Document of

The World Bank FLE CPYFOR OFFICIAL USE ONLY

Re"ort No. P-2916-NI

REPORT AND RECOMMENDATION

OF THE

PRESIDENT OF THE

INTERNATIONAL DEVELOPMENT ASSOCIATION

TO THE

EXECUTIVE DIRECTORS

ON A

PROPOSED CREDIT

TO THE

REPUBLIC OF NICARAGUA

FOR A

PREINVESTMENT FUND PROJECT

December 1, 1980

f This document has a restricted distribution and may be used by recipients only in the performance oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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CURRENCY EQUIVALENTS

Currency Unit = Cordoba (g)US$1 = 10¢ 1 = US$.10

WEIGHTS AND MEASURES

Metric System

1 Manzana = 0.699 hectares

GLOSSARY OF ABBREVIATIONS

BND National Development Bank(Banco Nacional de Desarrollo)

CABEI Central American Bank for Economic Integration(Banco Centroamericano de Integracion Economica)

COIP People's Industrial Corporation(Corporacion Industrial del Pueblo)

CORFIN National Finance Corporation(Corporacion Financiera)

ENABAS National Company for Domestic Supplies(Empresa Nacional de Abastecimientos)

FED Special Development Fund(Fondo Especial de Desarrollo)

FINAPRI Preinvestment Fund(Financiera de Preinversion)

FIR International Reconstruction Fund for Nicaragua(Fondo Internacional para la Reconstruccionde Nicaragua)

IDB Inter-American Development Bank(Banco Interamerifcano de Desarrollo)

INAA Nicaraguan Water and Sewerage Institute(Instituto Nicaraguense de Agua y Alcantarillado)

INE Nicaraguan Energy institute (formerly ENALUF)(Instituto Nicaraguense de Energia)

INRA Nicaraguan Land Reform Institute(Instituto Nicaraguense de Reforma Agraria)

MIDA Ministry of Agricultural Development(Ministerio de Desarrollo Agropecuario)

OPEC Organization of Petroleum Exporting CountriesUSAID US Agency for International Development

GOVERNMENT OF NICARAGUAFISCAL YEAR

January 1 - December 31

FOR OFFICIAL USE ONLY

NICARAGUA

PREINVESTMENT FUND PROJECT

CREDIT AND PROJECT SUMMARY

Borrower: Republic of Nicaragua

-Beneficiary: Financiera de Preinversion (FINAPRI)

Amount: 3.9 million SDRs (equivalent to US$5.0 million).

Terms: Standard

Relending Terms: The proceeds of the credit would be channeledthrough the Ministry of Finance to FINAPRI onstandard IDA terms. FINAPRI would relend thefunds at 8% per annum for terms of up to 10 yearsincluding 1 to 2 years of grace. The proceedsfrom the spread between these terms would beretained by FINAPRI to build up its capital.

Project Description: The project's main objective is to assist thenewly established Government institution, FINAPRI,to help generate both public and private sectorinvestment projects. It provides for the fundingof (a) consultant's services to prepare highpriority investment projects in key productive andsocial sectors; and (b) technical assistance toFINAPRI and its borrowers. The project does notinvolve any special risk other than the risks ofpossible delays in implementation which may arisedue to FINAPRI's lack of experience.

Estimated Costs: ---US$ million equivalent--Local Foreign Total

Sub-loans 1.8 4.3 6.1Technical Assistance - .1 .1Total 1.8 4.4 6.2

Financing Plan: --- US$ million equivalent--Local Foreign Total

Government 1.2 - 1.2IDA .6 4.4 5.0Total 1.8 4.4 6.2

This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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Estimated Disbursements:- US$ million equivalent …

Bank FY: 1981 1982 1983 1984 1985

Annual .05 .95 1.60 1.60 .80Cumulative .05 1.00 2.60 4.20 5.00

EconomicRate of Return: Not applicable.

Appraisal Report: None. Trhis is a combined President's/AppraisalReport.

INTERNATIONAL DEVELOPMENT ASSOCIATION

REPORT AND RECOMMENDATION OF THE PRESIDENTTO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT

TO THE REPUBLIC OF NICARAGUA FOR A PREINVESTMENT FUND PROJECT

1. I1 submit the following Report and Recommendation on a proposeddevelopment credit to the Republic of Nicaragua for 3.9 million SDRs,equiva-lent to US$5.0 million,on standard IDA terms to help finance a proposed pre-investment fund project. The credit will be channeled through the Ministryof Finance to the Financiera de Preinversion (FINAPRI). FINAPRI, a newlyestablished public agency responsible for assisting the public and privatesectors in identifying and carrying out preinvestment work, would receivethe funds on standard IDA terms from the Government. It would onlend thefunds on terms up to ten years, including one to two years of grace, atan interest rate of 8 percent. The spread between the IDA terms and theon-lending terms would be retained by FINAPRI to build up its capital. AboutUS$100,000 of the credit has been earmarked to finance technical assistanceto FINAPRI and its sub-borrowers.

PART I - THE ECONOMY

2. The last Bank economic report, "Memorandum on Recent Economic Develop-ments and Prospects of Nicaragua" (2061-NI), was circulated to the Board onJune 30, 1978. Two emergency loans and credits presented to the Board inDecember 1979, contained the analysis of a mission which visited Nicaraguain September 1979 to review the emergency conditions the post-revolutionaryGovernment faced. This section of the President's Report reflects informa-tion obtained during a brief visit by the country economist in July 1980.An economic mission is presently in Nicaragua and its report will be distributedto the Board in the first half of 1981.

3. Nicaragua is a country rich in land resources. Agriculture repre-sents about one-quarter of GDP, employs nearly half of the labor force andgenerates about 70 percent of commodity export earnings. The country isdivided into three distinct agricultural areas. The Pacific Zone, where about60 percent of the nation's 2.6 million people live, is characterized by twotypes of farming - a great number of small farms grow basic grains withconventional technology, while a few large plantations use modern technologyand specialize in cotton and sugarcane; the mountainous Central District isdevoted primarily to the production of coffee and livestock; and the extensiveunderpopulated Atlantic Plain holds a largely unutilized potential for addi-tional agricultural production, including forestry, tree crops and livestock.

4. Nicaragua is a relatively small economy, very open to the outsideworld. It has had a record of high economic growth (nearly 6 percent peryear in the last three decades) and very low rates of inflation prior to 1972.Population has been increasing at an annual rate of over 3%. Income growthhas basically been the result of the expansion and the adoption of modernmethods of production for commodity exports, primarily coffee, cotton, beef,sugar, and shrimp. Industry has been growing in importance; prior to therevolutionary war this sector represented about 28 percent of GDP. Exportsof manufactured goods, mainly to the Central American Common Market, wereclose to 30 percent of total exports.

2-

5 This substantial longa-term growth was not accompanied by parallelsocial developmient. The limited availability of key public services, suchas educationi ar,d health9 reflected, in part, budgetary stringency dictated byinsuff icient rev:e,ndu-

6. T).e armed struggli that preceded the establishment of the Governmentof National Reconstruction in July 1.979, was extremely costly for Nicaragua.More than 30,00CO people lost their lives, and many more fled the country.While many ba-E ret-Irned, so me very capable and skilled people have remainedabroad. In addition, the revolutionary war seriously damaged the nation'sindustrial urod'luctiv capac:ity and had disastrous effects on the financialsystem. It is estimated that the direct damage to physical structures, equip-ment and in-.7entormes was approximately US$250 million. The flight of capital

prior to and dtring the conflict exceeded half a billion dollars, and manybanks and industrial and commercial enterprises became insolvent.

7. A very difficult recovery period has ensued. The new Governmentembarked ri•ulca:musly on the tasks; oil economic recovery and social transfor-mation. An atmosphere of law and order and fiscal probity has been achieved

amidst profound social and economic changes and sweeping institutional reforms.The reorganized Government bureaucracy, although largely inexperienced, iscommitted to improving the living conditions of the population and to increas-ing production. The new regime has indicated that it will maintain a mixedeconomy, in which the public sector will be directly involved in the regulationof the economic process, and will exert a sizeable degree of control over theallocation- of investment In addition to confiscating the Somoza family'sland holdings and industria:L and comimercial enterprises, the Government hasnationalized the banking system, the insurance companies, foreign trade, themining sector and much of the mass communication system. The public sector'sparticipation in agricultural production is about 20 percent, in manufacturing25 percent, and in the service sectors more than 50 percent. The total shareof the publi.c sector in the country's GDP has risen from 15 to 40 percent.

8. The machinery of Government has been extensively reorganized: a num-ber of new ministries have been created, new institutions have been developed;and practically all Government and autonomous public agencies have undergonereorganization. In particu:Lar, the financial system has been totally restruc-tured and ministries have been established to handle the nationalized sectorsof agriculture, irndustry and trade. The Government is now headed by afive member Junta of National Reconstruction that is backed by the Directorateof the Sandinista Front of National Liberation. There is also a Council ofState, where business and professional groups have some representation.Efforts have-been mlade to strengthen the planning process, and the planningcouncil has beeni raised to the ministerial level. An emergency program wasadopted as soon as the war ended; a formal program of economic reactivationwas drafted for 1980, and the degree of target achievement during the firsthalf was recently evaluated; an economic plan for the year 1981 is currentlybeing drafted.

The Nicarag a Economy During the First Year of the New Regime

9. Tne revolutionary struggle which culminated in the toppling of theSomoza regime left: Nicaragua financially insolvent and with a highly damagedproductive apparatus. Manufacturing production declined by nearly one-third

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in 1979 as a result of the destruction of factories and inventories and theloss of managerial personnel; during the first half of the year, privateinvestment shrank to a minimum, and construction nearly stopped. Agriculturalproduction was seriously affected. The slaughter of immatt> beef cattleand the smuggling of herds outside the country severely compromised beefproduction for the coming years. Urban unemployment and underemploymentreached alarming levels (the combined rate was more than 30%). Real GDPdropped by 27% in 1979 - in addition to the decline of 9% it had suffered in1978. The income forgone during the period 1978 through 1980 will surpass onebillion dollars.

10. A very significant loss for the country was the drop in exportproceeds. Exports constitute the chief driving force of the Nicaraguaneconomy, as they represent one-third of GDP, and are a major source of employ-ment. Although export proceeds derived from the 1978-1979 crop remained highduring the first half year, the foreign exchange earned was largely syphonedout of the country. The 1979-1980 agricultural season was disrupted by thewar; both production and exports were affected. Farmers failed to plantcotton, and production of coffee, sugar and beef dropped substantially.Although high international prices of sugar and cotton offset some of thepossible losses of foreign exchange, total export receipts from goods andservices will probably decrease by US$230 million between 1978 and 1980 - inreal terms, a drop of 37%.

11. Faced with an enormous curtailment of domestic supply and conditionsof financial insolvency, both on the national and international fronts, thenew Government braced itself for a very difficult first year. Efforts weremade to increase domestic supply, but in practice, the recession in the indus-trial sector and the losses in agricultural production were essentially offsetonly through increased imports. Inflation was kept down by the increasedimports, made possible by a large inflow of external financing, and by pricecontrols implemented through the Empresa Nacional de Abastecimientos (ENABAS).

12. During the first year following the revolutionary war, internationalorganizations and a number of countries provided Nicaragua with substantialamounts of external loans and credits and balance-of-payment financing--commit-ments totaled approximately three-quarters of a billion dollars. Donations incash and goods amounted to more than US$130 million (plus considerable directtechnical assistance). The other cotntries of Central America granted US$125million in lines of short-term credit for trade financing. Bilateral grantsand loans from the developed and OPEC countries and reoriented loans from AIDadded another US$158 million. Undisbursed loans obtained before July, 1979from the World Bank Group, IDB and CABEI, totaled US$118 million and new loansobtained since that date, US$181 million; of this last sum only US$33 millionhad been disbursed through June 1980. Disbursement levels rose considerablyduring the second half of the year, but the scarcity of prepared projectscontinued to be an important constraint on disbursements.

13. The first months of 1980 were a period of relative fiscal equilibrium.Surprisingly high fiscal revenues, derived from new taxes and more efficientcollection, together with low capital expenditures resulted in a balancedbudget. But this occurred only in the first quarter; during the remainder of

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the year, fiscal policy has been more expansionary than planned. Althoughcapital expenditures in 1980 will be lower than budgeted, current expendituresare likely to be about 2.7 times higher than those of 1978, surpassing therelatively buoyant current revenues. The overall deficit of the CentralGovernment could rise to US$ 320 million, about 80 percent of total revenuesand 18 percent of GDP. Only about half this deficit is covered by externalfinancing. Bank credit expansion to the private sector in 1980 has beensubstantial, much of it oriented towards short-term loans for commercial and

agricultural activities.

14. Following the typical pattern of small, open economies, this largeincrease in both Government expenditures and credit has quickly leaked outinto imports, particularly from Central America. Consumer prices are expectedto rise by about 35 percent in 1980; a high rate, but only about half of that

of 1979. Import growth has been mostly stimulated by the partial recovery ofconsumption; the value of capital goods imports is expected to be just belowtwo-thirds of that of 1978, while imports of fuel and food may be twice ashigh.

15. In sum, the policy followed in practice has been one of satisfyingthe basic needs of the population, restocking inventories, trying to restorereal consumption levels which had dropped sharply in 1979, and providingemployment, or at Least marginal work, for the urban unemployed through therapid expansion of commercial activities and the doubling of the governmentsector. Since reaL consumption in 1980 is still likely below 1978 levels, itwould probably have been difficult to follow a more austere course. The onechosen has given the Government, and the country itself, a breathing spellfollowing a very trying war-time period. Had imports been restrained, domesticscarcities would have been more apparent and inflation would probably have

accelerated. There has, however, been some cost to permitting a less painfultransition, i.e., the fostering of a large trade deficit.

Prospects for 1981

16. In agriculture, basic grain production appears to be on the rise and

there is a good possibility that domestic consumption needs will be satisfiedto a large degree. The prospects for agricultural commodity exports aregood. Total exports in 1981 are projected to be more than 40 percent higher

than in 1980, and may reach the record exports of 1978. The 1980/81 coffeecrop may equal the record 1978/79 crep. Sugar exports are favored by highworld prices, and the shrimp and lobster catch is currently high. Beef pro-

duction, however, will remain depressed. The cotton area planted, a crucialvariable in the country's economic recovery process, will be approximately

140,000 "manzanas," including 21,000, now owned by the Government. Although

this represents nearly a tripling of the area planted in 1979, it is consider-ably short of the 250,000 "manzanas" average of 1972-1978. The privatesector is hesitant to expand cotton production, particularly in the loweryield lands, as hunian resources and some needed inputs have been in short

supply. Further the Government plans to limit the area under cotton to170,000 "manzanas" so that the balance can be allocated to the production of

food.

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17. The prospects for the industrial sector in 1981 are not favorable.Although it is expected that production in most of the plants under governmentcontrol will reach 1978 levels, the recovery of private industry continuesto be slov The investment climate remains uncertain. Confidence appearsinsufficient to encourage large private entrepreneurs, such as those thatproduce the bulk of the exports to Central America, to invest in the recon-struction of firms and in working capital. Prospects for the mining sector--now nationalized--are, however, very promising. Gold has become a major exportcommodity for Nicaragua. High prices will mean that the value of gold exportsin 1981 could exceed US$30 million.

V

18. Even if the potential for export recovery is fully realized, thebalance of payments picture will continue to be bleak for some time. Asproduction recovers, imports of capital goods should rise sharply; totalimports of goods and services in 1981 could reach US$1 billion, puttingadditional pressure on the balance of payments. External assistance has sofar been substantial; the required external capital flows during the nextfew years will also be high - over a quarter of a billion dollars per year.However, debt service obligations could absorb a substantial part of thatinflow. An important determinant of the net flow of capital will be thearangements that are reached by the Government with respect to the re-scheduling of external debt. A satisfactory agreement has recently beenconcluded with the foreign private banks. An October 1980 meeting of theParis Club began consideration of rescheduling of bilateral debts withforeign governments; further meetings of the Club as well as some bilateralagreements are likely.

Longer-Term Prospects

19. Nicaragua is favored by a number of conditions conducive to ahigh rate of economic growth: the country has a low population/land ratio;the available land resources are of good quality and plentiful - in fact thereexists much undeveloped frontier land; the core of the transport infrastruc-ture network is well established and commodity exports are more diversifiedthan those of most of the other Central American countries. In addition, theGovernment is giving high priority to productive sectors and to projects thatwill generate foreign exchange. It also strongly favors rural development,and the nationwide literacy program, which appears to be successful, willbroaden the long-term development potential of the country.

20. At the same time there are a number of obstacles to the attainmentof a high growth path. First and foremost, the havoc caused by the war:in addition to the loss of life, there were sizable income losses and propertydamage. The consequences of these events will linger for a number of years.The foreign debt inherited from the last administration is large. Loansneeded for the recovery program make current public external debt (includingundisbursed) approach the level of GDP. An estimate of future debt servicepayments is not currently available because Nicaragua's past debts are stillbeing renegotiated.

21. The country will depend for a number of years on costly, importedfossil fuel as a principal source of electrical energy. Petroleum imports nowrepresent about one-quarter of total goods' imports. Hydroelectric powerdevelopment has lagged in Nicaragua, and geothermal exploitation is justbeginning.

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22. Perhaps the greatest challenge will be the ability of the Governmentto lead the country through the difficult recovery period. The present policyof restoring past levels of real consumption through monetary and fiscal expan-sion and deficits in the current accournt must be tempered with one of growingpublic and private investment, increased revenues from public enterprises,high productivity, and all this within the framework of social transformationto which the Government is committed. The economic consequences of the revolu-tionary struggle will persist for a number of years. Under these circumstances,concessionary external credit and official assistance in excess of the foreignexchange component: of individual projects will be required to ease the transi-tion period until the economy has completely recovered and the country'straditional creditworthiness has been fully reestablished. In the longerterm, with good economic management, Nicaragua could attain the rapid growthrates it had reached in the past and at the same time succeed in achieving itsmore pressing social goals.

PART II - BANK GROUP OPERATIONS

23. Nicaragua to date has received 26 Bank loans and three IDA creditsfor a total of US$237 million. A loan of US$20 million and a credit forUS$10 million for agricultural and industrial rehabilitation and a secondcredit for US$22 million for urban reconstruction, were signed on January 4,1980. Annex II contains a summary statement of Bank loans, IDA credits andIFC investments as of October 31, 1980 and notes on the execution of ongoingprojects.

24. Because of major fiscal difficulties during 1978 and the disruptiveeffects of the revolutionary war in the latter part of 1978 and in most of 1979,the Bank did not lend to Nicaragua between early 1978 and the end of 1979. Inmid 1979 it was concluded that meaningful project activities and adequatesupervision of ongoing projects were no longer possible. Therefore, the Boardwas informed on July 16 (A 79-192) that no further disbursements on existingloans and credits would be made. The Government of Nicaragua was subsequentlyreplaced by a Junt:a of National Reconstruction. The Junta requested emergencyassistance from the international community to facilitate recovery from theeconomic disaster caused by the war as well as by large ouLtflows of capital.The Bank responded to this Government request by restructuring projects onwhich substantial balances remained undisbursed and by making them moreresponsive to emergency needs. Also an emergency loan/credit package wasextended for agricultural and industrial rehabilitation and for urban recon-struction. The restructuring of projects was completed in October, 1979, atwhich time the suspension of disbursements was rescinded. The emergencyoperations were signed in January 1980. As described in Annex II, implementa-tion of the restructured and emergency projects is progressing well.

25. In the past, the objectives of the Bank/IDA program in Nicaraguahave been (a) to support the Government's export diversification efforts(b) to help build viable institutions in key seccors, such as water supply

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and electric power and (c) to help spread the benefit of growth to more peoplethrough lending for projects such as education, rural sanitation, agricultureand water supply. The Bank Group also assisted in the reconstruction effortfollowing the devastating earthquake of 1972.

26. Because of the Government's preoccupation with emergency reconstruc-tion requirements, it has not yet been possible to develop a long-term lendingprogram for the Bank Group. A new investment program for the expanded publicsector is now being formulated. An agreed draft is expected to be completedshortly. However, an agreement has already been reached within the newGovernment on investment priorities and on a list of projects requiringfinancial assistance immediately. The Bank was, therefore, invited forprogramming discussions in August of this year. The objective of thesediscussions was to develop a tentative program of assistance for the nextthree years. This program is summarized in para. 27 below. Bilateral assis-tance programs are still largely responsive to emergency needs. The Governmenthas also had programming discussions with the IDB, from which it has requestedsubstantial financial assistance. The Bank Group lending activities toNicaragua are being closely coordinated with donors such as IDB, CABEI, USAIDand other bilateral agencies.

27. In view of the disruptions created by the revolutionary war, one ofthe most urgent requirements of the Nicaraguan economy at present is theestablishment of a mechanism to generate well designed, high priority projects.-The FThAPRI project will assist in meeting this requirement. The ruraldevelopment office for Central America, for which the Bank is serving asexecuting agency, is expected to provide assistance in the identification andpreparation of rural development projects. The Government has also requestedassistance for the following projects: (a) rural primary education includingadult literacy, a component that would reinforce and institutionalize theresults of the recently completed literacy campaign, (b) a continuation of theagricultural/industrial rehabilitation program, which was part of the emergencypackage approved in December 1979--since commitment of funds under the firstproject has been nearly completed, a follow-up project is urgently needed (c)infrastructure, development projects for water supply and electric power(geothermal), where the Bank has worked in the past, as well as for roadupgrading and road maintenance (d) urban projects to upgrade low-incomeneighborhoods, finance municipal improvements and implement a low-costhousing program and (e) in addition to an immediate repeater project foragricultural and industrial rehabilitation, assistance in agriculture, partic-ularly for the development of tree crops (oil and coco palm).

28. IFC's first operation in Nicaragua involved a FY1968 loan and equityinvestment of US$1 million and US$1.07 million, respectively, in a textileplant, Textiles Fabricato de Nicaragua, S.A. IFC's equity participation was

sold in FY1974 to local shareholders. In FY1976 IFC agreed to provide US$6.5million in long-term debt to Nicaragua Sugar Estates Ltd., a sugar mill, tohelp expand its production capacity and develop new cane fields. Due tosubsequent cancellation of part of the project by Nicaragua Sugar Estates Ltd.,

that commitment was subsequently reduced to US$4 million. Also in FY1976 IFCmade a loan and equity investment of US$700,000 and US$200,000, respectively,to help finance the construction of the Camino Real Hotel. The projects

@8

financed by IFC's three investments suffered some damage, but were notdestroyed during the civil war. Four IFC missions have visited Nicaraguaduring 1980 to discuss with the Government the rescheduling of part ofIFC's existing loans and its future role in the reconstruction of the country.Arrangements for rescheduling IFC's loans are expected to be completed byDecember 31, 1980.

PART III -- INVESTMENT NEEDS AND PROJECT PREPARATION ACTIVITIES

29. Nicaragua will have to invest large sums in the coming years ifthe effects of the recent war are to be overcome and the level of economicactivity is to return to normal. The National Investment Program prepared inthe first half of 1980 calls for investments of the order of US$380 million incalendar year 1981 rising to close to US$600 million by 1983. The total levelof investments in the past three years was US$555 million in 1977, US$264million in 1978 and (-) US$63 million in 1979. 1/ Not only did the warinterrupt investments and reduce economic activity, it also hindered invest-ment planning for the future and prevented the preparation of feasible invest-ment projects. Furthermore, many of the investment plans prepared before thecivil war have become obsolete. The public sector which accounted for onlyabout 15% of GDP before the war has been expanded to account for about 40% ofGDP because industrial enterprises and agricultural land formerly owned bythe Somoza famrily have been expropriated and brought into the public sector.In addition, there is a dearth of management expertise because top levelmanagers of expropriated enterprises in industry and agriculture have leftthe country and their place has been taken by new managers who, althoughhighly motivated, lack experience. This has made it necessary to strengthenthe administration of the public sector to ensure that the level of invest-ment called for by the National Investment Program can be attained. Topmanagement of public sector agencies has been replaced and public sectoradministration has been restructured by the creation of new ministries. Itis hoped that with these steps the implementing capacity of the publicagencies will be gradually built up so that when suitable high priorityproject are prepared they can be implemented rapidly. The private sectorhowever continues to remain hesitant about making new investments.

30. The Government, recognizing the importance of creating a reliablemechanism to generate well thought out and prepared projects for both the publicand the private sectors, has established two key institutions for this purpose.One is the Fondo I'nternacional para la Reconstruccion de Nicaragua (FIR),established in September 1979, and the other is FINAPRI, the beneficiary ofthe proposed credit, established in September 1980. FIR, which is headed bya Minister, is in charge of the promotion, negotiations and organization of

financial assistance for reconstruction projects from bilateral and multilateralsources. FINAPRI, which is headed by an Executive Director selected by the

1! The negative investment stemmed from the fact that the large stock draw-downs exceeded the value of the very limited fixed capital formation.

09

Financial Cabinet of the Government, is charged with the task of financing andhelping undertake preinvestment studies with the object of building up apipeline of projects, necessary to restart economic activity in the country andreshape Nicaragua's economy as determined by the Minister of Planning. TheFinancial abinet also serves as FINAPRI's Board of Directors and consists ofone member of the National Junta, the Presidents of the Corporacion Financiera(CORFIN), and the Central Bank, and the Ministers of Finance, Planning and thehead of FIR. It has general supervisory functions, including supervision ofFINAPRI's financial operation and budget and the approval of contracts underwhich FINAPRI acquires its resources. FINAPRI's organization chart is attachedas Annex V.

31. Both FINAPRI and FIR along with the Ministry of Finance are repre-sented on an Investment Committee which is chaired by a representative of theMinistry of Planning. For investment projects requiring foreign financing,proposals are submitted for approval to this Committee by the relevant publicsector agency or private sector enterprise. If the Committee feels thatpreinvestment studies are necessary before it can act on a proposal, thefinancing and supervision of such studies is entrusted to FINAPRI. Uponcompletion of the study and if the Committee s approval is obtained, anyadditional external financing needed to implement the project becomes theresponsibility of FIR.

32. It is the Governments intention to involve FINAPRI in all publicsector preinvestment studies not already budgeted by the implementing agencies.While the extent of FINAPRI's involvement will depend on the needs of thevarious implementing agencies, it is expected that, given the clear need forpreinvestment studies in Nicaragua,the major constraint to FINAPRI's activitiesfor the next few years will be its human and financial resources.

PART IV - THE PROJECT

33. The project was prepared by FINAPRI between March and June 1980 andappraised by the Association in June 1980. Supplementary data are provided inAnnex III. Annex IV contains a tentative list of studies which may be consideredfor financing under the proposed project and financial projections of FINAPRI andAnnex V contains a description of FINAPRI's organization. Negotiations wereheld in Washington from November 17 to 18. The Nicaraguan Delegation was headedby Mr. Bernardo Chamorro, Vice Minister of FIR.

Project Objectives and General description

34. The main objective of the proposed project will be to provideassistance to further strengthen the recently established FINAPRI, whichis expected to help generate both public and private sector investment projects.The proceeds of the credit would be used to finance consultant's services forpreparing high priority investment projects in key productive and socialsectors and technical assistance to FINAPRI and its borrowers.

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35. FINAPRI started operations in March 1980 and, under its super-vision, studies in the following areas have already been successfullycompleted:

(a) feasibility of railway rehabilitation;

(b) feasibility of rehabilitation and construction ofproduction roads;

(c) feasibility of improving the transport system onLake Nicaragua;

(d) development of drinking water project for secondarycities and possibilities for improving drinking waterfor 28 communities;

(e) evaluation of possibilities of extending the coastalwaterway; and

(f) 35 investment profiles for the industrial sector.

Of the studies listed above, Association staff have reviewed the feasibilitystudy of the rehabilitationL and construction of productior roads and foundit to be of adequate quality.

36. FINAPRI will provide technical assistance to its borrowers at everystage from project identification to study supervision; it will identify earlyin the project cycle possible impediments to implementation, from lack ofinvestment funds to internal weaknesses in the borrower's organization, andhelp devise ways and means to correct them; it will act as a promoter in thosesectors where there is a particular shortage of projects, so that the Government'ssectoral distribution goals for investment can be met.

37. Ever since its inception FINAPRI has been gradually building up itsstaff which presently number 65. Its management and staff are highly motivated.Although lacking in experience, they are considered qualified to achieve theinstitution's objectives, provided they receive technical assistance fromconsultants in fields where FINAPRI lacks the expertise to support the sub-borrower (para. 51).

FINAPRI Procedures

38. FINAPRI's procedures are described in its operating manual whichwas developed in early 1980. While it is considered satisfactory, it has notas yet been tested in practice. FINAPRI's management intends to monitor itseffectiveness and make appropriate changes in general operating procedures inconsultation with the Association (Section 2.10(a) of the draft ProjectAgreement).

39. FINAPRI, wvhen necessary, alssists in project identification andpreparation of project briefs for submission to the Investment Committeewhose function is described in paragraph 31. Once the Committee has givenits preliminary approval for a study, the borrower proceeds to the drafting

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of detailed terms of reference, budgeting, prequalification, selection andcontracting of consultants. FINAPRI has a technical assistance as well as asupervisory function in all these stages.

40. Since FINAPRI is a public sector institution, gua-3ntees to ensurerepayment of its subloans to public sector agencies are not required. Forloans to the private sector collateral will be obtained to cover the risk ofpossible non-repayment. This is provided for in FINAPRI's manual.

FINAPRI's Financial Position and Projected Operations

41. FINAPRI's financial projections show that Government budgetarysupport will be required to cover operating expenses through 1985, when theoutstanding and disbursed loans would amount to approximately US$26 million.The Government would provide the necessary funds for this purpose. Theseare estimated at US$3.4 million, in addition to US$355,000 for start-upexpenses. The Government would also provide counterpart funds for the preinvest-ment studies to be financed by the proposed credit, estimated to be aboutUS$1.2 million equivalent (Section 3.01(a) of the draft Development CreditAgreement). After 1986, FINAPRI should be able to cover approximately 35% ofdisbursements through net income and repayments on its loans.

42. FINAPRI plans to maintain separate accounts for its technical assistanceactivities and it intends to charge a fee for them. No estimate, however, ofincome from this source can be made at present because the extent of FINAPRI'sinvolvement in technical assistance is not yet known nor has the fee level beendetermined. Charges for technical assistance have, therefore, not beenfncluded in the cash flow forecast. Even if FINAPRI is not able to recovertechnical assistance costs from its sub-borrowers, it should be able tocover its operating costs by 1986, the year following expected full disbursementof the IDA credit. Any recovery of technical assistance costs would result inFINAPRI being able to break even earlier.

43. FINAPRI is currently estimating that it will be called upon tofinance studies that could result in producing projects representing about halfof the value of the national investment program. The cost of these studies isestimated at about 3% of the cost of such projects. This is consistent withexperience in other countries for work up to and including feasibility studies.The investment forecasts, and resulting cash requirements for FINAPRI, aregiven in the following table.

Demand for Preinvestment Studies(US$ million)(in 1980 prices)

1980 1981 1982 1983 Total(estimated) ------------anticipated …

National InvestmentProgram 190.00 380.00 470.00 570.00 1,6if ~OC

Cost of Studies financedby FINAPRI (3% of 50%of National InvestmentProgram) 1/ 2.85 5.70 7.05 8.55 24.15

I/ These are estimated committments of FINAPRI

12 -

44. The cost data do not include the private sector or requirements fordetailed engineering. At least initially it is not expected that the privatesector will make much use of this facility. As explained in paragraph 29the private sector is still reluctant to make new investments. However,when it does starl: to invest it generally prefers to use its own funds forpreinvestment studies. Nevertheless the Government feels that it is importantto leave the door open for the private sector to use FINAPRI's resources.

45. A list of studies for which a preliminary budget could be prepared,is provided in Annex IV. The cost of these studies amounts to US$19.8 million.Not included is a large water supply, engineering study because sufficientinformation on it is not presently available. A separate engineering loanis being prepared for it which will be proposed for financing by the Bank.This loan may alsco be channelled through FINAPRI.

46. The sources of funds for these studies, in addition to the proposedcredit, are expected to be the IDB and various bilateral agencies. The GermanMinistry of Economic Cooperation and the IDB have already provided $450,000(see Annex IV). The Government has requested a loan of US$5 million from theIDB which is expected to be made in about a. year.

Adequacy of the Credit

47. It is not considered necessary to agree on a specific list of studiesto be prepared as a precondition for the proposed credit, because prioritiesfor preinvestment studies tend to change as new possibilities are identifiedand as conclusions; of ongoing studies become available. The estimated size ofthe identified priority investment requirements and the large number of studiesidentified in Annex IV suggest that the proposed credit would be committed anddisbursed promptly.

l

48. The proceeds of the credit will cover 80% of the cost of approved sub-loans estimated at US$6.1 million. This represents about 20% of the totalamount of subloans that FINAPRI intends to make during the disbursement periodof the proposed credit. Of the 80% contribution from the Association approxi-mately 70% would cover foreign cost and 10% local currency cost of studies.Local cost financing is justified for reasons given in paragraph 22 above.

On-Lending Terms

49. FINAPRI will finance up to 100% of the cost of preinvestment studiesin the public sector and up to 90% in the private sector. It would receivethe proceeds of the proposed credit on standard IDA terms from the Government.FINAPRI's onlending terms fcr studies in the public sector are 8% per annuminterest for a maximum of 10 years including a grace period of not more than2 years. There is a provision for accelerated repayment in case of projectimplementation. The private sector would have to pay an additional 0.5%commitment fee, (Section 2.02 of the draft Project Agreement). All borrowerswould pay the penalty charge on overdue service payments provided for inNicaragua's Banking System. (At present this is equivalent to the regularinterest rate plus a penalty charge of about 6% per annum). (Section 2.02(a)(iv)of the draft Project Agreement). The Government would bear the foreign exchangerisk (Section 3.01(b) of the draft Development Credit Agreement).

- 13 -

50. Nicaragua's 1980 annual inflation rate is expected to be about35 percent; and it may continue at that rate in 1981 before declining tolower levels in the succeeding years. Interest rates charged for agriculturaland industrial loans are now 12-14%. The Government has just completed amajor reoi mnization of the banking system, and bank portfolios are stillfilled with an unknown quantity of loans to defunct enterprises. Privateinvestment remains low. Until the situation is normalized and inflation isbrought under control, the authorities are reluctant to raise nominal interestrates, preferring to depend on Government-owned banks to allocate credit onthe basis of central guidelines. Regarding preinvestment studies for theprivate sector, the Government is eager to encourage the sector to investand has, therefore, set FINAPRI's lending rate for the private sector alsoat 8% (plus a 0.5% committment fee). To ensure the financial viability ofof FINAPRI, the Government has decided to meet all of FINAPRI's operatingexpenses not recovered through loan or technical assistance charges. Ineffect, the Government has decided that public sector preinvestment studieswill be a normal administrative responsibility of the Government, and that theprivate sector requires some subsidy, at least to evaluate its investmentsin the present uncertain environment. Given the lag in private investmentso far, the latter decision seems justified.

Technical Assistance

51. Provision is made for approximately $122,000 (equivalent to100,000 SDRs) in technical assistance, to cover possible requirements forshort-term experts in specific disciplines which FINAPRI lacks. The objectivewould not be to finance studies by the direct employment of such experts, butto make their expertise available to sub-borrowers or FINAPRI for helpingprepare terms of reference and assisting in consultant selection and super-vision. These funds could also be used for assistance in the operations ofFINAPRI itself.

Procurement of Consultants and Disbursements

52. In regard to studies to be financed under the credit (other thanfree limit studies), the Association will approve the general outline and theinitial budget (Section 2.05(b) of the draft Project Agreement). For freelimit studies, costing not more than US$150,000 each and totalling not morethan US$2 million, the Association will approve the subject matter only(Section 2.05(c) of the draft Project Agreement).

53. Acceptable procedures for the selection of consultants are specifiedin FINAPRI's operating manual except for the hiring of individual consultants.The Association's approval would be sought regarding any changes in the pro-curement procedures set out therein (Section 2.10(b) of the draft ProjectAgreement), and it is a condition of effectiveness that the manual be amendedto include the provision for the hiring of individual consultants (Section 5.01(c)of the Draft Development Credit Agreement.

54. For selection of consulting services under sub-loans other than freelimit subloans, the Association will approve: (a) the short list of consultantsto be invited to make proposals, (b) the assessment of the responsiveness ofthe winning proposal, and (c) the negotiated-draft contract (Section 2.04(i)of the draft Project Agreement).

14 -

55. With this involvement the Association seeks to insure that thefirms on the short list have the technical capacity to undertake the work,that the terms of the invitation (not otherwise subject to approval) makeallowance for the recruitment of qualified personnel; that the standard formof contract is followed to an appropriate degree; that comments have beentaken into account, and that the costs are within acceptable limits.

56. Consultant's contracts would follow a standard form which will besubmitted to the Association for approval prior to disbursement undercategory 1 of Schedule 1 of the Credit (Schedule 1, para. 3(b) of the DraftDevelopment Credit Agreement).

57. The Association would disburse 80% of the cost of preinvestmentstudies and 100% of technical assistance cost. It is expected that the amountsallocated in the credit for subloans will be fully committed by June 30, 1984.The closing date is, therefore, set at June 30, 1985 (Section 2.04 of thedraft Development Credit Agreement).

Monitoring

58. The Government would furnish to, and exchange views with, the Asso-ciation on the yearly work programs of FINAPRI, including its cost andfinancing arrangements, as well as the results of actual execution of theprogram. To the extent possible, the Association and FINAPRI will developcost effectiveness targets out of these reviews.

Benefits

59. The project provides financial resources and technical assistance tostrengthen the capability of FINAPRI to identify and prepare suitable projects.By helping to promote careful project analysis and design for sub-borrowers,as well as by developing the budgeting, contracting and general supervisionskills of FINAPRI itself, it should lead to better conceived and more economicalinvestment projects. A further benefit is the stimulus which the project willgive to local consultants.

Risk

60. There are no special risks involved in the proposed project. Thesize of the investment needs of Nicaragua, the determination of the Govern-ment to carry out a substantial development program and the project identifi-cation efforts of multilateral development banks are likely to ensure that newprojects can be readily identified to replace any that may be dropped from theinitial list.

61. Delays :Ln commitment and dLisbursement could arise because of FINAPRI'slack of experience and expertise. As stated in para. 37 above, the qualityof FINAPRI's staff is considered good. The supervision planned by the Associa-tion should assist in overcoming problems of implementation due to any lack ofexperience that may become evident.

- 15 -

PART V - LEGAL INSTRUMENTS AND AUTHORITY

62. The draft Development Credit Agreement between the Republic ofNicaragua and IDA and the draft Project Agreement between IDA and FINAPRIand the Report of the Committee provided for in Article V, Section l(d) of theArticles of Agreement of the Association are being distributed to the ExecutiveDirectors separately. The most important features and special conditionsof the Development Credit Agreement and the draft Project Agreement have beenincluded in Part IV and are summarized in Section III of Annex III of thisreport. I am satisfied that the proposed credit complies with the Articles ofAgreement of the Association.

PART VI - RECOMMENDATION

63. I recommend that the Executive Directors approve the proposeddevelopment credit.

Robert S. McNamaraPresident

Attachments, by Moeen A. QureshiDecember 1, 1980

- 16 -ANNEX I

Page I of 8TABLE 3A

NICARAGUA - SOCIAL INDICATORS DATA SHEET

NICARAGUA REFERENCE GROUPS (WEIGHTED AVERACESLAND AREA (THOUSAND SO. KIj) -. MOST RECENT ESTIMATE)- _

TOTAL 130.0AGRICULITURAL 48.9 HOST RECENT MIDDLE INCOME MIDDLE INCOME

[960 lb 1970 Lb ESTDfATE /b LATIN AMERICA & CARIBBEAN EUROPE

GNP PER CAPITA (US$) 260.0 480.0 660.0 1562.9 2749.5

ENERGY CONSUMPTION PER CAPITA(KILOGRAMS OF COAL EQUIVALENT) 174.0 418.0 517.0 [055.9 1641.4

POPULATION AND VITAL STATISTICSPOPULATION, MID-YEAR (MILLIONS) 1.4 1.9 2.5URBAN POPULATION (PERCENT OF TOTAL) 41. 4 47. 2 52. 1 63.4 53. 9

POPULATION PROJECTIONSPOPULATION IN YEAR 2000 (MILLIONS) 5.0 .-STATIONARY POPULATION (MILLIONS) 9.0YEAR STATIONARY POPULATION IS REACHED 2090

POPULATION DENSITYPER SQ. KM. i1.0 15.0 19.0 28. 1 77. 2PER SQ. EM. AGRICULTURAL LAND 30.0 39.0 51.0 81. 7 129.5

POPULATION AGE STRUCTURE (PERCENT)0-14 YRS. 47.8 48.6 48.1 41.4 30.6

15-64 YES. 49.7 49.0 49.4 54.7 61.165 YRS. AND ABOVE 2.5 2.4 2.5 3.9 8.2

POPULATION GROWTH RATE (PERCENT)TOTAL 2. 9 2.9 3.3 2. 7 1. 6URBAN 4.2 4.2 4.6 4. 1 3.3

CRUDE BIRTH RATE (PER THOUSAND) 51.0 45.0 45.0 34.8 22.8CRUDE DEATH RATE (PER THOUSAND) 19.0 15.0 13.0 8. 9 8. 9GROSS REPRODUCTION RATE 2.3 3.3 3.3 2.5 1. 5FAMILY PLANNING

ACCEPTORS, ANNUAL (THOUSANDS) .. 10. 1 15.6USERS (PERCENTI OF MARRIED WOMEN) .. .. 19.0

FOOD AND NUTRITIONINDEX OF FOOD PRODUCTION

PER CAPITA (1969-71=100) 88.1 100.0 122.0 106.9 113. 1

PER CAPITA SUPPLY OFCALORIES (PERCENT OF

REQUIREMENTS) 104.0 109.0 109.0 107.4 125. 3PROTEINS (GRAMS PER DAY) 66.0 74.0 70.0 65.6 91.0

OF WHICH ANDIAL AND PULSE 37. O 42.0 42.0 33. 7 39.6

CHILD (AGES 1-4) MORTALITY RATE 30.0 .. 17.0 8.4 4.3

HEALTHLIFE EXPECTANCY AT BIRTH (YEARS) 47.0 50.4 55.0 63. 1 67.8INFANT MORTALITY RATE (PERTHOUSAND) .. 122.0 37.0 66.5 55.9

ACCESS TO SAFE WATER (PERCENT OFPOPLLATION )

TOTAL .. .. 70.0 65.9URBAN .. .. 100. 0 8. 4RURAL .. .. 34.0 44.0

ACCESS TO EXCRETA DISPOSAL (PERCENTOF POPELATION)

TOTAL .. .. .. 62. 3URBAN .. .. .. 79.4RURAL .. 8. 0 24. 0 29.6

POPULATION PER PHYSICIAN 2739.0 1999.0/c 1666. 0 1849.2 1030.1POPULATION PER NURSING PERSON . . 751. 0 800.0 1227.5 929.4POPULATION PER HOSPITAL BRD

TOTAL 431.0 422. 0 484.0 480.3 289.7URBAN .. 222.0 285.0RURAL .. 2170. 0 1963.0

ADMISSIONS PER ROSPITAL BED . .. .. .. 17. 0

HOUSINGAVERAGE SIZE OF HOUS EHOLD

TOTAL 6. 1/d ..

URBAN 5. 8/d ..RURAL 6.3/d ..

AVERAGE NUMBER OF PERSONS PER ROOMTOTAL 2.8/d 2.9URBAN 2.2/6 ..

RURAL 3. 2/d .. ..

ACCESS TO ELECTRICITY (PEICENTOF DWELLINGS)

TOTAL 33. 0 41.0URBAN 71.0 76. 7RURAL 4.0 7.0

- 17- ANNEX I

PaRe 2 of 8TABLE 3A

NICARAIGUA - SOCIAL INDICATORS DATA SHEET

NICARAGUA REFERENCE QGOUPS (WEIGHTED AWRA(S- MDST RECENT ESTIMATE)

MOST RECENT MIDDLE INCOME MIDDLE INCOME1960 b 1970 /b ESTIMATE /b LATIN AMERICA S CARIBBEAN EUROPE

EDUCATIONADJUSTED ENROLLMENT RATIOS

PRIMARY: TOTAL 66.0 83.0 92.0 99.7 105.9MALE 65.0 82.0 .. 101.0 109.3FEMALE 66.0 84.0 .. 99.4 103.0

SECONDARY: TOTAL 7.0 18.0 29.0 34.4 64.0MALE 9.0 19.0 .. 33.5 71.1FEMALE 6. 0 17.0 .. 34. 7 56.9

VOCATIONAL ENROL. (% OF SECONDARY) 24.0 9.0 9.0 38.2 28.8

PUP IL-TEACHER RATIOPRIMARY 35.0 39.0 ° * 30.5 29.4SECONDARY 13.0 26.0 .. 14.5 26.1

ADULT LITERACY RATE (PERCENT) .. 53.0 57.0 76.3

CONSUMPTIONPASSENGER CARS PER THOUSAND

POPULATION 5.0 17.0 16.0 43.0 84. 6RADIO RECEIVERS PER THOUSAND

POPULATION 51.0 55.0 157.0 245.3 192.2TV RECEIVERS PER THOUSAND

POPULATION 3.0 28.0 38.0 84. 2 118. 5NEWSPAPER ("DAILY GENERALINTERESTV) CIRCULATION PERTHOUSAND POPULATION .. 28.0 26.0 63.3 93.0CINEMA ANNUAL ATTENDANCE PER CAPITA 5.0 .. .. .. 5. 7

LABOR FORCETOTAL LABOR FORCE (THOUSANDS) 445.0 550.0 735.5 *

FEMALE (PERCENT) 17. 1 20.3 22.0 22.2 30.4AGRICULTURE (PERCENT) 62. 3 51.0 44.0 37.1 37.0INDUSTRY (PERCENT) 16.0 15.0 15.0 23.5 29. 3

PARTICIPATION RATE (PERCENT)TOTAL 31.0 30.0 29.8 31. 5 40. 9MALE 51.7 48.4 47.3 48.9 55.9FEMALE 10.5 12.0 12.6 14.0 26. 2

ECONOMIC DEPENDENCY RATIO 1.6 1. 7 M. 7 1.4 1.0

INCOME DISTRIBUTIONPERCENT OF PRIVATE INCCMERECEIVED BY

RICHEST 5 PERCENT OF HOUSEHOLDS .. 42. 4eHIGHEST 20 PERCENT OF HOUSEHOLDS .. 65. 4/eLOWEST 20 PERCENT OF HOUSEHOLDS .. 3. 1/eLOWEST 40 PERCENT OF HOUSEHOLDS .. 8. 7/e

POVERTY TARGET GROUPSESTIMATED ABSOLUTE POVERTY INCOMELEVEL (US$ PER CAPITA)

URBAN .. .. 262.0RURAI .. .. 183.0 190.8

ESrrMACED RELATIVE POVERTY INCOHELEVEL (USS PER CAPITA)

URBAN .. .. 319.0 474.0RURAL * - 155.0 332.5 385.8

ESTIMATED POPULATION BELOW ABSOLUTEPOVERTY INCOME LEVEL (PERCENT)

URBAN .. .. 21.0RURAL .. .. 19.0

Not availableNot applicable.

NOTES

/a The group averages for each indicator are population-weighted arithmetic means. Coverage of countriesamong the indicators depends on availability of data and Is not uniform.

/b Unless otherwise noted, data for -1960 refer to any year between 1959 and 1961; for 1970, between 1969and 15

71; and for Most Recent Estimate, between 1974 and 1978.

/c Registered, not all practicing in the country; /d 1963; /e Rural population only.

Most recent estimates of GNP per capita is for 1979, all other data are as of April, 1980.

October, 1980

-18- ANNEX I

ESaL 3of 8

loses: Al1though the data ac d-no Trt. souce geo.. ab1y lodged the cot a-thortuti-o and -eIa~ble, it should alto be rotod that they -c sot be icier-

catiocaIly coparble because .I Ch. 1ach of stordardi.ed dficteice.. aned co-cept; ... ed by diff.e.es ca...tei.a is obecic he data. The data see,cr-shebeas, _eeful to d.eeceibe coder uf cagcbtcd, bedicat steeds, and chec-te-i- cottae majc diffeetecos bete.ee.c.ue.rtes..

The -nfeetene groups ace (lb the same.. cutry gecup of she subject -cctry ao,d (lb a-tn-.y group sithi.ousehat' high-e a-eage butae thee she Country gecopof she sbj-os -cotty bceyPt tar 'Capital Surplu fib Etp-ttcr" getup abet "Mtddl. 1c-e Sooth Aifec aed Middle Tact' is chases beas f et-og-

sotio-cclturul afflcculnal. T chc.eee ru data the av-rsen ar -roceo oghted oritheetto ..n.ee far each idi-ator and hboa- only hbe at

beams bhbf cf the cutisineert-p bua duagrthat tedic-et- Sisc the coVterge ....ncoties snuo thn icdisseore dep-eod cn the -tilahilisy ofdais amd ta tot uslnt, cation east bneceratsed ie eeleteingnteoag of one todicat-eccac-b-e These -tetuge ac only ... nfa1 isnsp s tha rebuof net ludiatnret as atime arnog ehs c...otzy and enf-ooc groups.

LAND fREA (shu..asi daq.k.m.9 obto one bos~iobe - Ppolastbom atildna by sanest ut Pratilsg plby-Total - Tctat aurfaca are tpis I-gbad ar eand i.be.cd waters sioia.. qualified feom a siedoa ach-t ot atietemity bete.darliltabtara - Ettsus of agicultural an- aced tenpnraily ne p.-nrmuet:Ly 2oalnsoENusnSene-Pplen divided by nuabee atpaf cn

fee a..Ps, Paeetta, sutbn ko iechno oedens or so bie fslier; 1g77 date, male and femlegodus etee .p.oIc usesus and a..aieian uees

TN?ii CPIA TP ertais ntinos s orrstmameprce, etbeio es eeitb ld -ttl ra,ad meta - Papubstien (teneb.(Ill) cal- uth~~~-an, ed reel ItiV .h hir seapetien nabr af hespita1 beds

saluted by ce coetarstu mabe s old nook Aries (1.977-7 basis) 19ff, aeileble in pabbia and peir_se gasea1 and ePemtaliaed haspisab andre1970, and iSSideta. habilisatben .tester. inap..itels are eaabliabmaute peemsntely staffed

by selansI ... p..hys icia. Establinhmnast peaviding principally nantedi.1

Cyhi CONSb9l'ION PE iCaITA -- nclacaeso fcanei>eegy ca. tenaeme lsbded Resab hbspitsls, haserr, instuds health end naditelend lignite, pstcaleas, snsersl gas aed hydre-, noc eneud geteru nt> eseses ennty stafed by a phyI'tas (hut bye diaasstat

t, eitiy) is kilogaxa ef -na eqaale-s Pent psa 91 1970, and lgyf nurse, midwife, ate,) whiehUfre in-patient etetmedatien end peovide

dent. ~~~~~~~~~~~~~~~~limited reege of medicalf-uilistee. Pee atattinein1 pueteses sehes bspi-_

tabs inclade WHO. prIecipel gu-eal and spasielteed buapitlal, end esta1PIPTILATIOII ANl VITAI' STAISgTICi h-spitals lea er rural1 hsapteete asd mdisel and materity -snter.

Intel Pepabaiec. ffbd-Tae beibblac) - As cf Joby 1: 1960, l970, mcd 1978 ddnsnine tee fHseima t ed -ue snhb- ef edniasi..s to re disohargee

date, fre heny.isals. dividad by -the. snher of bade.Uebsan d peeuo borcee feael - teb at arhat to easel pcPabaeiae;

diferssdtinisinse nf ehe areasmy effete -upatbility uf data OSNasag an...trins; 1960, 1g70, end b978 deta. Aet-et lies of H-atheid (one.ess seeo .. hasb1d) - sum

1, sebe n,ad atsse

Parobeetes Pen-iessiaups-I- d.. 98 A ho-ehnb; nisso agaPofidiedasb ohs sheen birieg q-eter.Sebatenin tetliT- pentpouaTo pnetionabyart eeed onendggheird -hnir tote meals,in heedn urlde a r may anet ha iecluded in

total pupulatine by age and see aud their snetalin~~~~ ~ ~ ~~y an sthty eae. the ho..anhhad tar aaismbpttpoumaPejcitpacentera too uc"tebty natna nePnpra of threme Iode 555tu Alerue sfueber of trp t oar. mus -. reset, cbehas.2adms E -, Aeea en-

tog bife peupsoast at birth bucr-aing with -- ntry'e yr ne pita isne e fpre e omI b ur an.ad ene setpind cnvnnincZ

betel, and amab life nepeonec-y anbillebog at 77.1 yeer- The Pet- d-Iliogs, respectively. Dteellisga nacade ens-permnent -1-utre -sud.

meters foe f-etblity ease alec have shreet berts ait decline is anecayind geese.B.fd:tfI A .t lnrtt pr.tdfert Ility aconrding en incme bet.elncd pensTaby plasing p-rf-rnte. Aeeet-lcrmto(tau tdelisee) - tceal, sebe, and metal -bas -nontry is thee a-agued d ano ha site. oothteaien of -arenliy Cournetie...l d4ebbiege wcsh eb1tertity is biting q-ertee.sr esttgand fertility srendafr _ptjoisa pfpse.a total, aches, and c-ta d-sltngerm-p-tiv-ly.

itabenry noaeebs -Ine stati .. ary Ppoyabtios terse is -t nrci -bcthe birth rse a equa tno the death ruse, aed alan he age tetrasrs e- EDUCATION

the ebcmc bee iftu ta repredarinea, tee sb ssh tn Primay- belst,ml o tnmat-rnstotal, tabs ened totals.ft.unme rayps-e iteelf aacely. The utnetonry popoleties beweeenmatfalagssshpleylreasPecneaofnpsir

esimated nn the basis af the yen) nosed tha...tuarbathos of shi pepletee prisery eeleepptsceueal ldnmlds gdflin the year 21000.and she eaee of d-olu. ef tertility rate so tspbec- yer u djetdfefttet sgh tpiayeoei u

eem ebust counneba with rtednsar difseatist le cngth nm map y eced-t100 psesm

2seaasna ' eua is re-ahind - The year ohns -ttice-y poyclatios aidec teen pupils are belw1 nshe the ntTitiebt " nu ae

ales hasbee. tehed. Seodr nb-tent, tbsan taae-Cmptda hae tedery

Peeslandon nanpettte edecle.r(10 .. tt.) '~,tiacrsqcirns at leant tsar years of appenoed primary inretntine;Pee n. h. - d-yer peebenn:s ar smar hilnete blo heoacea afpencides general, enaie..ab, nr teac.her staining Istctusarppi

seelara -snly ot l2 no 17 Years of ege; e--epandes..ce meres are gane-ety

esby. Voc..tiasbeneie (-eenet cf ...cendacy) - V..tPaaie..e isatitoti..ePerolasie dee itentase iproee .t- Childre (01-14 yeare), oatht9-agc (11- inelsde st.heica,tdat l r ether pengBYn nhinbh parsta indepan-

Lbye-r9 en enrd 6 yeesad o..t as _petoesgna i aid-yuec pcyu- dentlyc a da.pa'r'tes'ts tf sedey' -tseietlae;1960, 19Sf, end 1979 da%t,.1 Pau-ncrrsn pimary, and snnday-Tebsdne ueedi

Peeslasienferbnt rten aa - Annea gen-th cases af tesa1 mid- primary and se..nderylrl die yeebsee,t at.neehers: inthleyear pepabattem far 1950-6 0, 1960-79, and 1970-78. cerreapeediag ber1l.

Pepulninsirawb bea (pesess - ohen imnut gtweh ien f achc pon- Astn inseayreer(pecent1- lieratbadas t (ble ad madend iatenlamiasa tue 1911-60, 1960-7, endl 1970-79 mepesstags sf tee1 ndstt Papu1stiss aged 11 peers end ecee.

Crsdn Btis baet (par thnoseed) _ a,_asul ire births per th-ssed of ad-y-eP.paasne Rbhi 970, and 197f dasa. C000O'bO

Teade teeth Rate (tee th-uand) - iat-a d-asb Per tha...and at end-pee _esageeCr teehsadnpbaie scegrerNam aepeuamn; 160, b97t, end 1976 data. ten Cnsn lpess th-andtgh peesas; mtbide asu eetes hame aed

bras sreusn bes-Aeae abea ghteesaame w-ill bear in -ilittyiraiobu..:t. ih .. n;-l. bl.. er.

her sama epredastire peeled it heaPeiee prsn dgeati it7 fe- be.die .i -enier (arbe thesan pa aine) -ol types ateas items fan -adtibisy eases; nasall tire-peat Lt_eage eui.g i19, 1 1970 n 97 b-ed-atn en genteeal publdicpen thosesu._d of papbuia am.eba asli-

Family Plaamsna--cet-er. Ado.ae. (thanasdef - A-..ua sabero ef sc-pt-ra ...ssd enabrers in ceutrisa sod in yanra wham egiesratian of redia sew

family Plannieg-leere (mosses et~~~~~ maribe o.nm ) - P.ora-nga t macied c...neteie aboiehed Iitc...sbg.re an ofhild-beanig ag 1i-4t years) oh. use blth-....ere1 devices O T tssa oe thcun rteeins - TV e...ei,rse fee betadsn

abl martied dene, in e asege getup. ge rl- pa Lnprtesn aoabn sebdsuniesd-1 ecever

POOD ANiD MUTR.ITIOt is ca-tri.itaed'is yeu.. when aegiteet ir at TV sets sea is ties.tNewa-p-er Ci-cl-ti- Cent .th ased caplanienl - thaws the aereg ci-ele-Indan of tcnd Prdno,tlnl tar Capita (1969-71=100b - Isdsn at yet oePite a-oat etco dil eea itrs tappe ln ap gtdcbp

iendati c all Tand b nse.edte,Penneecucseedte o li-aioe deren-d petmerbly en eaterd-neealg na Tii daaideedin as calendar year haste. Coamdities ters prImary geeds (e.g."ant"tt abediyittePPesr etetefm ter..sesosk

iassed ft sugar whth am edible end ..ounain eanriesen (e.g. coffee end Cinem Acesal Attesb..c. per Cec-ee ta YVn-Ne- an1 the saber of

sta' are sebded), Aggoegene p-d-ntito at each coatry is be...d sn ticke.tsiald daring she year, inetuding udais ine. sodet-i. n _cesa-tonb..ebIaerege peaduect pi-e -eights; 1961-hi , 197i0, esd 1978 det- ad met tits..

Pe capitasneatebis (ermnt eC -a eset teent - Csspated traeneg eolaentatse fod aples avilable in -- sty pnr repita I-,o PAiCRC

pmr day. Arsilable capplles nsnpria d_metic prad-tino, impocte 1-ea Tntel Lebec Porc (thenadab -"bnnoiaIlby ective perassa, isotadieae-p-rta, ai chenged an atont Nct sapplls anceds animal tend, aerda, -rud tocee ted -vEspeyd bat eut1udine heasteit-, nsadesta, at.

qu...siesee i adprotig and oss I in d ,lb.tihai. Rtqirt- .fniti-ile ic. t-ri-ne cnutrins art catoparable; 1960, 1970 endmecca ware nueatetd by PAt beud o physinIBgic-1 steinf. Tot,eneml ecu- 1978 date.

ithy add heticnsdra e-oi-oeantelb teuperatart,.bedy F-aes go Pmteberet F- Petl labortr- m ec f uf-cetabl lbaho farce.

anIn iatibalsa pepoletIe, and sbIowi I 0hros Ta et t ber s(eca)-ibor f-cc itnurin, tonte.hasting aed

tIe...t Iteth; I9hi-bO, 1970, ean 1017 data tiehiug us pecetag eof tata lebs Ocro- 1960, 1910 end 119B dsta.Per_ceitte ePplb at rtreini (nrnes te dey) - Protein otn ccpe upe Teoeo (e_n) ee t._ca ie mIstg cerois auat

ca epya od Per day. Net sapply ot toad is dclitedaat v e- au,eoneo"y wanor aed gasesrterans-og L. stee lbor ftats; 96.8

farnnater allsatrios -tsbliahed by USDA provide toe em"a 1971 and 197i data.allowance of 60 erase ef tate1 prattle pet day nnd 2C gnc oft ettleRaeab end tt-. I

60 gr- Of d ~~~~~~~~atibato et pecn) ctl al.ed ttmel F-rPeesipenit nrya1-leprtele, of which 10 grams shauld be animal protein. Thes tud- anbiyrtsaecsae esel ale nd femle taboo forc-aa-de art lw- thee thoes aT 75 Rtra oftena p-tein aend27 raso proceet ot total, mal and fesele Papulutbem at a -gaaear-p-ti-ety;ansimal p_aei as an -vesge tuehc aneld * propated by PAO is the Third 19f0, 1970, end 1971 data. These are I T's paetittp-tias tase ettleceteghnrld tend Ourvep 1961-65, 1970 and19,77dteaintatrnunTthpplte, an Leog1 tta trn.A tn

Pat seina crone.is aupeby frmela s se Protinian.ppbyof bod An-_ mate ar- f Intihc papslmee.l

idie animals and paba.. is geses per day; 19f1-l 170 _cd 197ft. 0o . D.ceudes- Bettn - Hasia of peysbanin.euder 11 add 61 add overChild (ages 1-Al Mortality Seen (per ~~~~~th-o...ud) - Ao..acl doatha per tln-adin -r.t.tt1l

ego geaup b-A yea-o, se children is this age grop; toe mout detete su-_telee data d-cired free life tahlna; 1965, 1970 and 1977 date. INCOME tISTiBUTtION

HEALTH P~~~~~~~~~~~~~~~~~~~ert... tse ci Ths,tdon In.oem Cheth in c_n. and_dkind) - Received by rishestLlf aeo c seBrh tas)-trg uber aT ynear of life o-iaidsi Ie .e.eat, tichest 90 percent, pnes1 scn,adpna ipees

Tnfan ems-talitl fete bane thues.eadd) - Aes-e deethe of benta on -cder eon yta- POVERTY TARGET 000UPSataepr bued bive birsha. setimanetd Absalete ParryIsn.lvl(.$pe ai urban and r-rel-

taea Saflet Weter (nersame efp-bse)-ttl ea.ad r..e -I. hnspreyiem le elt thsIncnme beve he1 rhieh e miulmalMasher at psePe (easel, urban,ma esrel with reeam.ableeos ea f cafe. .. tyi.p"H Hrater suPply (ketudne sreated -ofane settee atrnueated hot sme.tsastned eeteitin..ellyadeqsat dias plas esssstie1 uns-fnnd reqeitemets is en

adteede.,ble_wate deah me thentea peae-teted bhebolta, apete.' and enita-y cable) nnE. antI ebeivePve letem eel(t L- t rettui-)-a a band easl

perceaeln at their repective papuletlaus. On as urban rern Peblis Rura-l btire peertyt lenielee is ems-hied at aesag peeuspineft.a.ttia ur taodpet beetedse mre thea 2100 meer trcaabos my ha peeae. naerttenue.UbnlrI i eie estetr

casidre as eng within teasnal t aec of ela house. It total -uteeUbs leressnasble ..es .Ied Imply that she hesn dr mebers of the h-esabld leelwtheisems teh -n inst f i-i in-rbsemaet...)-_

de -a here ta pesd a disprepattnIs .t part of the day is ftechitg the tadd r ..t I Parul ntin lee pbsolute. Povee_ moan bevel b irurem - arhsP..'

dispas.l aspEesae n hi csetieppasis. ersade tnot add Secia1 late Dlivisie

Pasal may inluda the molbeteios and dispsnnl, with cr Atiheet tresenene, oE_ tic Aralyiab and Peajeetie.. tep-teres'f h_ and - -Ier ly -- b- y.t- r ~~~~~~~~~~~h. d.. f ~Oc-ahe 199tr

yin piIsand similar bsabeua

ANNEX I-19- TePge4of 8

ECONOMIC DEVELOPMENT/DATA SHEET

Actual Estimated Projected

1975 1976 i977 1978 1979 1980 1981

A. National Accounts(Hil.US$ at 1978 prices)

1. CDP 2,122.6 2,239.8 2,362.3 2,146.4. 1,560.3 1,743.5 1,900.42. Gains frrom TT. -39.8 +1-94.8 +43.7 - -96.3 -59.5 -150.33. Gross Don.Income 2,082.8 2,334.6 2,406.0 2,146.4 1,422.6 1,684.o 1,750.14. Imports 828.4 854.3 918.4 686.o 396.1 569.2 667.45. Exports-Volume 665.5 756.3 757.7 758.0 662.3 1476.0 615.46. Exports-TT. Adj. 625.7 851.1 801.4 758.0 566.0 416.5 499.o7. Resource, Gap-TT adj. 202.5 3.2 117.0 -72.0 -169.9 152.7 168.48. Total Consumption 1,830.7 1,923.9 1,967.9 1,810.1 1,357.5 1,622.4 1,636.99. Investment 454.6 407.5 555.1 264.3 -63.4 214.3 315.510. Domestic Savings 252.1 404.3 438.1 336.3 65.1 61.6 346.3

11. CDP at Curr.US$ 1,590.4 1,861.3 2,237.3 2,146.4 1,856.7 2,440.9 2,806.9B. Sector Output

(Share of CDP at 1978 prices)

1. Agricture .234 .228 .219 .246 .286 .214 .2442. Industry .287 .285 .287 .242 .227 .242 .2193. Services .479 .487 .494 .511 .485 .542 .536C. Prices (1978 100)

1. Export Price Index 66.8 83.1 100.0 100.0 101.5 121.2 121.32. Import Price Index 71.7 72.0 93.9 100.0 120.9 138.9 157.83. Terms of Trade Index 93.; 115.4 106.5 100.0 83.9 87.3 76.94. CDP Deflator (US$) 74.9 83.1 94.7 100.0 119.0 140.o 147.75. Aver.Exch.Rate 7.0 7.0 7.0 7.0 9.16 10.0 10.0

D. Public Finance(As Z of CDP at curr.US$)

1. Current Revenue 20.3 20.2 23.8 19.22. Curr. Expenditures 17.4 17.4 20.5 20.9' Public Sect.Savings 3.0 2.8 3.3 -1.7Cap. Expenditures 11.2 10.8 14.3 6.3

20 ANNEX I-20- ~~~~Page 5 of 8

I M P OR T D E T A I L

ACTUAL ESTIMATED PROJECTEDl95 S2276 1977 1978 1979 9 181

CON9TANI' 1978 PRICES

FOOD 31.7 35.3 35.7 31.> 37.4 69.6 29.TOTHER CONSUMER GOODS 155.4 157.8 173.6 116.7 51.6 99.2 123.2PETR0LEL*y OIL, LU.RICANTS 90.3 95.4 105.6 89.0 48.7 86.9 105.6OTEER INTERMEDIATE GOODS 208.1 211.1 234.2 217.8 108.1 202.2 183.8CAPITAL GOODS 235.3 239.1 293.8 139,2 52.2 79.1 178.8

TOTAL GOODS (CIF) 720.8 738.7 824.9- 593.9 298.0 537.0 621.1TOTAL GOODS (FOB) 672.14 689.1 749.4 546.8 2T7.5 486.2 562.3NFS 156.0 165.2 169.0 139.2 118.6 83.0 105.1TOTAL GGODS AND NFS 828.4 854.3 918.4 * 686.o 396.1 569.2 667.T4

PRICE INDEX (1978 = 100)

FOOD 64.9 68.8 86.o 100.0 110.0 117.0 121.0OTNER CONSUMER GOODS 65.2 74.8 86.8 100.0 116.5 125.2 133.1PETROLFUl, OIL, LUBRICANTS 80.7 76.8 97.5 100.0 155.3 217.6 248.1OTHER INTER?EDIATE GOODS 84.c 81.4 107.8 100.0 113.2 124.8 136.0CAPITAL GOODS 62.6 60.4 86.8 100.0 116., 125.2 133.1

TOTAL GOODS (CIF) 71.7 72.0 93.9 100.0 120.9 138.9 152.9TOTIAL GOODS (YOB) 71.7 72.0 93.9 100.0 120.9 138.9 152.9NFS 77.9 79.2 86.8 100.0 113.2 124.8 136.0TOTAL GOODS AND NFS 72.9 ,73.4 92.6 100.0 118.6 136.8 150.2

CURRENT VALUES

FOOD 20.6 24.3 30.7 31.2 41.2 81.5 36.oOnIER CONSUMER GOODS 101.3 118.0 150.7 116.7 60.1 124.2 164.0PETROLEUM, OIL, LUBRICA'ITS 72.9 73.3 103.0 89.0 75.7 189.2 262.0OTRER INTERMEDIATE GOODS 174.8 171.9 252.5 217.8 122.4 252.3 251.0CAPITAL GOODS 147.3 144.4 255.0 139.2 60.8 99.0 238.0

TOTAL GOODS (CIF) 516.9 531.9 791.9 593.9 360.2 746.2 950.0TOTAL GOODS (FOB) 482.2 496.2 704.1 546.8 335.5 675.3 859.7NFS 121.5 130.8 146.7 139.2 134.3 103.6 143.0TOTAL GOODS AND NFS 603.7 627.0 850.8 686.o 469.8 778.9 1,002.7

ANNEX IPage 6 of 8

-21-

EX PO R T DE T AIL

ACTUAL ESTIMATED PROJECTED

1975 1976 1977 1978 1979 1980 1981

CONSTANT VALUES ( MILLIONS OF 1978 DOLLARS)

COTTON 11414.9 123.5 127.3 140.9 127.8 21.6 75.0COFFEE 148.0 129.3 180.8 199.6 201.6 168.5 194.8SUGAR 18.1 29.9 19.9 .19.6 18.- 15.2 20.9BEEF h2.9 51.7 52.3 67.4 70.1 54.2 54.0ALL OTIER GOODS 207.4 253.5 256.1 218.3 184.8 169.3 185.0

TOTAL MERCHANDISE FOB 561.3 650.9 636.4 .646.o 602.5 428.8 529.7WON-FACTOR SERVICES 104.2 105.4 121.3 113.0 59.8 47.2 85.TTOTAL GOODS AND NFS 665.5 756.3 757.7 758.0 662.3 4T6.o 615.4

PRICE INDEX ( 1978 = 100

COTTON 65.9 105.7 118.3 100.0 106.0 138.9 l26.5COFFEE 32.5 62.1 110.0 100.0 78.6 75.0 95.2SUGAR 235.4 176.6 139.7 100.0 107.7 167.1 166.5BEEF 62.9 72.7 71.3 100.0 133.9 131.9 127.3ALL OTHERS 77.9 79.2 86.8 1oo.o 113.2 124.8 136.1

TOTAL MERCHANDISE FOB 66.8 83.1 100.0 100.0 102.3 108.3 119.9XORN-FACTOR SERVICES 77.^ 79.2 86.8 100.0 113.3 124.8 136.5TOTAL GOGCZS AND NFS 68.5 82.6 97.9 100.0 103.3 110.7 122.3

CURRENT VALUES (MILLIONS OF DOLLARS)

COTTON 95.6 130.6 150.6 140.9 135.5 30.0 14.9COFFEE 48.1 119.4 1,)b.8 199.6 1,8. . 14.8SUGAR 42.6 52.8 27.8 19.6 19.6 25.48.7BEEF . 27.0 37.6 37.3 67.4 93.9 71.5 25168ALL OTHER GOODS 161.6 200.8 222.3 218.3 209.2 211.3 2

TOTAL MERCHANUDISE 374.9 541.12 636.8 646.o 616.6 464.2 635.6

NOt-FACTOR SERVICES 81.2 83.5 105.3 113.0 67.7 58.9 117.0

TOTAL GOODS AND NFS 456.1 624.7 742.1 758.0 684.3 527.1 752.6

ANNEX I-22 Page 7 of 8

BAAICE OF PAYMENTS AND EXTERNAL ASSISTANCE

Actual Estimated Projected

1975 1976 1977 1978 1979 1980 1981

A. Summary of Balance of Payments

Merchandise Exports (FOB) 374.9 541.2 636.8 646.o 616 464 636Merchandise Imports (FOB) 482.2 496.2 704.1 546.8 389 675 860

Trade Balance -107T3 45.0 -- 67.3 +99.2 +227 -211 -224

Export of NFS 81.2 83.4 105.3 113.0 68 59 117Imports of INFS 121.5 130.8 146.7 -139.2 134 104 143

Net Services -40.3 -4T.3 -41.4 -26.2 -66 -45 -26

Resources Gap (-) -147.6 -2.3 -108.7 73.0 161 -256 -250

Factor Income, Net -53.1 -71.T -78.0 -73.1 -72 -45 -52Profits, Net -23.8 -27.7 -28.5 -22.4Interest, Net -29.3 -44.o -49,5 -50.7 _72 -45 _52

Transfers, Net 16.7 10.0 11.0 10.0 T2 60 15Current Account Balance -184.0 -64.o -175.7 9.9 161 -241 -287

Direct Investment, ;let 11.0 14.0 10.0 7.0 0 0 0Public M and LT Lcans, Net 156.4 46.2 196.4 50.9 92 254 250

Disbursements 171.1 75.5 245,3 101.6 112 292 -Amortization (-) -18.14 -33.4 -50.2 -52.2 -20 -38Loans Repayable in Loca.l

Currency 3.7 4.1 1.3 1.5 - -

Allocation of SDR's - -

'Mort-Term Capital and NEI 23.2 52.5 -87.3 -292.1 -301 -60 -20Net International o

Reserves (- = increase) -6.6 -_48.7 -56.6 224.3 48 147 57

B. Grant and Loan Commitments

Official Grant 16.T 10.0 11.0 10.0Total Public M and LT Loall 202.9 172.6 161.5 188.9IBRD 5.C 11.0 22.0 20.0IDA 0.0 0.0 0.0 32.0Other Mutilateral 51.9 37.2 27.1 178.8Governments *59.8 68.6 46.9 58.1of which CPE 0.0 0.0 0.0 0. ISuppliers 12.2 0.1 6.3 0.0Financial .Institutions 74.0 55.T 59.2 0.0Bonds 0.0 0.0 0.0 0.0Public Loans NEL 0.0 0.0 0.0 0.0Other M and LT Loans 0.0 0.0 0.0 0.0

C. Memoranda Itens

Grant Element of Total Comnitments 19.3 19.7 - 11.6 26.4Average interest (%) 7.4 6.7 7.4 6.3Average maturity (yrs.) 16.9 14.9 10.6 19.6

ANNEX I- 23 - Page 8 of 8

Debt and Creditworthiness

A c t u a l

1975 1976 1977 1978 1979

A. Medium and Long-Term (disbursed only)

1.0 Total Debt Outstanding 595.14 653.2 866.7 963.8 929.5

2.0 Including Undistursed 818.3 958.8 1,092.3 1,212.7 1,248.8

3.0 Public debt service 55.2. 72.3 100.5 97.1 20.06-

3.1 Interest 35.6 41.0 51.4 48.2 32.0

4.0 Other M and LT debt service 0.0 0.0 0.0 0.0 0.0

5.0 Total Debt Service 55.0 72.9 100.5 97.1 20.0

B. Debt Burden

1.0 Debt Service Ratio 12.1 11.7 13.5 12.8 3.0

2.0 Debt Service Ratio 17.3 16.1 17.4 15.7 3.0

3.0 Debt Service/GDP 3.5 3.9 4.5 4.5 1.3

C. Terms

1. Interest on Total DOD/Total DOD 7.8 6.9 7.9 5.6 3.4

2. Total debt service/Total DOD 12.1 12.2 15.4 11.2 2.1

D. Dependency Ratios for M and LT Debt

1. Gross Disbursements/Imports(Including NFS) 26.5 14.2 30.5 20.8 23.7

2. Net transfer/Imports (DNCL,NFS) 17.4 2.5 18.7 6.6 12.6

3. Net transfer/gross disbursements 65.6 17.9 61.3 31.9 53.4

E. Exposure

1. IBRD Disbursed/gross Total Disb. 8.7 15.1 5.4 4.9 7.0

2. Bank Group Disb./Gross Total Disb. 12.2 21.6 6.6 5.5 7.2

3. IBRD DOD/Total DOD 8.8 9.8 8.7 7.2 9.1

4. Bank Group DOD/Total DOD 11.0 12.7 11.2 9.3 11.6

5. IBPR Debt Service/Total Debt Service 9.9 8.5 7.4 7.2 4o.o

6. Bank Group Debt Service/TotalDebt Service 10.1 8.8 7.6 7.3 41.0

Outstanding December 31, 1979

Amount Percent

F. External Debt (Disbursed onlY)

1. IBRD 84.6 9.1

2. Bank Group 107.8 11.6

3. Other Multilateral 169.7 18.3

4. Governments 332.1 35.7

5. Suppliers 20.2 2.2

6. Financial Intitutions 292.3 31.4

7. Bonds 7.5 0.98. Total M and LT Debt 929.5 1Oo.o

9. Total M and LT Debt 929.5 100.0

10. Total M and Lt Debt (Including Undisbursed) 1,248.8 134.3

1/ Includes direct invest ment income.2/ Excludes 1978-79 debt in arrears.

/ Amount actually paidRest of data from World Bank Tables No.2 8/6/80

ANNEX II- 24 Page 1 of 4

THE STATUS OF BANK GROUP OPERATIONS IN NICARAGUA

A. STATEMENT OF BNK LOANS AND IDA CREDITS (as of October 31, 1980)

Loan or US$MillionCredit Amount (netj.yf cancellations)No. Borrower urpose Total IDAL- Undisbursed

Twenty-two Loans and Credits fully disbursed 115.3 23.6

1244 1976 Government Education 11.0 - 6.61402 1977 ENALUF Power 22.0 - 12,81495 1978 Empresa Aguadora Rural Sani-

de Managua tation 3.0 - 2.4

1496 1978 Empresa Aguadora Water Supp.de Managua 10.1 - 4.0

1785 1980 Government: Agro-IndustryRehabilitation 20.0 - 20.0

965 1980 Government: Urban Recon. 22.0 16 3966 1980 Government Agro-Industry

Rehabilitation - 10.0 4.8

Total 181.4 55.6of which has been repaid 43.8 0.3Total now outstanding 137.6 55.3

Amounts sold 5.6of which has been repaid 5.2 0.4 -

Total held by Bank and IDA 137.2 55.3

Total undisbursed 66.9

j/ Includes exchange adjustments.

-25 - ANNEX IIPage 2 of 4

B. STATEMENTS OF IFC INVESTMENTS (as of October 31, 1980)

Year Obligor Type of Business Loan Equity Total(US$ Millions)

1968 Textiles Fabricato Textile Mill 1.00 1.07 2.07de Nicaragua, S.A(FABRITEX)

1976 Nicaragua Sugar Sugar Mill 6.50 - 6.50Estates Limited(NSEL)

1976 Posada del Sol Hotel 0.70 0.20 0.90(Camino Real Hotel)

Total Gross Committed 8.20 1.27 9.47

Less cancellations, repayments and sales 4.33 1.07 5.40

Total Commitment now held by IFC 3.87 0.20 4.07

C. PROJECTS IN EXECUTION

Loan/Credit No.

Ln. 1244 Second Education Project: US$ 11.0 Million of June 15, 1976:Effective Date: August 17, 1976; Closing Date: December 31,1981.

Project implementation has improved greatly in the last few months.Eighteen basic secondary schools and around 110 out of 222 ruralprimary schools are under construction. Tenders have been calledwhich would bring the number of schools under construction by theend of 1980 to around 75% of the total. Around 55% of the estimatedtotal value of civil works is in execution. Repair of the 22schools built under the First Education Project which weredestroyed during the 1979 civil war was also substantially completed.Procurement of school furniture and equipment is proceedingsatisfactorily and the teacher training program will resume inDecember 1980. The technical assistance program contracted withUNESCO was initiated on October 1, 1980. 40% of the loan proceedshave been disbursed to date. Total project costs have risen byaround 10% due to labor and materials cost increases. The projectis expected to be completed by December 31, 1981.

ANNEX II- 26 - Page 3 of 4

Ln. 1402 Ninth Power Project: US$22.0 Million of April 22, 1977; EffectiveDate: October 27, 1977- Closing Date: June 30, 1982.

The project was significantly delayed because of delays in hiringconsultants, difficulties in engaging contractors and because ofENALUF's (now INE) increasingly tight financial situation. Theseearlier difficulties are in large measure a consequence of thepolitical disturbances wlhich ended with a change of Government inJuly 1979. The cost of the project, originally appraised at US$32.3million is now estimated to be US$40.2 million. After the civilwar,modifications in the project were agreed with the new Governmentand INE. They consisted of a reduction in the Bank share of someparts of the project (financing for which was assumed by CABEI) toallow the Bank to finance a portion of the local costs ofreconstruction of installations damaged during the war, andfinance replenishment of INE's inventory of distribution equipment.Since the end of the war, procurement activities under the projecthave been satisfactory, except that the tariff and sector organizationstudies which were to be financed have not been restarted. Becauseof reduced sales and increased operational expenses, largely dueto increased fuel cost, INE continues to face serious financialproblems. Collection performance which was very poor during andimmediately after the war has improved substantially; however,proposed tariff increases have not yet been approved. We are conecerned about managerial efficiency but expect a productlve dialogueon required institutionalL improvements in the context of preparingthe next power project.

Ln. 1495 Rural Sanitation Project: US$3.0 Million of February 9, 1978;Effective Date: July 10, 1978; Closing Date: June 30, 1982.

Follow:ing the civil war and in view of the changed responsibilities ofthe Ministry of Health and the water company (INAA), the Governmentpresented to the Bank a detailed proposal for the modification of theproject scope and the institutional arrangements required for theProject. Meanwhile, the subprojects already started are being com-pleted.

Ln. 1496 Managua Water Supply III Project: US$10.1 Million of January 30,1978; Effective Date: May 26, 1978; Closing Date: December 31,1981.

The project was restructured in October 1979, eliminating somecomponents which were not of high priority under current circumstancesand using the resulting savings to finance replacement of equipmentdestroyed during the war and to increase the financing of localcosts and interest during construction. Although the executing agency(INAA) has endured a very critical financial position, the companyis now in the process of recovery. All Bank recommendations have been,or are, in the process of being implemented, and the project isexpected to be completed only six months after the original closingdate of June 30, 1981.

- 27 -

ANNEX IIPage 4 of 4

Ln. 1785 Agricultural and Industrial Rehabilitation Pro4-<t: Loan US$20.0Cr. 966 Million, Credit US$10.0 Million of January 4, ijdO; Effective

Date: January 25, 1980; Closing Date: December 31, 1981.

One half of the Loan/Credit was allocated to replanting of ex-propriated farmland and war damaged private farms and to a coffeerenovation project. Disbursements on this part of the projecthave been faster than expected and as of November 7, 1980, US$6.9million had been disbursed by Bank/IDA. As of September 30, 1980,the total committed by the project management from the Loan/Creditto agriculture was about US$17.5 million. Since the utilizationof the industrial component has been slower than that of theagricultural component and, due to the more immediate needs ofthe agricultural sector, US$7 million of the US$15 million industrialallocation has been reallocated to the agricultural component.Although 135 private and 6 state farms have benefitted from theproject, the amount has not been sufficient to finance more thanhalf of the subprojects requiring financial assistance.

The other half of the Loan/Credit had been allocated for the reha-bilitation of industrial enterprises to enable them to regain pre-war levels of employment, output and exports through restoringcurrent production and the repair or replacement of fixed installa-tions. Of the remaining US$8 million, US$6.5 million has beencommitted and the balance is expected to be committed shortly(subproject approvals for the industrial sector by the Governmentnow total the full US$8 million).

Cr. 965 Urban Reconstruction Project: US$22.0 Million of January 4, 1980;Effective Date: January 25, 1980; Closing Date: December 31, 1981.

The Municipal Reconstruction Component (US$6.8 million) is proceedingon schedule; most repair works on the street and public spaceshave been completed except for the installation of water supplyequipment. Major reconstruction of markets and other municipal build-ingsare under construction or in the final design stage due in largepart to the quality of the technical teams of the Ministry andMunicipalities. The Small Scale Enterprise Component (US$3.2 million)handled by the FED has made about 1,800 loans totalling over US$3.0million which include numerous micro-enterprise loans handled by theBanco Popular and BND. Progress on the Urban Transport ComponentOTS$12.0 million) is also satisfactory; the bus route pavingimprovement program is ahead of schedule. Tendering for procurementof buses and maintenance equipment was approved by the Bank in Julyand contracts were signed in mid September. Total disbursementsare at present near appraisal estimate.

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ANNEX IIIPage 1 of 1

NICARAGUA

PREINVESTMENT FUND (FINAPRI)

SUPPLEMENTARY PROJECT DATA SHEET

Section I: Timetable of Key Events

(a) Time taken to prepare project: 3 months

(b) Project prepared by: FINAPRI

(c) First presentation to the Association: March 1980

(d) Departure of Appraisal Mission: June 1980

(e) Completion of negotiations: November 18, 1980

(f) Planned deadline for effectiveness: April 1, 1981

Section II: Special Bank Implementation Actions

None.

Section III: Special Bank Conditions

(a) Changes in FINAPRI's procurement procedures as described in itsoperating manual will be made only in agreement with the Asso-ciation except the amendment providing for hiring proceduresfor individual consultants, which is a condition of effective-ness (para. 53). For hiring of consultants, the Associationwill approve the short list: of consultants, the consultantselected and the negotiated contract (para. 54). Changes inFINAPRI's operating manual other than those dealing with pro-curement may be made after consultation with the Association(para. 38).

(b) The Government will provide the funds needed by FINAPRI tomeet its obligations under the Development Credit Agreement(para. 41).

(c) The Government will bear the foreign exchange risk (para. 49).

(d) For free limit studies the Association will approve the subjectmatter only; for others, it will approve the general outline,and the :Lnitial budget (para. 52).

(e) As a condition for disbursement FINAPRI will submit to theAssociatiLon for approval a standard consultant contract(para. 56).

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ANNEX IVPage I of 8

FINAPRI

A. SUB-PROJECT LIST

The studies enumerated below are in various stages of preparation,and the budget ascribed to each is likely to change as the terms of referenceare finalized.

There is no firm commitment as yet on any of them, either by theGovernmemt to carry them out or by FINAPRI to accept them for financing. Theyare given for purposes of illustration only.

Agriculture (in US$ million)

1. Coconut development - possible 5,000 acres plantationin Atlantic Zone, together with industrializationof by-products .50

2. Cashew development - possible 6,000 acres plantation,with processing plant .50

3. Yuca development - improvements in technology forcultivation, conversion and marketing .05

4. Cocoa development - feasibility of establishing 3,000acres of plantation in three zones .25

5. African palm development - general studies of cultivationand exploitation 1.75

6. Rehabilitation of irrigation project .15

7. Animal Health Study - covering immunization and diseasecontrol techniques .08

8. General agricultural development plan, including agro-industry 1.00

Subtotal 4.28

Industry, including agro-industry

9. Feasibility study for 1/2 m gal p.a. castor oil plant,including selection of technology .07

10. Engineering for above plant .20

11. Production of alcohol from sugar cane - feasibility,technology and initial design 1.50

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ANNEX IVPage 2 of 8

12. Meat production - covering slaughtering, conversionand marketing .40

13. Feasibility study for shelL fish processing plant inPuerto Cabezas .20

14. Study of potential for vegetable products and by-productsfor thie pharmaceutical industry .20

15. General diagnostic study of the pharmaceutical industryincluding marketing (this should lead to a number ofspecif:Lc studies later in the program) .14

16. Feasibility of producing monovinyl chloride from sugarcane [via alcohol/ethylene conversion) .70

17. General study of opportunities in the plastics industry(this should also lead to a number of specific studies) .15

18. Feasibility study for terry cloth towel production .40

19. Feasibility study for cotton spinning .50

20. Engineering for above 1.00

21. Textile industry rationalization study 1.50

22. Light mechanical industry rationalization study .40

23. Corrugated box production feasibility study .05

24. Sawmill rehabilitation study .03

25. Feasibility study for gold and silver refinery .15

Subtotal 7.59

Energy

26. Second Momotombo Geothermal development 1.04

27. Hydroelectric Project for miningcomplex and rural power supply .69

Subtotal 1.73

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ANNEX IVPage 3 of 8

Transport

28. 348 km of rural roads improvement to all-weatherstatus .79

29. San Marcos penetration road (32 km) .06

30. Lake Nicaragua transport improvement study .05

31. Location study for seven port terminals on Atlantic Coast .15

32. Rigoberto Cabeza Stage II road improvement study (120 kms)including final engineering .06

33. Feasibility study for continuation of canal and port atAltura on the Atlantic Coast .75

Subtotal 1.86

Housing nd Urban Development

34. Housing construction and improvement (36,896 units) 2.08

35. Improvement of 15 Managua slums .19

36. Municipal Development Fund .26

Subtotal 2.53

Water Supply and Drainage

37. Storm drainage .04

38. Final engineering, Managua additional water supply .50

Subtotal .54

Education

39. Equipment improvement - 22 schools .06

40. Primary education extension centers, detailed design .23

41. Construction and equipment, 9 agricultural schools, designrevision .08

42. Construction and equipment, 8 laboratories, detailed design .12

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ANNEX IVPage 4 of 8

43. Construction and equipment for education center inManaguLa .06

44. Productiona of textbooks .10

Subtotal .65

Total 19.18

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ANNEX IVPage 5 of 8

Summary

No. of Cost of Studies Av. CostSector Projects % by No. ISSlS illion ESiL lli= % by Cost

Agriculture 8 18 4.28 .54 22

Industry 17 39 7.59 .45 40

Energy 2 4 1.73 .87 9

Transport 6 14 1.86 .31 10

Housing and UrbanDevelopment 3 7 2.53 .84 13

Water 2 4 .54 .27 3

Education 6 14 .65 .11 3

Total 44 100 19.18 .44 100

34 -

ANNEX IV

Page 6 of 8

B. CASH FLOW

1. The basic assumptions of the cash flow forecast are that operatingcosts, originally forecast in constant dollars, are increased by the totalforecast local inflation; 1/ that costs of studies are increased by 10% p.a. t

to compensate for international inflation; that the Government will makecontributions in support of operations until these are covered by interestand commission; that the Government will make the necessary counterpart fundsavailable to support the requirements of the portfolio.

2. The operational information for the forecast was supplied by FINAPRI.It is very tentative as it is most difficult to project the level of activitiesof a newly established Preinvestment Fund. It shows an exceptionally highearly rate of disbursement. This is considered achievable, however, becausethe Government has decided to route all preinvestment studies not alreadybudgeted by the Ministry or Authority concerned through the new institution.

3. In line with this Government decision and policy, counterpart fundshave been budgeted by the Ministry of Finance to meet such a high rate ofdisbursement. If disbursements should be slower than expected, FINAPRI'sincome would be afiEected and the point at which FINAPRI will become selffinancing would be delayed.

4. Cash balances have been projected at a constant US$20,000equivalent.

5. Funds from other external sources are shown as grants on capitalaccount and cover the authorized capital of US$6.5 million by end 1983.Increases, however, do not require special legal authority as the EnablingLaw gives the necessary authority to the Finance Committee of the Government.

6. The forecast is based on the commitment levels indicated in para. 43.The IDA credit is expected to be totally disbursed by the end of FY85. TheCredit is to be passed on to FINAPRI on IDA terms and onlent at 8% interestwith a repayment period of up to 10 years.

1/ The impact of inflation (see para. 50) on FINAPRI's operating cost: isestimated to be 30% in 1980, 20% in 1981 and 1982, 15% in 1983 and 1984and 10% in 1935 and 1986,

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ANNEX IVPage 7 of 8

7. Operating costs average 22% of disbursements over the six-yearperiod including start-up costs. This is high, but is the rerult of theconsiderable technical assistance and promotional work required (para. 36)The possible income from charging for this work is not shown. The effectwould be roughly to halve the burden on lending operations, which would thenbe about 10% of disbursements and less than 3% of portfolio.

8. Disbursements are calculated at about 18 months from sub-loanapproval. There are no provisions for early repayments, as could occur onimplementation of study recommendations.

FINAPRI

CASH FLOW FORECAST('000 $ Equivalent)

(in current prices)

Calendar Years 1980 1981 1982 1983 1984 1985 1986 Total

Sources

Equity

1. Govt. Counterpart Contribution 425 365 1,084 2,085 2,839 3,617 5,159 15,5742. Govt. Contributions Drawn from

External Sources 45 2,312 1,988 2,090 1,760 2,570 1,900 12,6653. Govt. Contributions-Start Up 155 135 65 - - - - 3554. Sub-Total 625 2,812 3,137 4,175 4,599 6,187 7,059 28,594

Op erat ions

5.. Interest and Commission - 17 278 641 1,105 1,584 2,084 5,70960 Less Operating Costs (388) (843) (1,087) (1,311) (1,594) (1,833) 216 (9,072)7. Sub-Total (388) (826) (809) (670) (489) (249) 68 (3,363)

Othgr

8'. Govt. Budgetary Contributions 388 826 809 670 489 249 - 3,431 19. Loan Repayments - - 56 597 1,352 2,639 3,667 8,31110. Borrowings (IDA) - 350 1 480 1,640 1,430 100 - 5_00011. Sub-Total 388 1,176 2,345 2,907 3,271 2,988 3,667 16X74212. Total 625 3,162 4,673 6,412 7,381 8,926 10,794 41,973

Applications

13. Start Up Costs 155 i35 65 - - - - 35514. Loan Disbursements 450 3,025 4,598 6,389 7,347 8,890 10,756 41,45515. Debt Service-Interest - 2 10 23 34 36 38 14316. Total 605 3,162 4,673 6412 7,381 8,926 41,953

17. Cash Surplus-Current 2018. Cash Surplus- Cumulative 20 20 20 20 20 20 20 20

625 _ _ 41,973

19. Portfolio 450 3,475 8,017 13,809 19,804 26,055 33,14420. Loan Disbursements-Cumulative 450 3,200 6,944 11,200 15,603 19,693 23,617 a

In Constant $s

1 4~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~G

FINAPRI

ORGANIZATION CHART

|BOARD OF DIRECTORS|

EXTERNAL AUDITING

EXECUTIVE DIRECTOR

LEGAL ADVISORS

g TECHNICAL DIRECTOR] | FINANCE AND ADMINISTRATIVE DIRECTOR

LOAN [-TECHNICAL ASSISTANCE LEGAL BUDGETING AND ACCOUNTING ADMINISTRATIVEDEPARTMENT DEPARTMENT DEPARTMENT PLANNING SERVICES

Statistics

SECTORS Nutrition

IndustryTechnical ElectromechanicalInformation - Natural.Resources

LChemistry

Economic and Financial Analysis

oQ

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