Announcement of World Bank Assists Earthquake Reconstruction in El Salvador on September 17, 1987

FOR IMMEDIATE RELEASE World Bank 1818 H Street, N.W., Washington, D.C. 20433, U.S.A. BANK NEWS RELEASE NO. 88/11 Contact: Ciro Gamarra (202) 676-1217 WORLD BANK ASSISTS EARTHQUAKE RECONSTRUCTION IN EL SALVADOR ;1g7 WASHINGTON, September 17 -- Reconstruction of the capital city of El Salvador, hit by a severe earthquake last year, will be assisted by a World Bank loan of $65 million. The project will address the urgent needs in key sectors in the metropolitan area of San Salvador as part of a three-year reconstruction program. On October 10, 1986, a powerful earthquake hit metropolitan San Salvador leaving 1,500 people dead, 10,000 injured and 300,000 homeless. Over one-third of the area's population of 1.5 million was affected by the earthquake. Total damage was estimated by the United Nations Economic Conunission for Latin America and the Caribbean (ECLAC) at about $1,030 million. The most serious damage occurred in the areas of housing, conunercial and banking buildings, and public sector administration and services. Basic urban infrastructure -- water and sewerage, road and drainage, electricity, and telephone systems -- also sustained heavy damage. Most of the small shops and businesses comprising the informal sector, concentrated in downtown San Salvador, were hit heavily. Total damage is equivalent to about one-fourth of El Salvador's estimated 1986 gross domestic product (GDP) valued at $4 billion, or over 40 percent of the country's external debt. In addition, unemployment in El Salvador rose from 26 percent to 35 percent as 38,000 people lost their jobs, and loss of output in 1986 was equivalent to between 1 percent and 2 percent of GDP. The reconstruction program calls for a total public investment of about $600 million, including this project. And at least $400 million is expected to be provided by the private sector and by insurance claims to cover most of the estimated total damages. Japan has indicated its willingness to provide a Y 1.5 billion ($10 million equivalent) grant in cofinancing with the World Bank for the project. This contribution will be the first allocation from the Japan Special Fund for Enhanced Recycling. This fund of $200 million equivalent is administered by the World Bank. Other pledges made or being considered for the reconstruction program are a $60 million grant and $40 million loan from Italy, a $27 million grant from Germany, a $15 million loan from France, and a $75 million grant NOTE: Money figures are expressed in U.S. dollar equivalents.  - 2 - from the United States. (This latter contribution is in addition to a $50 million grant provided by the U.S. gGovernment immediately following the disaster). The Inter-American Development Bank is also providing $78 million in loans. Ten days after the earthquake, a World Bank technical team visited El Salvador to assess the damage. Following the team's reconunendation, the Bank reallocated $4.1 million of an existing education loan to facilitate urgent reconstruction of primary and secondary schools and recruited a consultant to help the government prepare an emergency building code. Another Bank team visited El Salvador in November 1986 to appraise a reconstruction project. In March 1987, the government presented a revised project proposal, which was appraised in May 1987. The project includes the provision of low-cost housing, public office and school buildings, and essential public services including telephone exchanges. It will support the expansion of the capital city towards the northern suburb of Apopa, which is less vulnerable to earthquakes, and the rehabilitation of the micro-enterprise sector to restore its production and income generating capacity. The project will help strengthen the government's capacity to plan and manage the reconstruction efforts and enhance its preparedness to deal with national emergencies in the future. The housing sector was the most severely affected, with about 24,000 houses completely destroyed and another 36,000 heavily damaged. The housing component in the project consists of the relocation, reconstruction and rehabilitation of low-cost housing in the heavily damaged area that will benefit some 4,000 low- income-families. It includes the reconstruction of 3,000 units in situ and construction of 1,000 units for families being relocated to Apopa. The project includes the reconstruction of about 400 classrooms in San Salvador and Apopa and construction of two- and three-story office buildings for key ministries. It also comprises the rehabilitation of the urban corridor linking San Salvador to Apopa, with about 16.4 kilometers in road improvements, and provision of water supply to about 2,500 families in Apopa. Micro-enterprise credits for fixed asset investments such as equipment and machinery, and for working capital required to rehabilitate the micro-enterprise sector in San Salvador and develop micro enterprises in Apopa will be provided under the project. Training of 6,000 construction workers and technical assistance programs will be provided, including studies for the revision of the existing building code and to update the national emergency plan to better prepare the country for similar future disasters. This is the first World Bank loan to El Salvador since 1979. The remainder of the project cost of $102.4 million will be covered by local resources ($23.9 million), the Japan cofinancing grant ($10 million) and other cofinancing ($3.5 million). The World Bank loan is for 20 years, including five years of grace, with a variable interest rate, currently 7.76 percent, linked to the cost of the Bank's borrowings. It also carries an annual conunitment charge of 0,75 percent on the undisbursed balances. - 0 -