Togo - Second Structural Adjustment Program Project

Document of The World Bank FOR OFFICIAL USE ONLY C i. /-S2 5- 7Ts Report No. P-4064-TO REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT OF SDR 28.1 MILLION (US$27.8 MILLION EQUIVALENT) TO THE REPUBLIC OF TOGO FOR A SECOND STRUCTURAL ADJUSTMENT PROGRAM May 1, 1985 This document has a restricted distributhon and may be used by recipients only in the performnee of their ficiad dutes. Its contefts may not otherwise be disclosed withon Wodd Dank audmorizaton. |  CURRENCY EQUIVALENTS Currency Unit = CFA Franc (CFAF) US$1.0 = CFAF 490 (West Africa Regional Rate for April 1985) SYSTEM OF WEIGHTS AND MEASURES: METRIC 1 meter (m) = 3.28 feet (ft) 1 square meter (m2) = 10.76 square feet (sq ft) 1 cubic meter (mn3) = 35.30 cubic feet (cu ft) 1 kilometer (km) = 0.62 mile (mi) 1 square kilometer (kM2) = 0.39 square mile (sq ml) 1 hectare (ha) = 2.47 acres 1 metric ton (t) = 2,205 pounds (lb) ABBREVIATIONS AND ACRONYMS ACP = African, Caribbean and Pacific States BCEAO = Banque Centrale des Etats de 1'Afrique de l'Ouest BTD = Togo Development Bank CEET = Togo Electric Power Company CFT = Togo Railway Company CIMAO = West African Clinker Company CNCA = Agricultural Credit Bank DRDR = Regional Rural Development Office FNADP = National Fund for Public Debt Amortization IMF = International Monetary Fund IOTO = Vegetable Oil Processing Company ITP = Plastic Manufacturing Company ITT = Togo Textile Industry MAR = Ministry of Rural Works MDR = Ministry of Rural Development MPI = Ministry of Plan and Industry MSE = Ministry of State Enterprises OPAT = Export Crop Marketing Board PAL = Lome Port Authority OTP = Phosphate Marketing Board RNET = Togo Water Board RPT = Togo People's Party SAC = Structural Adjustment Credit SALINTO = Togo Salt Mining Company SDR = Special Drawing Right SNI = National Investment Company SNS = National Steel Company SODETO = Togo Detergent Manufacturing SOPROLAIT = Dairy Processing Company SOTEXMA = Agricultural Equipment Company  FOR OMCIAL USE ONLY SOTOMA = Togo Marble Mining Company SOTOCO = Cotton Development Company SRCC = Coffee and Cocoa Development Company TA = Technical Assistance STH = Togo Oil Refinery TOGOGRAIN = Togo's Grain Marketing Board TOGOFRUIT = Togo Fruit Company TOGOTEX = Togo Textile Company TOGOROUTE - National Trucking Company UAPA = Agricultural Price Analysis Unit UNDP = United Nations Development Program FISCAL YEAR January i - December 31 I This document has a restictd distribution and may be used by recipients only in the performance of | tbei ofiial dutis Its contents may not otherwie be discosed without Wodd Bank authoriation.  REPUBLIC OF TOGO SECOND STRUCTURAL ADJUSTMENT PROGRAM CREDIT AND PROGRAM SUMMARY Borrower: The Republic of Togo Amount: SDR 28.1 million (US$27.8 million equivalent) Terms: Standard IDA Program Description: The proposed credit would support the second phase of the Government's structural adjustment program which a-ms at reversing the economic decline of the country and laying the foundation for sustainable growth over the medium-term, while continuing to improve the balance of payments and the public finance position. The second phase of the structural adjustment program is based on (i) real producer income increases through agricultural incentive reforms in order to expand production of export crops, together with a liberalization of foodcrop export, in order to give farmers access to regional markets; (ii) an action program to raise foodcrop output through upgraded extension services and improved input supply; (iii) continued improvements in macroeconomic management, particularly in public investment programming and execution with primary emphasis on maintenance and rehabilitation of existing assets; (iv) a public enterprise sector reform through restructuring, privatization where possible, and closure if necessary of the bulk of Government-owned enterprises; and (v) preparation for an industrial promotion policy as part of the continuing structural adjustment process. The ?rogram is described in the attached Government's Statement of Development Policy (Annex IV). This report is based on the findings of IDA appraisal missions that visited the Republic of Togo from November 30 to December 14, 1984 and from February 15 to March 8, 1985. The missions' members were Messrs. R. Westebbe (senior economist and mission leader), I. Thiam (economist), L. Boya (Loan Officer), R. Crown (economist), H. Hansen (economist), A. Covindassamy (financial analyst), J. Nellis (economist). L. Lekeux (engineer), C. Vuylsteke (senior Counsel), and Ms. Triche (consultant)  Estimated The credit would be disbursed in two tranches Disbursemnts for eligible imports submitted to the Association. The first tranche of US$15 million would be available for disbursement upon credit effectiveness. Disbursement of the second tranche of US$12.8 million would be contingent on the Government taking the actions enumerated in paragraph 72 of this report and in Schedule 3 to the Development Credit Agreement in a manner satisfactory to the Association. Disbursements of the entire credit are expected to be completed within 18 aonthe after credit effectiveness. Staff Appraisal Report: Not applicable NM_: I-RD 13601 R West Africa Programs II May 1985  INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT TO TOGO FOR A SECOND STPUCTURAL ADJUSTMENT PROGRAM 1. I submit the following report and recommendation on a proposed Development Credit to the Republic of Togo for SDR 28.1 million (US$27.8 million equivalent), to help support the second phase of the Government's structural adjustment program. The credit would be made on standard IDA terms. A companion third technical assistance project is being submitted to you separately (see President's Report No. P-4063-TO dated May 1, 1985). 2. Part I of this report describes the economy, and Part II presents the progress achieved by the Government under the first structural adjustment program. Part III outlines the Government's second structural adjustment program and Part IV analyzes the expected economic impact of the program. Parts V and VI describe the Bank's role in the proposed credit and other Bank Group operations in Togo. PART I - THE ECONOMY 3. An economic report entitled "Togo: Country Economic Memorandum" (3416-TO) was distributed to the Executive Directors in January 1982. Its assessment of the country's economic prospects has been updated by recent Bank missions and is reflected in the following paragraphs. Annex I provides basic country data. Introduction 2 4. Togo is a small country (56.800 km ) with a population of about 2.8 million and a per capita GNP of US$280 (1983). Between 1980-84, phosphate mining accounted for more than 40 percent of exports, and contributed to about 17 percent of government revenues. The three main agricultural export crops (coffee, cocoa and cotton) accounted for 25 percent of exports and about 10 percent of government revenues. Political stability has prevailed since 1967, when General Eyadema became President after a military coup. The Government has gradually become civilian. The politburo of the Rassemblement du Peuple Togolais (RPT), the country's only party, is the center of power. The party is making cautious moves toward liberalization, starting with the competitive elections held in March 1985, during which 77 representatives to the National Assembly were elected for the first time out of more than 200 candidates. Togo's external policy favors regional and international cooperation. The country has hosted the three Lomz conventions between the African, Caribbean aud Pacific States (ACP) and the European Economic Community.  -2- Background 5. Until 1974, the Government of Togo pursued cautious economic and financial policies and succeeded in achieving rapid economic growth, with an average annual growth rate of 7 percent in real terms, while maintaining internal and external financial equilibria. This economic growth was based on a significant change in the structure of the economy, with the share of mining and trade increasing rapidly while agriculture declined. The expansion of retail trade activities stemmed from the role of Togo as a regional trading center for Nigeria, Ghana, Burkina Faso and Niger. The growth of the mining sector was the result of increased phosphate rock production which reached 2.6 million tons in 1974 from 1.5 million tons in 1970. In agriculture, Togo largely achieved food self-sufficiency, except in years of severe drought. Concerning export crops, cotton production has grown significantly since 1970, even during drought years; but production of other export crops (cocoa and coffee) stagnated in the early 1970s due to insufficient incentives for farmers and poorly conceived investment projects in the sector. Despite this rapid economic growth, consumption and investment were kept under control. The economy became more and more export-oriented, mainly due to the significant development of phospnate rock exports. The balance of payments was in equilibrium while the public finance deficit remained modest as a result of prudent fiscal policies. 6. In 1975, government revenues doubled as a result of a fourfold increase in phosphate prices. The Government embarked on an ambitious public investment program and undertook expansionary fiscal and monetary policies. A number of state enterprises were created, and new investments were implemented in the social sectors, infrastructure, luxury hotel construction, public buildings and industry. Many of these proved unprofitable and contributed little to long-term growth. To compensate for falling phosphate revenues, the Government resorted to large scale foreign borrowing on commercial terms to finance investments. Economic growth was initially boosted by the investment program. However, by the end of the 1970s and the beginming of the l980s, the economy started to slow down and then declined, while serious imbalances occurred in the public finances and balance of payments. This decline was due to low returns on public investment, a deterioration of the terms of trade and increased financing constraints. The gross domestic product (GDP) declined in real terms by 4.1 percent per year on average between 1980 and 1983. As early as 1978, the Government began to accumulate payment arrears to external creditors as well as to its local suppliers. By 1979, the overall fiscal deficit had reached 14.3 percent of GDP and the balance of payments current account deficit 23.1 percent of GDP. Under two IMF-supported financial stabilization programs, Togo negotiated external debt reschedulings in 1979 and 1981; the Government began to reduce its investments and to limit the growth of its current expenditures. Consequently, the fiscal deficit and the current account deficit were reduced significantly in 1982 to 6.9 percent of GDP and 11.7 percent of GDP respectively. Nevertheless, the stabilization programs were not fully implemented and the external debt service continued to increase as well as domestic and external arrears.  7. Faced with a worsening economic and financial situation, thrt Government recognized the need for a more comprehensive recovery policy. In 1983 and 1984, it adopted additional and more stringent financial stabilization programs supported by two IMF stand-by arrangements and a first structural adjustment program supported by a SDR 36.9 million IDA credit in May 1983. Togo made goo' progress in implementing the first structural adjustment program and in achieving the objectives of the financial stabilization programs. IMF-supported Financial Stabilization Programs 8. The performance criteria under the 1983/84 and 1984/85 IMF-supported financial stabilization programs were met and successfully implemented. The Government made all purchases provided under the 1983/84 and 1984/85 stand-by arrangements (SDR 21.4 million in 1983/84 and SDR 19.0 million in 1984/85). The last purchase was made in March 1985 on the strength of the December 1984 performance criteria. Under the financial program for 1984, a further debt rescheduling of about CFAF 23.4 billion of external debt service obligations falling due in 1984 was arranged with the Paris Club, including 50 percent of principal amounts of debt previously rescheduled in 1979. The objectives of the 1984 stabilization program were more than met with the reduction of the overall 'iscal deficit to 2.2 percent of GDP compared to 4.0 percent progranmed and that of the balance of payments current account deficit to 5.0 percent of GDP, compared to 9.6 percent programmed. These results were obtained from a combination of a 14 percent increase in government revenue, strict limits on the current expenditures for both personnel and operating spending, and large inflows of grants. This enabled the Government to eliminate all its external arrears while reducing its domestic arrears by CFAF 12.1 billion. For 1985, the Government and the IMF have agreed on another stand-by arrangement of SDR 15.4 million to be considered by the IMF Board of Directors on May 17, 1985. A meeting of the Paris Club to consider rescheduling Togo's 1985 debt is also scheduled for the week of May 20-24, 1985. 9. A general assessment of the macroeconomic policies in Togo indicates that significant improvement has taken place since the end of 1982. However, deficiencies remain in national economic management and the reforms in policies and public sector institutions initiated under the first phase of the structural adjustment program need to be completed. With regard to the exchange rate, Togo's currency, the CFA franc, has depreciated substantially since 1981, in line with the French franc to which it is pegged. The nominal exchange rate against the US dollar was depreciated by 16.6 percent per year between 1980 and 1984 and thc real exchange rate by 13.2 percent. Therefore, the exchange rate is probably not seriously overvalued. Nevertheless, distortions still exist between the prices of tradable and non-tradable goods and between the urban and rural sectors. In particular, further actions need to be taken to accelerate the growth of rural incomes in order to give maximum returns to the productive potential of the rural sector. In addition, the system of industrial incentives does not encourage exports. The Central Bank has  - 4 - maintained positive real interest rates since 1980, and, until recently, Togo has succeeded in attracting large foreign deposits in its banking system, mainly to finance its regional reexport trade. Price controls are limited to fixing profit margins for a number of basic products. Utility tariffs are periodically adjusted in relation to costs and there are no subsidies on fuel, electricity and water. Finally, the Government is improving public investment programming, public enterprise sector management and its fiscal policy. A renewed effort is undervay to attract private investments in Togo. As a result of these macroeconomic policies, resource allocation is being improved and the external current account deficit and budget deficit have been significantly reduced. Recent Economic Developments and Prospects 10. Despite the significant progress made under the Bank- and IMF- supported programs and the related substantial non-project external assistance, Togo's economic and financial situation and prospects remain precarious. In 1983, the combined adverse effects of the drought, the reduction in regional trade, and the worldwide recession, caused the GDP to fall by 5.3 percent in real terms. In 1984, improved economic performance in certain sectors were offset by a decline in others. On one hand, owing to favorable weather, food crop, cocoa and cotton output rose. In addition, phosphate rock production and export increased. On the other hand, economic growth was hampered by the closure of the Nigerian borders, the suspension of production by the multinational cement clinker plant, CIMAO and by the sharp decline in coffee output. Overall, the real GDP stagnated in 1984. In the depressed economic conditions of 1983 and 1984 due to exogeneous factors and stabilization policies, the share of consumption in GDP declined as did the investment ratio. As a result, the resource gap/GDP ratio decreased in 1983 and 1984 and the current account deficit declined from 11.7 percent of GDP in 1982 to 5.0 percent in 1984. Regarding the capital account and the overall balance of payments, large inflows of short-term capital from neighboring countries together with accelerated SAC I disbursements and the Paris Club debt reschedulings more than offset the current account deficit, leading to a balance of payments overall surplus of CFAF 18.7 billion in 1983 and CFAF 15.1 billion in 1984. 11. Over the medium-term, the rate of economic growth will rise only slowly while external debt service will continue to be high, even after debt rescheduling. Balance of payments projections indicate a deterioration in the current account deficit. The projections depend on the world market prices of phosphate and agricultural products, and on the construction of the Nangbeto hydroelectric dam. Along with the deterioration of the current account, the projections of the capital account show a decrease of capital inflows due mainly to tbh expected reduction of short-term capital from neighboring countries because of persistent recession in the area and the continuing closure of the Nigerian borders. Moreover, government revenues will continue to be insufficient to cover current expenditures, maintain an adequate level of public investment and meet substantial debt service obligations. Therefore, the need for external financing for the balance of payments and for the public sector  will remain strong over the next few years, in the form of both non-project aid and debt rescheduling. 12. The Goverment request for a second IDA structural adjustment credit (SAC) reflects this financial need but is also based on a recognition that structural changes in income and output will be required to return the economy to the path of self-sustained growth and that lasting internal and external financial equilibrium can be achieved only in this context. The IDA credit would support measures aiming at consolidating and expanding in significant ways the progress achieved under SAC I with regard to government finance, the public sector investment program, public enterprise rehabilitation, and small- and medium-scale enterprise promotion. It also calls for initiating the reorganization of key economic ministries. Most important, SAC II would support an action progr.m to expand output and exports in the agricultural sector which contains the main supply side potential of the economy. This action program Includes rises in real producer incomes of both export and food crops. This would be done through producer price increases for coffee, cocoa and cotton, and liberalization of food crop export as well as a greatly improved system of extension services and input supply, in order to give farmers the incentive and means to increase output yields and acreage cultivated. IDA is also playing a catalytic role in helping mobilize external financial assistance for Togo's development. In this context, the World Bank will join the UNDP in supporting the Government organize a Donors' Round Table to be held in LomA from June 26 to 23, 1985 for both project and non-project assistance. PART II - THE FIRST STRUCTURAL ADJUSTMENT CREDIT 13. The first structural adjustment credit for an amount of SDR 36.9 million (US$40 million equivalent) was approved by the Executive Directors on May 17, 1983, of which SDR 18.45 million were contributed by regular IDA funds and SDR 18.45 million by the IDA Special Fund. Funds were to be disbursed in twG tranches of SDR 23.1 million for the first tranche and CDR 13.8 million for the second tranche. The credit became effective in September 1983 and the first tranche was fully disbursed by January 1984. The second tranche was released in July 1984 following a review which found progress satisfactory under the SAC I program. It was fully disbursed in February 1985. This operation supported the first phase of the s --ctural adjustment program described in the Government's "Memorandum of Economic Policy." The objective of this program was to create conditions for sustained growth over the medium term, while stabilizing the financial situation in the short-term by reducing the fiscal deficit and the balance of payments current account deficit. 14. The SAC I program sought to restructure the economy in a more productive dirertion through: (i) improvements in public investment planning and execution; (ii) rehabilitation of public enterprises in association with the private sector; and (iii) improved rural development strategy, through appropriate price and marketing policies for both export  -6- crops and foodcrops. The implementation of the SAC I program has been satisfactory, even though some studies and actions (particularly in the public enterprise sector) have been delayed due to the limited capacity of the Togolese administration to carry out the structural adjustment process. The G-'vernment met all four specific conditions for the release of the second tranche, namely: (i) a satisfactory review by the Association of the 1984-86 public investment program; (ii) adoption of a medium-term export crop price policy; (iii) adoption of a food crop marketing policy; and (iv) the decision to convert the tanks of the oil refinery Into a storage facility for refined petroleum products. 15. During SAC I, significant progress was made in reforming economic policies and institutions, and in stabilizing the public finances. A new system of public investment programming was launched, producer prices for key export crops were raised, and a number of uneconomic state enterprises were closed and the national steel company (SNS) was leased to a private company. During this period, preparations were also made to intensify the reforms of the economy in such areas as agricultural policy, restructuring of state enterprises, and national economic management. This laid the foundation for a more intensive reform effort oriented towards more rapid economic growth and a more efficient use of existing assets. 16. Technical Assistance. The progress in implementing the first phase of the structural adjustment program has been made possible with the help of two technical assistance projects financed by the Association. Indeed, in the case of Togo where technical and managerial skills remain in short supply, the implementation of numerous and far-reaching structural adjustment measures will continue to require technical assistance in several areas, including preparation and execution of institutional reforms, and training of local staff. Thus, a third technical assistance project has been prepared concurrently with the second phase of the structural adjustment program as an implementation tool to help carry out the reforms. PART III - TRE SECOND PHASE OF THE GOVERMENT'S STRUCTURAL ADJUSTMENT PROGRAM 17. The basic objective of the second phase of the Government's structural adjustment program is to lay the foundation for the resumption of a sustainable rate of economic growth over the medium-term. Continued progress in financial stabilization is a prerequisite for success. However, structural adjustment means exploiting the areas of greatest comparative advantage. These lie in both the export crop and food crop sectors which contain the bulk of the country's population and where land resources would permit expansion. To a lesser extent, Togo has development potential in industrial processing for export and in efficient small- and medium-scale enterprise production for the domestic and regional markets. Phosphate mining represents an important source of export revenues which could be greatly enhanced, should the market prospects for the proposed phosphoric acid plant currently being studied improve significantly.  -7- 18. The strategy to accomplish these growth objectives is based on two major thrusts. First, it requires a shift from direct involvement by the Government in the production process in favor of inducing private sector supply responses through an expansion of incentives. Second, it requires much greater efficiency in the use of public resources through the disengagement of the Government from the inefficient public enterprise sector, a compression of public expenditures, redirection of spending towards economic priorities and finally an efficient economic management and policy decision-making system. 19. The program to carry out this strategy, with the support of SAC II, would have the following main features grouped around the two main themes described above: a. Private Sector Incentives i. agricultural incentive reforms including real increases in producer prices for coffee, cocoa and cotton, in order to expand production of export crops and ir_ome as a basis for rural investment; and liberalization of food crop marketing including exports, in order to give farmers access to regional markets where there is a potential to sell increased output; ii. an action program to raise food crop output through improved quality of agricultural services (extension services, input supply, etc.); iii. preparatory studies for an industrial incentive reform in the areas of customs tariffs, taxes and small- and medium-scale enterprise promotion; b. Public Sector Efficiency i. concentration of public investment on productive sectors, high-return projects which clearly identify recurrent costs, with primary emphasis on increased returns from existing assets through maintenance and rehabilitation; the first stage of reforming the operational efficiency and organization of the key economic ministries would be initiated and an increasing emphasis would be placed on the review of the composition of both current and investment spending; and ii. reduction and reform of public enterprise sector through restructuring, closing if necessary, and privatization where possible, of the bulk of state-owned enterprises, taking into account prospective industrial incentive reforms.  - 8- A. Private Sector Incentives a. Rural Development 20. In its overall development strategy, the Government gives priority to rural development and to increased agricultural production and exports. The Government's objective is to increase food production so as to ensure food self-sufficiency and make available a marketable surplus, while continuing to increase the production of the country's three main export crops, As Togo is a predominantly rural economy, this policy is critical for the country's overall development, incomes and public revenues. Moreover, Togo's major agricultural exports (coffee, cocoa, cotton) are important foreign exchange earners with considerable growth potential. ' 21. To achieve this objective, the SAC II program calls for: (i) a realignment in real export crop producer prices in order to stimulate production and rural income; (ii) a liberalization of foodcrop marketing, including export; and (iii) a reorganization and reinforcement of agricultural services. Realignment of Export Crop Producer Prices 22. As part of the preparation of the SAC IT program, the Government increased producer prices for cocoa and cotton in October 1984 as follows: cocoa from CFAF 275 per kilo to CFAF 300 (9.1 percent) and cotton from CFAF 75 per kilo to CFAF 90 (20 percent). During SAC II appraisal, in November 1984, it also raised the producer price for coffee from CFAF 290 per kilo to CFAF 315 (8.6 percent). 23. For the next three years, the Government would continue to increase the producer prices for coffee, cocoa and cotton. These increases should be higher than the inflation rate and lead to a significant improvement in rural income. The Government medium-term objective is to substantially increase real incomes of producers of coffee, cocoa and cotton. An understanding was reached with the Government during negotiations that quantitative objectives will be established in agreement with the Association before the second tranche release. These quantitative objectives would be achieved by a combination of annual adjustments of prices and increases in output at the producer's level (increases in yields and acreage), taking into account the international market prices of the products in question and other factors. For crop year 1985/86, the Government increased the real incomes of producers of the main export crops by 5 percent by setting the following new producer prices: CFAF 365 per kilo for coffee (15.9 percent), CFAF 330 per kilo for cocoa (10.0 percent); and CFAF 105 per kilo for cotton (16.7 percent). Further increases in producer prices would take place after consultation with IDA for crop year 1986/87, in the light of the objectives and principles set forth above, as a condition of release of the second tranche (Schedule 3 to the Development Credit Agreement). These increases, in conjunction with other factors, would aim at accelerating the growth of real producer incomes.  - 9 - Liberalization of Foodcrop Marketing 24. Food crop marketing is mainly handled by private merchants with limited Government involvement and prices are set by market forces. Togo has succeeded in achieving food self-sufficiency, except in years of severe drought. The country has even produced significant food crop surpluses when good rainfall occurred such as in 1984-85. However, there are important seasonal variations in food crop prices due to wide fluctuations in the size of marketable surpluses, erratic climatic conditions and a shortage of storage facilities. In 1971, the Government created a grain marketing board (TOGOGRAIN) in order to stabilize the market and secure the food supply. This direct intervention has been reduced since the Government has limited the role of TOGOGRAIN to maintaining a maximum of 10,000 tons of cereals for food security purposes. The main policy constraint on food crop marketing is the present limitation imposed by the Government on food exports through regular commercial channels, as informal border trade cannot be controlled. Government policy would reinforce this non-intervention po'icy in food crop marketing in three ways. 25. First, in order to take advantage of the growing demand for food imports by neighboring countries, the Government has in principle agreed to liberalize the export of foodcrops, except in periods of food shortages. However, the implementation timetable should coincide with the definition of detailed programs to be carried out in the context of upcoming agricultural projects. This liberalization would permit market forces to raise the producer prices and give incentives to farmers to produce a larger marketable surplus of food crops for both the domestic market and exports. 26. Second, the Government would establish new operating guidelines for TOGOGRAIN, including buying and selling procedures, maximum amount of security stock, appropriate cash flow and necessary investments. To help establish these operating guidelines, the Association is providing funds to analyze TOGOGRAIN's present management and also a management adviser to TOGOGRAIN, under the proposed third technical assistance credit. Further, the Government would establish an early warning system in the Ministry of Rural Development (MDR) to forecast harvests and analyze markets. 27. Third, the Government would actively promote increased output of food and encourage farmers to increase their own storage capacity through a program for small and inexpensive storage structures patterned on traditional methods. These objectives would be achieved by an expansion of extension services and the supply of modern input such as improved seeds, fertilizers and insecticides as well as the introduction of a system of credit to farmers under the forthcoming IDA agricultural projects now under preparation and scheduled for fiscal years 1986 and 1987. Both these projects and the SAC II program would contain the objective of removal of foodcrop export licensing as soon as appropriate.  - 10 - Improvement of Agricultural Services 28. The Togolese agricultural sector is served by two ministries, the Ministry of Rural Development (MDR) and the Ministry of Rural Works (MAR), five Regional Directorates of Rural Development (DRDR), and two major export crop companies (SOTOCO and SRCC). The ministries and the DRDR employ nearly 3,000 civil servants but they are poorly funded. More than 90 percent of MDR's budget is for personnel, and less than 10 percent for materials aud service spending. As a result, the official agricultural extension and support services, input supply and research are weak, and several individual projects have had to organize their own agricultural services. This situation is unsatisfactory due to the dispersion of efforts amongst diverse projects and donors. Thus,the agriculture sector does not benefit from adequate extension, input supply, seed distribution or applied research. Less than a third of Togolese farmers appear to be reached by the development projects in place and official institutions are generally not organized sufficiently to service the rest of the rural farming comunity. 29. Under the SAC II program, the Government has agreed to achieve a better balance between personnel expenditures and material spendlng in MDR's current budget, and to strengthen and expand agricultural services, particularly the extension services, in preparation of a specific IDA-supported agricultural extension project which could be based on the training and visit system. It has already increased the MDR non-personnel budget from CFAF 95 million in 1984 to CFAF 265 million in 1985; part of this amount comes from the state's current budget (CFAF 90 million) and part from the investment budget (CFAF 175 million). Before the release of the second tranche, the Government would allocate at least 25 percent of the MDR's 1986 budget to non-personnel spending, to support improved extension services and input supply, and 11mit personnel expenditures to not more than 75 percent of the total (Schedule 3 to the Development Credit Agreement). 30. In addition, a series of coordinated actions would be designed through our future agricultural projects under preparation and implemented to raise output as follows: i. the input supply system would be improved through an increased budgetary allocation starting in 1985; ii. a national seed plan would be prepared by the end of 1986 covering the organization of seed multiplication farms, and linking their activities to existing research stations; iii. future foodcrop research efforts would be coordinated on a national basis and linked to the training and visit system mentioned above (para. 29); assistance in this area would be provided by the proposed third technical assistance credit under revised terms of reference for the expert working on agricultural research;  - 11 - iv. an experimental system of credit to farmers would be introduced within the framework of village groups by the agricultural credit bank (CNCA) and the DRDRs; v. improved farm technologies such as ox-drawn traction would continue to be encouraged, while small scale irrigation systems aud feeder roads would be constructed or rehabilitated; and vi. subsidies on fertilizers and insecticides would be progressively phased out as farm output and incomes rise. In total, subsidies represent about CFAF 330 million (US$0.7 million) a year in budgetary outlays. Fertilizers to cotton account for two thlirds of the total distributed to farmers. The rate of subsidy on these fertilizers has been reduced from 40 percent in 1983/84 to 20 percent in 1985/86 and will be phased out completely by 1987/88 in the context of the cotton development project. A precise timetable for proposed actions such as development of a national seed plan, coordination of research, experimental credit to the farmers, use of improved farm technologies and phasing out of remaining farm subsidles will be agreed upon with the Government in the context of an agricultural extension services project and an agricultural services rehabilitation project currently under preparation. b. Preparatory Studies for Industrial Policy Formulation 31. The decreasing role of the public sector in industry would create a climate for an enhanced role of the private sector. Under the structural adjustment process, the Government's second area of increased incentives to the private sector would consist of systematic efforts made to improve the policy environment and institutional framework for private investments. 32. The Government has recently revised the Investment Code with a view to extending its benefits to small businesses and making value added a criterion for eligibility. It has agreed to an industrial incentives and fiscal study to be undertaken by the Association by September 1985, as part of its economic and sector work. The Government would examine the recommendations of the Association study before deciding on customs tariff reform and long-term industrial policies. Togo maintains an exchange system free of restrictions on payments and transfers for imports. Quantitative restrictions are limited and the customs duty varies from 5 to 40 percent. However, the customs tariff system is complex and should be simplified and standardized with a view to promoting domestic output of both intermediate and final goods for efficient import substitution and export, protecting Togo's transit trade and raising fiscal revenues.  - 12 - 33. The Government would also undertake a study of the banking system and of the small and medium scale enterprises to identify the constraints which limit the financing of the industrial sector, and to make recommendations to remove them. The proposed third technical assistance project would help finance such a study. B. Public Sector Efficiency a. Public Investment Program 34. Under the second SAC program, the Government would consolidate the new three-year investment programming system adopted under the SAC I program. Assurances were obtained during the negotiations that the Government exchange views with the Association on the public sector investment programs from time to time (Section 3.03 of the Development Credit Agreement) through ex-ante reviews of their consistency with the overall macro-economic projections, starting with the 1985-87 Investment Program. These reviews would take into account the readiness of feasibility studies and availability of concessional loans to finance specific projects. A satisfactory review of the latter program was completed in February/March, 1985. A satisfactory review of the 1986-88 Investment Program would be a condition of the release of the second tranche (Schedule 3 to the Development Credit Agreement). 35. The Government has prepare. its 1985-87 public investment program in the framework of medium-term macroeconomic projections described earlier. This program is consistent with the Government's statement of development policy outlining the structural adjustment program. It gives priority to rehabilitation and maintenance of basic infrastructure and ongoing projects with the objective of enabling Togo to use more efficiently existing economic assets. Excluding the Nangbeto hydroelectric project under construction and due for completion in the late 1980s, new public investments would consist of a core investment program in priority sectors (agriculture and rehabilitation of existing assets) in order to keep the investment/GDP ratio within manageable levels. The phosphoric acid project under preparation would not be ready for consideration before 1988. During the February/March, 1985 investment review, a total public investment program of CFAF 155.0 billion, representing 11 percent of the GDP, was agreed upon for the 1985-87 period. This program is consistent with an investment/GDP ratio of 24 percent on average between 1985 and 1987. Tne program allocates 36 percent for agricultural projects, 30 percent for transport and 10 percent for the Nangbeto hydroelectric project. The objective is to carry out projects with an economic rate of return of at least 10 percent in the productive sectors. For the social sectors, least-cost solution criteria will apply. The recurrent cost implications of all projects of more than CFAF 300 million as well as their impact on the balance of payments and external debt would be fully evaluated and reflected in the Government budget. The investment review classified the projects in four categories: (i) the first category contains thoroughly prepared projects which are entirely funded and underway; (ii) the second consists of projects which are consistent with the Government's policy objectives of giving priority to agriculture and  - 13 - rehabilitating and maintaining existing assets sucht as road and rural waterworks; (iii) the third category consists in 55 projects requiring further study and modifications; the Government has agreed to scrutinize and modify these projects as appropriate and to discuss them with IDA before implementing them; and (iv) the fourth category contains 30 projects which are not consistent with the Government's priority for rehabilitation and maintenance, or are poorly designed; the Govermnent has agreed to remove them from its 1985-87 investment program. b. Public Sector Management 36. Public Expenditures. Due to the financial constraints of the Government, it is not possible to significantly increase public investments over the next three years. However, the Government needs to improve the allocation of expenditures to better cover recurrent costs in rural development, waterworks, road maintenance, education and health. In the case of rural development, the budgetary allocations to the regional rural development directorates have been raised so that they can provide essential support services to the farmers. For road maintenance, quarterly allocations would be made to the special Road Fund account at the Treasury. The 1985 allocations for road maintenance and for the regional rural development directorates have been raised to an adequate level as indicated in paragraphs 29 and 46; for 1986, these allocations would be increased further. The Government would also continue to make more efficient use of budgetary resources allocated to other sectors. Education, with 28 percent of the current budget, has the largest share of Government spending. In the context of an IDA-supported educational improvement project, the Government is attempting to achieve a more efficient use of the education budget and improve the distribution of funds in favor of lower level education. The health sector is insufficiently funded and the Government is requesting assistance to cover recurrent costs in this sector in the context of the forthcoming Donors' Round Table. IDA is also considering a possible health project. 37. Public Revenues. To raise revenue, the Government has increasingly relied on the agricultural marketing board (OPAT) and the Togolese phosphates board (OTP) surpluses. In the case of OPAT, this practice has considerably limited the potential for improving the prices paid to producers and for providing adequate agricultural services, thus conflicting with the structural adjustment program objectives. In keeping with the new rural development policy, the Goverament gives priority to adequate producer prices. However, given the outlook for commodity prices in CFA francs and the expected supply response to producer price increases, OPAT should have no difficulty in continuing to make additional financial transfers to the Treasury. 38. The increase in tax revenue would come from the effective implementation of the domestic tax reform enacted on January 1, 1984. The new general Tax Code would significantly increase the domestic tax base and the number of taxpayers; it would provide an anticipated tax yield increase  - 14 - when it would be fully enforced. In 1985, while OPAT and OTP transfers to the Treasury are being stabilized, the fiscal receipts are expected to increase by 11.1 percent, thus providing the only source of growth for the Government's revenues. Over the medium term, improvements in revenue allocation would also come from customs tariff reform. 39. Reform of Institutions Responsible for Economic Management and Policy Formulation. Undertaking the various reform policies outlined under the proposed SAC II program would require major improvements in the efficiency and decision-making-of the economic administration, including the Ministry of Planning and Industry, the Ministry of Economy and Finance, the Ministry of State Enterprises, the Ministry of Rural Development, the Ministry of Rural Works and the High Commission for Tourism. There is also a need to improve the incentives and the morale of the civil servants. To achieve these objectives, the Government has decided to undertake a reform of the key economic ministries. This is obviously a long and politically sensitive exercise which would require careful preparation. The Government plans to start with an organizational study in late 1985 in order to prepare these reforms. The Association would be consulted on the terms of reference of the preparatory studies and their progress, and would be prepared to finance limited technical assistance services under the companion third technical assistance project. C. Public Enterprise Management 40. The public enterprise sector plays a decisive role in Togo's economic activity, investments and public finance. The State has long been involved in water and electricity distribution, the marketing of agricultural products, transportation, and postal services. In 1974, with the quadrupling of phosphate prices, a major expanslon in public industrial units and hotels took place. However, public enterprise management has not been satisfactory. Most firms incur excessive costs and operating losses, and therefore constitute a drain or. the State's budget through the subsidies they require. The Treasury has assumed their foreign debt service obligations since 1978, but state enterprises have also accumulated arrears with the commercial banks and their local suppliers. 41. Reorganization of the Public Enterprise Sector. Before the cabinet reshuffle of September 13, 1984, the technical ministries and the State Secretariat for the Budget exercised control over the public enterprises, often going beyond a supervisory role and interfering with their administrative and financial management. Following the cabinet reshuffle, a new Ministry of State Enterprises was established. Under its economic reform program, the Government is determined to improve the management of the public enterprise sector by establishing a monitoring mechanism for the financial performance of state-owned enterprises, enforcing the Government oversight system, and clearly defining supervisory functions. The Ministry of State Enterprises will also coordinate accounting standards and keep the consolidated accounts of the parapublic sector. The Government intends to develop a management information system in public enterprises and generalize the practice of auditing tne accounts.  - 15 - The autonomy of public enterprises in accomplishing their goals would be recognized and maintained. The role of the boards of directors and managers of public enterprises would be strengthened. Satisfactory progress in achieving efficiency and an appropriate supervision system in the new Ministry of State Enterprises would be a condition of SAC II second tranche release (Schedule 3 to the Development Credit Agreement). 42. The Ministry of State Enterprises has prepared a preliminary classification of state-owned enterprises into four groups, namely: (a) state-owned enterprises which are of strategic importance and are to be retained in the Government's portfolio; (b) mixed enterprises in which financial profitability is the evaluation principle for future decision; (c) enterprises to be privatized or liquidated; and (d) enterprises yet to be studied and classified. The objective of the Government in the public enterprise sector is to restructure, privatize or liquidate public enterprises in its portfolio before December 31, 1988, except for a certain number of key enterprises including, among others, Compagnie Energie Electrique du Togo (CEET), Office des Produits Agricoles du Togo (OPAT), Office Togolais des Phosphates (OTP), Port Autonome de Lome (PAL) and Regie Nationale des Eaux du Togo (RNET). For the nine public enterprises already studied under SAC I, the Government will implement restructuring, privatization, and liquidation plans before second tranche release. Steps have already been taken to privatize the following enterprises: ITT, TOGOTEX, SOTOMA, TOGOROUTE, SODETO, and SOPROLAIT. The Bank's Industry Department is studying ITP and IOTO as a basis for their privatization. In the case of OPAT (export crop marketing board), we intend to reach agreement on the reform of internal financial management as recommended by the diagnostic study. The Government will complete before December 31, 1985 the classification of the remaining public enterprises in four categories as follows: enterprises to be retained in the public sector, enterprises to be liquidated, enterprises to be privatized and enterprises to be restructured and then privatized. Out of these companies, ten enterprises will be selected for the second phase of implementation. By June 30, 1986 those to be liquidated will be closed. For those to be privatized, the search for private partners or buyers will commence no later than March 31, 1986. For those to be rehabilitated prior to privatization, rehabilitation and financing plans will be prepared no latr:r than March 31, 1986 and the search for private partners will start no l.cer than September 30, 1986. 43. Concerning SOTOMA, ITT and TOGOTEX, the Government plans to make rehabilitation investments of approximately CFAF 4 billion (already included in the 1985-87 investment program reviewed by IDA). The Minister of State Enterprises visited the Bank and IFC, in early 1985, to discuss strategies for his search for private partners. IFC would be prepared to help the Government find favorable solutions to the problems of ITT and TOGOTEX in association with a private partner. Overall progress satisfactory to the Association in implementing the program of restructuring, privatization and liquidation of the twenty public enterprises would be required before the release of the second tranche (see above timetable, para. 42). To help the process of privatization, IDA  - 16 - would finance under the third technical assistance project an adviser to the Minister of State Enterprises to facilirate contacts with private investors potentially interested in taking over public enterprises. Two other resident advisers would be financed under the third technical assistance project and deployed in the technical departments of the Ministry. 44. Tn support of its action program in the public enterprise sector, the Government would implement locally a two-year training program for management controllers, accountants, and financial auditors. This training is intended for young Togolese with graduate degrees in econumics and finance. Training assignments and short-term training seminars would be organized for accountants and public enterprise officials under the companion third technical assistance project. 45. The Transport Sector. The transport network consists of some 7,000 km of roads and about 490 km of railway lines (Lome-Aneho, Lome-Kpalime, and LomE-Blitta), the port of Lome and the international airport of Lome. The network serves the needs of Togo as well as the transit trade of landlocked Burkina Faso and Niger, and East-West trade between Nigeria, Benin and Ghana. Existing transport infrastructure, particularly the railway system, is generally adequate but is r-t down due to inadequate maintenance. The railway company (CFT) which employs about 1,200 workers has also been losing money to the tune of US$1 million a year, thus requiring subsidies from the Treasury. In the absence of restructuring measures, the subsidies would increase sharply in the future. Institutional weaknesses in planning and administration constitute another problem. 46. The second structural adjustment program focuses on road maintenance funding and railway restructuring including increases in railway tariffs and phasing out of two uneconomic lines. In the 1985 budget, the Government allocated CFAF 950 million for road maintenance; part of this amount comes from the state's current budget ICFAF 550 million) and part from the investment budget (CFAF 400 million). The 1985-87 investment program reflects the priority now given to road maintenance and rehabilitation, and, except for completion of ongoing projects, it includes no new road construction. To improve rail services, the Government has prepared small investments for rehabilitating the tracks and rolling stock for the central railway line (Lom6-Blitta) which have been included in the 1985-87 investment program reviewed by IDA. Additional restructuring measures in the transport sector would include: a. a progressive increase in the budgetary allocation for road maintenance, with a target of reaching 2.5 percent of the Government current budget by 1988. For 1986, the Government would establish a special Road Fund account in the Treasury to which all road maintenance funds would be deposited in a timely manner. The budget for 1986 would allocate CFAF 1.2 billion for  - 17 - this special Road Fund account as a condition of release of the second tranche (Schedule 3 to the Development Credit Agreement); b. railway tariff iucreases of 10 to 15 percent depending on the type of traffic (passenger or freight) by June 1985 on the central line (Lome-Blitta), and further increases of 15 to 20 percent by February 1986 as a condition of release of the second tranche (Schedule 3 to the Development Credit Agreement); c. a phased introduction of a bus service on the Lome-Aneho and Lom6-Kpalim6 lines, followed by the closing of the rail service after satisfactory initial operation of the bus service. A franchise agreement for the Lome-Aneho bus service would be awarded by March 1986 as a condition of release of the second tranche (Schedule 3 to the Development Credit Agreement). The Lcae-Kpalimi bus service franchise would be awarded following successful bus service operation on the Lome-Aneho line. 47. The Tourism Sector. An extensive and high-class hotel infrastructure has been built since 1970. However, Togo's investment efforts in tourism have as yet shown only modest results. Since tourism is the third largest export revenue producer (after phosphate mining and agriculture), the objective is to enhance its earning potential by improving services and equipment available to tourists, and organizers of conferences and international meetings. The hotel infrastructure includes nearly two thousands rooms divided among arou;a forty establishments, twenty of which are in Lome. The state-owned hotels account for nearly 70 percent of the lodging capacity. 48. Between 1977 and 1982, the gross operating loss of public hotels accounted for an annuAl deficit of US$1.0 million mainly from a few luxury hotels which, with a low occupancy rate, were unable to balance their operating accounts, while depreciation of invested capital and debt service are directly borne by the Treasury. 49. In view of the impact that these hotels will continue to have on the overall profitability of tourism, the objective is to improve the efficiency of the sector and to reform the financial management of key hotels and to promote a large flow of tourists to improve the occupancy rates. Accounting would be improved, and annual financial audits initiated for each hotel. A new strategy was drawn up for the hotel sector aimed at improving the financial performance of the hotels, by making their accounting systems uniform by establishing performance criteria and by renegotiating management contracts for the larger hotels. 50. Under the second phase of the structural adjustment program, four kinds of measures were discussed and agreed upon with the Government to support the hotel sector reforms. These measures would be implemented with the help of technical advisers financed by the companion third technical assistance credit as follows:  - 18 - a. An institutional reform which would strengthen the technical and human resources of the High Commission for Tourism to exercise its promotional role and sectoral control functions more effectively. New administrative measures governing the tariffs in the hotels and the salaries of personnel in the tourism sector have already been adopted. The Government intends to restructure the state-owned hotels by creating a holding company to manage the hotel portfolio. b. A program of renegotiating major hotel management contracts. The Government has already renegotiated a management contract with FRANTEL (a French company) for Hotel de la Paix. The Government would also renegotiate similar management contracts for Hots' du 2 Fevrier, Hotel Sarakawa, and Tropicana in which financial rewards will depend on profits. During negotiations, it was discussed and agreed upon that by December 19853 the Government will select the best offers from a call for bids and by June 1986, it will negotiate new management contracts for these three hotels. The objective is to increase the hotel management responsibility and to improve the profitability of the hotel sector. The third technical assistance project would provide consultant assistance in renegotiating hotel management contracts and monitoring the progress of hotel restructuring plans. C. A promotional plan is being devised to attract more tourists to Togo through the opening of two new tourism offices abroad and the creation of a travel agency with the participation of private partners, and by negotiating new charter flight arrangements. A study of air access to be financed under the companion technical assistance project would be undertaken aimed at improving tourists' access to Togo. Local handicrafts intended for tourists would be developed, especially by strengthening the distribution centers for Togolese handicraft items. d. Sectoral human resources would be strengthened through accelerated training of five high-level Togolese in hotel management, of two high-level managers in marketing, and of three managers in general tourism administration under the proposed third technical assistance project. 51. Over the 1985-90 period, a modest program would be implemented of priority investments for rehabilitation and repair of some hotels, a handicraft village in Loms, and for developing major tourist sites. These investments, which amount to CFAF 1.6 billion, have been discussed and agreed upon with IDA during the February/March 1985 public investment program review.  - 19 - PART IV - EXPECTED ECONOMIC IMPACT OF THE SECOND STRUCTURAL ADJUSTMENT PROGRAM 52. The Government's second structural adjustment program outllned in Part III would continue to improve the overall economic management in Togo and lead, over the mediu-term, to greater economic growth and better allocation of resources. For the next three years, the structural adjustment process is expected to reverse the economic decline of the recent past, while consolidating the flnancial stabilization program supported by the IMF. Assuming adequate incentives to productive sectors, the structural adjustment policies would make better use of development potential in agriculture and industry, improve the prospects for commerce and services, lay the foundation for greater private investments and thereby ensure sustained real economic growth. As a result, real economic growth is expected to outstrip population growth between 1988 and 1990. Outlook for Growth 53. Successful implementation of the SAC II program would arrest economic decline in Togo and lead to conditions of greater economic growth. Table 1 (in Annex VI) on macroeconomic projections presents three scenarios for the economy: (a) a scenario without the SAC II program, (b) a scenario with the SAC II program but without the possible phosphoric acid plant, and (c) a scenario with both the SAC II program and the phosphoric acid plant. 54. Under the first scenario, the economic forecasts for the six-year period ending in 1990 do not allow for a real economic growth rate of more than 3 percent per year, while the population growth is projected at 3.3 percent per year. Thus , the GDP per capita would continue to decline throughout the 1980s. Under these conditions, the share of consumption in CDP would be stabilized around 85 percent, reflecting the reduction of real per capita consumption. Furthermore, investment is expected to decline until 1987 before starting to increase in real terms in 1988. The growth of gross domestic investment in real terms over the period 1987-90 would lead to a significant deterioration of the resource gap which could reach 11 percent of GDP, thereby jeopardizing further the financial situation. 55. Under the second scenario, the SAC II program is expected to improve growth over the medium-term (3.6 percent between 1987 and 1990 instead of 3.0 percent) and also in the short-term (3.3 percent between 1984 and 1987 instead of 3 percent). This improvement of the economic growth rate is based on the assumption that the implementation of the agricultural policies leading to sharp real increase in export crop producer prices, improved food crop marketing, including food crop exports, and improved extension services would mobilize the unused potential of the rural sector. It is also based on the assumption that the efficiency of public investment would be increased through streamlining of investment programming, and that the private sector would respond positively to Government's industrial inceutives by setting up small- and medium-scale industries.  - 20 - 56. Under the third scenario, the construction of a possible phosphoric acid plant would imply higher investment ratios, 32.2 percent of GDP on average between 1988 and 1990, compared to 23.5 percent in 1984. Although the share of consumption in GDP would be reduced, the resource gap would deteriorate dramatically, rising from 9.2 percent of GDP in 1984 to 14.3 percent on average between 1987 and 1990, reflecting essentially the phosphoric acid plant construction. However, if a decision is made to build the phosphoric acid plant, the Government should ensure that its financing, as an enclave project, would in large part come from abroad on terms that would place minimum financial liability on Togo. A phosphoric acid plant with accepcable economic and financial rates of return would be able to produce sufficient domestic and foreign exchange to service its debt. Furthermore, it would boost annual economic growth to 5.1 percent, in real terms, between 1988 and 1990. Poverty Alleviation Impact 57. Togo is generally self-sufficient in food supply when the rainfall is good. However, the per capita income in real terms declined by 8 percent per year on average between 1980 and 1984. affecting both rural and urban populations. The incidence of poverty has thus become of greater concern. For several years, the Government has imposed heavy taxation on the agricultural sector by resorting to the profits of the export crop marketing board (OPAT) to finance the budget. Under the structural adjustment program, the Government has consecutively increased the real income of producers of cash crops in 1983/84 and 1985/86. thereby relieving poverty in rural areas. 58. One of the critical objectives of the SAC II program is to reduce further the taxation by increasing producer prices and real farmers' income. In addition, the liberalization of food crop exports by improving agricultural services (extension and input supply), yields and acreage cultivated would contribute to improving rural incomeK and increasing food marketing opportunities. As the growth of the economy as a whole begins to outstrip population growth, the urban poor should also benefit from increased employment opportunities. Government Financial operations 59. The implementation of the second structural adjustment program wculd also continue to improve the public finance situation as shown in the Table 2 (Annex VI) on government financial operations. The target of the 1985 stabilization program is to reduce the government deficit, excluding grants, from 7.3 percent of GDP in 1984 to 7.0 percent in 1985. Over the medium term, the projections show an overall fiscal surplus after 1988. This improvement is due to the fact that the current expenditure is expected to increase less than the GDP while the government revenue will grow at the same rate as the GDP. The current expenditure part in GDP would decline from 19 percent in 1984 to 14 percent in 1990 in line with the government fiscal policy, and the revenue part would stabilize around 27.5 percent, thus, improving the public savings.  - 21 - Balance of Payments 60. The second structural adjustment program would strengthen the balance of payments current account as indicated in Table 3 (Annex VI). The 1985 IMF stabilization program targets an external current account deficit, excluding grants, of 20.6 percent of GDP in 1985 compared to 12.9 percent in 1984. The current account, excluding grants, would improve significantly between 1986 and 1990 and decline to 11.0 percent of GDP by the end of the period. 61. The short term deterioration of the current account in 1985 is due to the construction of the Nangbeto hydroelectric dam which will increase imports of goods and services. However, from 1988 onwards, the completion of the Nangbeto dam will contribute significantly to improving the balance of payments, by reducing fuel oil imports and providing hydroelectricity. 62. Over the medium term, the expected favorable impact of the restructuring measures on the current account would offset the deterioration forecasted in cocoa, coffee and cotton world prices for the next five years. In addition to the strengthening of the current account, direct foreign investment is expected to respond positively to the structural adjustment measures, in particular to the public enterprise sector restructuring and privatization program and after 1987, to the private investment promotion policy. In spite of the expected decrease in short-term capital inflows from neighboring countries (para. 11), the balance of payments deficit could be financed by Togo's external reserves. However, the country would continue to require substantial non-project assistance. 63. The external debt service of Togo will continue to constitute a heavy burden on the Treasury and the balance of payments. During 1985-90, the debt outstanding would represent nearly 80 percent of GDP on average and the debt service (before rescheduling) more than 35 percent of the exports of goods and services or 44 percent of government revenues. This situation leaves no room for additional non-concessional financing over the next few years. Moreover, it makes it necessary for Togo to continue to seek debt rescheduling. 64. The Government, with assistance from IDA, has strengthened its external debt monitoring and reporting system and its capacitv to analyze the future financial impact of debt transactions through the secondment of an IDA special technical assistant to the debt management unit (FNADP/SNI) to help the Government improve debt management. Under the IMF stand-by arrangements, the Government has rescheduled its external debt four times since 1979. It would continue to do so for the next few years. The IMF stand-by arrangement also precludes new loan commitments with maturity of less than twelve years. The Government has agreed to the Bank's suggestion to avoid all commercial term borrowings, excluding bilateral assistance and lending for enclave-type projects, such as the possible phosphoric acid  - 22 - project. This effectively gives a clear signal that Togo requires more concessional terms for both project and non-project financing. PART V - THE BANK'S ROLE AND THE PROPOSED CREDIT A. Credit History 65. The Government's program to be supported by the second structural adjustment credit is comprehensive and is judged appropriate to address the current macroeconomic, sectoral and policy issues of the Togolese economy. Initial preparation of the program took place ir July/August 1984 followed by IDA appraisal missions to Togo in November/December 1984 and February/ March 1985. The February/March mission also reviewed the 1985-87 public investment program. Technical discussions took place in Washington from April 22 to 25, 1985 and negotiations were held in Washington on April 29, 1985 with a Togolese delegation headed by Mr. Yaovi Adodo, Minister of Planning and Industry who submitted to the Association the Government' s statement of development policy dated April 23, 1985 (Annex IV) B. The Proposed IDA Credit 66. The proposed second structural adjuqtment credit would amount to US$27.8 million, of which US$15 million would be made available imediately after credit effectiveness. The remaining uUS$12.8 million would be released after the Government has made significant and satisfactory progress in implementing the structural adjustment program, notably in completing the specific actions described in paragraph 72 below. The credit is expected to be disbur...d over the 18-month period ending March 1987. It would finance 5.6 percent of Togo 1985/86 imports of goods and would meet about 21.0 percent of the 1985/86 gross external capital requirements of the country. 67. In meeting the gross external capital requirements of the country, the second structural adjustment credit would be complemented by the net IMF disbursements, other non-project financing, official grants and project foreign borrowings. C. Role of IDA and Monitorable Actions 68. The second structural adjustment credit is based on the continuation and reinforcement of policy reforms started under SAC I and provides tle Association with maximum influence in promoting these changes. The objectives are the restructuring of the economy and higher economic growth through policy and instltutional reforms and production incentives. As is discussed in more detail in Part VI, the program is fully complementary with the other IDA lending in agriculture, industry and transport sectors in which Togo has a comparative advantage and undeveloped potential. IDA projects in these sectors seek to support high-return investments, a major goal of structural adjustment. Future projects will reinforce the sectoral and institutional reforms accomplished under the  - 23 - structural adjustment program and translate them into longer-term development gains. 69. The action program discussed in the paragraphs below reflects the agreement reached with the Covernment as to the level of price increases and budgetary adjustments needed to obtain the incentive effects sought, and the reforms required to achieve greater efficiency in the use of public resources. The close and comprehensive policy dialogue with the Government, necessary for the preparation and implementation of the structural adjustment program, has been enhanced by the ongoing techbical assistance projects and by our economic and sector work. An ancillary benefit of our structural adjustment work is the positive training impact of the program on the local economic staff through the current intensive policy exchange and constant interaction between the To&olese officials and Bank staff. 70. A detailed program of monitorable actions under SAC II is described in the matrix table (Annex III), which provides a schedule and identifies actions to be monitored during supervision of the proposed second structural adjustment program. 71. The following actions have already been taken by the Government under the proposed program: a. a 1985 stand-by arrangement with the IMF; b. an increase in the producer prices for the 1985/86 crop year as follows: coffee, from CFAF 315 per kilo to CFAF 365 per kilo; cocoa from CFAF 300 per kilo to CFAF 330 per kilo; and cotton from CFAF 90 per kilo to CFAF 105 per kilo (para. 23); c. an increase in the MDR's budgetary allocation for material (non-personnel) costs from CFAF 95 million to CFAF 265 million in fiscal year 1985 (para. 29); d. adoption of a satisfactory 1985-87 public investment program (para. 34); e. budgetary allocation for road maintenance to a level of at least CFAF 950 million in fiscal year 1985 to be deposited in a special account at the Treasury on a quarterly basis (para. 46); and f. agreement to increase the rail rates on the Lome-Blitta railway line by 10 to 15 percent depending on the type of traffic by June 1985 (para. 46). 72. Disbursement of the second tLanche would be contingent upon the Government taking the following specific actions in a manner satisfactory to the Association (Schedule 3 to the Development Credit Agreement): a. increasing producer prices of the three main export crops (coffee, cocoa, cotton) to an adequate level for the 1986/87 crop  - 24 - year by April/May 1986. in any case, before the planting season starts (para. 23); b. adoption of new operating rules f or the grain marketing board (TOGOGRAIN) acceptable to IDA (para. 26); c. allocating at least 25 percent of the MDR's budget to non personnel operating costs in fiscal year 1986 (para. 29); d. satisfactory review by the Association of the 1986/88 public investment program (para. 34); e. establishment of a satisfactory and efficient supervision system in the new Ministry of State Enterprises, including the control mechanisms of public enterprises (para. 41); f. substantial and satisfactory progress in implementing the restructuring/privatization/liquidation plans for public enterprises which have been already studied under SAC I program: ITT, TOGOTEX, SOTOMA, TOGOROUTE, SODETO, ITP, IOTO, SOPROLAIT and OPAT (para. 43); g. agreement with the Association_on a satisfactory restructuring/ privatization/ liquidation schedule for approximately ten more public enterprises (para. 43); h. opening a Road Fund account at the Treasury and increasing the budgetary allocation for road maintenance to a level of CFAF 1.2 billion in 1986 (para. 46); i. increasing the rail rates on the Lome-Blitta line by 15 to 20 percent depending on the type of the traffic by February 1986 (para. 46); and j. agreement with a bus company to operate the route between Lome and Aneho by March 1986 as a prerequisite for closing the railway line between the two cities (para. 46). 73. The structural adjustment program would be implemented by the various government departments involved in the reform measures, under the overall responsibility of the Minister of Planning and Industry. To monitor and control the day-to-day execution of the structural adjustment program, the Government organized under SAC I an interministerial committee of higher-level officials who are to follow up with the ministerial departments responsible for the various components of the program, the timetable of key actions and measures to be undertaken, and ensure satisfactory and timely implementation of these measures. The committee would make a monthly report to the Minister of Planning and Industry. It includes representatives of the Ministries of Planning, Finance, State  - 25 - Enterprises, Rural Development, Rural Works, Equipment and Mines, Commerce and Transport, the High Commission for Tourism, the Central Bank and various other institutions. The committee will also continue to monitor the IMF-supported financial stabilization program. 74. The Association's supervision and monitoring process would include at least three supervision missions and two investment reviews. The first investment review took place in February/March 1985 and agreed on a satisfactory investment program for 1985-87. The supervision would enable the Association to maintain a close dialogue with Togo in order to provide advice and support at crucial stages of the program implementation. D. Procurement and Disbursement 75. The SAC II credit would finance 100 percent of the foreign exchange cost of eligible imports. Procurement procedures have been designed to permit rapid use of the funds while ensuring efficiency and economy in the process. The eligible imports include a wide range of goods. Except for a few standard exclusions, any imports would be eligible for financing, but not more than US$6.95 million would be used for petroleum imports and not more than US$6.95 million for food imports (Schedule I to the Development Credit Agreement). Imports by public entities exceeding US$1.5 million would be through international competitive bidding. Imports by private entities would be in accordance with normal commercial practices, which are acceptable. 76. Under the SAC I program, an account was established at the Central Bank on behalf of the Treasury to facilitate disbursements. This account would also serve for disbursements under the second structural adjustment credit. The arrangements for the administration of the import component of SAC II would be the same as for SAC I. The Togolese Government would be the borrower. The Central Bank would be responsible for maintaining the credit account and for submitting withdrawal applications and supporting documentation to the Association to be aggregated into amounts of not less than US$1 million equivalent (Section 2.10 of the Development Credit Agreement). Imports of goods procured under contracts costing less than US$10,000 equivalent would not be financed under SAC II (Schedule 1 to the Development Credit Agreement). The CFA franc counterpart funds generated by the proposed credit would be deposited in the above-mentioned Treasury special account in the Central Bank and would be used to finance operations designated by the Government in support of its structural adjustment process and its development policy (Section 3.01 of the Development Credit Agreement). 77. The credit proceeds would be disbursed in two tranches as foliows: a. a first tranche of US$15 million would be available immediately upon effectiveness (expected in September/October 1985) of the Development Credit Agreement; and  - 26 - b. a second tranche of US$12.8 million would be available around April 1986 after a review of performance to be carried out before then, and if the conditions mentioned in paragraph 72 have been met. Benefits and Risks 78. The principal benefits of this wide-ranging structuiral adjustment program are the expected improvements in the growth prospects of the Togolese economy with sustained and more widely distributed income effects, increased public savings and reductions in the country's budgetary and balance of payments deficits and external debt service burden. The macroeconomic management reforms and sector policy improvements would increase productivity and the return on investments. The main risks of the program include delays or slippage in completing the studies and analyses underlying the structural adjustmeut measures which may cause the Government to postpone critical program decisions. Also, the Government privatization program for the numerous state-owned enterprises may be hampered by a continuing poor international economic environment. Nevertheless, in the light of the Government's strong commitment to the program. timely adjustments in some schedules, if necessary, need not jeopardize the entire program. PART VI - BANK GROUP OPERATIONS IN TOGO 79. Bank Group lending to Togo totals 23 credits, including eight fully disbursed, amounting to US$239.74 million of which US$95.13 million is undisbursed, and two fully disbursed loans totalling $53.0 million. IDA lending has financed roads; agriculture (cocoa, coffee, cotton and food crops); education; technical assistance to the Ministries of Planning, Rural Development and State Enterprises; a regional DFC operation; and credits for the feasibility studies for a phosphate fertilizer project and for the Nangbeto regional hydroelectric power project and a further credit for the development of the Nangbeto hydroelectric project. The two Bank loans (US$3.5 million to Togo and US$49.5 million to CIMAO jointly and severally guaranteed by Ghana, Ivory Coast and Togo) have provided financing for the CIMAO reglonal clinker plant. Annex II contains a summary statement of Bank Group operations in Togo as of March 31, 1985. 80. In the past, project lending has dealt with development needs and policy issues in specific sectors. However, following the deterioration of the overall economic situation in the late 1970s, sector specific actions are not sufficient and therefore emphasis in our lending to Togo has shifted. A more comprehensive approach supported by policy-based lending such as that envisaged under the first and the proposed second structural adjustment programs is required. Moreover, in a small country like Togo, where it is not possible to be involved in all sectors, structural adjustment lending provides an opportunity to support development 'rzm a broad range of sectors. In those sectors where the Association is already involved, not only has project lending been consistent with the goals of the structural adjustment program, but in addition, components of new  - 27 - projects particularly in agriculture and transport will be designed to prepare for and support the adjustment measures. 81. The first and second technical assistance projects have assisted the Government to formulate sound investment and macroeconomic policies. Through these projects, the Association initiated a fruitful policy dialogue which has been essential for the preparation of the first and second structural adjustment programs. Consultant studies of several state enterprises have been financed in order to determine their potential viability, and in the Lase of those which are, to identify measures necessary to improve their performance. A capacity to conduct project evaluations and to monitor the performance of ongoing development projects is being established in the Planning Ministry. A planning unit has been established in the Rural Development Ministry to anAlyze agricultural project proposals. Under its auspices, a review of all rural development projects has been conducted in order to provide the basis for the formulation of a rur.ml development strategy. In addition, a price analysis and monitoring unit located in the agricultural marketing board, OPAT, and a research group in the Ministry of Rural Development have been created. 82. IDA has made five credits for agricultural projects designed to increase farm incomes and to stimulate food crop production through development of major cash crops such as cocoa, coffee, and cotton. Under the latest such credit for the Second Rural Development Project in cotton areas, subsidies are being phased out and producer prices are L'ing adjusted annually. 83. A water supply project approved in 1983 has improved Lome's water supply and contains provisions for future project preparation and other studies. The water and sewerage agency (RNET), an economically viable state enterprise, is being strengthened as a result of the project. The four credits in the road sector supported efforts to build up an efficient maintenance service, upgrade the country's main roads, and start comprehensive transport planning and coordination. A separate project for feeder road development provides for improvement works and rural maintenance operations. The first education project financed the construction of teacher training facilities and the expansion of existing facilities, and fellowships. A second educational improvement project signed on April 29, 1985 seeks further improvements in the education system through teacher training, organizational and management reforms. 84. Togo's performance with respect to project implementation and disbursement is generally satisfactory. The Government is now familiar with the Bank Group's procurement and disbursement procedures. Delays in disbursement are frequent, however, because of the cumbersome administrative regulations governing public contract award in Togo and recently established procedures for withdrawal application processing. The Government has been made aware of this problem and is working with the Association to find appropriate means to simplify procedures. There have  - 28 - been a few cases of project delays caused by shorvages of counterpart funds. PART VII - LEGAL INSTRUMENTS AND AUTHORITY 85. The draft Development Credit Agreement between the Republic of Togo and the Association, and the Recommendations of the Committee provided for in Article V, Section 1 (d) of the Articles of Agreement of the Association are being distributed separately to the Executive Directors. 86. Features of the draft Development Credit Agreement of special interest are referred to in Section III of Annex V to this report. The conditions for the release of the second tranche are described in Schedule 3 to the draft Development Credit Agreement. 87. I am satisfied that the proposed development credit would comply with the Articles of Agreement of the Association. PART VIII - RECOHMMATION 88. I recommend that the Executive Directors approve the proposed development credit. A.W. Clausen President Attachments Washington, D.C. May 1, 1985  - 29 - ANNEX I T A t L Z 3^ (Page 1 of 5) TOGO - 90CIAL IND!C=d DATA S9EET wSe S~~~~UtSDIC cmun (mcICI= A mo ISEEIZIICE@05CEGTD ASIANS ) /1. UCIIIIT CM"i 5 REOUT l TDIUAT) lb L96Ob 1970tb nTDLATY- soon oir sAR AMICA S. OFSM rors. so.a n~~~ ~~~~~~.m _ - TOTAL ^*. 56. . ACSIOILTUL 11. 16.t 16.2 . CAlERA (03$) 70.0 150.0 340.0 249.1 ti12.9 r OIL 0 QUIVALSNT) 13.0 43.0 127.0 42.1 529.0 voumnn - mus sns POPULATIO.NAID-TEA (?OSANDB) 1504.0 2020.0 2754.0 UNA Po0ul.o0 (5 01 tAL) 9.1 13.1 21.2 19.2 29.7 PoeULTl iS nA 2000 (KILL) 4.9 srTIOauu morATtO. (HILL) 16.7 POFUTIOL IUNIIM 2.0 IOPUIAT10 5ITY PER SQ. M. 26.5 35.4 46.9 32.5 35.6 Mgt SQ. M. AGRI. LUID 131.2 125.8 104.0 119.2 111.5 rOPUATION AGE STRIICTum (C) 0-14 u5 44.0 45.3 46.5 45.6 45.4 15-64 13S 53.4 52.0 50.0 51.5 51.7 65 AM ABOY 2.b 2.7 2.7 2.9 2.9 POPULflTIOS CTH0 ATZ (2) T-wAL 2.2 2.9 2.6 2.8 2.6 IUIN 5.2 3.9 6.6 6.2 5.2 CRUDE sUHTH mAT r (R TmouS) 50.6 50.1 49.4 4.6 47.0 CUIDt DEATH RATE (PEA T130) 23.1 19.6 19.0 17.7 15.2 CEROS REPROODUCTION ATE 3.3 3 3.2 3.2 3.2 PA513. PLAMING ACCEPTOS. AIUL (THOUS) .. USERS T OF HARIEUD SOlK) .. .. INDEX OF roaM rmoo. a CAPITA (1969-71-100) 99.0 102.0 69.0 85.6 91.6 rU CITA SumnLr or CALORIES (S OF RIQUIREHENTS) 97.0 95.0 33.0 6.4 96.2 utEINS (CRAM rut DTY) 46.0 46.0 41.0 49.9 56.7 or mhICH ANIMAL AND PULSE 11.0 12.0 12.0 IC 18.3 17.0 CHILD (ACES 1-4) DEATH RATE S5.0 36.0 25.0 23.H 13.7 Sam= LIFE EXPECT. AT BIRTH (EAMS) 41.0 41.5 47.3 48.4 51.7 INFANT sI. RArE (PER TS) 201.0 164.0 122.0 117.5 102.7 ACCESS TO SAIFE WATE (EZrO) TOTAL .- 17.0 16.0 Id 21.8 35.6 URBAN .. .. 49.0 /7 61.5 54.1 UtL .. 5.0 I1.O A 14.2 27.3 ACCESS TO EZCETA DISPOSAL (C OF POPULATION) TOTAL *. 1.0 15.0 /d 32.0 URN .. .0 36.0 id 69.2 RURAL .. 1.0 12.0 /r 24.8 POPULATaS rEM PHlSICUI .7060.0 28860.0 15100.0 /a 27477.6 1194S6.3 POF. MER IWU1NG PERSON 5340.0 If 4310.0 1430.0 r 3396.2 2246.9 POP. PER HOSPITAL aED TOTAL 760.0 670.0 Ij 750.0 Ia 1069.0 91U.9 UR13 210.0 if 160.0 250.0 /;7 395.2 368.7 RIUAL 1030.0 if 1500.0 1190.0 /7 3094.0 4012.1 AIHIISSIONS PER HOSPITAL BED .. 24.3 AVERAGE SIZE OF HOUSEHOLD TOTAL .. 5.8 UOU .. .. . .. RURAL .. .. AVERAGE H0. OF PE3ESONSIp0O TOTAL . . ... URA .. .. RURA L. .. ACCES TO ELECT. (E Or OWELLINS) T.L -. .. . .. ma .. .. . ..  - 30 - ANNEX I T A B L E 3A (Page 2 of 5) TOCO - SOCIAL INDICAtOU DATA SHEET TOCO BPUEUNCE cGoUrs (MEIGHTED AVERAS) t O NST (lOST RECENT ESTIIATE) /b - RECENT LOW INCOIE AFRICA MIDDLE WtnE 19601b 1970L isTtrATZb SOUtr OF SAHARA AFlICA S. OF SAHAIA ADJUSTED ENROLLMENT RATIOS PRIMARY: TOTAL 44.0 69.0 111.0 69.2 91.0 KALE 63.0 95.0 135.0 78.8 90.5 FEMALE 24.0 43.0 87.0 57.6 73.6 SECONDARY: TOTAL 2.0 7.0 31.0 13.1 17.4 MALE 6.0 11.0 46.0 17.6 23.7 FINALE 1.0 3.0 16.0 1.3 14.8 VOCATIONAL (C OF SECONDARY) 10.1 9.6 5.3 7.2 5.3 PUPIL-TECH RATIO PRIMARY 60.0 58.0 52.0 46.1 3S.6 SECONDARY .. 25.0 40.0 Ic 25.9 24.3 ADULT LITERACY RATE (2) 9.7 /f 15.9 IS.0 /h 44.3 35.6 COII_IGU PASSENCER CARS/THOUSAND POP 1.9 /1 3.6 .. 3.8 20.7 RADIO RECILVERS/TIOUSAND POP 3.5 19.8 213.3 41.9 100.8 TV RECEIVERS/THOUSAND POP .. .. 3.9 2.0 18.5 NEWSPAPER 'DAILY GENERAL INTEREST') CIRCULATION pER THOUSAND POPULATION 1.3 6.4 2.3 /I 5.4 17.2 CINEMA ANNUAL ATTENDANCE/CAPITA 0.2 /I * 1.0 Id 1.4 0.3 LARG FORMH TOTAL LABOR FORCE (THOUS) 690.0 885.0 1101.0 FEMALE (PERCENT) 39.2 41.3 41.3 36.5 33.8 AGRICULTURE (PERCENT) 80.0 73.0 67.0 77.4 57.; INDUSTRY (PERCENT) 8.0 11.0 15.0 9.8 17.4 PARTICIPATION RATE (PERCENT) TOTAL 45.8 43.8 40.0 41.0 36.3 MALE 56.8 52.3 46.9 52.1 47.6 FEMALE 35.3 35.6 31.8 30.2 25.1 ECONOMIC DEPENDENCY RATIO 1.0 1.1 1.2 1.2 1.4 If_z DISIRXBUTIN PERCENT OF PRIVATE INCOME RECEIVED Br HIGHEST 5S OF HOUSEHOLDS .. HIGHEST 202 OF HOUSEHOLDS . - LOWEST 202 OF HOUSEHOLDS .. LOWEST 40 OF HOUSEHOLDS .. turi TAST CCCU'S ESTINATED ABSOLUTE POVERTY INCOME LEVEL (USS PEA CAPITA) URBAN .. .. 243.0 lh 168.3 525.3 RURAL .. .. 118.0 IE 90.8 249.0 LWA&LU KLLALLVL ebCLttLt LMJflS LEVEL (USS PER CAPITA) URBAN .. .. 121.0 lh 107.7 477.4 RURAL .. .. 121.0 lb 65.0 186.0 ESTIMATED POP. BELOW ABSOLUTE POvERTY INCOME LEVEL (2) URB. .. .. 42.0 th 34.7 RURAL .. .. .. 65.4 NOT AVAILABLE NoT APPLICASLE H O r E S /a The group averages for each indicator are populatlon-weighted arithmtlc manas. Coverage of countries amon the Indicators depends on availability of data and ta not uniform. /b Unlesa otherwise noted. -Deta for 1960- refer to any year between 1959 and 1961; 'Data for 1970' between 1969 and 1971; and daca for -)ost Recent Estimate between 1980 and 1982. /c 1977; /d 1975; /e 1979; If 1962; /. Goverment hospital establishments; /h 1978; Ii 1964; /.1957. JUNE. 1984  -31-ANNENU I ________o _____"IC (P-age 3 of 5) ,aa ats t dna,"o seadra, Ste "caneM tia- ..tl h s ape.-des cath1lsaIsaiatddrd e .1.tl.i t tita acts Vha shatatdertaste sc. tctscail detweaskh bm Sl Of l itSe" atftsssic-dta dslsll adLEOK1 acasapi as'djh dktett isal I. -Meilclgl ea-. aa .ieals*-lti dacrfth ftea at" v alta ct. I"dltata en BMd. theatacatas actat aMa lCZ) accceta, iart asees'A s.0 n wdvV IdVchEPeaRr,l.W -tsr.=tat wande - l isa- a asaysle M etgamd ne a W sttp tIes SIb can , bloc- aat . san she tha ttain teata b sejas asp. 1 tamsm rfwate AKVOL tae cilmtlt5dat tdi aac" tact afflit mIdl Saite it it-a Icaca ci cite.. aaia-salsEaid atI=eslaI. Is ams 1seaPsa ecu dtaa, Itse --tWt ass e-rlias desie, atl-heftla eatd Ca.at tadla6sase ade tt ale a. 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