Announcement of World Bank Assists Mexico's Agricultural and Fertilizer Sector Reforms on March 15, 1988 : Announcement of World Bank Assists Mexico's Agricultural and Fertilizer Sector Reforms on March 15, 1988

FOR IMMEOIATE RELEASE World Bank 1818 H Street, N.W., Washington, O.C. 20433, U.S.A. BANK NEWS RELEASE NO. 88/54 Contact: Ciro Gamarra (202) 676-1217 WORLD BANK ASSISTS MEXICO'S AGRICULTURAL AND FERTILIZER SECTOR REFORMS WASHINGTON, March 15, 1988 -- Mexico's efforts to promote greater efficien- cy and higher productivity in agriculture and to restructure and rationalize the fertilizer sector will be assisted by two World Bank loans totalling $565 million. · The agricultural sector loan, of $300 million, is the first of several adjustment loans that will support a continuing series of reforms in the sector. It is an important part of the package of external financing linked to implemen- tation of Mexico's overall economic reform program. The fertilizer sector adjustment loan, of $265 million, is a combined po- licy and investment loan that supports the first phase of a five-year program to put the sector on a sound competitive basis and eliminate government subsidies. Agricultural Sector Loan The loan supports a program of continuing reforms (which have already achieved positive results) in the areas of consumer food subsidies and their targeting, improvement of producer pricing policies, privatization of parasta- tals, and agricultural and agro-industrial trade liberalization. Streamlining and decentralizing of the Ministry of Agriculture, rationalization of public investments in agriculture, and reduction of input subsidies are also part of the reform program. The benefits of the reform program would consist of rising productivity and efficient allocation of resources in both agriculture and agro-industry, as adjustments in pricing make the incentive structure correspond more closely to economic opportunity costs. In addition, fiscal savings to the Mexican government would be substantial while remaining subsidies would be more selective and targeted to the poor. An expanded food stamp program for urban areas and targeting of food price subsidies to stores in poor neighborhoods and economically depressed ·rural areas would reduce the impact of food price adjustments on the urban poor and on poor rural groups that do not produce their own food. Changes in the government's fiscal outlays would consist: decreased subsi- dies on inputs, mainly fertilizers; changes in consumer subsidies; reduction of the operating losses of CONASUPO, the national basic food company; and reduction in losses of public sugar mills. The net effect would be an annual fiscal cost reduction of between $1 billion and $1,2 billion, depending on the year of the program. NOTE: Money _figures are expressed in U.S. dollar equivalents.  - 2 - The result of studies on agricultural pricing issues included in the program would assist the government in designing a program of further reforms. The loan will finance general imports with priority given to agricultural inputs and foodstuffs. The loan will be disbursed in two tranches -- the first, of $100 million, upon effectivenss of the loan and the second, of $200 million, upon fulfillment of conditions related to policy areas to be reformed and completion of related studies. It is expected that this would be completed by March 1989. Fertilizer Sector Loan This loan is designed to provide World Bank support to the government's five-year adjustment sector program, mainly during its first critical two years. These adjustments involve the implementation of a series of policy reforms and supporting rationalization investments. Subsequent operations would continue to support the implementation of the program, building on progress made in implementing policy reforms and promoting an optimum organization structure in the sector and increasing competition and private sector involvement. About $200 million of the loan proceeds will be used to finance imports of fertilizer and fertilizer raw materials and general imports. This amount is equivalent to the estimated import requirements of the sector over the period 1988-90. It will be disbursed in two tranches of $100 million each, the first upon loan effectiveness and the second by April 1989, after a review of the progress in the program. Major policy reforms involve significant increases of input and output prices over a five-year period, closing of uneconomic plants, liberalization of distribution and imports, setting up a better organizational structure in the sector, financial restructuring of FERTIMEX, the Mexican fertilizer company; and carrying out of a program of viable investments. Some $63.6 million will be used for rationalization investments and modern- ization of the fertilizer plants in Pajaritos, Minatitlan and Bajio; completion of the Pajaritos ammonium nitrate plant; and for improvements in distribution infrastructure through investments in wholesale storage facilities and marine terminals. Technical assistance and computer infrastructure, with a cost of about $1.4 million, will also be provided in support of the reorganization of FERTIMEX. The adjustment program is expected to considerably improve the efficiency and competitiveness of the sector while eliminating its dependence on direct fiscal transfers from the government. The cost of this program is estimated at $346 million. The Government of Mexico will provide a contribution of $81 million in equity to FERTIMEX to finance local costs. The project is expected to be completed by early 1993. Funds for the investment, training and study components ($65 million) of the program will be disbursed over seven years. Both loans were made to Nacional Financiera, S.A. (NAFIN), the financial agency of the Mexican government. The loans are for 15 years, including three years of grace, with a variable interest rate, currently 7.72 percent, linked to the cost of the Bank's borrowings. They also carry an annual commitment charge of 0.75 percent on the undisbursed balances. - n -