value of US$350,000. 63. Government agencies in Peru have had difficulty in executing Bank projects in the past because they sometimes have not had the funds needed to pay contractors promptly while waiting to be reimbursed by the Bank. In or- der to permit more rapid provision of funds for the project, the Borrower would establish, on terms and conditions satisfactory to the Bank, a dollar- denominated special account in the Banco de la Nacion into which funds from the proposed Bank loan would be advanced (Section 2.02(b) of the draft Loan Agreement). This account is expected to consist of an estimated three months Bank disbursements at any time. The Government would also, for its part, es- tablish a revolving fund--in the Banco de la Nacion and on terms and condi- tions satisfactory to the Bank--which would be used tio pay the Government's share of project expenses. This revolving fund would consist of not less than two months estimated payment needs and would be replenished by the Gov-  _ 19 - ernment with its counterpart funds each time a payment is made (Section 4.05 of the draft Loan Agreement). The BankVs initial deposit in the special account would not be made until the revolving fund was established and the Government's initial deposit made (para. 4 of Schedule 5 of the draft Loan Agreement). Project Benefits 64. The rate of return for the 87 percent of project costs with quantifiable benefits is estimated at 18.6 percent. The main quantifiable benefits would be the additional agricultural production in the area that would occur as a result of the project. Sensitivity analysis shows that pro- ject benefits could be reduced by about 20 percent, or costs increased by about 20 percent and the economic rate of return would still be over 12 percent. 65. The objective of this project is to benefit about 20,000 families by improving the productivity of the area and their incomes as well as their living conditions. The main agricultural development investments (credit. etc.) would benefit about 5,500 farm families in the area. Through these investments, the area under crops would be expanded from about 24,000 ha to about 32,000 ha, and agricultural production would increase by about 90,000 tons per year. The main product, coffee, would increase by about 4,200 tons thus increasing foreign exchange by about $3 million annually. Although there are quotas on sales to the international market, expanding coffee pro- duction is a priority because: (i) the area is, traditionally, an attractive one for growing coffee and the profitability of this crop is very high; (ii) the project is designed to rehabilitate an existing coffee production area-- not to expand the area under production; and (iii) the increased production from the project, at full development, would equal only seven percent of the Peruvian total, thus net exports would be increased only marginally. 66. In addition, production of tropical fruit would increase signifi- cantly. As a result, average incomes of farming families in the area would double. The project would also provide about 12,800 families (73,000 people) --about 60 percent of whom live in absolute poverty--with urgently needed access roads which, because of the recent rapid development of the area, are grossly inadequate. Improved management and technical support in forestry would help guard against environmental damage which is a danger if current spontaneous development continues. The native Indian communities in the area would also participate directly in the agricultural development components of the project and these communities have been consulted fully on project design. This should increase their incomes considerably and help gradually integrate these families into the local economy, while helping to preserve their cultural identity (para. 55). The project would also help further strengthen a key regional development agency (PEPP) and would strengthen its ability to prepare and execute future development activities in the Ceja de Selva. Finally, its design would serve as a model for future projects which could further develop the Ceja de Selva in a careful and controlled manner.  - 20 - Project Risks 67. The complexity of the project suggests that delays could occur with project implementation. PEPP, however, has previous experience in success- fully implementing a similar project--which is on schedule--thus providing assurance that this risk is not great. Furthermore, technical assistance would be provided for a number of specialized aspects of project execution and this should help avoid delays. The project involves development of an environmentally sensitive area encompassing indigenous settlements, raising the risk of adverse environmental or social effects. Special care has been taken in designing the project to protect against environmental damage and to plan development to protect the interests of the Indian communities. Under the monitoring activity, the project's environmental and social impact will be carefully watched during project execution so that any problems which do arise can be promptly identified and acted upon. A monitoring and evaluation unit would be established in the Technical Directorate within six months of loan signing (Section 3.06(b) of the draft Loan Agreement). PART V - LEGAL INSTRUMENTS AND AUTHORITY 68. The (i) draft Loan Agreement between the Republic of Peru and the Bank; and (ii) Report 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. 69. Special features of the project are referred to in the text of this report and in Annex III. Special conditions of effectiveness would be the signing of the agreements between INADE on the one hand and BAP, UNA, INIPA, and INFOR, on the other as well as the registration of the Loan Agreement with the Finance Ministry's Public Credit Office (a condition in all official loans to Peru). 70. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank. PART VI - RECOMMENDATION 71. I recommend that the Executive Directors approve the proposed loan. A. W. Clausen President Washington, D.C. March 8, 1984  - 21 - ANNEX I T A B L E 3A Page 1 of 6 PERU - SOCIAL INDICATORS DATA SHEET PERU REFERENCE GROUPS (WEIGHTED AVERAGES) /a MOST (MOST RECENT ESTIMATE) /b llb RECENT MIDDLE INCOME MIDDLE INCOME 1960- 1970- ESTIMATE- LAT. AMERICA & CARIB EUROPE AREA (THOUSAND so. KM) TOTAL 1285.2 1285.2 1285.2 AGRICULTURAL 306.1 299.3 305.2 GNP PER CAPITA (US$) 330.0 540.0 1170.0 2088.2 2453.6 ENERGY CONSUMPTION PER CAPITA (KILOGRAMS OF COAL EQUIVALENT) 433.0 707.0 807.0 1407.6 1580.8 POPULATION AND VITAL STATISTICS POPULATION,MID-YEAR (THOUSANDS) 9665.0 12833.0 17031.0 URBAN POPULATION (% OF TOTAL) 46.3 59.5 65.9 65.9 47.8 POPULATION PROJECTIONS POPULATION IN YEAR 2000 (MILL) 26.3 STATIONARY POPULATION (MILL) 50.0 YEAR STATIONARY POP. REACIHED 2110 POPULATION DENSITY PER SQ. KM. 7.5 10.0 12.9 35.6 82.0 PER SQ. KM. AGRI. LAND 31.6 42.9 54.4 93.2 157.2 POPULATION AGE STRUCTURE (1) 0-14 YRS 43.6 44.3 42.4 40.1 31.9 15-64 YRS 52.0 51.7 54.1 55.8 60.9 65 AND ABOVE 4.4 3.9 3.5 4.1 7.2 POPULATION GROWTH RATE (1) TOTAL 2.5 2.8 2.6 2.3 1.6 URBAN 5.2 5.3 3.5 3.7 3.4 CRUDE BIRTH RATE (PER THOUS) 45.5 41.5 36.3 31.5 25.0 CRUDE DEATH RATE (PER THOUS) 18.3 14.6 11.1 8.1 9.1 GROSS REPRODUCTION RATE 3.2 3.0 2.5 2.0 1.7 FAMrLY PLANNING ACCEPTORS, ANNUAL (THOUS) .. .. USERS (% OF MARRIED WOMEN) .. .. FOOD AND NUTRITION INDEX OF FOOD PROD. PER CAPITA (1969-71=100) 96.0 102.0 87.0 113.0 108.4 PER CAPITA SUPPLY OF CALORIES (x OF REQUIREA4ENTS) 103.0 102.0 99.0 111.3 129.6 PROTEINS (GRAMS PER DAY) 67.0 63.0 60.0 67.9 92.3 OF WHICH ANIMAL AND PULSE 29.0 26.0 25.0/c 34.1 34.6 CHILD (AGES 1-4) DEATH RATE 37.9 20.2 8.9 5.3 10.4 REAL TH LIFE EXPECT. AT BIRTH (YEARS) 47.5 53.4 57.9 64.6 67.2 INFANT MORT. RATE (PER THOUS) 162.9 119.7 85.4 62.6 71.4 ACCESS TO SAFE WATER (%POP) TOTAL 14.6 35.0 48.3/d 64.8 URBAN 30.2 58.0 60.07W 77.8 RURAL 0.8 8.0 2 5. 6/d 44.3 ACCESS TO EXCRETA DISPOSAL (% OF POPULATION) TOTAL * 36.0 34.0/d 54.6 URBAN . 52.0 51.0Th 69.8 RURAL .. 16.0 .. 29.8 POPULATION PER PHYSICIAN 1910.0 1820.0 1390.0 1776.0 1094.9 POP. PER NURSING PERSON 2210.0/f 720.0 690.0/d 1012.2 762.5 POP. PER HOSPITAL BED TOTAL 400.0 450.0 520.0c 477.0 334.0 URBAN 260.0/e 520.0 400.07W 667.5 216.0 RURAL .. 2800.0 5610.0T7W 1921.6 ADMISSIONS PER HOSPITAL BED . 1 9.0 23.0/c 27.2 20.0 HOUSING AVERAGE SIZE OF HOUSEHOLD TOTAL 4.9 4 8/g URBAN 4.8 4. RURAL 4.9 4.6/ AVERAGE NO. OF PERSONS/ROOM TOTAL 2.3 l9/g * URBAN 2.0 1.77g .. RURAL 2.7 2.47 * ACCESS TO ELECT. (% OF DWELLINGS) TOTAL 26.0 32.0/a URBAN 50.7 54.3l *-- RURAL 4.2 2. 7/ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -- - - - - - - - - - - - - - - - - - -_-_-_-__-_-__-_- -_-_- - -_- -_-__-_-__ _ _ _ _ __ _  - 22 - ANNEX I TA B L E 3A Page 2 of 6 PERU - SOCIAL INDICATORS DATA SHEET PERU REFERENCE GROUPS (WEIGHTTED AVERAGES) /a MOST (MOST RECENT ESTIMATE) lb L 960/b /,b RECENT /b MIDDLE INCOME MIDDLE INCaME 1960- 1970- ESTIMATE- LAT. AMERICA & CARIB EUROPE EDUCATION ADJUSTED ENROLLMENT RATIOS PRIMARY: TOTAL 83.0 105.0 112.0 105.0 102.2 MALE 95.0 113.0 116.0 106.3 107.2 FEMALE 71.0 97.0 108.0 103.6 97.9 SECONDARY: TOTAL 15.0 30.0 56.0 40.0 56.5 MALE 18.0 35.0 60.0 38.6 63.4 FEMALE 13.0 26.0 53.0 41.2 48.9 VOCATIONAL (% OF SECONDARY) 19.9 17.1 15.1/d 34.0 22.4 PUPIL-TEACHER RATIO PRIMARY 34.0 35.0 39.0 30.7 24.7 SECONDARY 12.0 17.0 29.0/d 16.7 22.1 ADULT LITERACY RATE (1) 61.0 72.5/g 80.0 79.5 69.7 CONSUMPTION PASSENGER CARSITHOUSAND POP 8.2 18.0 19.4/c 45.6 52.9 RADIO RECEIVERS/THOUSAND POP 113.8 141.7 165.6 228.2 165.5 TV RECEIVERS/THOUSAND POP 3.4 30.8 51.2 108.3 124.2 NEWSPAPER ("DAILY GENERAL INTEREST") CIRCULATION PER THOUSAND POPULATION .. 129.4 53.5/c 64.1 96.3 CINEMA ANNUAL ATTENDANCE/CAPITA 6.7 .. .. 2.9 2.9 LABOR FORCE TOTAL LABOR FORCE (THOUS) 3025.0 3710.0 5076.0 FEMALE (PERCENT) 21.2 20.8 23.4 24.8 34.5 AGRICULTURE (PERCENT) 52.5 48.0 39.2 31.3 40.7 INDUSTRY (PERCENT) 19.6 18.4 18.2 23.9 23.4 PARTICIPATION RATE (PERCENT) TOTAL 31.3 28.9 29.8 31.3 42.0 MALE 49.6 45.8 45.6 49.8 55.2 FEMALE 13.2 12.0 14.0 14.8 29.1 ECONOMIC DEPENDENCY RATIO 1.5 1.7 1.5 1.4 0.9 INCOME DISTRIBIJTION PERCENT OF PRIVATE INCOME RECEIVED BY HIGHEST 5% OF HOUSEHOLDS 39.0 HIGHEST 20% OF HOUSEHOLDS 64.4 61.0/g LOWEST 207 OF HOUSEHOLDS 2.5 1.97i g LOWEST 40% OF HOUSEHOLDS 8.0 7.O7.. POVERTY TARGET GROUPS ESTIMATED ABSOLUTE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN .. .. 235.0/c 289.8 RURAL .. .. 180.07c 184.5 ESTIMATED RELATIVE POVERTY INCOME LEVEL (USS PER CAPITA) URBAN .. .. 293.0/c 519.8 RURAL .. .. 200.0/c 372.1 409.0 ESTIMATED POP. BELOW ABSOLUTE POVERTY INCOME LEVEL (%) URBAN .. .. 49.O/c RURAL _ _ NOT AVAILABLZ NOT APPLICARLE N O T E S /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. /b Unless otherwise noted, "Data for 1960" refer to any year between 1959 and 1961; "Data Por 1970" between 1969 and 1971; and data for Most Recent Estimate" between 1979 and 1981. /c 1977; /d 1978; /e 1962; /f 1964; /g 1972; /h Personal income within labor force. May 1983  - 23 - ANNEX I Pag-e 3 of 6 D001NIMItOtS OF SfO1I1. ENDICAT3OtS Xtote: Alhath- the aa r aa r,taao trlyjde thl -oyI -os -othoritatiot nod rettblo. it oh-ltol -I- e toted th-t the y notI be itnfrxtt-1a comrati hasteoftO lthofttndrd,e dftttnn Is tocpt. uoed by differltoaa-11-t t olsclO the data. Th. data are, -oables oeit The Ieeee gr'nae(itesn aar ru ftoohetcuty and 12) a acr g-P aith -omoht Sthrarg tI-t-- ttho theaotz nnpc h oohjoccontat (excet forhigh loae 0 xotr"gopee "iddle Encase Noeth Afri-a ad Middle heat" J. cha.e hootam oferoececeztls afiiIs.lth. refo..c. droo-p dat EI Pcontat o`ra- h'aato Teihe rthnto nn orMa adcteedooa oi h, zoIf f5,nos a to grou has dat foe that itdica--r SitPicc l assoa aaeo mngthe nlooadpoaa h ciaihyn oaadt o ntr.rn,t he Tita Tta A roaanaaprTtflad ra n tlodoner hfp. yttao ptl ta easanera thc a di, b it 571 1970 oud 1980 data- pd alorlat1960 tarlte ono arlt ateda byW nabro sotom Ogriolsral- fobor ofagelIalt-rl -e toed r-p-iarly nepeaatpmaeadfml graa_t tala, a- isto dn Idd ooimi.... 1970 atd lOft dan.tPelair o osla1196oal0rb, ndrna Pptia(ttl 91-clatd by o,aaest ehda ,rd akna.(1979-8l hash.); -rehbeht Ilitsttneatra li-tonl .--I ar d eota i.11.,d b-eaaat1 mea fW 10,17,sd1981 aa,heatilast.tone -t-tmain ttha0nta reostdlteioeli os tar ar-e sonIt-idd Rocali tbamith- eenr l dlazmmhalh. tENERGY COtNSUMPTIfN FM0 CAPITA -Attalapato cosato faoslca mdali-laar d to pRsoant1 o-Pto1f had --, pylcLan (be by .Jadza pri-ay oegy:2 (ca n Ig z petr Y Aln aatra go. and hydes-. -nl-a,.ttn.nre fdte E. biha e eptotasmdso a and0 1e9t7a0 tettaty o .ogam f oa1qaoaet e oat,;pentz tnatz -idnif- sfmdtoltathi sttf s Fnr_at aaia.tWan i9hf. ilt, nd l9 t d. uhe hnptla inaad 6d peacplfgsll lheplal...Aem heeitls lotorrnalhaptal ad -dtaa ond metmemy -amo-m p2FULAY'Oy Act 'VITAL STATISTICS h.peitllzed 'apti r lcasdal adrttl Toa telsfa,It-Isr(hna Iel-d f jait 1; 19h0. 1970, ond 19118I.eooprIortlMd-Tta tso f~almt eiahna tr ID,rlahs Iprot f rua) - ftin of Irhs- to tona pnptltInn;Idt t .b7fW. -mng oOtha 196D. 1970, and liIIdata. ArOraefo ftnsood(oso 0 htaed oal es a aa potusloion Er eac Ott - oreo pponton, pnbeia ..s h d on iifO and their salt -J.l. A hearder no Indge& e rus a ela,ddI total. p-pltio by g an d ...atei sotality tat fertility the th-nhIld f 5 ttttta _porpoaro.-I roe.Prjto P.r..zn-- fnc mortality rates -opeiar cf thi,-rf obro omoatera-ttl ren n at eeg am lriasai.life oopeotattY . at~l i-r i aroan 0th -noty's Per ofproaprts.i l rs. a eloOptdsmeee Ynare Th. par=ose-nfc If Ittlt rat-*linhte hrPlZsE atoOtpte pats g,saati daum itfnrtilty aoodnl otrm edadpa aml cemt larot frt Dofin do 1iinga - ta.m eht. mad - racl cI hinat-lat of mortality s fertdii ty Irsud fcr p a acie ptpoe. o oa,nrc,eacra mlnerepotap nnsth hlthrteE at1 oth eahrao,od lo h asEbiaTa deln fots eltss = ete-P o an. t-l -n tly rpdTth. rte,J nttt Plir,ns achel - tonal, -olo so fema. - Geno tnsal. .I.aan final rohgeaatc .. ct'en cslae Etelf eoi a tlyh Th ttceperlmn Ealam ttepitesl me peroa_l-fas" If fePentla Onpiltlon loe ol elinatd ot he hets o the ncjstedah.ron- rmr -hn-gnppaiton ms l Imeladm ebLhd- VAg 6.11 tertility rts tc -eplnnsaent minI. bo,rle with a,rnat di,,aattnn trh. f nP,,, mama 80Me oo ttoryPorolatlox in --ahd - Th. yzs hnsoitaysnesm ppi r an Ids. ..s the-- nfla meBdo ao. pIpalatin airs sill he -enhe. Peodoy Poeil - bos 1l slo and tamal -ftamIta eaabse_ saad torolotton .Intetty euaIon esaieeatlt fcn ard o q_pr.ad priaz ..tanla Pe t a id-ta ... al o sur kl-hst-r (100 heotarse.) of pitd_sgnrl n .t-nai n satectrtan t.senettt e nnlYa. 1963. 1970 AtO iggi dIr. Vncalcla sorIdmdtl.rotfnnea)- nsla at5miO PnsL.tiOo M.e stro"ur (Percent - Childre (0-14 year), necking-ag 115- tttttds tshi.. tdatil sahsprgm kd eaetgnamd h4 y-aro I,tdeird (h5 FtAr, Od -lsr an'ecnae,c h-sr nl na dprmt.o aetnmdsy hettlanhans POtloiooOcethsae (ereot -totl utto gont rte.oftttl id-prtay end seaondor lanelf ..dleds y nosa -fOeha i IBA eJr. Pyn1ns - 196lote for 93h.16-t o 908.rand ens torsirtotInosI suo forcau) - shen - - Acul.gowh rac If nrha Molt litoroos caeImret)- iors fdls( , tob roa etden.)s fuonton a 1950-60, 19h0-70. and 1 .970-81. a-p-ranrg ofttladl-eelse aA 0pe. a ee Crude tteth tote Il. thoaaund) - Acr_Ia Ine hirthe per thoneod of mid- -IP.II. S 15Y- W year popultion; 1960, 1970, and l9ft data.. CONSgfPTIOM ropalenton 1960(, 19-tnI91dt,resslIgle ht9li aaae eldaasaanm era n G'osa tnedaltft-tcgoao fdabeonma51 ert ilit-rynhie. fertlit nasa uloll rie-yst esrg-e -ndisg tO 1963, 1973,. ad br-atnt to fool pbli. art-made tn-s.tel.zms ofhthcurl drasudrsotian alnhrll lnn sora shssldl -tntng .dt easly biann -Ea -r (p.-asn of marttO ) M- Iertestage of p-rete g_tcrol -ubic e= hmsdpptto;enam egm dT ges case tt hildhesrng ae (1-h_ oar, -aho oso hlrth -rota eicrg oI csnntrits dnd is , yea. to reit-ta ad-tV sets inl ed ,. al Iftr cz ics c ru. spoorCruast(. huan uuase tn o rsg P000 080 tolTtITIhn cioculntlon of daily general Esteoset mempepern. Aefinod sa a peshsd-itd al InetoftadPrdctonro unts19i-7n10 -10m orpo apra - poliuno dooe ptsriytoreodIg-eerl ea,isinoaT,ea aton i crdotr of nihodrmdco. rdcineco need on sohTdiyVfitarota ss io ls e feed ai'd I. r caena yer.... Cuuite ..r.rsr goa eg g-nemaatnua JIrdoe .... r, prrer .- TaVd e heo a off F nOOD oint AoND rNalhUrTeileRdtITtnunios eiONoas ol uro teyar olig dlsln t rIsiazas n Yco -ffes dtese st-ldod . Ag(cIt prodttlo c.en.h..nory s antetame po ....t iootle ofIlre erstofnraureeta -Cactydta oa ao no (thad. Ci-- tona_tel _ meI, _arum. mtiaas stre I ncetif o fo Auplie it.neialItoutypreptprfotsad unmpn "d o eCluding hameo-viwa d ndeth, ate., Ifms eau dm anthno naoi e aptr nld nslfe,sas tosptrs..Id 1960, th70 and 1881 d A daMe.DId,- qtaOtt~le oed In foodprxenhn , an l,edi diati yui J. ?abal.(p_ist.. coelbr0ce opesmaao oa sa am not supply of foodpe day. Net aupply of toeId.I define m nht de. carpl.bls.tiost ppea co.ml.adOsl at -ue tte ftai-t by FoAD nhood hesomo ph rotrIinl_.. ToE.,h ItOh. and -I. 1 bt . T fsooe aads Il f' gatftplho fasm of aimal prdhollheo trg a heand epsdh A --di d ighthe teIttste r tra nainl scrsa Third tois rood SnIe 161-5, 1970 and19900 d stO, cona 1- Srnadtyn -ati -. noh of Pun.-rn. Ifr -1 se 8amuet s. O. drroadrro atmol an poans3n noa pe day 1961-65, 0970 PI, 1917iiit.170I 98 Igfgoa 10 peace to -hidr1 "Inthis P,, groupd far scatfdnelpt d peren If th t.let -20 percnt f ..osa 28 penat sad por dpreta onsoti_ dnaIeee fro lire tabldn 19. 1970 so It I~ dsn.i 9C 90 h ld.d191 - Th lb.d ID, tllt-Xt If A iLTh P0h0M d pp-db FOi~h f.o TAto hg0l. tI..I .. Thild Expetact aMBrh(er)- eeg ,s of, 111;,97.d, 9 d eace st If-rail no PIll -7n es tes arePla rery pdroimet u.55m 65 poes -o a atd ut _ieth 19ff, 1970, fa nl_ daa sel heltrrtl ihrnt.rbenal uChi tmtoe _ trOth5 he!rm rtctdhOOo . eige*sd ua olta Doeset Rttaslere ha-n-tfr"o a byras po cita eaxtr nl, as4 eraarg- of1 theIr g r -seoit fuplaltd. Enpi en peFtatoceothctty.1z,etladsedPrmtem 0010 ennpult fottltor tadrot ocsndOt *l5 ha 00 mta. lsa ott adnten foP. ha otoflnn En ashen .ro . ft. -eohma o dth d-teh-d do- lithat tob.; 90 e 9s0d a derptl981t pert--- of totrento- tocretsb.t If Yl (pfrlint of.inpohattTn)n totaltotIfn nod W.rivios sod otlniilaryhdstatlldttoPIt.-fat 19l83 .J.-  - 24 - Pbpulation: 17,5 million (mid-1982) ANNEX I GNP per Capita: CS$1,250 (1982) Land atea; 1,285.5 (Thousand Sq Km) Page 4 of 6 Literacy Rate: 80% PERU: ECXONIC IlDICATORS Asnt Annuial Growth Rates (x) Indicator (Million US$ at Actual Projected Current Prices) 1982 /c 1978 1979 1980 1981 1982 Ic 1983 1984 1985 1986 1987 National Accounts Gross Domsstic Product/a 21622.2 -0.8 4.6 3.7 3.6 1.0 -9.9 2.0 5.6 5.6 4.5 Agriculture 1792.3 -0.1 4.6 -6.5 11.9 2.4 -9.7 4.0 8.2 5.0 5.0 Imnustry & Hinirg 8426.6 -0.7 5.5 5.0 -1.0 0.1 -12.0 2.0 5.0 5.7 3.9 Services 11255.3 -1.0 3.8 4.7 4.0 1.3 -8.1 1.6 5.6 5.6 4.8 Couaxmption 18562.6 -5.6 3.5 7.7 8.9 2.6 -9.9 -2.1 6.0 5.5 4.8 Gross Investment 3699.5 -11.8 -0.8 39.8 19.4 -16.4 -23.9 3.8 6.6 6.6 7.3 Exports of (FS 4034.6 10.6 15.9 -14.8 1.3 12.6 -15.8 12.3 3.5 5.1 1.8 Laports of CNS 4674.4 -31.0 10.1 42.6 47.6 3.2 -24.2 -1.0 5.3 5.6 4.5 Gross National Savirgs 1521.8 13.4 0.4 4.0 -35.8 -28.7 -9.2 49.1 12.8 17.1 7.2 PRICES GDP Deflator 260.3 36.2 63.3 100.0 173.2 283.1 - - - - - E8cchane Rate 697.6 156.3 244.6 288.7 422.9 697.6 - - - - - Share of (GP at Yarket Prices (X) Average Armual Increase (Z) (at Current Prices)/b (at Constant 1980 Prices) 1970 1975 1980 1985 1990 1970-75 1975-80 1980-85 1985-90 Gross Domestic Product 5.0 1.8 -0.1 4.6 Agriculture 16.8 12.8 7.9 9.0 9.1 0.6 0.2 1.6 5.0 Irdustry & Minirg 34.0 36.4 40.2 37.3 36.7 5.1 2.6 -2.1 4.2 Services 46.0 48.5 42.0 43.0 43.5 6.5 1.4 -0.2 4.9 Conaxtion 83.1 89.0 79.0 81.0 81.5 5.3 1.7 -0.5 4.7 Gross Investment 13.2 19.6 17.1 14.2 16.0 17.8 -7.0 -6.6 7.2 Exports of GAS 17.6 10.8 23.6 26.0 24.0 -7.8 6.4 1.6 2.8 Imports of GFS 14.0 19.5 18.2 21.6 21.5 8.0 -3.6 -0.3 4.6 Gross National Savings 15.9 9.8 0.0 12.0 15.4 1.7 -2.4 -5.5 9.4 As a % of (IIP 1975 1980 1981 llUJC Fnl&CE /d Current Revemes 30.5 48.6 44.1 Current lpxiitures 31.4 47.4 43.9 Surplus (+) or Deficit (-) -0.9 1.2 0.2 Capital Expenditure 8.5 7.6 7.6 Foreign Financing 5.3 1.9 2.6 1970-75 1975-80 1980-85 1985-90 OTHER INDICA2TORS GNP Growth Rate (Z) 4.6 0.8 -1.1 4.9 GNP Per Capita Growth Rate (Z) 1.8 -1.6 -3.3 2.8 ICCR 3.8 9.1 55.9 3.2 Marginal Savings Rate 0.1 0.1 0.2 0.3 Import Elasticity 0.3 -2.3 0.4 1.0 /a At market prices: corpoents will not add due to exclusion of net indirect taxes and subsidies. /b Projected years at constant prices. /c Estivate. /d Consolidated Public Sector.  - 25 - Population: 17,5 million (mid-1982) Page 5 of 6 GNP per Capita: US$1,250 (1982) Land area: 1,285.5 (Thousand Sq Km) Literacy Rate: 80% PERU - EXrERNAL TRADE Amwal Growth Rates (%) Aiunt (at Constant 1980 Prices) Idicator (Million US$ at Actual Projected Cfrrent Prices) 1982 /e 1978 1979 1980 1981 1982/e 1983 1984 1985 1986 1987 E1IEIAL TRADE Merchandise Exports 3230.0 14.5 27.3 -9.6 -1.6 14.4 -16.7 13.3 3.0 4.9 1.0 Primry 2471.0 14.1 20.5 -14.4 4.6 15.2 -12.8 11.5 2.0 4.3 -0.5 Manufactures 759.0 17.6 75.6 14.1 -11.5 11.0 -33.9 23.5 8.0 8.0 8.0 Merchandise lports 3787.0 -42.4 6.4 44.9 32.5 3.4 -27.3 -2.3 5.0 5.6 4.6 Food 359.0 -25.0 18.2 63.1 54.1 -10.7 24.6 -25.1 1..5 6.7 1.8 Petroleum 34.0 -87.4 -86.4 101.3 -25.6 51.2 67.1 2.6 6.1 5.6 4.5 Machinery and Equipment 1472.0 -17.2 35.6 50.1 39.6 0.5 -35.3 5.0 7.3 6.6 7.3 Others 1922.0 -35.5 -1.9 36.9 64.5 9.5 -35.5 3.0 4.5 4.3 3.2 PRICES Export Price Index 75.0 57.0 81.0 100.0 84.7 75.0 77.9 89.1 99.7 112.2 121.9 Inport Price Index 90.4 81.0 92.0 100.0 93.8 90.4 91.3 100.8 108.9 115.9 123,4 Terrs of Trade IlreK 83.0 70.4 88.1 100.0 90.3 83.0 85.3 88.4 91.5 96.9 98.8 Compositicn of Merchamiise Trade (%) Average Anneal Increase (%) (at Current Prices) (at Constant 1980 Prices) 1970 1975 1980 1985 1990 1970-75 * 1975-80 1980-85 1985-90 Exports 100.0 100.0 100.0 100.0 100.0 -6.1 12.9 1.4 2.1 Primary 97.0 92.0 78.7 83.1 78.0 -7.5 9.3 3.2 0.7 Manufactures 3.0 8.0 21.3 16.9 22.0 18.3 41.2 -4.0 8.0 Imorts 100.0 100.0 100.0 100.0 22.3 -10.3 -3.2 4.6 Food 7.0 12.0 7.0 13.2 6.9 1.2 2.9 1.1 Petroleum 11.0 1.0 1.0 1.7 35.7 -40.7 22.0 4.6 Machinery and Equipment 31.0 37.0 19.0 41.6 29.3 -3.9 -4.1 7.2 Others 51.0 50.0 73.0 43.5 15.2 -6.3 -0.7 3.4 Share of Trade with Share of Trade with Share of Trade with Industrial Cantries(Z) Developing Countries (%) Capital Surplus Oil Exporters (%) 1970 1975 1980 1970 1975 1980 1970 1975 1980 DIRWTIC1 OF TRADE Exports 84.1 58.6 65.9 8.9 23.0 28.6 0.5 1.0 1.4 laorts 77.3 76.9 79.7 20.6 16.8 16.4 1.0 4.6 0.9 * lport growth rates are for 1972-1975. le Estimate. IACID February 8, 1984  - 26 - Pbpulation: 17,5 million (mid-1982) AXMEX I CIP Per Capita: US$1,250 (1982) Land area: 1,285.5 (Thousand Sq Km) Page 6 of 6 Liieracy Rate: 80% PERU - BIANCE CF PAYMEllTS, EfCTRAL ASSISTAKE AtD DEBT (million US$ at current prices) L PKJWI lirl icator 1978 1979 1980 1981 1982 1983 1984 1985 1990 BAJIiE CE PAYMF!1S b:Iports of Goods & Services 2416 4143 4851 4223 4185 3662 4632 5309 9268 Of which: Marchardise FOB 1941 3491 3898 3249 3293 2848 3691 4251 7454 Impcrts of Goods & Services 2664 3536 4923 6088 5988 4980 5415 6038 9791 Of which: Merchandise FOB 1601 1951 3062 3805 3791 2782 3003 3408 5833 Net Transfers 56 122 135 161 167 260 227 238 315 OcLrxent Account Balance -192 729 63 -1705 -1636 -1083 -583 -519 -246 Direct Private Investnent 25 71 27 125 48 31 30 10 88 1rU loans (Net) 585 668 341 839 911 1033 569 665 594 Official -- -- -- 89 553 360 465 446 591 Private -- -- -- 750 358 674 104 219 3 Other Capital -336 111 291 154 791 -81 84 -6 -136 CGrbge in Reserves (-increase) -82 -1579 -731 584 -132 100 -100 -150 -300 International Reserves Gross 243 1822 2553 1969 2101 2001 2101 2251 3501 Reeerves as Mmnths of Isports 1.1 6.2 6.2 3.9 4.2 4.8 4.7 4.5 4.3 EXFEieNAL CAPITAL AND DEBT b/ Gross Disbursmanta 843 1120 1416 2427 2300 Official Grants - - - - - 2 21 Goncessional loans 236 143 232 197 251 DA', 1ll 113 107 96 122 (ME - _ _ _ _ Other 125 30 125 101 129 Nin-concessional loans 607 977 1184 2228 2028 Official Export Credits 213 152 219 102 544 26 61 140 76 72 Other Maltilateral 13 19 58 71 113 Private 355 745 767 1978 1299 &xtenxal Debt Debt Outstanding & Disbursed 5403 5934 6169 8378 9289 OiEficial 2542 2735 3158 3246 3799 Private 2861 3199 3011 5132 5490 lIdisbursed Debt 1206 2103 1698 2803 2723 Debt Service Total Debt Service Payments 750 919 1501 2355 2154 Interest 317 437 544 768 786 PsymeaLts at % of Erports 31.1 22.2 30.9 55.8 51,5 Average Interest Rate on New Ioans (%) 7.6 9.5 9.3 12.6 12.2 Official 6.7 6.1 7.4 8.6 9.6 Private 9.1 11.9 10.6 15.6 13.5 Average Maturity of New loans (Years) 10.7 11.3 12.1 11.9 10.2 Official 11.6 14.4 15.1 16.8 15.6 Prizvate 9.1 9.1 10.1 8.1 7.4 a/A dcuble dash stands for "not available." b/1978-1980 exclude private ox-guaranteeded. IADID Febmrar 8, 1984  - 27 - ANNEX II Page 1 of 2 THE STATUS OF BANK GROUP OPERATIONS IN PERU A. STATEMENT OF BANK LOANS (as of September 30, 1983) Amount Loan (less cancellations) Number Year Borrower Purpose Bank Undisbursed --- US$ million -- 30 loans fully disbursed 507.5 1196 1976 Republic of Peru Transport 76.5 12.7 1283 1976 Banco Vivienda Urban Dev. 21.6 3.2 1358 1977 COFIDE Industry 35.0 2.9 1403 1977 Republic of Peru Agriculture 25.0 15.6 S-11 1978 Republic of Peru Preinvestment 8.8 1.0 1771 1980 Republic of Peru Irrigation 56.0 40.9 1806 1980 PETROPERU Petroleum Prod. 32.5 10.2 1812 1980 Republic of Peru Rural Dev. 15.0 11.4 1888 1980 Republic of Peru Preinvestment 7.5 4.0 S-19 1980 SIDERPERU Technical Asst. 5.0 3.7 1963 1981 CORPAC Aviation 58.0 56.4 1968 1981 COFIDE Industry 60.0 38.7 2018 1981 ELECTROPERU Power 25.0 20.6 2064 1981 Central Reserve Bank Industry 26.0 22.8 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 37.9 2150 1982 Republic of Peru Agriculture 40.6 38.6 2179 1982 ELETROLIMA Power 81.2 79.7 2195 1982 PETROPERU Petroleum 81.2 80.0 2204 1982 Republic of Peru Technical Asst. 10.2 6.5 2208 1982 Republic of Peru Education 17.3 17.0 2211 1982 Republic of Peru Health 33.5 33.0 2219 1982 Republic of Peru Rural Develop. 30.0 28.3 2302 1983 Republic of Peru Agriculture 130.0 129.7 Total 1,522.3 of which has been repaid 221.6 Total now outstanding 1,300.7 Amount sold 18.3 of which has been repaid 18.3 - Total now held by Bank 1,282.4 Total undisbursed 790.5  - 28 - ANNEX II Page 2 of 2 B. STATEMENT OF IFC INVESTMENTS (as of September 30, 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 Total gross commitments 54.5 1.8 56.3 less cancellations, terminations, repayments and sales 40.2 0.6 40.8 Total held by IFC 14.3 1.2 15.5 Total undisbursed incl. participants' portion 9.4 - 9.4 1982 1/ Sociedad Minera Gran Bretana S.A. Mining 3.0 0.5 3.5 1/ Approved by Board on July 6, 1982, but not yet signed.  - 29 - ANNEX III Page I of 2 PERU CHANCHAMAYO-SATIPO RURAL DEVELOPMENT PROJECT SUPPLEMENTARY PROJECT DATA SHEET Section I: Timetable of Key Events (a) Time taken by the country to prepare project: 18 months (b) Project prepared by: PEPP with assistance of FAO/IBRD Cooperative Program (c) First presentation to the Bank: December 1981 (d) Departure of Appraisal Mission: May 1983 (e) Completion of Negotiations: February 3, 1984 (f) Planned Date of Loan Effectiveness: July 1984 Section II: Special Bank Implementation Action None. Section III: Special Conditions (a) BAP would, as condition of effectiveness, enter into a contract, satisfactory to the Bank, with INADE which specifies the implementation details of the credit component (para. 48); (b) the Government would ensure that roads in the project area would be main- tained and that Ministry of Transport would assist PEPP should technical issues arise; in this respect, PEPP would establish a maintenance unit, present to the Bank, and implement a program to transfer the maintenance support unit to an appropriate regional authority. In addition, from 1985 onwards, the maintenance unit's annual program and budget would be sent to the Bank for comment (paras. 50 amd 61); (c) the Government would ensure that no further logging concessions were grant ed in the project area until forestry studies were completed and a satisfactory plan for the zones designated for protection was prepared. This plan would be prepared by December 31, 1985 (para. 53); (d) PEPP would maintain a liaison office in Lima. The Bank would be consulted on any change in the executive or project director of the project (para. 60);  - 30 - ANNEX III Page 2 of 2 (e) INADE would, as a condition of effectiveness, enter into agreements, satisfactory to the Bank, covering the participation of INIPA, UNA and INFOR (paras. 51 and 53); (f) retroactive financing of up to US$350,000 for start-up expenditures after January 1, 1984 would be permitted (para. 59); (g) in order to facilitate Bank reimbursement of expenditures, a special ac- count would be established. Before Bank funds were advanced, the Govern- ment would also establish a revolving fund. The revolving fund would be maintained at a level of at least two months' projected counterpart expend- itures for the project (para. 63); and (h) within six months of loan signing a monitoring and evaluation unit would be established in the Technical Directorate (para. 67).  BPD 17'482 SEP'[. BER MS2 CHANCHAMAYO- SATIPO RURAL DEVELOPMENT PROJECT SELVA CENTRAL Proposed Feecer Rood Imp,--t,nr F-re Resore A,Eos o - -- ~~~~~~~~~~~~DeP-st-t Bo-dor e RE-s,Ig M-o Rooor -~ ~ ~ ~ ~ ~ ~ ~~~~~~~~ E e~~~~~~~~e e-'~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~- El -ETI o