Announcement of World Bank Loans Totaling Seven Hundred Fifty-Two Million US Dollars to Support Mexico's Agricultural and Mining Reforms and Technical Training on June 26, 1991

 FOR IMMEDIATE RELEASEPt. World Bank 1818 H Street, N.W., Washington, D.C. 20433, U.S.A. BANK NEWS RELEASE NO. 91/107/LAC Contacts Ciro Gamarra (202) 473-8721 WORLD BANK LOANS TOTALING $752 MILLION SUPPORT MEXICO'S AGRICULTURAL AND MINING REFORMS AND TECHNICAL TRAINING WASHINGTON, D.C., June 26, 1991 ** .The World Bank has approved three loans, totaling $752 million to support reforms in Mexico's agricultural and mining sectors and to help finance a technical training project. The loans are part of the World Bank's efforts to assist the modernization of key sectors in the Mexican economy. The first loan, of $400 million, will7support a program of agricultural sector adjustment, which will improve incentives for increased production in the Mexican agricultural sector. The -second loan, of $200 million, will support a program to deregulate the mining sector and stimulate private domestic and foreign investment. And the third loan, of $152 million, will help modernize the National System for Vocational and Technical Education (CONALEP). Agricultural sector reforms The agricultural sector loan will help the government meet its objectives of raising productivity, increasing efficiency in the sector through better-functioning output and input markets, and alleviating poverty among the most vulnerable groups through targeted food programs. The $400 mil.lon loan supports trade and policy reforms that will increase competition and reduce the government's role in the production, planning, marketing, storage and processing of agricultural products and inputs, and by allowing more competition from the private sector. The reform program includes a revision of the allocation of - government expenditures in consumer programs by increasing spending for improved targeted food assistance and nutrition programs. NOTEs Money figures are expressed in U.S.'dollar equivalents. -2- The program also includes measures to reform the price and trade policy regime for agricultural products and their industrial derivatives, abolish the system of mandatory production planning for agricultural products, reduce and streamline market regulations and barriers to entry and competition and make food consumption and nutrition programs more cost effective and successful by increasing coverage and improving targeting of the poorer population. In March 1988, the World Bank approved the first agricultural sector loan, of $300 million, to Mexico. The loan supported the initial process of reforms, including removing export controls on high-quality rice and beef, and eliminating export controls on fruits and vegetables. As part of the program supported by the new loan, guaranteed producer prices will be confined to maize and beans, consumer price controls will be eliminated for about 30 agricultural and agro-industrial products and agricultural machinery, and quantitative restrictions on imports and exports will be eliminated for most agricultural products and inputs. Nominal tariff protection will not exceed 20 percent, and export taxes wil be abolished. As a result of this program, most constraints on production, marketing. processing and trade will have been dismantled. During negotiations of the loan, the World Bank and the government agreed to carry out studies on sugar and beans, and to define a system which will allocate import permits of powdered milk on.a transparent, competitive and efficient basis. The loan will finance eligible import expenditures and will be disbursed in two tranches of $200 million. The first will be available upon loan effectiveness by July 1991, and the second is expected for August 1992, after a review of the progress in the program and the continuation of the 'policy reforms. Continuing liberalization of agricultural trade and prices and streamlining of the regulatory environment will contribute to the expansion of agricultural production and better resource allocation,. improve real income and generate better nutrition and health status for the poor. Mining reforms The $200 million loan for a mining restructuring project supports a series of policy changes and institutional reforms, including liberalizing private sector access to land with mineral potential and releasing state-held mining reserves. Barriers to foreign investment in mining enterprises will be reduced, and a new mineral rights policy will result in a better allocation of resources. The system of mining concessions will.also be reformed, and state ownership of enterprises in the sector will be phased out. - The mining sector project also includes the modernization of government agencies providing support to small- and medium-scale mining enterprises, the establishment of environmental standards for the mining -3- sectors, and the phasing out of direct government financing of mining activities. Total cost of the project is estimated at $436.5 million. The beneficiaries will provide $148.9 million, the Government of Mexico $66.3 million, and the participating financial intermediaries $21.3 million. The $200 million World Bank loan will be disbursed over five years. About $191.5 million of the loan proceeds will finance credit to small and medium enterprises for the acquisition of fixed assets (including pollution control equipment), permanent working capital and the development of existing mineral reserves. The remaining $8.5 mil21on will finance technical assistance for institutional strengthening programs for the General Directorate of Mines (DGM) and the Mineral Resources Council (CRM). In addition to DGH and CRM, other implementing agencies are the Mining Development Commission (CFM) and the Trust Fund for Mining Development (FFM). The project will support environmentally sound'development of Mexico's mining sector, which is believed to have strong growth potential. The reforms will encourage increased private investment, which in turn would result in higher output, exports and employment. Training proiect The $152 million World Bank loan for- the modernization of CONALEP includes review. and upgrading of all instructional materials for pre-service training in 97 fields and in-service training far 84 fields; decentralization and upgrading of instructor training programs; &nd a technological services program. The training project also includes expansion of training activities in key sectors, strengthening of the administration of CONALEP, increAsing efficiency and improving cost reduction recovery plans, including the provision of equipment production and maintenance programs and development of a communications network. The project is expected to produce skilled manpower and small business services required for the restructured economy to sustain and strengthen growth, with particular emphasis on flexibility in response to the labor market needs in growth sectors, and in disadvantaged areas and populations. When the project is fully implemented by 1996-97, an estimated 180,000 students will graduate from the training programs each year. The project would thus help increase the productivity and international competitiveness of the Mexican labor force. The cost of the project is estimated at $204.5 million, with the Government of Mexico to provide $52.5 million. The World Bank loan is expected to be disbursed over five and a half years. The World Bank loans were made, to Nacional Financiera (HAFIN) with the guarantee of the United Mexican States. The loans are for 17 years, including five years of grace, with a variable interst rate, currently 7.73 percent, linked to the cost-of the Bank's borrowings. They also carry an annual commitment charge of 0.25 percent on the undisbursed balances.