Argentina - Enterprise Export Development Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. P-6692-AR MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN IN AN AMOUNT EQUIVALENT TO US$38.5 MILLION TO THE ARGENTINE REPUBLIC FOR AN ENTERPRISE EXPORT DEVELOPMENT PROJECT NOVEMBER 2, 1995 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EOUIVALENTS Currency Unit = peso US$1.00 = 1.00 peso FISCAL YEAR January 1 - December 31 GLOSSARY OF ABBREVIATIONS ANA = Customs Administration AOP = Annual Operational Plan CNCE = National Trade Commission DGI = General Tax Directorate IASCAV Argentine Institute for Agricultural Health INAL = National Food Institute INTM = National Institute of Industrial Technology IRAM = Argentine Institute of Materials Rationalization MPP = Manual of Policies and Procedures MSA = Management Service Agreement MSC = Management Service Contractor OECD = Organization for Economic Cooperation and Development PV = Private Sector Development (Program Objective Category) SDOE = Subsecretariat of Economic Organization and Deregulation SENASA = National Service of Animal Health SMEs = Small and Medium Scale Enterprises TA = Technical Assistance UAP = Program Administration Unit UCPFE = Coordinating Unit for Export Promotion Policies VAT = Value Added Tax  FOR OFFICIAL USE ONLY ARGENTINA ENTERPRISE EXPORT DEVELOPMENT PROJECT Loan and Project Summary Borrower: Argentine Republic Inplementin! A2encv: Secretariat of Commerce and Investment (Ministry of Economy and Public Works and Services). Beneficiaries: (a) Private enterprises with potential export sales; (b) govermment agencies responsible for trade policy and administration; and (c) state and private sector laboratories providing quality certification. Povertv: n.a. Amount: US$38.5 million equivalent. Terms: The loan would be a currency pool loan at the Bank's standard variable interest rate and fees, repayable over 15 years, including 3 or 5 years of grace depending upon the Borrower's choice at negotiations. Commitment Fee: 0.75% on undisbursed loan balances, beginning 60 days after signing, less any waiver. Onlendine Terms: The Borrower would bear the explicit risks of interest rate and foreign exchange fluctuations. Proceeds of the Bank loan would be provided by the Government to the agencies responsible as grants for implementing the cost-sharing grant scheme and each technical assistance program. Financing Plan: See Schedule A. Rate of Return: n.a. Staff Appraisal Report: 14959-AR Project Identification Number: AR-PA-38883 Map: IBRD No. 26842 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed wiihout World Bank authorization.   MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE ARGENTINE REPUBLIC FOR AN ENTERPRISE EXPORT DEVELOPMENT PROJECT 1. I submit for your approval the following memorandum and recommendation on a proposed loan to the Argentine Republic for the equivalent of US$38.5 million. The loan would be a currency pool loan at the Bank's standard variable interest rate and fees. This loan would be repayable in 15 years, including 5 years of grace. 2. Country and Sector Background. Since 1986, Argentina has moved from one of the most closed trade regimes to one of the most open and transparent. Trade liberalization (aided by two Bank adjustment loans) has taken place in conjunction with policy reforms, including reform of the tax structure, removal of subsidies, privatization and deregulation. The impact of the reforms is visible in the expansion and increased diversification of trade. The initial effect of liberalization was an import boom fed by the strong consumer response to stabilization. Imports more than doubled between 1991 and 1993, while exports grew by less than 10 percent. In 1994, exports picked up steadily with growth rates increasing from 6 % in the first quarter to over 25 % in the fourth quarter, compared to the same periods the previous year. Imports, on the other hand, decelerated from growth rates of over 50% in the first quarter to only 13% in the fourth quarter compared to the previous year. On a yearly basis, however, exports grew by 20% and imports by 28%, increasing Argentina's trade deficit from US$3.7 billion in 1993 to US$5.8 billion in 1994. In 1995, exports took off, growing by 47% in the first quarter, while imports increased by only 3% compared with the same period in 1994. As a result, since March 1995, Argentina's trade has registered surpluses. The forces behind this change in trade flows are the slowdown of sales to the local market, as the consumption boom came to an end (by May 1995 local sales were one- third below the level six months before) and the increase in sales of agroindustrial products, automobiles, automotive parts and fuel to Brazil, in response to the consumption boom that followed Brazil's Plano Real. 3. Argentina's export growth still depends on a relatively narrow range of traditional exports: commodities and agroindustries account for over 60% of Argentina's exports. Exports of industrial manufactures have grown rapidly since 1993; however, they started from a relatively low level, and a significant share of them are exports of automotive parts made under a special agreement with Brazil. Also, exports are concentrated in only a few enterprises. In 1994, only about 9,000 enterprises out of over 60,000 producing tradeables exported goods at a value of US$15.7 billion; moreover, only 10% of these enterprises generated 92% of the export value. Despite the strong export growth in 1994, these figures show no change from 1993; hence, the increase in exports in 1994 came from basically the same group of firms that were exporting in 1993.  4. Importantly, the exchange regime and trade policies do not explain the slow response of non-traditional exports. Although the real exchange rate has appreciated against the US dollar significantly since the adoption of the Convertibility Plan in 1991, part of this appreciation has been offset by tax measures and deregulation (including increases in indirect tax reimbursement for exports, elimination of the gross asset tax from agriculture and industry, and abolition of prepayments against VAT of the agricultural sector) as well as by the reduction in value of the US dollar with respect to other currencies. Similarly, although trade policies can still be improved and simplified, the anti-export bias arising from remaining import restrictions is likely to be low. 5. Instead, factors inside and external to firms are now the chief constraints to faster export response. Within the firm there is often an absence of export skills and motivation, since traditionally exports were vehicles for capital flight or merely compensated for shortfalls in local demand. According to interviews with enterprises in Argentina, and the results of a firm-level survey of over 400 exporters and potential exporters, firms that have never exported find it difficult to access export markets because of lack of information or entrepreneurial skills and experience in areas such as (i) product demand and import regulations in overseas markets; (ii) their own competitive position with respect to other producers; (iii) product design and quality standards; (iv) safety, packaging, quality and labeling requirements; and (v) distribution and promotion strategy options. Entrepreneurs, who in the past have survived because of their financial skills, suffer from a lack of awareness and knowledge of what is required to engage in the modernization and technological upgrading of their plants, let alone to search for export opportunities. Furthermore, there is a strong resistance to investing in export start-up expenditures because of the uncertainties of financial returns. Nevertheless, the forces of competition are inducing a structural transformation of some industries which, in due course, will contribute to a rise in non-traditional exports. An indication of this transformation is the growth of capital goods imports destined for the industrial sector. Capital goods are the fastest growing imports, now accounting for about a fourth of total imports; about 40% of imported capital goods go to the industrial sector. 6. The behavior of Argentine firms is not atypical. International experience suggests that trade liberalization policies alone are not sufficient to elicit rapid export responses in countries with deep-seated attitudes that work against exports, and in which outdated production technology, low product quality and poor customer service are prevalent. Rather, it has been considered increasingly necessary to complement policies with pragmatic support packages to overcome knowledge deficits and risk perceptions. 7. The main external constraints concern the time and cost involved in meeting export procedures. Other critical constraints include the lack of credit, not only export credit but credit for fixed investments. There are also deficiencies in the supply of local consulting services in the area of exports and of quality control services and certification. The proposed project would help reduce institutional obstacles to export.  - 3 - 8. The Government is aware of past problems created by attempting to promote exports through tax incentives and government agencies to provide information and technical services. The Government thus has asked the Bank to help reorient support to exporters targeted on three areas: assistance to potential exporters to obtain export- related services from private sector providers instead of from government agencies; simplification of export procedures; and rationalization of public sector agencies and programs dealing with export promotion. 9. Project Objectives. The primary objectives of the proposed project are to help increase the international competitiveness of small and medium enterprises in Argentina and to improve the performance of export-related public agencies, thus facilitating export growth. The project would help firms to become more internationally competitive through three avenues. First, the project would help increase awareness among entrepreneurs about export opportunities through the provision of basic information about foreign markets and profitable export strategies. Second, it would prompt a limited number of enterprises to invest their own resources in productivity improvements and export development expenditures through the incentive of a one-time grant to share these costs. Third, the project would help to improve the performance of agencies providing quality control and certification services. The project would also facilitate export growth by supporting the simplification and reduction of export procedures. 10. Project Description. The project would have two main components: (A) an Enterprise Assistance Program to develop export competencies of the private sector in manufacturing and service industries; and (B) Institutional Strengthening to enhance the performance of export-related public agencies. 11. The Enterprise Assistance Program would be in the form of: (i) cost-sharing grants to cover up to 50% of the cost of consultant's services required to improve the international competitiveness of small and medium enterprises (SMEs); and (ii) the services of a worldwide Directory of Consultants and Market Information Suppliers to ensure easy access by Argentine exporters to information about the availability of export-related services worldwide. 12. The Cost-sharing Grant Scheme would offer its services solely in response to private sector demand on a non-discriminatory basis, and firms would be assisted on a first-come, first-serve basis. The program would be targeted to firms that have little or no previous export experience or that wish to explore new markets. Support would be provided once an export program has been developed by the firm and the enterprise commits its own funds to implement it. The Cost-sharing Grants would finance consultant services, acquisition of information (including software and reference material), trips by entrepreneurs or their staff to explore export opportunities, mailing of samples, promotion material, and other miscellaneous expenses, provided they are identified in an export plan. The grants would finance consulting services for: (i)  - 4 - exploration of export opportunities; (ii) product adaptation or development of new products for export, including technology upgrading and quality certification; (iii) improvement of productivity/efficiency to compete in an export market; and (iv) strategy and actions to penetrate the foreign market directly or indirectly through associative organizations. Initially, the grant percentage rate would be 50%, but in could be reduced as the use of consulting services becomes more commonplace. The assistance would be, in principle, on a one-time per firm basis, but firms could apply for another grant if it is to export to a different market or a different product. The maximum grant size would be US$75,000 for a specific export plan and with a maximum of $125,000 for any individual firm. Eligibility criteria to participate in the Program would be delineated in a Manual of Policies and Procedures (MPP) agreed with the Bank at negotiations. All services would be provided by the private sector. 13. It is estimated that about 3,000 firms, out of a group of almost 12,000 enterprises identified as potential exporters, could be eligible to participate in the cost-sharing grant scheme over a period of four years. However, since there is little international experience in the use of cost-sharing grants, and most of the schemes are too recent to be able to fully assess their success, the proposed project would finance the first phase of the program, with the objective of assisting about 900 firms over a 30-month period. The Bank would consider initiating the preparation of a follow-up operation following the mid-term review of the Cost-sharing Grant Scheme scheduled to take place 12 months after effectiveness or when half of the funds of the Scheme have been disbursed, whichever comes first. Negotiations for a follow-up operation would be contingent on a positive evaluation of the cost-sharing grant scheme 18 months after effectiveness or after two-thirds of the funds have been disbursed, whichever comes first. This evaluation would be based on the effectiveness of the management arrangements and evidence of changes at the firm level as a result of the consulting services received. 14. The Institutional Strengthening component would support the Government's efforts to simplify procedures and improve the performance of agencies involved in the export process. The Government has undertaken a systematic analysis of the institutional capabilities of the key agencies involved in export procedures (public and private), utilizing a methodology proposed by the Bank. The results of this analysis are the basis for the specific institutional strengthening programs in the following three areas: Simplification of Procedures. This would involve streamlining procedural requirements and reducing the time involved in processing an export order, an import order (temporary admission regime), and in obtaining tax reimbursements. Agencies involved would include the Customs Adniinistration (ANA), the General Tax Directorate (DGI), certification agencies' and the National 1. The certification agencies are: INTI, the Argentine Institute for Agricultural Health (IASCAV), the National Service of Animal Health (SENASA), and the National Food Institute (INAL).  - 5 - Institute of Industrial Technology (INTI). The targets at the end of the second year would be: (i) reduction in processing an export operation from 8 to 2 days on average; reduction in the devolution of taxes from 30 to 3 days on average; reduction in the time required to issue certificates from 4 days to 1 day on average; and elimination of the number of certifications required. Strengthening the Quality Control System. This would involve the improvement of public and private laboratories that provide quality control certification for exports. It would finance training and laboratory accreditation (for the IS09000 certification). The agencies involved would be INTI, IRAM (the Argentine Institute of Materials Rationalization) and selected private laboratories. The target at the end of the first year would be the accreditation of four of INTI's laboratories. Additional laboratories would be accredited during the second year of implementation. Strengthening Policy Formulation in Export Promotion. This subcomponent would provide technical assistance to the Coordinating Unit for Export Promotion Policies (UCPFE). The UCPFE, formed by Secretariats from the Ministry of Economy and External Relations, was created in November 1994 with the mandate to coordinate and rationalize public sector agencies and programs dealing with export promotion. During project implementation, the UCPFE will rationalize and streamline existing export promotion entities, and gradually phase out those entities that are duplicating roles or providing services that could be supplied more efficiently by the private sector. Strengthening Commercial Services provided by Fundaci6n ExportAr. Fundaci6n ExportAr, in the Ministry of Foreign Affairs, provides basic trade information and promotes participation in international trade fairs. The project would provide technical assistance to improve the quality of the support it gives to exporters through exhibits (booths or stands) for Argentine exporters and products at international trade fairs. The target for the first year of operations would be assistance to Fundaci6n ExportAr in two international fairs (USA and South Africa). Strengthening the Administrative Capability of the Program Administration Unit (UAP). Technical assistance would be provided to the UAP to improve its capability to carry out its coordinating, controlling and evaluating functions. 15. The Bank also would also consider support to the National Trade Commission (CNCE) from its research budget. The CNCE was created in May 1994, and is fashioned after the US International Trade Commission. It has the function of considering cases of exceptional protection in the form of safeguards and countervailing- duty actions, and to make inquiries concerning anti-dumping actions. The CNCE has the  - 6 - important role of keeping commercial practices open while balancing the interests of producers and consumers. 16. Project Implementation. Overall responsibility for project implementation would be vested in the Program Administration Unit (UAP) in the Secretariat of Commerce and Investment of the Ministry of Economy. The UAP would act as a promoter and would be responsible for implementing the project in accordance with the Project Implementation Plan and with policies, criteria and methodologies specified in the Manual of Policies and Procedures. The Cost-sharing Grant Scheme would be managed by a private management service contractor (MSC) under a management service agreement (MSA). The task of compiling and updating the information for the Directory of Consultants and Market Information Suppliers and of putting it on a Windows-type program, checking the references and running it would also be carried out by a private firm under an MSA. The UAP would oversee the work of both private firms. The Subsecretariat for Economic Organization and Regulation (SDOE), the agency in charge of deregulation and simplification of government procedures, would be responsible for the coordination of the technical assistance programs under the Simplification of Procedures Component. The UAP would directly coordinate the technical assistance programs under the other subcomponents involving INTI, UCPFE and Fundaci6n ExportAr. The UAP would sign Implementation Agreements with the agencies involved and would agree with the Bank on an annual operational programming (AOP) system prepared in coordination with these agencies. The first-year AOP and the terms of reference for the consulting work involved were discussed during negotiations. The second year AOP would be discussed and agreed with the Bank during the Mid- Term Review. The UAP would also be responsible for preparing and presenting to the Bank Semi-Annual Project Implementation reports describing progress achieved against targets established in the AOP. 17. The project would be subject to a Mid-Term Review after 12 months of effectiveness or after half of the cost-sharing grant funds have been disbursed, whichever comes first. Another review would be carried out 18 months following effectiveness, or after two-thirds of the funds have been disbursed, whichever comes first. The evaluation of the scheme at these stages would focus on the effectiveness of the management arrangements and evidence of behavioral changes in the firm that have received the assistance compared to a control group of similar firms. A full impact assessment would be carried out three years after effectiveness. The main indicators of the success of the Cost-sharing Grant Scheme after three years would be the expected greater competitiveness measured in terms of higher productivity levels, product quality improvements and increased exports by the assisted firms, compared to the control group. Another measure would be the achievement of an average annual export performance equivalent to a multiple of the cost of the grants paid to the exporters. The impact assessment would be carried out by independent consultants based on survey work. The effectiveness of the Institutional Strengthening component would be measured in terms of reduction of the days and processing stages involved in an export  - 7 - operation and the reduction in the time involved in providing quality and other certifications to exporters. 18. Project Sustainability. The cost-sharing grant scheme is intended to be a one- time boost to elicit greater export responses. Therefore, the program in itself is not sustainable once the resources have been used. However, the sustainability of the project should be viewed in terms of its consequences, i.e., the achievement of greater international competitiveness and the generation of knowledge of how to export, that could be used repeatedly by the firms. The improvement in the Government's export agencies' infrastructure supported by the project's Institutional Strengthening component would have lasting effects by reducing the role of Government in assisting exporters and promoting private sector involvement in its place. Successful project implementation will depend on continued borrower ownership. Strong borrower ownership is anticipated given the heavy involvement of the authorities in project design and the widely shared view of the priority of increasing exports. 19. Lessons from Past Export Development Projects. Experience in Latin America and in other developing countries demonstrates that traditional export promotion rarely has been effective in expanding exports. Promotion schemes have failed where the macroeconomic conditions and the overall policy environment have not been conducive to exports. Also, past project designs appear to have been flawed. First, promotion services have been provided through a single public service supplier that tended to suffer from rapid turnover in leadership and inexperienced staff. Second, the services provided have been supply, rather than demand, driven. Third, external assistance has rarely been organized to focus directly at the enterprise level. Some countries have been successful in stimulating exports by providing support and assistance to enterprises in export marketing and related tasks and by helping finance export-related services provided by private sector firms. This innovative approach has been used in Great Britain and Ireland, and with Bank support in India, Kenya, Indonesia, the Philippines and Mauritius. Similar programs have been designed (but are not yet operational) in Jamaica, Trinidad and Tobago, Senegal, South Africa, Bangladesh, and Uganda. A small cost-sharing grant program is being implemented in Argentina, financed by the Bank, to stimulate the export of non-traditional agricultural products. A review conducted by the OECD on the British scheme found that about half of the firms from a sample of 420 firms that received cost-sharing grants over a 3-year period, were later able to use consultants at market prices, and 82% had begun implementing the consultant's recommendations. Information from a sample of 36 grant-supported activities in Indonesia shows that the first year of implementation achieved additional exports of US$36 for every US$1 of grant received. The cost-sharing grant scheme for agricultural exports in Argentina recently has begun to disburse; thus, it is premature to evaluate its impact on the firms' exports. Nevertheless, some lessons can already be discerned, including the importance of good publicity campaigns to reach potential exporters, and the need to have a continuously open window to receive proposals. The proposed project incorporates the lessons from these experiences. A key lesson is that  - 8 - the success of the scheme depends on the delivery system. For that reason, the project proposes that the administration of the scheme be given to a private sector firm under a management service agreement. 20. Rationale for Bank Involvement. By helping accelerate and broaden the export development process in Argentina, the proposed project fully supports the Bank's country assistance strategy for Argentina, discussed at the Board of Executive Directors on May 4, 1995 with the Provincial Bank Privatization Project (Loan 3878-AR). The Bank has been and remains a strong supporter of the ambitious reform program begun in 1990. Major challenges are to sustain the liberal trade regime and maintain macroeconomic stability. To this effect, it is necessary to increase productivity and urgently accelerate the export response of Argentine firms. The Bank is particularly well placed to provide the authorities with lessons learned worldwide with export support schemes. Also, the Bank has the implementation capacity to proceed rapidly in project design based on experience in the preparation of similar projects in several countries. 21. Agreed Actions. During negotiations agreement was reached on: (a) the project objectives, description, cost, and financing plan; and (b) the reporting, auditing, procurement, and disbursement arrangements. Agreement was also reached on the following conditions of loan effectiveness: (a) the formal establishment of the UAP and the agreement with the Bank on the staffing and budget of the UAP; and (b) the signing of a contract with an MSC for the administration of the Cost-sharing Grant Scheme, under terms and conditions satisfactory to the Bank. It was agreed that the Program Administration Unit (UAP) in the Ministry of Economy would continue to be adequately staffed (as agreed with the Bank) and otherwise supported in the implementation of its responsibility under the project. It was agreed that events of suspension of loan disbursements would be: (a) that the Manual of Policies and Procedures, or any provision thereof, shall have been amended, suspended, abrogated, repealed or waived without prior agreement of the Bank; and (b) that the MSC for the administration of the Cost-sharing Grant Scheme, shall have failed to perform any of its obligations or undertakings under the respective MSA, and such failure shall not have been remedied by said MSC, by the Borrower, or by any agency of or other party designed by the Borrower. It was also agreed that the project would be subject to periodic evaluations under terms of reference satisfactory to the Bank and that continuation of disbursements after the Mid-Term Review would be subject to specific measures of project performance. 22. Poverty Category. The project is not expected to confer direct poverty-reduction benefits, although an accelerated export response should have indirect benefits on poverty by increasing employment. 23. Environmental Aspects. The project has a "C" environmental category rating, since there are no major environmental issues associated with it.  - 9 - 24. Program Objective Categories. The project's main Program Objective Category is Private Sector Development (PV). 25. Participatory Approach. The project has been prepared with participation from the potential exporters themselves. During project preparation, a number of interviews with focus groups were conducted to identify the problems faced by potential exporters. These interviews provided the basis for the design of the enterprise survey covering about 400 exporters and potential exporters conducted by the Argentine preparation team. The Argentine authorities have been heavily involved in project preparation. A strong project preparation team operates under the Deputy Minister of Economy. Members of this team have visited the Bank and travelled to several countries, including Ireland, Great Britain, Korea, and Japan to review exporter support schemes. The Argentine team has been involved in all aspects of project design, and has produced a comprehensive background report that has been integrated into the appraisal effort. 26. Project Benefits. The main benefit of the project would be greater international competitiveness of Argentine firms that would lead to an accelerated and broadened export response. Important benefits of the cost-sharing grant scheme would be product quality improvements through the adoption of internationally recognized quality standards, and productivity improvements through the adoption of international best practices in production, management, and marketing know-how. Another benefit would be the development of a more structured approach to exports by Argentine firms, which would allow them to move up in the value chain. In the longer term, however, the project would be evaluated in terms of the incremental benefits it would generate in the form of increased competitiveness and additional exports. Although the program would assist a limited number of firms, it would have a spillover effect on other firms through indirect exporter links and demonstration effects. The institutional strengthening component would help create a better business climate for exporters by reducing the remaining institutional constraints to exports and improving the efficiency of govermnent agencies involved in the export process. 27. A scheme of direct and indirect support to exporters can be seen as insurance for policy reformers that they would be able to continue in the same direction. A robust export response would reduce the demands for policy reversals and special protection-- particularly as local demand begins to slow down--and thus help support the reform agenda. Also, in the face of rising international interest rates, a strong export performance would signal a greater efficiency of Argentina's economy and help reduce the country risk premium. 28. Risks. The main risk for this operation is that the administrative arrangements could fail and that subsidies would be granted to anyone who asks, independently of whether they support feasible export plans. This risk is being addressed by giving the management of the Cost-sharing Grant Scheme to a private sector contractor with  - 10 - knowledge of the export business and by basing part of the contractor's remuneration on performance indicators that measure results other than the number of grants awarded. This risk is being addressed also by supporting only the first stage of the govermnent's program under this project and linking Bank support for subsequent stages to a positive review of the administrative arrangements for the Cost-sharing Grant Scheme. Other risks are that firms may not be willing to pay for export-related consulting services and that the grants could fund activities that firms might have undertaken anyway. The first risk could come about if there is a resurgence of local consumption and firms that are not export-oriented become less interested in finding export opportunities. Although this risk is outside the control of the project, it is reduced by the size of the first stage of the scheme, which would cover only a fraction of the expected demand. The second risk would be mitigated by requiring firms to provide significant cost-sharing, by making payments on a reimbursement basis, and by adopting strict evaluation and monitoring procedures. 29. A risk to the success of the institutional strengthening component would be resistance of the agencies involved to the proposed reforms that involve changes in attitudes, procedures, and staffing. This risk is reduced by giving the management of the most sensitive reforms to the SDOE, which has a very good track record in implementing comprehensive deregulations at different levels of the government. Finally, there is a risk that policy reversals could produce a more protected trade regime, in which case there would be little justification for an exporter support project. As part of the Mid-Term Review, the Bank would assess the Government's performance in maintaining an open trade regime. A substantial departure from this objective would reduce the justification for a follow-up operation. 30. Recommnendation. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank, and recommend that the Executive Directors approve it. James D. Wolfensohn President Attachments November 2, 1995 Washington, D.C.  - 11 - SCHEDULE A ARGENTINA Enterprise Export Development Project Estimated Project Costs (in US$ millions) LOCAL FOREIGN TOTAL Project Administration UAP 2.00 2.00 Advertising/Promotion 1.50 1.50 Enterprise Assistance Program: Cost-Sharing Grant 32.00 22.00 54.00 MSA 1.30* 4.50 5.80 Directory of Consultants 0.30 0.70 1.00 Institutional Strengthening Strengthening of UAP 0.44 0.78 1.10 Policy Formulation UCPFE 0.29 0.46 0.75 Fundacion ExportAr 0.22 0.52 0.74 Simplification of Procedures ANA/DGI 0.81 1.89 2.70 INTI 0.13 0.30 0.43 SENASA 0.20 0.46 0.66 IASCAV 0.01 0.03 0.05 INAL 0.04 0.08 0.12 Quality Control INTI/IRAM 0.56 1.30 1.85 Sub Total 2.30 5.80 7.30 Base Cost 39.70 33.00 72.70 Price Contingencies 1.00 0.50 1.50 Total 40.70 33.50 74.20 * This includes the Value Added Tax (VAT) for about US$1.3 million.  - 12 - SCHEDULE A ARGENTINA Enterprise Export Development Project Financing Plan (US$ Millions) Local Foreign Total % Government 8.70 8.70 12 Beneficiaries 27.00 27.00 36 Bank 5.0 33.50 38.50 52 Total 40.70 33.50 74.20 100  - 13 - SCHEDULE B ARGENTINA Enterprise Export Development Project Procurement Arrangements (US$ millions) PROCUREMENT METHOD CATEGORY N.B.F. TOTAL ICB NCB OTHER COST Consulting Services Cost-sharing MSA ' 7.3 7.3 (5.0) (5.0) Grants 54.0 54.0 (27.0) (27.0) Directory MSA 1.0 1.0 (0.7) (0.7) Technical Assistance 7.5 7.5 (5.2) (5.2) Training 0.2 0.2 (0.1) (0.1) Goods bl 0.7 0.7 (0.5) (0.5) Recurrent Admin. Costs 3.5 3.5 Total Costs 70.7 3.5 74.2 (38.5) (38.5) Note: Figures in parentheses are the amounts to be financed by the Bank loan. N.B.F.: Not Bank-financed; ICB: International Competitive Bidding; NCB: National Competitive Bidding; a/ Selected according to Bank Guidelines for the Use of Consultants b/ LIB: Limited International Bidding (US$400,000); Other: National or International Shopping (US$300,000).  - 14 - SCHEEDULE B ARGENTINA Enterprise Export Development Project Allocation of Loan Proceeds (in US$ millions) Category Amount in US$ % of expenditures nmillion to be financed Consultants' Services Cost-sharing Grants 27.0 50% of amounts disbursed Institutional Strengthening 3.3 70% Management Services Agreements Cost-sharing Grant Scheme 5.0 70% Directory of Consultants 0.7 70% Goods 1.8 100% of foreign expenditures; 70% of local expenditures Training 0.7 70% Total 38.5 Estimated Schedule of Disbursements (US$ millions) Fiscal Year Semester Disbursements Cumulative % of Total Ending in Semester Amount 1996 a/ 06/30/96 5.5 5.5 14 1997 12/31/96 8.5 14.0 36 06/30/97 10.5 24.5 64 1998 12/31/97 11.5 36.0 94 06/30/98 2.5 38.5 100 a/ Includes initial deposit of US$3.5 million into the Special Account.  - 15 - SCEEDULE C ARGENTINA Enterprise Export Development Project Timetable of Project's Key Processing Events Time taken to prepare the project Nine months First Bank Mission December 1994 Appraisal mission departure June 1995 Date of Negotiations September 1995 Planned Date of Effectiveness January 1996  - 16- THE STATUS OF BANK GROUP OPERATIONS IN ARGENTINA STATEMENT OF BANK LOANS (as of September 30,1995) (USS million) Loan Fiscai AMOUNT (to" UNDISBURSED iNumber Year Borrower Purpose cancellations) Fully disbursed loans (44) 5,361.2 0.0 of which SAUSECAUDebt Reduction loans: '2675 1986 Argentina Agriculture Sector 350.0 2815 1987 Argentina Trade Policy 496.0 2996 1989 Argentina Trade Policy II 300.0 3291 1991 Argentina Public Enterprise Reform 300.0 3394 1992 Argentina Public Sector Reform 325.0 3555 1993 Argentina DDSR Support 450.0 3558 1993 Argentina Financial Sector Adjustment 400.0 3556 1993 Argentina Pub Enterprise Ref II 300.0 2641 1986 Argentina Water Supply 40.0 2.0 2854 1987 Argentina Power Distnbutlon 276.0 69.8 12920 1988 Argentina Municipal Development 120.0 37 13280 1991 Argentina Provincial Development 200.0 116.7 13281 1991 Argentina Water Supply 100.0 92.8 :3292 1991 Argentina PEREL 23.0 0.3 3297 1991 Argentina Agricuftural Services 33.5 11.5 13362 1991 Argentina Pub Sectr Reform T.A. 23.0 4.7 3460 1992 Argentina Tax Administration. I 20.0 3.9 3520 1993 Argentiria Yacyreta 1i 300.0 14.2 3521 1993 Argentind Flood Rehab 170.0 37.4 3611 1993 Argentina Road Maintenance & Rehab 340.0 221.5 3643 1994 Argentina Matemal & Child Health 100.0 83.0 13709 1994 Argentina Capital Markiets 500.0 500.0 13710 1994 Argentina Capital Markets TA 8.5 7.4 3794 1995 Argentina Secondary Education i 190.0 190.0 '3838 1995 Argentina Provincial Reforrn 300.0 2004 3860 1 1995 Argentina Municipal Development li 210.0 210.0 3877 1 1995 Argentina Provincial Dev. II 225.0 225.0 3878 1995 Argentina Provincial Bank PrivatizL 600.0 333.0 3921 tS 1996 Argentina Higher Education Reform 165.0 165.0 '-3926 11 1996 Argentina Bank Reforrn 500.0 600.0 i3927 1 / 1996 Argentina Mining Sector Development 30.0 30.0 3931 li 1996 Argentina Provincial Health Sector Dev. 101.4 101.4 'TOTAL 9,836.6 of which has Deen repaid 2,585.5 ITOTAL NOW OUTSTANDING 7,251.1 AMOUNT SOLD 12.8 of which has been repaid 12.8 TOTAL NOW HELD BY BANK AND IDA 9836.5 7,238.3 TOTAL UNDISBURSED 'Dlsbursing SECAL, SAL or Debt Reduction Loan 1/ Not ye signed. 1 8-Oct-95  -17 - SCHEDULE D STATUHIDT OF ZYC IMVESTNMITS Kas of September 30. 1995 (Inx Millions US Dollar.) _ original Grow. Cawituants - Held Held Undub Fiscal Yearn irc rIFC by by imd. cooitted Obligor Type of Businees Loan Equity Ptpnt. Total. IFC Ptpnt. Ptpnt. 1960 a/ Papelera Rio Paranxa. L.A. Timber. Pulp and Paper 3 .00 - - 3.00 - - - 1960/95 Acindar Industria Argenti Mining aLnd Extraction of 27.94 - 20.73 4 8 .67 25.00 2 0. 00 3 5 .00 1961 a/ Fabrica Argentina de Engr Motor Vehicles and Coupon 1.23 - .28 1.51 - - - 1962 al Pasa, Petroquinaca Argent Oil RefinLing 3 .05 - - 3.05 -- 1965/72 a/ Celulosa Argentnaa. L.A. Timber, Pulp and Paper 8.25 - 4.25 12 .50 - - - 1969 a/ Editorial Codex Sociedad MALnufacturinLg 5.00 1.90 . 40 '7.00 -- 1969/7S a/ Dalmine Siderca. S.A.I.C. Mining anLd Extraction of 14.75 - 2.25 17.00 - - - 1973 a/ Calera Avellanede. S.i. Cement and Construction N 5.50 - - 5.50 - - - 1977/84/86/38/94 Alpargatas S.A.I.C. Taxtiles 62.93 5.00 36.50 104 .43 32.52 29.0 OD 1977/85 a/ Soyex S.A. Food end Agribusiness 2 1. 00 - - 2 1. 00 - - 1973/S1al/86/7/93/94 Juan Minetti S.A. Cement and Construction N 44 .00 . 67.50 111.50 6.79 6.31 1973/85/86/88/91 a/ MassubL S.A. Timber. Pulp and Paper 25.65 4.25 3.00 3 2 .90 - - - 1979/32/a7/92 a/ Ipako industrias Petroqui Chemicals and PetrochemLic 21. 00 1.15 9.00 31.15 - - - 1972/83/a4 a/ Alpesca. L.A. Food and Agribusiness 5.20 1.61 - 6.81 - - 1934 Petroquisica Cuyo S.A.I.C Chemicals end Petrochemdc 21.00 4.00 21.09 46.09 - - 1936 a/ Atanor S5A.M. Chemicals anLd Petrochemic 7.00 1.00 - 8.00 - - 1936 CattorinLi Hnos. L.A. Manufacturing - - - 0.00 .12- - 1936 Cerimica Pilar S.A.C.I. Manufacturing- - 0 .00 .13 1936 CompaMia Sud amsericana 8TB Manufacturing- - - 0.00 .14- - 1986 Diario La Nueva Provincia Timber. Pulp and Paper- - - 0.00 .04 - - 1936 Piedra Gr-and MinLing and Extraction of - - 0 .00 .04- 1936 Roberts Participaciones S Financial Services- .05 - .05 .05 - - 196 S.A. de Inversiones de Ca Financial Services- 2.00 - 2.00 .43 - - 1936/39/91/95 Banco Roberts L.A. Financial Services 48.00 - - 4 8 .00 20.00 1987 a/ S.A. Garovaglia y Zorraqu Chemicals and Petroches.ic 13 .00 - - 13 .00 - - - 1967/90 a/ Hidra Oil Developmeant Pro Mining end Extraction of 80 .0 0 - 27.60 107.60 - - 1987/90/91 Terminal 6 S.A. Infrastructure 12.50 - - 12.50 4.75 - 1933 a/ Arcor S.A.I.C. Food and Agribusiness 12.00 - - 12.00D - - - 1933 a/ Astra C.A.P.S.A. Mining and Extraction of 12 .338 - - 12 .36 8 1933 a/ Bridas S.A.P.I.C. Mining and Etxtraction of 20a. 63 - - 20 .63 - - - 1933 Colortex L.A. Textiles - - - 0.00 .27 - 1933 Corporaci6n General de Al Food and Agribusiness- - - 0 .00 .13 - 1938 CLa Industrial Lanera S.A Textiles - - 0 .00 .05 - - 1933 Productos Pulpa. Moldeada, Timber. Pulp and Paper - - 0.00 .27 - 1933 San SebastiAn S.A.I.C.I.F Food and Agribusiness - - 0 .00 .27 - 1983 Tevycom Fapeco L.A. Manfacturing - - 0 . 00 .03 1933 Valley Evaporating Cospan Food and Agribusiness - O .00 .13 - 1933 Vandenfil. S.A.I.C.I.F. y Textiles- - - 0.00 .13 - 1933/89 Finca Flichuan. L.A. Food and Agribusiness- - 0.00 .38 - - 1933/89/94 Banco General de Megocios financial Services 3 5.0 0 - 35 . 00 15.00- - 1983/92 a/ Chirete/Morillo/Olleros 0 Mining and Extraction of 6.62 - 6.62- - - 1933/92 Banco Rio de la Plate. S. Financial Services 50.00 - - 50.00 2 3. 13 4 .00 1. 53 1933/93 lunge y Born L.A. Food and Agribusiness 6 3 .00 - 5.50 120.50 9 .7 5 5 6.7 2 - 1933/93 Longrvie Parana. L.A. Manufacturing - - - 0 .00 .90 - - 1939 a/ Argentine Investment Comp Financial Services- 2.00 - 2.00 - - - 1939 a/ Chibuidos Petroleum Mining and Extraction of- 4.98 - 4.98 1939 a/ CompaMia General de Inver Financial Services .10 - .10 - - 1939 Banco Francis del Rio de Financial Services 15. 00 - - 15.00 7.55 2.00 1939 Carboclor Industrias Quin Chemicals and Petrochemic - - - 0 .00 .07 - - 1939 Cencosud. S.A. Industrial and Consumer S - - - 0 .00 .27- 1989 ccomesi S.A.I.C. Manufacturing- - - 0 .00 .66- 1939 FraccLia Hamos. L.A. Infrastructure - - - 0.00 .42- - 1939 Industrias Quimicas Lauri Chemicals and Petrochemic - - 0.00 .22 - 1939 Iota L.A. Textilesm - 0.00 .66 - - 1939 M.A. Soprano L.A. Timber, Pulp and Paper- - - 0 .00 .05 - - 1939 Parafina del Plata, L.A. Chemicals and Petrochemac - - 0 .0 0 1.13- - 1939 Pastoril Santiaguena L.A. Food and Agribusinemss - - 3. 00 .29- - 1939 S.A. Genaro Garcia Limita Food and Agribusinessm - 0 .00 1.23- - 1939/92 Asmtra - Coma&ia Argentin Mining and Extraction of 5 0. 00 - 43.00 93 . 00 18.39 28a.58 a 1989/93 HollanLd & Cia. L.A. Hotels and Tourism - . - 0.00 .40 - - 1990 Algodonera Santa Fe L.A. Textiles- - - 0.00 .48 1990 Cozrpracidn de Inversions Financial Services - .08 Oa.0 .08- 1990 Frigorifico Toba. L.A. Food and Agribusiness- - - 0.00 .23 1990 Vill.mor S.A. Food and Agribusiness- - - 0.00 1.23 - - 1990195 Petroken PetroquinLica Ens Chem~icals and PetrochemLic 40.00 - 11.00 51I.00 3 3 .33 8.92 10 .00 1991 Danco de Cr6dito Argentin Financial Services 10.00 - - 10.00 2.83 3 . 60D 1991 Guilford Argentina L.A. Textiles- - - 0 .0a0 .40 - - 1991 Jugos del Sur. L.A. Food and Agribusiness -m 0.00 .27 1991 TBR. L.A. Manufacturing 0.00 .22  - 18 - SCEEDULE D ARGENTINA STATSNIT OF IFC INVISTDITTS As of September 30, 1995 (in Millions US Dollar.) - Original Groam Comitments - Held Held Undmb Fiscal Years rrC ItC by by inol. Caitted Obligor Type of Business Loan Equity Ptpnt. Totals ItC Ptpnt. Ptpct. 1992 Frigorifico Rioplatenas S Food and Agribusiness 12.00 1.00 6.00 19.00 10 .33 5.00 2.00 1992 MlA Sociedad do Dols, S.A Financial Services - .18 - .13 .16 - - 1992 Oleaginoea oeste, 5.1. Food and Agribuninesa 20.00 - 15.00 35.00 14.16 14.34 - 1992 Polisur, S.X. Cbnicala and Petrobchsic - 7.00 - 7.00 7.00 - - 1992/93 Petrolara Argentina San J Mining and Extraction of 15.00 27.00 35.00 77.00 39.50 29.16 27.00 1993 Alto Parent S.A. Timber. Pulp and Paper - - - 0.00 19.47 - - 1993 Cadipa S .A. Mining and Extraction of 15.00 5.00 20.00 40.00 20.00 13.00 9.20 1993 Capri S.A.I.C.I Food and Agribusiness - - - 0 .00 .90 - - 1993 E prigas S.1. Infrastructure - - - 0.00 .94 - - 1993 Ferroexpreso Psapsano. S. Infrastructure 13.00 - 20.00 33 .00 12.45 17.07 4.60 1993 Interpack. S .. Timber, Pulp and Paper - - - 0.00 1.28 - - 1993 La Industrial Aliaenticia Food and Agribusiness - - 0.00 .69 - - 1993 Oalteria Pampa, S.1. Food and Agribusinss 12.00 - 12.00 24.00 8.00 16.00 1993 Mendosa Refrescos, SA. Food and Agribusiness - 0.00 .94 - - 1993 Nucvo Central Argentino S Infrastructure 10.00 3 .00 15.00 28.00 12.33 15.00 15.00 1993 Surfactan S.A. Chemicals and Petrochemic - - - 0.00 .17 - - 1993/94 Xolinos Rio de is Plata S Food and Agribusiness - 3.00 - 3.00 7.83 _ - 1993/96 Bridas S.A.P.I.C. Mining and Extraction of 55.00 25.00 100.00 180 00 76.00 86.00 52.00 1994 Cervecerit y Malteria Qui Food and Agribusiness 15.00 - 15.00 30.00 15.00 15.00 - 1994 Compadia General de Combu Mining and Extraction of 25.00 15.00 40.00 80.00 38.00 42.00 1994 EVresa Distribuidora Nor Infrastructure 45.00 - 128.00 173.00 39.33 121.08 - 1994 Ferru. 8.. Cat and Construction n - - - 0 . 00 1.50 - 1994 Masisa-Argentina. S.A. Timber. Pulp and Papar 11.00 - - 11.00 11.00 - - 1994 Tha Argentina Equity Inve Financial Services - 4.00 - 4.00 4.00 - - 1994 Yacylec SA. Infrastructure 20.00 04 45 .00 65.04 15.49 44.71 - 1995 Aceitera General Deheat S Food and Agribusiness 15.00 10.00 15.00 40.00 25.00 15.00 15.00 1995 Aquas Argentinas Infrastructure 33.00 7.00 134.50 179.50 45.00 125.53 - 1995 CaomfSia Elaboradora do P Food and Agribusiness 15.00 - 6.00 21.00 14.33 5.40 - 99S5 Co zsaa Americana do Sup Industrial and Consumer S 28 .00 - - 2 .00 28 .00 - - 1995 Ileppe S.A. And El Calder Food and Agribusiness 6.00 - 6.00 6.00 - - 1995 La Bunos Aires New York Financial Services - 2.89 - 2.89 2.89 - - 1995 La Buenos Aires S.A. Reti Financial Services - 1.17 - 1.17 1.17 - .53 1995 Kastellone Hermanos S.. Food and Agribusiness 40.00 - 35 .00 75.00 40.00 - - 1995 Maxzia SA. A1JP PFinancial Services - 14.19 - 14.19 14.19 - .04 1995 Mahualsat S.1. Infrastructure 30.00 5.00 - 35.00 35.00 - 30.00 1995 Sancor Cooperatives Unida Food and Agribusiness 40.00 - 30 .00 70 .00 40 .00 - - 1995 Soca Americen. S.1. Infrastructure 24.99 15.00 60.01 100.00 39.99 - - 1995 The Tower Pund, L.P. Financial Services - 20.00 - 20 .00 20.00 - 17.73 1995 The Tower Investment Xane Financial Service. - .15 - .15 .15 - .13 Total gross cositments b/ 1243.00 200.06 1035.61 2478.67 Loes cancellations, terminations, repayment & sales 562.19 1.52 311.60 a75.31 Total comitments now held c/ 630.81 198.54 724.01 1603.36 879.35 724.01 225.76 P-nding coi tments ArcSA 20.00 - 61.00 61.00 Aguas Argentinas Infrastructure 40.00 - 110.00 150.00 BRAMIA ARGD8TINA 10.00 8.50 25.00 43.50 EDrJR 40.00 - 80.00 120.00 aprea. Distribuidora Infrastructure - 8.00 8.00 TURMXNALZS PORT. 10.00 2.00 - 12.00 TOCUKAN - .30 . .30 Total pending comitments 120.00 10.80 284.00 414.30 Total comitnents held and pending commitments 600.81 209.34 1008.01 2013.16 Total undisbursed cosnitents 87.48 45.43 92.85 225.76 a/ Investments which have been fully cancelled, terminated, written-off, sold, redeemed, or repaid. b/ Groas commitments consist of approved and signed projects. c/ Beld commitments consist of disbursed end undisbursed investmens.  IERD 26842 1700 \ BOLIVIA 60' 5s0a PARAGUAY San Salvador 0 deJujuy Soltao S ,Tucum6n Santiago Resistenciao B RAZ I L /0 del Estero 000 Pada t Catamarca 0 'ee La Rioja/ 3 0 3 0- 0San Juan w S Santa Fe SnJuan000D C6rdoba 0 0Prn a2 W~~~~~~~~~Paranb 6 Mendoza 0 0 San Luis Rosario 0 w t URUGUAY BUENOS AIRES& La Plata Santa Rosa Sh Mar del Plato0 BBlha Blanca 0 T Neuquen0 u A R G E N T I N A 4 0 0.40 Carmende 0 Selected Cities 40 Patagones Viedma 0 Province Capitals & National Capital RawsonO Province Boundaries International Boundaries MILES 0 1 00 200 300 400 500 f I ~ ~ ~ ~ ~~~~~~~~I I I KILOMETERS 0 200 400 600 800 50 Rio Gallegos The boundaries, colors, 5