Document of
The World Bank                    FILE COPY
FOR OFFICIAL USE ONLY
Report No. P-2747-KO
REPORT AND RECONMENDATION
OF THE
PRESIDENT OF THE
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT
TO THE
EXECUTIVE DIRECTORS
ON A
PROPOSED LOAN
TO THE
CITIZENS NATIONAL BANK
WITH THE GUARANTEE
OF THE REPUBLIC OF KOREA
March 20, 1980
Thils doueNt has a retritled distribiuon and may be used by recipients only in the perfonmnce of
their ecbl dutle. Its cotents my not otherwie be disclosed without World Bunk uthorizatIn.



CURRENCY EQUIVALENTS
Until January 11, 1980
Won 485       -  US$1.00
Won 1,000     -  US$2.062
Won 1 million -  US$2,062
From January 11, 1980
Won 580       -  US$1.00
Won 1,000     -  US$1.724
Won 1 million - US$1.724
ABBREVIATIONS
ADB    - Asian Development Bank
BOK    -  Bank of Korea
CNB    -  Citizens National Bank
EPB    -  Economic Planning Board
FFYP   -  Fourth Five Year Plan
IRF    -  Industrial Rationalization Fund
KCGF   -  Korea Credit Guarantee Fund
KDB    -  Korea Development Bank
KDFC   -  Korea Development Finance Corporation
KFX    -  Korea Foreign Exchange
KFSB   -  Korea Federation of Small Business
MCI    - Ministry of Commerce and Industry
MOF    - Ministry of Finance
NACF   -  National Agricultural Cooperative Federation
NFC    -  National Fisheries Cooperative
NIF    -  National Investment Fund
SMI    -  Small and Medium Industries
SMIB   -  Small and Medium Industry Bank
SMIPC  -  Small and Medium Industry Promotion Corporation
SMIPF  -  Small and Medium Industry Promotion Fund
SSI    -  Small-Scale Industries
FISCAL YEAR
January 1 - December 31



FOR OFFICIAL USE ONLY
KOREA
CITIZENS NATIONAL BANK PROJECT
Loan and Project Summary
Borrower:           Citizens National Bank (CNB)
Guarantor:          Republic of Korea
Amount:             $30 million equivalent
Terms:              The proposed loan will bear interest at 8.25% p.a.,
amortization to conform substantially to the aggregate
of the amortization schedules applicable to the specific
investment projects financed out of the proceeds of the
proposed loan. The maximum repayment period would be 17
years, including three years of grace.
Relending Terms:  CNB will onlend the proceeds of the loan to subborrowers
at an interest rate of 10.25% on the average for a
maximum period of 15 years, including 3 years of grace.
Subborrcwers will assume the foreign exchange risk.
Project             The proposed loan would be used to cover approximately
Description:    54% of the foreign exchange requirements of subprojects to
be financed by CNB over a two-year period from mid-1980 to
mid-1982. Apart from direct imports, the proceeds of the
loan would be utilized by CNB to finance the foreign
exchange components of domestically produced capital
goods (estimated at 60%). In order to ensure access of
the smallest firms to Bank funds and to encourage a
broader dispersal of the Bank funds outside the Seoul
metropolitan area, it is intended that: (a) at least $15
million of the proceeds of the proposed loan be used to
make subloans to firms employing no more than 50 workers
or with total assets not exceeding W 250 million; and (b)
at least $15 million of the proceeds of the proposed loan
be used to finance projects located outside of the city
limits of Seoul. The maximum size of individual subloans
would be limited to $400,000. The proposed loan would
assist CNB in its efforts to support the Government's
policy of increasing the regional dispersal of employment
This document has a restricted distribution and may be used by recipients only in the performance of
their official duties. Its contenst may not otherwise be disclosed without World Bank authorization.



- ii -
opportunities and of deepening the industrial structure.
With its extensive branch network, its close connections
with and easy access to small industries all over the
country, and its recently acquired authority to conduct
foreign currency borrowings and lending, CNB is expected
to play a larger role in the development of the SSI
sector. The project would also enable the Bank to help
build up CNB's project appraisal capabilities. There are
no special risks associated with the project.
Estimated
Disbursements:      Bank FY              1981       1982       1983
…---- ($ million) -------
Annual               9.0       13.50        7.5
Cumulative           9.0       22.50       30.0
Staff Appraisal Report:  No. 2829-KO, dated March 7, 1980.



REPORT AND RECOMMENDATION OF THE PRESIDENT
OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT
TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN
"O THE CITIZENS NATIONAL BANK WITH THE GUARANTEE
OF THE REPUBLIC OF KOREA
1.        I submit the following report and recommendation on a proposed
loan to the Citizens National Bank (CNB), with the guarantee of the Republic
of Korea, for the equivalent of $30 million. The loan will bear interest at
8.25% p.a. and will be amortized substantially in accordance with the
aggregate of the amortization schedules applicable to the specific invest-
ment projects financed out of its proceeds. The maximum repayment period
applicable to subborrowers would be 15 years, including 3 years of grace.
PART I - THE ECONdMY /1
2.        The latest Economic Report entitled "Korea:  Rapid Growth and Search
for New Perspectives" was distributed under cover of Se M79-390, dated May 24,
1979. The Country Data Sheets are attached as Annex 1.
Recent Developments
3.        During 1977 and 1978, the growth of GNP in real terms outstripped
the target of 9.5% p.a. postulated in the Fourth Five Year Plan (1977-81).
As a result of a rapid increase in domestic demand, the rate of increase of
real GNP accelerated from 10.3% in 1977 to 11.6% in 1978. For the first
time in many years, the increase in domestic demand for manufactured goods
exceeded the increase in manufactured exports. This increase in domestic
demand, fueled by substantial increases in private construction and
equipment investment, resulted in capacity shortages for some essential
items, and a speculative investment mood. For the first time, a shortage of
certain types of skilled labor became a matter of greater concern than
unemployment, which declined substantially during 1978. For the third year
in a row, there was a substantial increase in real wages in the manu-
facturing sector, which was in excess of the increase in labor productivity.
There was also an increase in the rate of inflation; during 1978, the
wholesale prices increased by about 12% as compared to 9% in 1977, and
consumer prices increased by about 14%, compared to a 10% increase in 1977.
/1 This section is identical to the corresponding one in the President's
Report on the Higher Technical Education Loan (No. P-2694-KO, dated
January 30, 1980), which was distributed under cover of R80-15 of the
same date.



- 2 -
4.        Exports continued to grow according to the Fourth Plan targets,
but after increasing by 43% in 1976 and 26% in 1977, the real growth of
goods and services slowed to 18% in 1978. On the other hand, as a result of
a substantial increase in the demand for imported capital goods, total
imports increased more rapidly than exports, resulting in a sizeable trade
deficit. However, overseas construction activity continued to expand
rapidly during 1978, increasing from $3.5 billion in 1977 to $8.1 billion in
1978. Although the receipts from these contracts resulted in a substantial
surplus in the invisible account, a current account deficit of about
$1 billion emerged as compared with the surplus of about $12 million
in 1977. However, in view of the need to promote allocative efficiency and to
counter domestic inflationary pressures, the Government initiated in 1978 a
far-reaching program of import liberalization. Korea's access to inter-
national capital markets improved considerably enabling the repayment, ahead
of schedule, of large amounts of short-term loans incurred on hard terms
during 1974/75 when the economy faced the twin shocks of rapidly rising prices
of its major imports, particularly petroleum and foodgrains, as well as the
international recession.
Major Trends and Economic Policy for 1979
5.        Economic policy for 1979 was formulated on the premise that infla-
tion and rapid increases in wages were weakening the international competi-
tiveness of Korean exports which could jeopardize sustained rapid economic
growth. Hence, the major emphasis was on stabilization. The stabilization
program has four major components. First, the tight monetary and fiscal
policy designed to reduce excess liquidity in the economy. Secondly, measures
designed to correct structural imbalances caused by inflation. These include
the adjustment of investment priorities in favor of the industries producing
necessities for domestic consumption, the encouragement of non-grain produc-
tion in agriculture, investment to modernize the marketing and distribution
network, and greater investment in public transportation. Thirdly, measures
specifically designed to create greater competition in the economy, including
the deregulation of prices on a large number of commodities, the removal of
barriers to entry of new firms in some industries, and accelerated import
liberalization.  In addition, a set of measures designed to assist the poorest
segments of the population who had been hardest hit by price increases were
introduced which include the expansion of public work programs, the exemption
from the payment of tuition by children of low-income families and some direct
cash payments. Although the effects on the economy of this last set of
measures are not anti-inflationary, the Government considered them necessary
for reasons of equity.
6.        While the stabilization program has had considerable success in
containing domestically generated inflation, it has been overwhelmed by the
increase in import prices, particularly of oil. During the first eight months
of 1979, wholesale food prices increased by 6% and wholesale consumer goods
prices by 9%, but the price of raw materials, which are mainly imported,
increased by 34% and the price of capital goods by 12%. The Government has
boldly combined its stabilization efforts with a reduction of price controls



- 3 -
and removed most of the suppressed inflation which had been built up. Most
government-administered prices were increased to realistic levels, including
transport rates, coal prices, petroleum product prices and those of a range of
industrial products. Consequently, wholesale prices are expected to increase
by around 25% and consumer prices by about 22% in 1979, which would be more
than double the targeted figures.
7.        As was to be expected, the Government's stabilization policies have
had some impact on output and employment. But exogenous factors such as a
weakening of the world economy and an increase in protectionism in the
developed countries have exacerbated the problems resulting from a weakening
of Korea's export competitiveness. While the momentum of economic growth in
1978 continued into 1979, a substantial increase in inventories in the
early part of the year was a symptom of the impending slackening of economic
growth. Furthermore, there has been a deterioration in Korea's terms of trade
in the current year due to higher import prices. However, the pragmatic and
effective measures the Government has taken appear to be paying off. The
upsurge in imports seems to be decelerating, resulting in no small measure
from the Government's energy conservation measures which are proving to be
effective. Exports, on the other hand, are proving to be rather more buoyant
in the latter part of the year and it is expected that export value will be
close to the target of $15.5 billion. As a result of the substantial increase
in the value of imports, it is expected that the trade deficit would be of the
order of $4 billion. However, as a result of a surplus of about $1 billion in
invisible trade, the current account deficit would be about $3 billion,
representing about 6% of GNP. The financing of this should be manageable.
Longer-Term Prospects
8.        There appears to be a consensus that Korea should continue to pursue
the high growth path, that greater stress should be placed on social develop-
ment and that there was a need to effect greater financial liberalization and
to free the private sector from the reins of Government control. The mainte-
nance of a high growth rate is essential if Korea is to achieve the objectives
of greater equity, of ensuring that the fruits of rapid development are
available to the mass of the people. However, at the new threshold at which
the Korean economy has arrived, there is a need to redirect efforts towards
reconciling growth with equity. In order to achieve a better rural/urban
balance, the Government has reiterated its support of the rural development
programs, the generation of off-farm employment opportunities and of programs
to improve agricultural productivity. For interpersonal equity, more
resources would have to be devoted to the educational sector with increased
emphasis on improving the lower income group's access to the system. As
indicated earlier, to help the poor, the Government has moved to strengthen
programs focussed directly on the target groups and away from the former
reliance on general subsidies, whose effects tend to be relatively diffused.
9.        Since the early sixties, Korea's pace of urbanization has been one
of the highest among the developing countries. In the early phases of its
growth process, Korea economized on social and urban development expenditures,



- 4 -
particularly in transportation and housing. With the rapid growth of
household incomes and the concentration of population in the major urban
centers, the demand for urban services is rising rapidly. The Government is,
therefore, giving greater emphasis to programs for providing increasing
housing, particularly for the low-income groups, and for dealing with the
problems of urban transportation. The Bank hopes to play a role in support of
these programs.
10.       A further dimension to the problem of harmonizing growth with
reasonable price stability and equity is the need to review the whole nexus of
policies connected with credit, the interest rate structure, subsidies,
resource mobilization, capital market development and financial liberaliza-
tion. These aspects were reviewed by the financial sector mission which
visited Korea in November 1979. The missions' draft report is expected to be
discussed with the Korean authorities in April 1980 as the next step in the
Bank's dialogue with the country on financial sector policy and institutional
evolution.
11.       Although the assassination of President Park could be construed as
the end of an era, the demonstrated dynamism and resilience of the Korean
economy, the diligence of its labor force, the efficiency of its economic
managers and entrepreneurs, and the massive investment in the last two
years, all combine to suggest that Korea will be able to tackle its emerging
problems and sustain its rapid growth in the eighties notwithstanding the
change in leadership. The rapidly increasing and skilled labor force, the
potential to raise productivity by adopting new and advanced technology and
the shift of labor from traditional sectors where productivity is low to the
modern sectors where productivity is high provide the sources of growth in
the eighties. Furthermore, although the international economic environment
is somewhat unfavorable, Korea continues to exploit the opportunities to
expand trade and other forms of economic activities wherever these could be
found and is seeking to complement its external activities by undertaking
improvements in housing, mass transportation, education and health services,
which some Korean economists refer to as "the second engine of growth."
External Capital Requirements
12.       Despite the strong possibility that the growth rate of GNP will be
slower than was originally forecast for 1979 and 1980, the external capital
requirements during the period will be markedly higher than originally
expected. Amortization requirements are estimated to be about $1.5 billion in
1979 and $1.7 billion in 1980. Allowing for the augmentation of its foreign
exchange reserves (about $1 billion annually), the gross requirements of
external capital will be about $5.5 billion in 1979 and $5.7 billion in 1980,
assuming that current account deficits of about $3 billion will be incurred in
each of the years. Taking into account committed but undisbursed medium and
long-term loans, new commitments of about $5-6 billion would be required in
each of the years.



- 5 -
13.        While Korea is extending its use of commercial financing from the
traditional suppliers and private bank credits to Euro-dollar syndicated loans
and bond issues in the Euro-bond and Asian bond market and is expected to
derive an increasing proportion of its total requirements from such sources,
the magnitude of these external capital requirements is such that it will
have to continue to rely on considerable capital inflows from official
sources, including Eximbanks. It should, however, be emphasized that the
higher anticipated levels of external capital inflow (relative to the Fourth
Plan targets) are a consequence of its higher investment rates rather than a
shortfall in the domestic savings rate. Thus, about 90% of Korea's
investment will continue to be financed from domestic savings. The ratio of
foreign savings to GNP is expected to decline in the eighties, following the
restructuring and readjustment planned for the next three years. Servicing
of the debt should not pose difficulties given the present debt service
ratio and the continuing emphasis on export growth, provided that the
proportion of external debt incurred on shorter term and at high interest
rates is not excessive. The projected ratio of debt service payments to
total export earnings is expected to remain in the range of 12-15% up to the
mid-eighties, and to decline steadily thereafter.
14.        On January 12, 1980, the Government announced the following
measures: the devaluation of the Won from 485 to 580 Won to the US$, an
upward adjustment of the one year time deposit interest rate from 18.6% to
24% and of the prime interest rate from 18.5% to 24.5%. The impact of these
measures on Korea's current and prospective economic situation will be
evaluated by the recent economic mission.
PART II - BANK GROUP OPERATIONS
15.        As of December 31, 1979, Korea had received 47 Bank Loans (including
one Third Window Loan) and 8 IDA Credits, totalling $2,671.2 million in loans
and $106.8 million in credits (taking into account cancellations and the
refinacing of one IDA Credit in a subsequent Bank Loan). As of that date,
$814.3 million of the total Bank lending remained undisbursed on effective
Loans and Credits, mostly from commitments in the past two years. Annex II
contains a summary statement of Bank Loans, IDA Credits, and IFC Investments
as of that date and notes on the execution of ongoing projects. As indicated
in the notes, progress on project implementation is generally satisfactory.
16.        In recent years, the thrust of the Bank Group's lending operations
in Korea has been directed towards assisting the Government's efforts: (a) to
secure the external resources required to supplement domestic savings in
sustaining a high GNP growth rate by following a policy of rapid export-
oriented industrialization; (b) to avoid the emergence of infrastructure
bottlenecks; and (c) to complement industrial development with agricultural
and rural development schemes aimed at bringing about a better dispersal of
the fruits of growth through raising incomes and improving the quality of life
in the rural areas.



- 6 -
17.       A substantial part of Bank financing has been directed towards the
vital industrial sector through lending to Korea's three major development
banks. The Korea Development Finance Corporation has received $320.0 million,
the Korea Development Bank $252.5 million and the Small and Medium Industry
Bank $145 million in Bank loans for relending to private industry. The
primary beneficiaries of these loans have not been the development banks, but
the industrial enterprises, ranging from large ventures to small ones, which
have been provided with financing through the financial intermediaries. This
has resulted not only in the overall development of the industrial sector, but
has also contributed to the achievement of institutional improvements and of
the Government's objective of decentralizing industry. The loan of $80
million for a Heavy Machinery Project was intended to assist in achieving the
structural shift to more skill-intensive industries, which is necessary to
ensure the long-term viability of Korea's export strategy. A recently
approved loan of $29 million by the Bank would stimulate and support the
development of technological capabilities in the Korean electronics industry.
18.       As Korea's economy continued to grow aud the pace of industriali-
zation has quickened, there has had to be a parallel expansion of transport
facilities. The Bank Group, through its association with the Government's
efforts to modernize and expand the transport sector dating back to 1962, has
played an important role in these developments. Some $340 million has been
provided for six railway projects designed to increase the railroad's capacity
and improve its operations; four loans totalling $334.5 million have been made
for highway construction and paving of high priority sentions of the national
network and for a countrywide maintenance organization; and two loans amount-
ing to $147 million have been provided for the expansion of port facilities at
Busan, the premier port, and Mugho, primarily for improving coal handling
facilities.
19.       Korea's paucity of natural resources and dependence on the manufac-
turing segment of its economy have resulted in the adoption of a strategy
based on maximizing the advantages of a skilled and hardworking labor force.
The Bank Group has been involved in helping to meet the requirements for
appropriately trained workers and certain categories of skilled manpower
through its lending for four education projects, which have pursued the broad
objectives of technical manpower development either through the expansion of
relevant subsectors or through specific quality improvements. Together, these
projects have catered to a wide range of manpower training needs within
agriculture, fisheries, industry and services.
20.       Korea's record of achievement in modernizing its agricultural
sector, although less spectacular than the gains made in the industrial
sphere, is nevertheless commendable. The past fifteen years have seen agri-
cultural output grow at about 4% per annum, which has resulted in the
country's becoming near self-sufficient in its staple food, rice, and made
possible a steady and perceptible improvement in the living standards of the
40% of Korea's population who live in the countryside and rely primarily on
agrarian pursuits for their livelihood. The Bank has lent $325.5 million for
the improvement of irrigation facilities, land and seed development and the



- 7 -
provision of agricultural credit to farmers and processors of agricultural
products. In addition, $155 million has been provided for two rural infra-
structure projects in support of the Government's rural development program,
initiated in 1971, to improve the quality of life and the standard of living
in the rural areas. Recently a $125 million loan was provided by the Bank to
help meet the growing demand for municipal, industrial and irrigation water in
the Han Basin southeast of the capital city, Seoul; reduce flood damage; and
generate electricity to augment and provide peaking capacity for Korea's power
system.
21.       The Bank's first essay into the field of regional development in
Korea, through the project approved in January 1975 (Loan 1070-KO), has proved
successful. The project was designed to support the Government's policy by
financing high priority investments in the poor, primarily agricultural,
southwest region. A loan of $65 million for a second project for the devel-
opment of the region was approved by the Executive Directors on September 11,
1979, and declared effective on February 15, 1980.
22.       Excluding one project that was cancelled subsequently, IFC had, by
December 31, 1979, entered into 26 commitments, totalling $68.1 million (net
of participations and cancellations). Korea's industrial development programs
have required large capital expenditures in the private sector, a situation
which has enabled a substantially enhanced IFC presence in the past few years.
23.       A primary objective of the Bank's future lending to Korea is to
provide assistance in sustaining the growth momentum and in addressing the
emerging issues which the Korean economy is facing. The maturity of many of
the Korean institutions suggests that it would be appropriate to adopt a
sector lending approach in some areas. The basic issue is whether Korea can
deepen and diversify its industrial structure to the extent necessary to
ensure the attainment of its export targets. Lending to industry will be
diversified by the provision of the proposed loan to the Citizens National
Bank in support of the small enterprises as well as a loan for a second
machinery project, which will provide financial and technical assistance to
small- and medium-scale machinery industries. It will also be necessary to
introduce RD&E programs which are better adapted to the technological needs
of industrial development. In addition to the loan for the Electronics
Technology Project which was approved on March 22, 1979, a loan for the
technological development of technology-intensive industries is envisaged in
the lending program.
24.       Korea's industrialization program, which calls for entering into
more complex fields of manufacturing than hitherto, will require increasingly
high levels of technical competence on the part of its labor force. The
recently approved loan for higher technical education will contribute to the
modernization and improvement of the system of higher technical education so
as to increase its flexibility and responsiveness to the changing
requirements of the economy.



- 8 -
25.       Another strand in the lending strategy is increased support of the
Government's efforts to spread the fruits of growth even more equitably by the
diversification and expansion of the output of the agricultural sector and
through nationwide development programs. Projects are envisaged for land/
water resource development, for agricultural credit, marketing and processing,
for low-income housing, and for the further development of rural infrastruc-
ture and facilities in selected provincial areas, which would enhance incomes
and quality of life in the lesser developed regions of the country and would
have a significant impact on the problem of migration to the major
metropolitan areas.
26.       The further development of the industrial and agricultural sectors
and the anticipated growth of exports will require concurrent infrastructural
development. Although the transport sector will be given less emphasis than
in the past, the investments required are large and, thus, there is consider-
able support for this sector in the proposed lending program. Greater
emphasis will be given to urban transportation, in view of the emerging
problems of urban congestion, particularly in the main metropolitan areas.
27.       The share of the Bank Group in Korea's total external debt disbursed
and outstanding at the end of 1978 was about 10%, and its share of debt ser-
vice was of the order of 6% at that time. These ratios are expected to
increase to around 13% and 7%, respectively, by the mid-eighties.
PART III - THE INDUSTRIAL SECTOR
28.       Korea has been able to sustain an impressive record of economic
performance for more than a decade, achieving an average growth rate of
aggregate real GNP of nearly 10% p.a. since 1962. This achievement appears
all the more remarkable when judged in the context of the country's poor
endowment of natural resources. Most of Korea is mountainous and only about
a quarter of the land area is cultivable; the principal known mineral
resource is anthracite coal, available in quantity but of relatively poor
coking quality.
29.       Korea's growth strategy has been based on the expansion of
manufacturing activity and manufactured exports. Rapid growth has induced
considerable structural changes in the economy. Although agricultural
output rose at an average of 4% p.a. between 1962 and 1978, the rapid growth
of the manufacturing sector, at 18.7% p.a., transformed a predominantly
agricultural economy (the share of agriculture, forestry, and fisheries, in
GNP was 43% in 1962, while that of mining and manufacturing was only 11%)
into one which is largely dependent on mining and manufacturing (by 1978,
the share of mining and manufacturing in GNP had risen to around 33%, in
1975 constant prices).
30.       In the early 1960s, Korea's exports, though growing in relation
to GNP, were not very significant. In 1965, commodity exports were $181
million of which manufactures amounted to $112 million, constituting about



-9 -
7% of manufacturing output; by 1978, commodity exports reached $12.7
billion, with the share of manufactures being close to 90% and representing
27% of total manufacturing output. The growth of manufactured exports was
accompanied by some changes in the structure of exports. Though Korea's
export pattera continued to display a high degree of reliance on a few
labor-intensive traditional exports (textiles, clothing, footwear, plywood,
and certain miscellaneous manufactures), there was also a discernible switch
in the direction of more sophisticated skill-intensive products. Several
new light industry products, such as electrical machinery, machine tools,
electronic goods and components, and transport equipment (including ships),
were added to Korea's range of exports. At the same time, the pursuit of
backward linkages, usually from exports, enabled domestic production to
replace imports in certain sectors, e.g., textiles, apparel, sewing
machines, certain metal products and chemicals, and notably after 1968, in
particular segments of the basic metal, petrochemical and machinery
industries.
31.       Korea's export performance and its efforts at selective import
substitution are also reflected in the structural changes which occurred
in the manufacturing sector over the last decade. While value addded in
manufacturing rose at a rate of about 19% p.a. between 1962 and 1978 (in
constant prices), the composition of manufacturing output changed quite
markedly in favor of the metals, machinery, electronics, chemicals and
shipbuilding subsectors. The share of these manufaturing groups rose from
23% in 1961 to 55% in 1978. Korea's efforts at reducing the concentration
of its exports on the US and Japan and at developing new export markets
have also met with considerable success; the combined share of those two
countries dropped to about 53% in 1978 from a level of 70% in 1973. On the
other hand, commodity exports to the Middle East, which were negligible in
the early 1970s, exceeded $1 billion in 1978.
32.       Several factors have contributed to this remarkable industrial and
export performance. These include: the efficiency of factor use in manufac-
turing; the magnitude of investment in industry which grew at an average
rate of about 14.5% p.a. during the last decade; the rapid and continued
increase in productivity levels; and the combination of appropriate exchange
rate and export policies which maintained the profitability of Korean
exports in the face of relatively high rates of domestic inflation without
jeopardizing the efficiency of resource allocation.
33.       Korea's long-term development strategy as stated in the Fourth
Five Year Plan (FFYP), was formulated on the premise that the growth of
manufacturing and exports would remain the key elements in such a strategy.
The Economic Management Plan for 1979-81, which replaced the original FFYP for
these years, projected a further increase in the relative importance of both
manufacturing activity and manufactured exports by 1981. The industrial
sector was expected to maintain a rate of growth of about 13.5% p.a. fueled by
an annual growth rate of manufactured exports of more than 12% for the period
1979-81. However, the persistence of inflation during 1979 coupled with
protectionism in Korea's major developed-country markets induced a slowdown in



- 10 -
the growth of Korea's exports and, concomitantly, in the rate of growth of the
country's manufacturing sector. A number of remedial measures, such as
restraints in the growth of money supply and domestic credit and devaluation
of the exchange rate, have been recently adopted in order to improve the
competitiveness of Korea's exports. At the same time, programs are envisioned
for the deepening of Korea's industrial structure and for the enhancement of
the country's self-sufficiency in the use of intermediate and capital goods,
e.g. by import substitution in the metals, machinery and chemical sectors.
34.       The FFYP's estimate of total investment required for the expansion
and restructuring of Korea's industrial sector was conservatively estimated at
about $10.5 billion over the 1977-81 period. Real investment increased at a
phenomenal 34% annual average over the period 1977-78. Nevertheless, Korea
was able to reduce its reliance on foreign savings. In recent years, the
Government has undertaken a major effort to increase domestic savings in order
to finance investment. It has sought to stimulate savings by attempting to
increase the real rates of return on financial assets. It has facilitated the
flow of funds between savers and investors by encouraging the growth of
commercial banks and the development banking system, the strengthening of the
money market through the establishment of short-term finance companies, and
the growth of the securities market to accommodate the needs of long-term
finance. Several merchant banking institutions have been established, large
privately held business enterprises have been encouraged to go public, the
Korean Securities Finance Corporation has been restructured, and Trust Funds
have been instituted. Moreover, in 1973, the Government established the
National Investment Fund (NIF) to supplement the program of long-term resource
mobilization through the financial system. Apart from deposits by banking
institutions and savings funds, the NIF derives its funds from a variety of
other sources, such as national savings associations, pension funds, postal
savings and bond sales to the public. The Government has also sought to
direct the flow of available resources to sectors considered strategic to the
success of the Fourth Plan, with the specialized banks, development banks and
the NIF serving as the instruments for the allocation of credit to selected
sectors on preferential terms. Korea's three major development finance
institutions, KDB, KDFC and SMIB, were responsible for over 50% of the
increase in medium- and long-term loans extended to Korea enterprises in 1978;
in the same year, 63% of NIF funds were directed to the heavy engineering and
chemical sectors.
35.       Notwithstanding the rapid expansion of aggregate domestic savings
in 1977-78, it was felt that the relatively low real rates of return on
savings deposits prevalent since 1974 had affected the momentum of the
banking system in mobilizing deposits for allocation to priority sectors.
The Government sought to correct this situation in January 1980 through an
upward adjustment of the interest rate.
The Small-Scale Industrial (SSI) Sector
36.       Government policies in the industrial sector differentiate between
large and other enterprises. The cut-off point is currently set at 300



- 11 -
employees or a total asset size of W 500 million.  Enterprises whose
employment or asset size is smaller than the cut-off limits constitute the
Small- and Medium-Scale Industrial (SMI) sector. There is no official
distinction within the SMI sector between small- and medium-scale
enterprises; both are eligible for the same degree of support from government
sponsored programs, including financing by the Small and Medium Industry
Bank (SMIB). Only the smaller end of the SMI sector, however, is eligible
for financial assistance from both SMIB and from the Citizens National Bank
(CNB).  CNB's financing, including its newly undertaken foreign exchange
lending, is statutorily confined to enterprises employing less than 100
workers. In this report, the Small-Scale Industrial (SSI) sector is
notionally defined as the lower end of SMI which comprises those enterprises
employing less than 100 workers.
37.       So defined, the SSI sector represents an important segment of the
Korean industrial structure; within manufacturing in 1977 it accounted for
87% of the total number of enterprises, 25% of employment and 16% of
value-added. The export orientation of SSI enterprises is also substantial
as surveys indicate that export sales accounted for 16% of total SSI sales
in 1977. Over the period 1974-77, labor productivity in the SSI sector has
kept pace with gains registered in the manufacturing sector as a whole. The
four subsectors of textiles, fabricated metals, food processing and
chemicals remain the principal SSI activities with an aggregate component
ratio of 72% of value-added and 74% of employment in SSI enterprises in
1977.
38.       Over the period 1974-77, SSI fixed assets investment represented
an average share of 11% of total fixed assets investment in the manufacturing
sector. Demand for foreign exchange by SSI enterprises can be estimated at
approximately 15% of SSI fixed assets investment, reaching about $100 million
in 1980, $115 million in 1981 and $132 million in 1982. Against this demand,
SMIB is expected to provide less than half, with the balance to be partially
covered by CNB. CNB's contribution is expected to increase continuously as
it expands its foreign exchange lending.
39.       Government supported programs are tailored to meet the requirements
of the SMI sector as a whole, including the SSI sector. These programs were
initiated in the early 1960s and include the establishnent of SMIB (in 1961)
and of the Small and Medium Industry (SMI) Bureau within the Ministry of
Commerce and Industry (MCI). The SMI Bureau plays a central role in formu-
lating and implementing policies in the SMI sector. Promotional efforts in
the SMI sector were initially confined to the provision of financial assist-
ance and extension services through SMIB and to a statutory requirement
enacted in 1965 that commercial banks direct at least 30% of their lending
to SMI enterprises.  As the importance of SMI's contribution to employment
generation outside the urban areas, to the growth of exports, and to the
deepening of the industrial structure through subcontracting arrangements
became more apparent, the Government broadened its promotional efforts for
SMI through, inter alia:  (a) the establishment (in 1962) of the Korea
Federation of Small Business (KFSB), an apex cooperative system; (b) the



- 12 -
creation of industrial estates, particularly specialized single-trade
estates (e.g. leather, machine tools) for SNI enterprises geared to real-
izing economies of scale through common infrastructure and facilities; and
(c) the Saemaeul (New Community) Program, which promotes off-farm employment
through the establishment of small factories in rural areas.
40.        Notwithstanding the considerable success of its policies, the
Government decided to undertake a comprehensive re-examination of the system
of financial and non-financial assistance to the SEI sector, which led to
the enactment in December 1978 of the Small and Medium Industry Promotion
Act. In accordance with the provisions of the Act, the Small and Medium
Industry Promotion Corporation (SMIPC) was established in January 1979. The
SMIPC is to operate under the broad guidance of the SMI Bureau and should
ultimately develop into a central agency for coordinating and executing the
various promotional and assistance activities in the SMI sector. The SMIPC
is an autonomous legal entity empowered to incur debt (including foreign
borrowings) whose main functions are: (a) to administer a Small and Medium
Industry Promotion Fund to be onlent to SlIs through various financial
institutions (including SMIB and CNB) in accordance with specific guide-
lines; and (b) to provide extension services (both managerial and technical)
and training for SMI entrepreneurs either indirectly through a number of
specialized agencies or directly at its training institute.
41.        As of end November 1979, total loans outstanding from institu-
tional sources to SMI enterprises amounted to W 2,573 billion, of which
the commercial banking system accounted for 64%, SMIB for 24% and CNB for
12%. Access to institutional finance decreases with the size of the SSI
firm due to inadequate collateral, locational disadvantage or inability to
meet other banking conditions. It is estimated that the small firms
employing less than 100 workers have been financing 60% of their fixed
assets investments with their own funds. Therefore, a greater access to
institutional finance by SSI enterprises should continue to be a central
objective of the support programs sponsored by the Government.
PART IV - THE PROJECT
42.        The project was appraised in November 1979, and negotiations were
held in Washington in February 1980. The Korean delegation was led by
Mr. S.Y. Wei, Economic Counselor at the Embassy of the Republic of Korea in
Washington. A report entitled "Staff Appraisal Report on the Citizens
National Bank" (No. 2829-KO dated March 7, 1980) is being distributed
separately. Supplementary project data are provided in Annex III.
CNB's Role Within the Financial System
43.        The government-owned Citizens National Bank (CNB) was established in
December 1962 as a specialized financial institution to meet the financial
needs of consumers and small enterprises, and to mobilize small household
savings as part of the national effort to raise domestic capital for economic



- 13 -
development. Under the CNB Act, CNB is empowered to carry out all activities
normally carried out by a commercial bank and to serve the small industries as
a specialized bank. In addition to CNB, there are three specialized financial
institutions, namely KDB, KDFC and SMIB, which provide development financing
assistance to the industrial sector. KDB and KDFC concentrate on financing
large or relatively large firms, while SMIB and CNB deal with the smaller
ones. SMIB finances small and medium-sized firms either with total assets not
exceeding W 500 million or employing less than 300 workers, i.e. those
enterprises meeting the official definition of "SMI". CNB's financing is
restricted to enterprises with less than 100 workers (small-scale manufactur-
ing, mining and transportation enterprises employing 5 to 100 workers and
construction and service enterprises employing 5 to 20 workers). There is no
limitation on CNB's financing based on the assets of borrowers. CNB, which
until the late 1960s concentrated on consumers' financing, has been undergoing
a substantive transformation in the scope of its operations since the early
1970s when, at the Government's urging, it began to expand its term lending
operations, with a view to assisting the smaller industrial enterprises. An
important step in such transformation occurred in December 1977, when the CNB
Act was amended to authorize its borrowing from external sources and making
foreign currency loans. CNB obtained its first foreign currency loan of $10
million from the Asian Development Bank (ADB) in early 1979. Among the
specialized financial institutions providing development finance to industries
in Korea, CNB is now the only one which deals exclusively with SSI units in
that its financing is confined to enterprises with less than 100 employees,
whereas SMIB is allowed to finance those with up to 300 employees. The
foregoing indicates that, while there is some overlapping between SMIB and
CNB, CNB's clientele clearly consists of those enterprises at the low end of
the SMI spectrum.  Given its new statutory authority to undertake foreign
currency operations, CNB is expected to play an expanding role in developing
and modernizing the SSI sector in Korea.  The proposed first Bank loan to CNB
will enable the Bank to effectively broaden its assistance to the Korean
industrial sector to include the very small enterprises which are not the
normal business focus of KDB and KDFC, and are being supported only to a
limited extent by SMIB, the other financial intermediaries to whom the Bank
has been lending.
CNB's Legal Framework, Organization and Management
44.       The CNB Act of 1962, the relevant Enforcement Decree, and CNB's
Articles of Incorporation set out the broad framework for CNB's operations,
policies, organization and capitalization. As a specialized financial
institution, CNB is subject to the supervision of the Ministry of Finance
(MOF). As a banking institution, CNB is further subject to the supervision
of the Bank of Korea in connection with its commercial banking activities
which are regulated by the General Banking Act. Within this broad policy
and supervisory framework, CNB's management has adequate autonomy and
authority in conducting CNB's day-to-day operations.
45.       CNB is a well-managed and efficient institution with a competent
and dedicated staff. The management rests with a full time Board of
Directors comprising the President, Deputy President, five Directors and an



- 14 -
Auditor, all appointed by MOF. Apart from its head office in Seoul con-
sisting of 20 departments, it has a nationwide network of 163 branch offices
which enables it to reach SSI enterprises throughout the country. As of
September 30, 1979, its staff totalled 6,424, of which 5,490 or 85% were
assigned to the branch offices. Staff members tend to see CNB as a long-
term career source of employment; consequently, staff turnover has been low,
ranging from 3.9% to 5.9% during 1975-78.
46.       After CNB was authorized to handle foreign currency borrowings and
lending, an International Department was set up in late 1978. The new
Department handles all external borrowings and also carries out foreign
currency term lending to SSIs. At September 30, 1979, the Department had 41
staff members, of whom 20 were professionals with training in financial
analysis, business administration and economics. In project appraisal and
supervision, these staff will be supplemented by 9 engineers recruited in
early 1979 and assigned to the Credit Analysis Department. The staff
presently involved in foreign currency lending is of adequate size and
qualifications to handle the expected volume of operations in the near term.
CNB intends to further expand the staff of the International Department and
relevant staff involved in term lending as necessary to cope with the future
workload. CNB has worked out a comprehensive training program for 1980
addressed to training the new staff and upgrading the capabilities of the
existing staff. The program was discussed during the negotiations and found
to be satisfactory.
CNB's Operations
47.       In financing its lending operations, CNB has relied almost
exclusively on its deposits. Apart from demand and savings deposits, CNB
offers a variety of special deposit schemes differentiated by depositor,
purpose and maturities. By September 30, 1979, CNB had mobilized deposits
totaling W 1,010 billion, accounting for 90% of its total assets. The most
important deposit scheme is the Mutual Installment Savings and Remuneration
Scheme under which the depositor undertakes to deposit a fixed amount each
month for a specified period (15-60 months) and, in return, CNB agrees to
make a loan after a fifth of the contract period is completed and deposits
made as contracted. CNB is the only institution authorized to operate this
scheme in Korea. The scheme is attractive because it enables the borrower
to secure medium-term (up to five years) loans at low interest rates and it
provides CNB with a steady flow of deposits which can be predicted with
reasonable accuracy. As of September 30, 1979, 70.1% of CNB's outstanding
business loans and 68.1% of its outstanding consumer loans were under the
Mutual Installment Savings and Remuneration Scheme.
48.       As of September 30, 1979, CNB had a total outstanding loan port-
folio of W 523.0 billion, more than double the 1976 level of W 253.1 billion.
CNB has been providing three types of financial assistance in domestic
currency: short- and medium-term general loans to consumers, short- and
medium-term working capital loans and medium-term equipment loans to small



- 15 -
industries. Except for lending against special Government funds, CNB has
restricted the maturities of its term loans to 5 years in view of the
short-term nature of almost all its loanable resources. CNB started in 1979
to provide long-term (up to 15 years) equipment loans in foreign currency
against its resources obtained from the ADB. CNB has taken on a role of
helping narrow the foreign currency resource gap of the small industrial
sector.
49.       During the 5-year period from 1975 to 1979, CNB's overall loan
approvals increased from W 208.8 billion to W 401.5 billion showing an
average annual growth of 21.4%. The industry loan and consumer loan
approvals increased 18.7% and 17.2%, respectively, in 1979.
50.       In addition to making loans to small business firms, households
and individual consumers, CNB provides extension services to its clients.
Such services have been helpful in improving the business prospects of
CNB's clients as well as the quality of its own portfolio. CNB intends to
strengthen this activity in the future in conjunction with other institu-
tions which also provide such services, under the coordination of SMIPC
(para. 40). CNB has also monitored the developments in the SSI sector by
conducting comprehensive small industry surveys since 1970, which also serve
the purpose of enabling CNB to formulate its lending policies for the SSI
sector. CNB also provides security guarantees on behalf of the Korean
Credit Guarantee Fund and makes equity investments in certain cases to
strengthen the capital structure of its clients. It provides most of the
financial services normally handled by the commercial banks.
Policies and Procedures
51.       In 1979, CNB supplemented the broad guidelines contained in its
Act by adopting a Policy Statement outlining in more specific terms its
operating and financial policies and procedures. In addition, CNB has
prepared a comprehensive Operational Manual spelling out the operational and
administrative procedures related to project appraisal and follow-up,
procurement and subsector studies. CNB has built up a unit within the
institution which is capable of undertaking adequate project appraisal. It
continues to upgrade the quality of its staff involved in long-term lending
by intensive training in Korea and abroad. CNB's procurement and disburse-
ment procedures are satisfactory, and it is prepared to make further
improvements in its procedures as it gains experience in making long-term
loans on the basis of project appraisal instead of on the strength of
collateral security.
CNB's Development Impact
52.       CNB has been able to build up a widespread branch network through
which it can reach small industries throughout the country. The remarkable
success in mobilizing small household savings is a clear indication that CNB
has utilized this network effectively. Its resource allocation, although
lagging behind its resource mobilization efforts owing partly to stringent



- 16 -
conditions concerning collateral requirements and partly to recently imposed
credit ceilings, has nevertheless expanded considerably in recent years
(para. 49). CNB has demonstrated its ability to assist the small-scale
industries which were more or less ignored by other financial institutions and
has provided financial assistance to very small enterprises. During the
period from January 1975 to September 1979, 88% of CNB's equipment loans, both
by number and by amount, went to projects employing less than 50 workers,
including 71% which went to projects employing less than 20 workers. An
analysis of a sample of CNB-financed projects implemented during 1975-79 indi-
cates that the average fixed investment cost per job created was around
$7,885, which is substantially lower than the average for SMIB ($11,130) and
considerably lower than KDFC's ($24,500) and KDB's ($32,000). It is also
considerably lower than the investment/job ratio for the economy as a whole
which in the corresponding period, 1978, was of the order of $25,000. This
is likely to increase with the deepening of the industrial structure
requiring more capital intensive projects. The estimated average cost
per job created by projects to be financed under the proposed loan may
slightly exceed this average because the projects which require foreign
exchange financing would in most cases be for modernization, rationalization
of equipment, or expansion of productive capacity, which generate limited
additional employment.
53. CNB has formulated a Development Strategy for 1980-81 outlining its
emphasis on assisting small and export-oriented projects, promoting regional
dispersal of its lending, raising long-term resources, strengthening its
research capability and intensifying the training of its staff to cope with
its expanded operations. As it now has access to foreign currency resources
and the SMI Promotion Fund, CNB is expected to play a larger role in
providing development finance for the SSI sector.
Financial Position and Performance
54.       As of September 30, 1979, CNB's total assets stood at W 1,113.4 bil-
lion, of which 47% represented the total outstanding loan portfolio. CNB's
efforts in mobilizing resources from small savers have been very success-
ful. Its loan portfolio, however, does not show the same growth pattern (at
end-1975, total loan portfolio accounted for 73% of total assets). Recently,
its lending operations have been further affected by the credit ceiling
which was imposed by MOF in August 1978 and which is adjusted periodically.
CNB has remained very liquid, in terms of short-term domestic resources. As
of September 30, 1979, CMB's surplus funds, which are kept as deposits with
or call loans to domestic banks, reached W 424.5 billion, equivalent to 81%
of its total loan portfolio. The average maturity of these deposits is very
short, in most cases, less than one year. In the present circumstances,
bearing in mind the volatile nature of the financial environment in which
CNB operates, e.g., the Government's attempt to control inflation by
restricting credit, it is regarded generally inappropriate to use the
sizeable liquid funds deriving from deposits for term lending. However,
CNB's management indicated that it would seek ways, in the context of the
Government's overall credit policies, to gradually and substantially expand
its domestic currency lending operations so as to make fuller use of its
existing and prospective deposits, thereby reducing the gap between its
resource mobilization and its resource allocation, while at the same time
continuing to give due consideration to the nature (generally short-term)



- 17 -
of the maturities of these deposits. CNB has been operating on a thin equity
base; at September 30, 1979, the total debt/equity ratio stood at 40:1 and
the long-term debt/equity ratio reached 9:1. As of end-1979, CNB had
increased its paid-in share capital from W 5 billion to W 30 billion (W 11.2
billion in the form of cash, the balance of W 13.8 billion being assets
revaluation), and with further annual increases in 1981-84, its total
debt/equity ratio is expected to decline from 33:1 in 1980 to 28:1 in 1984
and its long-term debt equity ratio from 4.1:1 to 3.5:1 during the same
period. These projected ratios are considered satisfactory. A long-term
debt/equity of 7:1 has been agreed upon between CNB and ADB which is
considered satisfactory. Assurances were obtained during negotiations that
CNB will maintain a long-term debt/ equity ratio not exceeding this level
(Section 4.06 of the draft Loan Agreement). CNB's current ratio has
remained above unity during 1975-79 and CNB has agreed to maintain a current
ratio of not less than 1.1:1 in future. CNB has been using part of its
short-term resources to finance long-term loans up to five years maturity.
This practice, however, is not unsound: given a stable deposit base, with a
large number of depositors (over 200,000 deposit accounts) CNB is not
vulnerable to wide fluctuations in withdrawals.
55.        CNB's gross income has increased rapidly, but this has been matched
by an equally rapid growth in expenses; hence, its profitability has remained
very low. Net income amounted to W 2.1 billion in 1978 (W 2.3 billion in
the first 9 months of 1979), which represents only 0.3% of average total
assets. However, due to the low equity base, return on average equity was
20% in 1978 (12% in the first 9 months of 1979). This relatively low
profitability does not indicate institutional inefficiency or an inadequate
gross interest spread (4.9% in 1978, which was satisfactory). Rather, it is
due to CNB's broad nationwide branch network and costly operations involving
numerous transactions with individuals, households and small industrial
units.
56.       The quality of CNB's loan portfolio is unusually good considering
that it serves a very large clientele (about 296,000 loan accounts at
end-1978), and that it lends to the general populace and small businesses
which are generally considered high risk. Total arrears of principal and
interest (both for short-and long-term loans) stood at W 4.5 billion at
end-1978, which represents only 1.1% of the outstanding loan portfolio;
loans affected by arrears accounted for 9.6% of the total loans outstanding.
The collection ratio for all loans has been above 98% for the last four
years.
Business and Financial Prospects
57.       The outlook for the Korean economy remains favorable and the
long-term growth prospects for the manufacturing sector are good. In this
macro-context, CNB has projected its operations for the period 1980-84 on
the basis of detailed and reasonable assumptions. Its local currency loan
commitments are expected to reach W 510 billion in 1980, to grow at 30%
annually and to total W 4,609 billion over the five-year period 1980-84.
Its foreign currency loan commitments are estimated to be $15.6 million in



- 18 -
1980, $25 million in 1981 and $30 million each year in 1982-84. In the
first two or three years during the projection period, achievement of
foreign currency operations targets will depend primarily upon CNB's success
in building up staff capacity.
58.       CNB's financial position is expected to remain sound.  Total
assets are projected to grow from W 1,453.0 billion in 1980 to W 3,583.8 bil-
lion by 1984, with the proportion represented by the outstanding loan
portfolio increasing from 51% in 1980 to 61% in 1984. Profitability is
expected to improve with net income increasing from W 6.0 billion in 1980 to
W 19.6 billion in 1984 (representing 0.4% and 0.6% of average total assets,
respectively). Due to the recent increase in CNB's equity capital which
took place at end-1979 and further annual capital increases expected to take
place during the period 1981-1984, the long-term debt/equity ratio is not
expected to exceed 4.1:1 against the limit of 7:1 agreed with the Bank. The
total debt/equity ratio is expected to drop from the range of 29-33 in 1978-
80 to 28-30 in 1981-84. Given the stability of the deposits collected from
the populace and small business units and the close linkage of deposits and
lending under the unique Mutual Installment Savings and Remuneration Scheme
undertaken by CNB, the projected debt/equity relationship appears satisfac-
tory. The projected current ratio would maintain a satisfactory level of
about 1.1:1. Although the quality of CNB's loan portfolio is expected to
remain sound, CNB is taking steps to make adequate provision for doubtful
loans in view of its future loan operations involving foreign currency and
longer maturities.
59.       CNB's domestic currency resources will continue to be derived
mainly from demand and savings deposits. The institution is also expected
to be given access to the SMI Promotion Fund to supplement its long-term
resources. Although CNB will have surplus short-term funds, its long-term
funds are likely to continue to be insufficient to meet the potential
demand. In this case, CNB would have to confine itself largely to making
equipment loans of only up to 5 years maturity, except for those loans to be
made against funds made available by SMIPC. However, since CNB is entering
the foreign currency loan business and many firms are likely to need
long-term domestic currency funds in addition to foreign currency funds, the
need to finance loans having a maturity of more than 5 years will increase.
Further increases in CNB's share capital in 1980-84, in addition to drawings
on the SMI Promotion Fund, would give CNB the resources necessary to expand
its term lending operations. On the foreign currency side, CNB envisages
raising $170 million in borrowings from the Bank, ADB and the Korean Foreign
Exchange Fund (KFX) during 1980-84. The proposed Bank loan of $30 million
is expected to finance about one-half of CNB's foreign currency approvals
over the two-year period from mid-1980 to mid-1982, with the balance to be
covered by ADB and KFX.
Main Features of the Loan
60.       Component for Financing Smaller Enterprises.  In order to ensure
access of the smallest firms to Bank funds, it has agreed during negotiations
that at least 50% of the Bank loan be used by CNB to make subloans to firms



- 19 -
employing no more than 50 workers or with total assets below W 250 million.
In addition, only those enterprises whose total assets do not exceed W 500
million or who have less than 100 employees if in the industrial, mining or
transportation fields, or less than 20 employees if in the construction
service or other fields, would be eligible for subloans (Section 2.02(a) of
the draft Loan Agreement).
61.       Maximum Size of Subloans.  While the current regulations restrict
CNB to making term loans in domestic currency of up to W 30 million, there is
no limitation on the size of its foreign currency loans. In order to ensure
that the proceeds of the Bank loan are spread out to a substantial number of
SSI borrowers, it was agreed during negotiations that the size of individual
subloans under the Bank loan should not exceed $400,000 equivalent (Section
2.02(a) of the draft Loan Agreement.)
62.       Geographic Distribution of Subloans.  To encourage a broader
dispersal of the Bank funds outside the metropolitan area, it was agreed
during negotiations that no more than 50% of the loan shall be used to
finance projects located within the city limits of Seoul. (Section 2.02(a)
of the draft Loan Agreement.)
63.       Relending Rate.  CNB intends to onlend the proceeds of the proposed
Bank loan at an interest rate of 2 percentage points above its own borrowing
rate (i.e. 10.25% p.a.) with the full foreign exchange risk to be passed on
to the subborrowers. This is in line with the general practice of
development finance institutions in Korea in relending the proceeds of
foreign exchange borrowings from institutional sources. During the initial
period, CNB's costs for processing foreign currency loans may exceed the 2%
spread; however, CNB expects to cover such losses by its earnings on other
operations. The interest rate policy on relending foreign borrowings is
kept under constant review by the Government.
64.       Other Features, Terms and Conditions of the Loan.  In view of the
progress made by CNB in improving its project appraisal work, a free limit of
$250,000 is recommended. (Section 2.02(b) of the draft Loan Agreement.) There
would be no aggregate free limit under the proposed loan. With the proposed
limit, it is estimated that roughly one third of the number of subprojects
under this loan (accounting for about one half of the loan amount) would
require prior approval by the Bank. In order to ensure that the economic
viability of projects will be taken into consideration in CNB's decision-
making process, CNB will pay more attention to the economic evaluation of
projects. During negotiations it was agreed that CNB will calculate the
Economic Rate of Return (ERR) for all subloans above the free limit (Section
2.03(a) of the draft Loan Agreement). Apart from direct imports, CNB would
be authorized to use the proceeds of the proposed loan for financing the
foreign exchange component of domestically procured or manufactured capital
goods estimated at 60% of total costs (Section 2.02(a) of the draft Loan
Agreement). The other terms and conditions of the loan would be similar to
those of recent Bank loans to DFCs, including a flexible amortization
schedule conforming substantially to the aggregate of the repayment
schedules of subloans.



- 20 -
Benefits and Risks
65.       The continued growth of small-scale industries remains an important
element in Korea's development strategy in view of their demonstrated con-
tribution to employment creation, expansion of exports, deepening of the
industrial structure, and regional dispersal of industry. The shortage of
funds, specially of term finance available at appropriate terms, has been a
crucial problem faced by the small enterprises. Statistics available show
that the ratio of reliance on bank credit decreases as the size of the
enterprises becomes smaller and a considerable number of small enterprises
have no alternative but to borrow from the curb market, or to postpone their
projects. It is estimated that less than half of the demand for funds from
the small enterprises in the past has been satisfied.
66.        CNB, as the only specialized financial institution catering
exclusively to the small industries, is in a position to play a vital role in
assisting such firms to meet their financial requirements. In the past, CNB
was constrained by the lack of access to foreign exchange resources as well as
long-term domestic funds. Having now obtained access both to foreign funds
and to the SMI Promotion Fund, CNB is expected to play a larger role in
developing and modernizing the small industries in Korea. The Bank has, in
the past, been associated with three DFCs in Korea (KDB, KDFC and SMIB).
While SMIB has been using the Bank funds to support small- and medium-sized
industries, its assistance to the very small ones has been limited and
therefore the investment demand of a number of them still remains unsatisfied.
CNB, with a branch network which is more extensive than any banking institu-
tion in Korea and with a solid clientele built up under the Mutual Installment
Savings and Remuneration Scheme, is in a better position to reach the small
industries in various regions and help fill their resource gaps, thus enabling
these small enterprises to enhance their contribution to the dispersal of
industries, expansion of exports and nonfarm employment creation.
67.       The proposed Bank loan of $30 million is expected to finance
approximately one-half of CNB's projected foreign currency loan approvals over
a two-year period from mid-1980 to mid-1982. The proceeds of the loan will be
used primarily to finance procurement of machinery and equipment needed for
modernization, rationalization, or expansion of productive capacities of the
small enterprises in all regions.  It is estimated that the subprojects to be
financed under the proposed loan, approximately 150 in number, would create
about 5,000 new jobs with an average cost per job of about $9,000. One
underlying assumption is that approximately 15-20% of the subprojects would
require replacement equipment for rationalization or modernization and the
number of new jobs to be created in such cases would be very limited.
Starting with this operation, the Bank will be continuously involved in
upgrading the project appraisal capabilities within CNB, thus helping CNB to
successfully carry out its present efforts to become a more effective
financial intermediary serving the small-scale enterprises. Given the added
function of providing long-term domestic and foreign currency loans, CNB is
expected to become more involved in development activities, while maintaining
an undiminished role in meeting the short-term financial requirements of the
businesses and general populace.



- 21 -
68.       In sum, the proposed loan will increase the flow of resources to
Korean SSIs enabling realization of new, modernization and expansion projects,
contribute to greater regional dispersal of investment and achieve worthwhile
institution-building objectives by strengthening the capability of CNB to
service the needs of the SSI sector in Korea. It will also set in motion the
Bank's association with CNB at this particularly opportune time when the
Government is launching a concerted effort to further develop the small and
medium-sized industries, as evidenced by the establishment of a new institu-
tion - SMIPC, and granting of new authority to CNB to engage in foreign
currency operations. The project does not entail any unusual risk.
PART V - LEGAL INSTRUMENTS AND AUTHORITY
69.       The draft Loan Agreement between the Bank and the Citizens National
Bank, the draft Guarantee Agreement between the Republic of Korea and the
Bank, and the Report of the Committee provided for in Article III, Section 4
(iii) of the Articles of Agreement of the Bank are being distributed to the
Executive Directors separately. Special conditions of the loan are listed in
Section III of Annex III.
70.       I am satisfied that the proposed loan would comply with the
Articles of Agreement of the Bank.
PART VT - RECOMMENDATION
71.       1 recommend that the Executive Directors approve the proposed loan.
Robert S. McNamara
President
Attachments
March 20, 1980



-22-                                                    Annex I
Page 1 of 5
KOREA REPUELIC OF - SOCIAL INDICATORS DATA SHEET
REFERENCE GROUPS (ADJUSTED AVERACES
LAND AREA (ThPOUSAND SQ. KM.)                   _R RPUSLIC OF                   - MIOST RECENT ESTIMATE) -
TOTAL             98.5                                                     SAME         SANE     NEXT HICKER
AGRICULTURAL      22.6                                  MOST RECENT      GEOGRAPHIC    INCOHE        INCOtIE
1960  /b    1970 /b ESTIMATE /b       REGION Ic   GROUP /d    CROUP IC
GNP PER CAPITA (US$)                  120.0        300.0     820.0            450.6       926.1       1748.5
ENERGY CONSUHPTION PER CAPITA
(KILOGRAMS OF COAL EQUIVALENT)      258.0        815.0    102D.0            371.1       731.7       16614    :
POPULATION AND VITAL STATISTICS
POPULATION, MID-YEAR (MILLIONS)      24.7         31.4      36.0
URBAN POPULATION (PERCENT OF TOTAL) 27.9          41.2      49.0             27.4        49.0         51.2
POPULATION PROJECTIONS
POPULATION IN YEAR 2000 (MILLIONS)                        49.0                .
STATIONARY POPULATION (MILLIONS)                          64.0
YEAR STATIONARY POPULATION IS REACHED                   2065
POPULATION DENSITY
PER SQ. K04.                      251.0        319.0     365.0            154.8        44.6        28.2
PER SQ. rN. AGRICULTURAL LAND   1154.0        1371.0    1593.0            566.7       140.7       100.5
POPULATION AGE STRUCTURE (PERCENT)
0-14 YRS.                          42.9         41.0      37.0             41.3        41.3        35.4
15-64 YRS.                          53.8         55.7      60.0             54.9        55.3        56.3
65 YRS. AND ABOVE                    3.3          3.3       3.0              3.3         3.5          5.1
POPULATION GROWTH RATE (PERCENT)
TOTAL                               1.9          2.4       2.0              2.4         2.4          1.7
URBAN                               5.9          6.4        5.4             4.3         4.5          3.0
CRUDE BIRT}I RATE (PER THOUSAND)     41.0         30.0      24.0             30.2        31.1         27.5
CRUDE DEATH RATE (PER THOUSAND)       13.0        10.0        8.0              8.3        9.2          9.1
GROSS REPRODUCTION RATE               3.1/f        2.6        1.4             2.1         2.2          1.8
FAMILY PLANNING
ACCEPTORS, ANNUAL (THOUSANDS)         ..       672.0     686.0
USERS (PERCENT OF MARRIED WOKEN)    ..          42.0      43.9             34.1        34.7
FOOD AND NUTRITION
INDEX OF FOOD PRODUCTION
PER CAPITA (1969-71-100)           80.8         99.0     117.0            106.2       104.4        102.0
PER CAPITA SUPPLY OF
CALORIES (PERCENT OF
REQUIREMENTS)                    85.0        114.0     112.0            104.1       105.0        120.8
PROTEINS (GRAMS PER DAY)           53.0         65.0      75.7             57.4        64.4        80.9
OF WHICH ANIMAL AND PULSE        13.0/L       !9.0      16.3             16.9        23.5         31.3
CHILD (AGES 1-4) MORTALITY RATE       13.0         8.0        5.0              4.8        8.6          5.1
HEALTH
LIFE EXPECTANCY AT BIRTH (YEARS)    54.0          59.0      63.0             61.1        60.2         65.6
INFANT MORTALITY RATE (PER
THOUSAND)                            62.0         43.0      37.0             46.6        46.7         45.5
ACCESS TO SAFE WATER (PERCENT OF
POPULATION)
TOTAI.                               *          58.0      62.0             21.9        60.8         69.4
URBAN                                ..         84.0      80.0             46.2        75.7         85.1
RURAL                                *-         38.0      36.0             12.8        40.0         43.0
ACCESS TO EXCRETA DISPOSAL (PERCENT
OF POPULATION)
TOTAL                                *-         25.0      61.0             28.4        46.0         70.1
URBAN                                ..         59.0      68.0             65.0        46.0         88.3
RURAL                                *-           *-      50.0             14.7        22.5         33.2
POPULATION PER PHYSICIAN           3000.0       2110.0    1677.0           3790.5      2262.4       1343.2
'OPULATION PER NURSING PERSON      3220.0/h    2170.0/h   517.0            1107.4      1195.4        765.0
POPULATION PER HOSPITAL BED
IOTAL                            2510.0       1900.0    1430.0            613.3       453.4        197.6
URBAN                                                    340.0            203.6       253.1        260.2
RURAL                                ..           ..         ..          1110.3      2732.4       1055.0
ADMISSIONS PER HOSPITAL BED             ..        14.9         ..            23.9        22.1         17.3
HOUSING
AVERAGE SIZE OF HOUSEHOLD
TOTAL                               5.6          5.3       5.1              5.2         5.3          4.7
URBAN                               5.4          5.0       4.9               ..         5.2          4.4
RURAL                               5.6          5.5        5.3              ..         5.4          5.1
AVERAGE NUMBER OF PFRSONS PER ROOm
TOTAL                               2.5          2.3         .                          1.9          1.1
URBAN                               2.8          2. 7                                   1.6          1.2
RURAL                               2.4          2.2        ..                *-        2.5          1.2
ACCF9S TO ELECTRICITY (PERCENT
OF llUELLINGS)
TOTAL                               28.0        49.9         .9               *'       50.0         66.0
UNibAN                             67.3         92.4         ...                       71.7         85.1
RURAL                               12.0        29.9       64.9               .        17.3



Annex I
-23-                                                        Page 2 of 5
KOREA REPUBLIC OF - SOCIAL INDICATORS DATA SHEET
REFERENCE GROUPS (ADJUSTFD A)ERAGES
KRE  REFPUBLIC OF              - MOST RECENT ESTIMATE)
SAME        SAME      NEXT HIGHER
MOST RECENT      GEOGRAPHIC   INCOME        INCOME
1960 /b     1970 /b ESTIMATE /b        REGION /c   GROUP /d   G(ROUP le
EDUCATION
ADJUSTED ENROLLMENT RATIOS
PRIMARY:     TOTAL                 94.0        105.0      109.0             97.9       102.5       101.7
MALE                  99.0        106.0     109.0             98.7       108.6        110.0
FEMALE                89.0        105.0     109.0             97.4        97.1        92.8
SECONDARY:  TOTAL                  27.0         43.0       63.0             42.2       33.5         51.2
MALE                  38.0         52.0      71.0             46.7        38.4         56.4
FEMALE                14.0         34.0      54.0             40.9        30.7        43.7
VOCATIONAL ENROL. (I OF SECONDARY)  14.0          16.0       16.0             12.5        11.5        18.3
PUPIL-TEACHER RATIO
PRIMARY                            58.0         57.0       49.0             32.5       35.8         27.1
SECONDARY                           34.0        37.0       38.0             25.8       22.9         25.3
ADULT LITERACY RATE (PERCENT)         70.6        78.0       91.0             84.1        64.0        86.1
CONSUMPTION
PASSENGER CARS PER THOUSAND
POPULATION                          0.4          2.0        2.7              6.1        13.5        53.4
RADIO RECEIVERS PER THOUSAND
POPULATION                         32.0        126.0      144.0             84.4      122.7        225.9
TV RECEIVERS PER THOUSAND
POPULATION                          0.3         13.0       48.0             22.4       38.3        102.6
NEWSPAPER ("DAILY GENERAL
INTEREST") CIRCULATION PER
THOUSAND POPULATION                   69.0       138.0      173.0             24.2       40.0         78.5
CINEMA ANNUAL ATTENDANCE PER CAPITA  4.0            5.0       2.2              3.6         3.7          3.6
LABOR FORCE
TOTAL LABOR FORCE (THOUSANDS)      7500.0      10200.0   13061.0
FEMALE (PERCENT)                   25.8         32.7       32.8             36.7       25.0         24.5
AGRICULTURE (PERCENT)               66.4        51.0       44.6             54.6        43.5        28.9
INDUSTRY (PERCENT)                  9.3         20.1       33.0             16.3       21.5         30.6
PARTICIPATION RATE (PERCENT)
TOTAL                                 33.4        35.0       36.6             40.7        33.5        33.8
MALE                                  49.5        46.8       48.8             49.9        48.0        51.3
FEMALE                                17.2        23.0       24.2             31.0        16.8         16.3
ECONOMIC DEPENDENCY RATIO                1.5          1.4       1.1              1.1         1.4          1.3
INCOME DISTRIBUTION
PERCENT OF PRIVATE INCOME
RECEIVED BY
HIGHEST 5 PERCENT OF HOUSEHOLDS   15.1/i        17.1       16.1             14.9       20.8
HIGHEST 20 PERCENhT OF HOUSEHOLDS  42.3/i       44.5       45.3             46.8       52.1         57.6
LOWEST 20 PERCENT OF HOUSEHOLDS    5.77T         7.1        5.7              6.2        3.9          3.4
LOWEST 40 PERCENT OF HOUSEHOLDS   19.07         17.7       16.9             16.8        12.6        11.0
POVERTY TARGET GROUPS
ESTIMATED ABSOLUTE POVERTY INCOME
LEVEL (USS PER CAPITA)
URBAN                                ..           ..      220.0            193.1      270.0
RURAL                                ..           ..         ..            128.7       183.3
ESTIMATED RELATIVE POVERTY INCOME
LEVEL (USs PER CAPITA)
URBAN                                ..           ..      194.0            136.8      282.5        550.0
RURAL                                ..           ..         ..             96.8      248.9        403.4
ESTIMATED POPULATION BELOW ABSOLUTE
POVERTY INCOMSE LEVEL (PERCENT)
URBAN                                ..           ..        9.0             32.0        20.5
RURAL                                 ..          ..         ..             52.5        35.3
Not available
Not applicable.
NOTES
/a    The adjusted group averages for each indicator are population-weighted geometric means, excluding the extreme
values of the indicator and the most populated country in each group.  Coverage of countries among the
indicators depends on availability of data and is not uniform.
/b    Unless othervise noted, data for 1960 refer to any year between 1959 and 1961; for 1970, between 1969
and 1971; and for Most Recent Estimate, between 1974 and 1977.
/c    East Asia & Pacific;   /d  Intermediate Middle Income ($551-1135 per capita, 1976);   /e  Upper Middle
Income ($1136-S2500 per capita, 1976);  /1f  1950-55;   /g  1962;   /h  Registered, not all practising
in the country;   /i  1965.
May, 1979



Annex I
-724-                                                                            Page 3 of 5
DEFINITIONS OF SOCIAL INDICATORS
Egg; The edjueted group averages foc each indicator are population-weighted geometric eons. excluding the extremes values of the Indicator and the meet
populated country in each group. Coverage of countri.e among the indicetors depends on aveilability of deta sod is not mnifors. Due to lack of deta,
iroup averae for Capital Surplus Oil Exporters and iediostror of access to erster erA.. exrta disposal . housIng. inomee diecributionm d poverty are
siaple poepuistion-weigbted geometric scans without che exclusion of extras value.s.
tAND AREA (thoneaud sq. be)                                                              Poonlatiss par hoeDital bed - total, urban. sod rural - Population (total,
Total - Total surface area cuxprising land ar"eansd Island waters.                         urbas. and rural) divided by their respective eumbex of hospital beds
Asr~icultural - Most re.nst estisate of agricultural area used temporarily                  ~sellable in public and private generai end specialixd hoepital sod re-
or pereenastly for crops. paseturee. market end kitchen gardens or to                   huhilitstios centers.  Hospitals era, establishments perexaently staffed by
lie fallow.                                                                             St least one physicias.  Etetbllsh&eants provldieg principally custodial
cerecare.not.inclu.ded. Rural hospitals, howevr, Include health and medi-
CNP PEN CAPITA (IS$) - CNP per capita  stcimtes at currest sacker prices,                   cs  centers so ,permoaetly staffed by s physician (but by a nedica1 as-
Calculated by sane cooveslsos method as World Bank Atlas (1975-77 basis):               sisio.   nrse, mIdwif, etc.)  hbiob  ff.r i-patiest ac-odatiue  and
1960, 19y0, and 1977 data.                                                              peovid'e'a"limited r'ange ofmedical farilitIes.
Ad,siseiseseper hosoital bed - Total nusbar oadaissiess to or dis charges
ENIERGYO CONStOfPlcOO PER CAPITA - Ausal o-tI      i    of coarcial ene rgy                 from hospitals dlvid.d by tha sumber o fbed.s.
(coal sod lignite, petrolsum, natural gas and bydro-, nuclear and geo-
therma  electricity) in bilogras of coal squivaleot per capita.                     90011KG
Avecase sire of hounebld               0-ron   a  housabold) - total, urhan,..ad rural-
POPULATION ANS VITAL STATISTICS                                                            A household consists of a group of individuels who share living quarters
Total Population,, rid-year (millions) - As of July 1; If not available,                  ard their main eais.  A hoarder or lodger map or may not be Included in
averageof two end-year estimates; 1960, 1970. and 1977 data,                             the household for statistical Purposes.  Statistical definitions of houase-
Urban ponpulation (porcont of total) - Ratio of urban to total popula-                    hold vary.
tion; differe.nt definitions of urban areas say affect coaparability                  Avetage sumber of Parsons mar cone - total, urban, and rural - Average sum-
of deco among countries,                                                                her of parsons per rooe in all, urban, and rural occupied convetional
Poulation droi                                                                            duellings, respectively.  Dwellings exclude oon-poerwanecsttructuree sod
Par  so. ho. - Mid-year population per square kilomtrer (100 hecteres)                   unoccupied parts.
20f toaar.                                                                            Access to electricIty  preto  delngs) - rotal. urban. aod rural -
Prs. ho. soiculture lend - Computed so above for agricultura1le1ud                    Conventional e:.1i;ligo with electricity in livIng quarters as perret-tge
only,                                                                                   of total. other, and rural dwellings respectively.
Pou.lation age structuye (percent) - Children (0-14 years), workIng-age
(l5-64 yesrs) , and retired (65 years and over) as Pertentagen of mid-            ElilCAlItO.
year population.                                                                     Adouto  enrollment  -tatoo
Population grwtb cuts (percent) - corel., and urban - Coxpound annual                   Prioury school - total, and fexale - Total sod female enrollment of all ages
growth rtaco  of total and urban mid-year populations fur 19)0-60.                      ot rho primacy loya  as p .r.o.naurn of reopootivaly primary  cohool-aus
1960-70. and 1970-75.                                                                   populations; normally Includes children aged i-l1 ymrar  hut adjusted for
Crude birth rote (per thousand) - Annual live births per thousaand of                     different lengths of primtary education; for countrima with unvra   dU-
aid-year poyclutirn; ten-year arithmetIc onoagas ending in, 1960 end                    carton sorll-ot esy auceed 100 peccan.t since sum  Pupils are below or
1975 end fieya   verage ending in 197) for mast recen.t etimate.                        above the official school age.
Crude death rete (Pet thoueand) - Annual deaths per thousan.d of mid-                   lecondarny school - total, and fenale - Computed as above; secondary educa-
year population; iso-yosr arithxrtic averages ending in 1960 and 1970                   tin. requires at least four years of approved primary instruction; pro-
and five-year average ending ir 1975 for must recent eatimate.                          vides general vorutin...l, or teacher trolring instructions for pupils
Cross reproduction rare - Average number of daughters a woman will beer                   usualIly of 12 to 17 years of age; correspondencaencorses are gener ally
I.O her normal  -ep-ductiv  period if she enparie.oe. present age1-                      enoluded.
specific fertility rates; ueually five-year averages ending in 1960,                  Vocutionual enrollment (percent of secondary) - Vocational inetituti... in-
1970, and 1975.                                                                         duds. technical, industrial. or other programo which Operate independently
Fcilly planningt - acceptors, annuAl (thnue..ods) - Annua  num-ber uf                     pa as departments of necondary inetitutionos.
acceptors of birth-control devIces under auspices of national  fanily                fuoll-teecher retdo - primary, and aecondory - Total students erla   ix
planning prOgran..                                                                      peimony end secondary levels divided by numbers of teachers in the carte-
Fanily plennino - users (percent of n-cried wom en) - Percentage of                       sponding levols.
married wunee of child-bearing ago (15-44 yours) who use birth-control               Adult litersoy cut  (p.rcount) - Litecatoodulte  (able to read end unito) 
devices to all married women in sane- age group,                                        a percentage of total adult population eged 15 years -and over.
FOOD ANl NUTIoTION                                                                     CONSCItTZON
Index of food producinprcaia(9   100) - Index nuxber of per                            Pas..c-ger car  (per thousand populatcion) - Passenger oars comprise sotor oars
capita annualI production of all food comoodities.                                    seoting loss than eight Persona; axrludes anhulace, hearsres and milItary
Per canito sapply of culuries (percent of requirements) - Computed from                 vehicles.
energy equivalent of net food soyplies avatleble in country per capita               Rodic receivers (perrt .bronadpouain - All types of receivers for radio
per day.  Available supplies  ccoyrise d.ometic production, imports less              broedoants to general1 public per thousand of popuietios; exciudes unlicemeed
exports, and chuoges in stock.  Net supplies exclude aaiami feed, seeds, -  receivers in countries aud it years whrn registration. of radio sets wa  in
quan.tities used in food processing,  and lones. In distribution.  Re-                effect; data fur recant years ray not be comparable since mont countrIes
quiresente note estirated by PAl hone.d on physiological need. for our-               oholished lice...int.
sa1 activity and health considering environo-etal temperature, body                  TV receivers (per tbounund potulotion) - TV receivers for broadcast to gnrtl
weights, ego aud nec diotrlbutloos of population, and alloting 11 per-                  public per thr...and Population; excludes unlicensed TIV receivers to coup-
coot for wast.eat hous.ebold level,                                                     tries and In years oh.. rogintration of TV nets was in effect.
Fec capita suocly of prri  (sans. Per dy   Protein content of per                      Newspapeccrrain(orbuudpplto)- Shows the average circu1a-
capite cot aupyly of fun  per day.  N, supply at food Is deflced atiu  of "daily f-rontl interest  newopaper", defined asaperiodical yubll-
obeys.  iequirenontn foc all c-untrias esnobliahod by UJSDA provide for                 outiun devoted priniaily to ro..ording fo-rulnes    It Is considered to
a  inlmon allowance of 60 grams of total protein per day and 20 grana                 ha "doily" if it appears at leas.t four timex a  ei
of aunal and pulse protin,  i which 11 grees should bn anixal protoin.               Cin-u.  ..onuaI attnodxuepcspn  c                 -or- ...d or the ourhor of niokata
These standards are lowe.r than those of 75 graxa of total protoin  and                 sold durinc the year, including adnissions to drive-in, cinems end nubile
213grams of animal protein as so average for the socld, propu..ed by                    units.
FAG In the Third iorld Food Sur-y.
fo r capita Pro too supply (con a,niml and pulse - Protein supply of food             tPiI1iUfEN'T
derived from  nnclosd p1s.o in. gr..s per day.                                       Totol labor forc  (thou-nods) - iconnnicxlly active persns, including .armd
Child jsaen 1-4) motliyrte_(per thousand)  - Annuo1 deurho ypr thaus-                     forces end ur-ployed hut encluding bouuewve.S  students, etc.  Sefint-
and in age group 1-4 yearn. to children in this age group.                             titoa  to vari..uu.. outnirn are nut conpurablo.
HEALTli                                                           ...-~~~~~~~~~~~~~FeC  (percent) - F.Inal  labur force an porceotuge of total labor force
graIN                                                            ~~~~~~~~~~~~~~~~AgricIultro (pe-orvt) - Labor force in farming, forestry, hunting  and fishinug
Life onPotrcahlr(yrn  - Average nunber of yoors  fr life                                  as percentage of  ototl labor force.
re-alnig at  iintld usually fleya   averagS.  ending Ic 1904, 1970,                  Industry(ccon   - Labor force in doing., co-t-rutirn,  nauatulisd
ard 1975.                                                                               electricity, cuter and gun so percentage of total labor forte.
Infar  noraliu rat  (pm   housod)    NuAa.l deoubs of infr.nra. cder        r'r:cononnt Cr--ot) - otntl, mae   n  female -  ntel, male, end
coo your of so  Pun thousad Ine hIrhts.                                                 !eal  labor F.,r- us yr-c-tcge- of their r-p-oti-e populatiuco-
Access to- sufo ~watr    rcent of opltn)-oa,urn,ndrural -                                  Thuo  are ILO's adjusted partirtpation crets reflecting .fe-seo
icubur of people (orel, urban, and crol.) with ros bruh 0           .acus  to            --ruuc  of rho  poplation,  and 1-cy vice r-nd.
safe outer  upply (iocludes treated ourface wateos or untreotni hut                  fooc-ic depardoocy ratio - Ratio of poyulation under  S end 65 and o'er to
urco..astoarotd outer nuob an that fr.. protected boreohles, nyring.,                   tar labor fcr- in age group of l5-64 yeas.
and sa.ritacy cells) as percentaaeo of their resPective Populatuons.
In  an urban area a Public fountain, or etandpoer locarad nort none                 INCOME DISTRtPETII!i
than l0o.t neer  fro. a hoone ray be cons.idered as being within roe-                Pcetteo   rvooicn   (both in, curb and rind) received by richent 5
sonabe accse of than house.  In rural areas reasona.ble ecces            l              percent, richest 20 porcent, pooneet 20 percent, and poorest 40 percent
impip that the housewife or nenbero of the household do nut have to                     of house.holds.
spend a dluyrporpttonla..t part of the day in fetching rho family's
water coed.                                                                         POVFNTY TARilT GRUPFS
If-su  toAVSf.rA4)upusld percnt ofoplain    ttl   rbn   n                              Ltur-trd abooluteppvryicm   evl(0                       apt)-ubnand rural-
rura.l - Number at people (natal, urbun, and rural) servd by e-crtet                       Abnulute povorty incom  level ie thenr i...m. leve  below dudai ucmh
diap-uai an Por-ntage  of their rosproti-e populutiont.  Encreta                         -.tritioa.liy adequate diet plus  uona  rn.-food requiremen.ts is not
dtupu...l1  ay luclude the collection std diupo..al, with or without                      ftordubls.
trcorncnc, of huma-  ncrete  -u4aat-ao  by water-borne systes                        toctr _ted relativepvryicn   ee   IOpe   aiaj                       ro   n   ua 
ur di  -s  of pit privies end oinilar iuaann.                                          Relutive poveon  ino los   ota  income level leee thanou-hr
ttZ'Bd!'t~ ~yrr ihlyjp.n - Popa.tlrion divided by number of prsctiuing                pen us.Pine prooolioeocto  onty
ph-vollar-  qualified fr-s a aecic-I  oo at unin....ity level .                      fEtinated popultto Ibelow poety  accc-  lee   pret      ra nd rural-
Populaton p.,  oc.runhlpecan - foulatio  divido  by ruher ofPe-ont of pupolarios (urban and rural) who ore either  a.bsolute p,r'  Or
prrncngnb   c  fexale aroi.cur  nra-uo. pranticelnrss  and                      "toletine poor  whiohev-c Lu graste.r
Econoi,c  Sod SonI    Data DIvision
ton oAnsI yiu ed Projeo-torn iep-r-net



-25-
ANNEX I
Page 4 of 5
ECONOMIC DEVELOPtENT DATA SHEET
Actual /e                                                   Prolected             Growtth rates (05
1965      1970       1972       1973       1974        1975       1976       1977       1978        1979       1980    1965-75  1978  1978-80
A. National Acc.unts
(Million US0 at
1975 prices)
1. GDP                 6,939.3  11,760.4  13,852.7  16,127.4  17,542.2  19,089.2  21,947.9  25,769.0  28,688.0  31,324.D  33,938.0   10.7                   11.3    8.7.
2. Gains from TOT         140.4      665.3   1,122.9   1,486.4        348.7           _   1,160.5    1,511.0    1,685.0   1,350.0   1,337.0           -        -       -
3. Gross domestic
income             7,079.7  12,425.7  14,975.6  17,613.7  17,890.9  19,089.2  Z3,108.4  27,280.0  30,373.0  32,674.0  35,275.0   10.4                  11.3    7.7
4. I,morts (goods
and NFS)             984.3   4,228.6   5,273.4   7,154.3   7,373.4   7,464.0   9,680.0  11,723.0  15,138.0  16,077.0  16,636.0   22.5    29.1    4.9
5. Exports volume         388.3   1,843.8   3,111.5   5,001.9   4,887.9   5,678.6   8,129.6  10,210.0  11,994.0  12,294.0  12,827.0   30.7    17.5    3.4
6. Exports
(adjusted
for TOT)             528.7   2,509.1   4,234.3   6,488.3   5,236.6   5,678.6   9,290.1  11,721.0  13,978.0  13,644.0  14,164.0   26.1    19.2    0.6
7. Resource gap
(adjusted
for TOT)             455.6   1,719.5   1,039.0         666.0   2,136.8   1,785.4        389.9         2.0   1,160.0   2,433.0   2,472.0          -         -      -
8. Total
consmptLion        6,873.1  10,771.0  12,686.9  13,617.4  14,525.2  15,381.1  16,538.4  19,187.0  21,299.0  23,006.0  24,616.0    8.3                  11.0    7.5
9. Investment             917.1   3,276.1   3,105.5   4,275.9   5,070.2   5,120.6   5,874.4   7,975.0  10,841.0  11,900.0  12,852.0   18.8    35.9    8.8
10. Dormstic savings
(adjasted for
TOT)                 206.6   1,654.8   2,288.7   3,996.3   3,365.7   3,708.1   6,569.9   8,093.0   9,373.0   9,668.0  10,659.0   33.6                  15.8    7.4
11. GDP at current
US1                2,996.5   8,303.4   9,835.8  12,393.1  16,780.1  19,089.2  25,369.5  35,375.0  47,582.0  60,488.0  72,633.0   20.7                  34.5   23.9
B. Sector Output
(Share of GDP at
1975 prices)
1. Agriculture,
forestry
and fisheries         46.3       32.8       29.3        26.1       25.3       24.9       23.6        22.2       19.1       19.6       19.1       -         -      -
2. Mining and
manufacturing         13.9       20.5       23.4        26.2       28.2       29.2       31.8        30.6       32.9       31.9       32.0       -         -      -
3. Other                   39.8       46.7       47.4       47.8       46.5        45.9       44.5       47.2       48.0       48.5        48.9       -        -       -
C. Prices (1975-100)
1. Export price
index /a              57.7       67.4       67.3        85.2      107.9      100.0      111.7       120.7      132.9      154.6      167.7       -         -
2. Import price
index /a              46.3       46.2       46.8        62.5       97.2      100.0       98.0       105.2      114.0      138.8      151.9       -        -       -
3. Terms of trade
index                124.6      145.9      143.8      136.3       111.0      100.0      114.0       114.8      116.5      111.0      110.4       -        -       -
4. COP deflator            43.2       70.6       71.0       76.8       95.7       100.0      115.6      137.3      165.9       193.1      214.0       -        -       -
5. Average exchange
rate                 266.2      310.4      394.0    -398.5        406.0      484.0      484.0      484.0       484.0      484.0      484.0       -         -      -
D. Seleted Indicators   1965-75  1977-80                E.                                                           Actual
1. ICOR                    2.39       3.75                                                    1960       1970       1975        1977       1978
2. Ixport elasticity       2.10       1.08              1. Labor force (million)               8.9       10.2       12.3        13.4       13.9
3. Average domestic                                     2. Uneoployment (% of E.1)             7.9        4.9        4.1         3.8        3.2
saving. rate          0.15       0.31              3. Efployment (million)                8.2         9.7       11.8       12.9       13.5
4. Marginal domestic                                   (7 shares)                            100.0      100.0       100.0      100.0      100.0
savings rate          0.29       0.25              3.1 Agriculture, forestry,
5. Imports/GOP             0.36       0.49                   fisheries                        58.6       50.5       45.9        41.8       38.4
h. lnvestment/GDP          0.25       0.36              3.2 Mining and manufacturing          10.4       14.3        19.1       22.4       28.5
7. Resource gap/GDY        0.11       0.05              3.3 Other                             31.0       35.2       35.0        35.8       33.1
F. Public Finance /b         1972       1973       1974        1975       1976      1977/d
(1 of GDP)
1. Current revenue         17.8       16.9       18.3       20.3       22.9       22.7
1.1 Tax revenue            13.5       13.2       15.0       16.8        18.9       18.9
2. Current
expenditure           14.2       11.6        12.4       14.4       14.3       15.7
2.1 Defense
expenditures          4.5        3.7        4.4         4.8        5.7        6.3
3. Governinent
saving                 3.5        5.3         5.0        5.8        8.5        7.0
4. Capital
expendltoro /c        11.3        8.7         8.0        8.3       12.7       10.5
/a  D,ta for 1965-76 refer to merchandtie trade only, 1977-80 data InclWde merchan,dise and non..  ator services.
/b  Rfe.rs to th.  Covtrh renn    o Sector.  cor epr-siiig Central Govern,.nt (includ-ng governm-nt -ntorpises-) , Loc.l Covernmenr and Special Accounts.
/c  Rifers to tltal c,npLtlI expendttures, Iess repayment of debts.
Id dsdget estlroten.
le  Date for 1977 and 197Y arc based on revIsed National Accounts (BOI, A.gust 1979); detAli   of the rovtoed historical .eries for 1965-76 -cre e.r
vavll.ble at tILs tt In.
November 29, 1979



-26-                                                                       ANNEX I
Pag. S oc 5
BALANCE OF PAYMENTS AND EXTIKNAL ASStSTANCE
(S million at current prices)
Actual                                                 Pro1-cted
1969    1970     1971   1972   1973       1974      1975     1976     1977      1978    1979      1980
A. S.seary of Balance of Psyments
1. Imports (ic-. NFS1                                       998  1,221    1,478  2,075  3,962    5,125    5,679    9,111, 12,328   15,940   18.942  21,512
2. leporta (lel. NFS)                                      1,880  2,064    2,490   2,577  4,368    7,209    7,464   9,493   12,3Z9   17,264   22,321  25,267
3. Resource balance                                         -882    -843  -1.012    -502    -406  -2,084   -1,785    -382            -1  -1,324   -3,379  -3.755
4. Net factor servlio  income
(1) Net interest paymenta                                  2    -29       -91    -138   -166       -229  . 399       -411      -479     -702     -790      -997
of chich interest no public IfLT loans              -47     -68      -89    -120   -150      -201      -290     -345    -437    -653  -1,065  -1,374
(2) DIrect te-estnent income                              -6      -8         -      -2       1       -8       -5      -37       -63      -80      -65       -46
(3) Workers' reltt-nces (nut) /a                               -             -       -       -        -         -        -        -        -         -        -
(4) Other factor aervice income (net)                     91       77       84     101      72       74        76      167      332      549       787      916
5. Current transfers (net)                                   246     180      171     170      190      224      226      349       223      472      500      600
. Balance on current account                                -549   -623      -848   -371    -309  -2,023  -1,887         -314        12  -1.085  -2,947  -3,282
7. Private direct Investment                                  16      65       43      74     137       104       53       76       104      101      110       125
8. Official copatal  grants                                  150     131       84      87       61       64        -         -        -        -        -         -
Public M 4 LT loas
9. Sisbscn-nentn                                             660     414      625    735      757    1,155    1,687    1,701    2,212    3,919    4,965   5.275
10. Amnrti-ation                                              109    205       215     289     334       391      368      494       720   1.142    1,500    1,700
11. Net otunursenenno                                         551     209      410    446    423         764    1,319    1,207    1,492    2,777    3,465    3,575
Other 1 4 LT Loans
12. Disbor.ese.nc                                              17      78       33      49       71      174       85      115        46        -        -         -
13. A.ortlzation                                                3       8       10      tO       15       23       28      105        71       97       75        72
14. Net dishbrne.ennt                                          14      70       23      39       56      151       57        10     -25       -97      -75      -72
15. Une of IMF rco..orcen fb                                    -    -10        -8    -10         -      132      130       97      -25        -2        -         -
16. Short-term capitol trasnacrtons                            57     122      135    -19        82      -45      680      357        21  -1,171       400       500
17. Capitol transo.tions NEI /c                               -78      71      112    -87   -110         868      .141     -14     -233       108       70       154
18. Change lo renerven (- - inCrease) /d                     -161     -35       49   -159   -340         -15     -493  -1,419   -1,346    -631  -1,023  -1,000
19. Foreign exchange reserves /e (end of perld)              549    584       535    694   1,034    1,049    1,542    2,961    4,307   4,938    5,961   6,961
B. Grant 0nd Loon Co.-it..nts
1. OffIcIal grant                                            150     131       84      87      61        64        -        -         -        -
2. Total poblic M 4 LT loans                                 753    475       689    813  1,073    1,972    1,304   3,613    3,304   5,014
(1) 18RD                                                  65      40        85      73    150        85   382.5       372       335      659
(2) IDA                                                   15       15        7      26      20        -  -               -        -        -
(3) Other e-nltillesra1 if                                25      20        81      68      46       89   101.5        114      135       50
(4) Governments /a                                       102    161        255    479    383        477      360       917      406   1.190
Of shch cnntrally planned economics                   -       -        -       -        -        -        -        -         -        -
(5) Suppliers                                            374     134       248      94    223       486      232       689   1,144   1,027
(6) Ftlanclal lnstitstlon.                               144     104        13      73    240       737      193    1,448    1,216   1,966
(7) Bonds                                                   -      -         -       -       -       19         -       60       68      122
(8) Public loans NEI /hf                                  28        1        -       -      11       79        34        -        -        -
3. Other M 6 LT loans /                                      100      26       67       74    213       120      138       97        16        -
Debt and Debt Service-
FTblLn debt outstanding 6 dibursed (end nf period)                                 2,691   3,199   3,982   1,277    6,659   8,472   l,992
Interest on public debt                                                               120     150       201      290      389      437        653
Repayments on poblin sebt                                                             289     334       391      368      504       717     1,142
Total publin debt servine                                                             409    484        592      658      893    1,154      1,795
Other debt service (net)                                                               23       33       54       60       103      125       140
Total debt secitce (met)                                                              432     517       646      718      996   1,279       1,935
Borden un Epurt Elroinas (Z)
Public debt servIce                                                                  19.7   12.2       11.6     11.6      9.8      9.2       11.3
Total debt ne-vice                                                                   20.8   13.1       12.6     12.6     10.9    10.2        12.1
TDS + Direct Invest. Inc.                                                            20.7    13.1      12.4     12.6     11.3      10.7      12.6
Average Ternn on Public Dent
Interest as 2 prior year DO&D                                                         5.3     5.6      6.3       7.6      8.2      7.3        7.7
Amortieation as 2 prior year DO6D                                                    12.9   12.4       12.2      9.2     10.9      11.9      13.5
I8RD debt ostsroeolng 6 dtnbursed                                                      94.7  139.8   223.8   403.5   659.0   835.1  1,123.2
IB8D as 2 poblic debt 01D                                                               3.5     4.4       5.6      7.7      9.9       9.9       9.4
IBRD as 2 public debt service                                                           1.7     2.5       3.3      4.9      5.7       6.7       6.4
IDA debt onlotantdig 6 dibnuerod                                                       47.1   58.5       78.3     92.7   102.4    111.1       114.4
IDA as 2 public debt 06D                                                                 1.8     1.8      2.0      1.8       1.5      1.3       1.0
IDA an 2 publIc debt servIce                                                            O.l    0.1        0.1      0.1      0.1       0.1       0.1
EIternal Debt (Dinburned Only) Ottnnanidig December 31. 1978    Amount                  7.
1. IBRD                                                                1,123.2        9.4
2. Bank Group /1                                                       1,237.5       10.3
3. Other mslttlstenal                                                    400.9        3.3
4. Government                                                          3,353.9       28.0
Of vsdAh centrally  planed enoits                                         -         -
5. Soppliers                                                           3,711.5       31.0
6. Fi-nncial in-ttuttons                                               3,021.4       25.2
7. Bonds                                                                 266.2        2.2
8. Other pblIlc debt n.e..-                                                              -
9. Total pabi  debt                                                 11,991.6      100.0
10. Other MLT debt                                                        461.2
11. Total publin and other MLT debt (disbursed)                        12,452.8
12. Total pablie and other MLT debt (fncl. ssdtsborsed)                19,080.7
C. Menuraudvlo Itens
1. Grant element of totaL1 comitments                       25.2   25.8      30.5    37.2   25.2      27.7      10.6     11.1      8.0       7.4
2. Average Interest (2)                                      5.1     5.1      5.2     4.8     6.1       8.0      7.9      8.0      8.2       8.8
3. Average matoeity (yeaes)                                 14.1   17.9      19.0    23.6   18.3       11.6     13.0     13.0     11.4      14.4
Inclu-ded I  ocher fotcor seervins i-ooe.
/b  Net of "orawlngs" and "repayment by purchase" (IFS).
/c  Includ-s borroiIngv by the booktng system.
/d E-cluocn set us- of IMF resoocc-s shich are ahoen separately.
/e "Intornotonal Ren-eves" (IFS).
/f ADd.
L,  Includs bilateral ODA, lalsb-kn, afficial esport  rendits, inclodLog DS CCC Credits.
ft Other guaranteed privace loans.
/t  E1clod-t  IFC.
Novcsb-r 29, 1979



ANNEX II
-27-                                      Page 1 of 14 pages
KOREA
THE STATUS OF BANK GROUP OPERATIONS IN THE REPUBLIC OF KOREA
A. Statement of Bank Loans and IDA Credits (as of December 31. 1979)
Loan or                                                                                Amount ($ million)
Credit       Calendar                                                                 (less cancellations)
Number         Year         Borrower             Purpose                         Bank   TW    IDA   Undisbursed
Sixteen Loans and eight credits fully disbursed                                  678.2          106.8
906          1973    Republic of Korea        Education II                       23.0                       1.8
917          1973    Republic of Korea        Ports I                            80.0                       1.5
953          1974    Republic of Korea        Tourism                            25.0                       0.5
994          1974    AFDC                     Agriculture                        13.0                       0.5
1070          1975    Republic of Korea        Secondary Cities-Gwangju           15.0                       3.2
1096          1975    Republic of Korea        Education III                      22.5                       5.1
1101          1975    Republic of Korea        Railways V                        100.0                       2.8
1193          1976    Republic of Korea        Second Integrated Dairy Dev.       15.0                       0.4
1203          1976    Republic of Korea        Highways III                       90.0                       2.5
1216 &        1976    Republic of Korea        Rural Infrastructure 1             20.0                       0.1
1218-T                                                                                   40.0                0.1
1319          1976    ADC                      Irrigation                         29.0                      25.3
1328          1976    Republic of Korea        Agricultural Credit                20.0                       0.4
1338          1976    KDB II                   Dev. Finance Co.                   82.5                       3.1
1364          1977    ADC                      Irrigation                         95.0                      74.3
1401          1977    Republic of Korea        Ports II                           67.0                      62.5
1461          1977    KDFC VI                  Dev. Finance Co.                   70.0                       2.6
1466          1977    Republic of Korea        Heavy Machinery                    80.0                      24.6
1474          1977    Republic of Korea        Vocational Training                23.0                      16.2
1503          1978    ADC - Ogseo Stage I   Agriculture/Irrigation                36.0                     35.9
1507          1978    SMIB II                  Dev. Finance Co.                   55.0                       2.2
1530          1978    Republic of Korea        Rural Infrastructue II             95.0                      61.7
1542          1978    Republic of Korea        Railway VI                        120.0                      44.5
1574          1978    KDB III                  Dev. Finance Co.                  110.0                      53.6
1635          1978    KDFC VII                 Dev. Finance Co.                  100.0                      41.4
1640          1978    Republic of Korea        Highways IV                       143.0                     139.4
1666          1979    Republic of Korea        Chungju Multipurpose              125.0                     120.0
1676          1979    Republic of Korea        Electronics Technology             29.0                      28.9
1749          1979    SMIB III                 Dev. Finance Co.                   60.0                      59.2
1758 /a       1979    Second Gwangju
Regional Cities                                          65.0                      65.0
1774 /a       1979    Republic of Korea        Population I                       30.0                      30.0
1788 /a       1979    Korea Electric Co.    Power Project                        115.0                    115.0
Total                                                            2,631.2  40.0  106.8   1,024.3
of which has been repaid                                         112.8   -       1.6
Total now outstanding                                            2,518.4  40.0  105.2
Amount sold                        8.8
of which has been repaid         3.9                               4.9   -       -
Total now held by Bank and IDA
(prior to exchange adjustment)                                2.513.5  40.0  105.3
Total undisbursed                                                1.024.2   0.1            1.024.3
/a Not yet effective.



ANNEK II
-28-                        Page 2 of 14 pages
B. Statement of IFC Investments (as of December 31, 1979)
Fiscal                                                         Amount ($ million)
Year     Obligor                 Types of Business            Loan  Equity Total
1968   KDFC                      Development Financing           -      0.7    0.7
1969   Honam Silk Co.            Textiles                       1.4    0.3    1.7
1970   Atlas Paper               Pulp and paper                 4.5    0.5    5.0/a
1971   Korea Investnent
Finance Crop.           Capital Market Development    -       0.6    D.6
1974   KDFC                      Development Financing           -      0.4    0.4
1974   Korea Investment
Finance Crop.           Capital Market Development    -       0.3    0.3
1975   Gold Star & Co., Ltd.    Electronic Products            16.0    1.3   17.3
1975   Korea Securities
Fincance Crop.          Capital Market Development   5.0    0.6    5.6
1975   Tong Yang Nylon
Company, Ltd.           Synthetic Fibers               6.9    2.1    9.0
1975   Hae Un Dae Develop-
ment Company, Ltd.      Tourism                        2.8    0.7    3.5
1976   Korea Investment
Finance Crop.           Capital Market Development    -       0.4    0.4
1976   Chungju Paper Mfg. Co.   Paper                           5.0    0.5    5.5
1976   Korea Zinc. Co., Ltd.    Zinc                           15.0    4.0   19.0
1976   KDFC                      Development Financing         17.8      -    17.8
1976   Gold Star & Co., Ltd.    Electronic Products            10.0    0.4   10.4
1977   Gold Star & Co., Ltd.    Electronic Products                     0.2    0.2
1977   KDFC                      Development Financing                  0.3    0.3
1977   Korea Securities
Finance Crop.           Capital Market                  -     0.5    0.5
1977   Korea Development
Leasing Crop.           Capital Market                15.0    0.4   15.4
1978   KDFC                      Development Financing           -      1.1    1.1
1979   Gold Star & Co., Ltd.    Electronic Products              -      1.7    1.7
1979   KIFC                      Capital Market                  -      0.6    0.6
1979   Korea Development
Leasing Crop.                                           -     0.2    0.2
1979   Gold Star & Co., Ltd.    Electronic Products              -      1.5    1.5
1980   Gold Star & Co., Ltd.    Electronic Products              -      1.8    1.8
1980   Korea Investment
Finance Corp.           Capital Market                  -     0.6    0.6
Total gross commitment                                  99.4   21.7  121.1
less cancelations, terminations,
repayment and sales                                   50.7    2.3   53.0
Total commitments now held by IFC                       48.7   19.4   68.1
TOTAL undisbursed
la Cancelled at the request of the Company.



ANNEX II
-29-                     Page 3 of 14 pages
PROJECTS IN EXECUTION /1
Agricultural Sector
Loan No. 994      Integrated Agricultural Products Processing Project;
$13.0 Million Loan of June 7, 1974; Effective Date:
March 19, 1975; Closing Date: June 30, 1980
This project provides long-term funds to the Agriculture and
Fisheries Development Corporation (AFDC) for onlending to subborrowers in
the private sector for the purpose of integrating on-farm production of
fruits and vegetables with modern, hygienic processing facilities, using
land that was idle or underutilized. The vegetables and fruits involved are
mainly asparagus, shiitake (oak mushroom), spinach, mushroom, strawberry and
peach. Implementation of the project was delayed by about 18 months owing
to lack of loan demand for some of the processing facilities included in the
project. However, the project is now progressing satisfactorily since
September 1977 when the Bank approved AFDC's proposal to widen the project's
scope to meet changed investor demand. Under the revised scope, AFDC will
finance processing and cold storage of fish, meat, fruits and vegetables,
and also fruit juice extraction and concentration and vegetable drying, for
which the loan demand is strong. Subloan applications and approvals have
increased significantly, and AFDC expects to disburse all the project funds
before the Closing Date. Disbursements as of December 31, 1979 were over
96% of the loan.
Loan No. 1193    Second Integrated Dairy Development Project: $15.0 Million
Loan of June 4, 1976; Effective Date: November 11, 1976;
Closing Date: December 31, 1982
The project consists of further development of 400 existing dairy
farms which participated in the first project; the development of 450 new
dairy farms; expansion of existing dairy processing facilities, construction
of a new processing plant; and technical assistance for both farm
development and processing. The effective date was delayed for nearly a
year but the implementation has progressed rapidly and the project may be
completed ahead of schedule. The project will benefit 41% more farmers and
supply 8% more cows than was originally estimated. Technical support to the
farmers has been strengthened but more has to be done to improve pasture
quality and establish a feed regime which would ensure the development of a
/1 These notes are designed to inform the Executive Directors regarding
the progress of projects in execution, and in particular to report any
problems which are being encountered, and the action being taken to
remedy them. They should be read in this sense, and with the under-
standing that they do not purport to present a balanced evaluation of
strengths and weaknesses in project execution.



ANNEX II
-30-                    Page 4 of 14 pages
low-cost dairy industry in Korea.  The expansion of processing facilities is
progressing steadily and it is anticipated that the actual capacity then
will be significantly above the original estimate. KDBC's financial
condition improved during the last two years. The general prospects are for a
gradually improving trend. As of December 31, 1979, disbursements were over
97% of the loan amount.
Loan No. 1216    Rural Infrastructure Project; $60.0 Million of which
Loan No. 1218T   $40.0 Million Third Window of March 19, 1976; Effective
Date:  June 4, 1976; Closing Date:  June 30, 1980
Project implementation is proceeding very well. The Fuelwood,
Roads and Bridges, Water Supply and Rural Electrification components were
completed by the end of 1977. Minor Irrigation and Upland reclamation will
be completed by the Closing Date. Project monitoring and reporting continue
to be satisfactory, the Hydrologic Services Study has been completed and the
evaluation study is already producing useful results. As of December 31,
1979, the total loan amount was about completely disbursed.
Loan No. 1319    Miho Watershed Area Development Project; $29.0 Million Loan
of August 5, 1976; Effective Date: October 21, 1976;
Closing Date:  December 31, 1982
This project, located in the central region of Korea, is being
financed under the first Bank loan for area development in Korea. A project
office has been established, and construction work is progressing on
the first of five major civil works contracts. A second contract was
awarded in July 1979. Altogether, the five contracts will involve
construction of 8 large and 19 small dams, 284 km of main and secondary
canals and land development for irrigating 12,700 ha. The project, which
will require five years to complete, also involves construction of 80 km of
river channel improvement and 150 km of village access roads, as well as
feasibility studies for a second stage project in the Miho Watershed.
The project is currently two years behind schedule due to major shortfalls
in local budget allocations. As of December 31, 1979, disbursements were
about 13% of the loan amount.
Loan No. 1328    Second Agricultural Credit Project: $20.0 Million Loan of
October 12, 1976; Effective Date: March 10, 1977; Closing
Date: June 30. 1981
The project is a continuation and expansion of the agricultural
program financed under the First Agricultural Credit Project (Credit
335-KO). It provides funds to the National Agricultural Cooperative
Federation (NACF) for medium- and long-term loans to farmers, through
selected Gun (county) cooperatives of NACF, for investments in apple orchard
development, silkworm rearing houses, sprinkler irrigation for orchards,
greenhouses for vegetable production, and on-farm fruit storage. The loan
became effective on March 10, 1977 and lending to subborrowers commenced in
the following month. Project implementation continues to progress



ANNEX II
-31-                       Page 5 of 14 pages
satisfactorily and total lending is on schedule. As of December 31, 1979,
disbursements were 98% of the loan amount.
Loan No. 1364    Yong San Gang Irrigation Project Stage II; $95.0 Million
Loan of February 11, 1977; Effective Date: April 22, 1977;
Closing Date: December 31, 1984
The project will provide irrigation and land development on 20,700
ha in the lower reaches of the Yong San River. Project works include an
estuary dam, sea dike, pumping stations, irrigation canals, reclamation of
5,500 ha of tidal lands, conversion of 3,250 ha of uplands for irrigation of
paddy, land consolidation of 3,200 ha, and irrigation of 1,050 ha of up-
lands. Construction of the access roads and a portion of the estuary dam
has been completed. The main contract for estuary dam construction was
awarded in December 1977, in line with the appraisal schedule and
construction is progressing well; however, the irrigation subprojects are
behind schedule due to shortfalls in local budget allocation. As of
December 31, 1979 disbursements were about 22% of the loan amount.
Loan No. 1503    Ogseo Area Development project - Stage I; $36.0 Million
Loan of January 4. 1978; Effective Date: March 29, 1978;
Closing Date: June 30, 1983
The project will benefit some 23,000 farm families by providing
new irrigation on 7,100 ha, improved irrigation and drainage on 3,700 ha and
a more assured water supply on an additional 1,500 ha. Project work
consists of nine pumping stations, 190 km of main and secondary canals and
land development including 5,800 ha of land consolidation, 2,500 ha of
improved drainage (of which 1,500 ha would also be consolidated), 2,200 ha
of tertiary irrigation and conversion of 1,800 ha of upland and forest to
paddy land. Construction will be carried out under seven civil works
contracts and three were awarded, about 12 months behind schedule due to
shortfalls in local budget allocations.
Loan No. 1530    Rural Infrastructure Project II; $95.0 Million Loan of
March 13, 1978; Effective Date: June 8, 1978; Closing
Date: June 30, 1983
The project includes about 43 minor irrigation, 8,300 river
training and 7,400 water supply subprojects as well as a rural telephone
program. The 1978 program for river training, water supply and rural



ANNEX II
-32-                     Page 6 of 14 pages
telephones was completed on schedule and the 1979 program progressed well.
Design work on the minor irrigation component is proceeding satisfactorily
and contracts have been awarded for 16 subprojects. The total area of the
irrigation subprojects has been finalized at 9,235 ha. As of December 31,
1979, disbursements were over 35% of the loan amount.
Loan No. 1666    Chungju Multipurpose Project; $125.0 Milion Loan of
March 29. 1979; Effective Date: July 11, 1979; Closing
Date: June 30, 1985
The project would help meet the growing demand for municipal,
industrial and irrigating water in the Han Basin for about 20 years
following its completion in 1984, and would substantially reduce flood
damage, generate an average of 770 million kilowatt hours annually and
provide 460 MW of peaking capacity for Korea's power system. The principal
features of the project are a 90 m high concrete dam across the South Han
River, a power plant containing four 115 MW generating units, and associated
transmission facilities; a reregulating dam about 20 km downstream of the
main dam; relocation of about 100 km of roads and 10 km of railway,
protective works in the reservoir area including the raising of an existing
embankment of a cement plant and other miscellaneous works; implementation
of a resettlement program for some 9,300 families affected by the project;
and consulting services.
Industrial Sector
Loan No. 1338    Second Korea Development Bank Project; $82.5 Million Loan,
of which $7.5 Million for the Korea Industrial Leasing
Company, of December 23, 1976; Effective Date: March 21,
1977; Closing Date: December 31, 1980
The project provides $75.0 million to be used by KDB to make sub-
loans to finance direct imports for industrial subprojects during the period
1977-78; the remainder of the loan, $7.5 million, was relent by KDB to its
wholly-owned subsidiary, the Korea Industrial Leasing Corporation (KILC). to
acquire machinery, equipment, facilities and other property to be leased to
investment enterprises. Commitment of funds is progressing as expected; as
of December 31, 1979, disbursements were over 96% of the total loan amount.
Loan No. 1461    Sixth Korea Development Finance Corporation Project;
$70.0 Million Loan of June 30, 1977; Effective Date:
September 15, 1977; Closing Date: December 31, 1981
The loan was made to help cover the foreign exchange requirements
of industrial subprojects to be financed by KDFC subloans in 1977-78.
KDFC's performance has been very satisafctory. As of December 31, 1979,
disbursements were over 96% of the total loan amount.



ANNEX II
-33-                         Page 7 of 14 pages
Loan No. 1466    Heavy Machinery Project; $80.0 Million Loan of June 30,
1977; Effective Date: December 1, 1977; Closing Date:
December 31, 1980
Project cost has increased to $396 million as compared with the
appraisal estimate of $255 million. This is due to increases in scope to
enhance the project's ability to manufacture nuclear power plant; the
devaluation of the US dollar, and domestic inflation. The market prospects
for the project have been affected by licensing of other power plant
manufacturers in Korea. In order to deal with this problem and to strengthen
the financial viability of the project, the Government intends to transfer
responsibility for the project to another company. Details of the transfer
are being worked out between the parties involved and will be submitted to the
Bank for review. As of December 31, 1979, disbursements were nearly 70% of
the loan amount.
Loan No. 1507    Second Medium Industry Bank Project; $55.0 Million Loan of
January 4, 1978: Effective Date: March 10. 1978; Closing
Date: December 31, 1982
The project provides $55.0 million to be used by MIB to help cover
the foreign exchange requirements of industrial subprojects. A portion of
the loan - $20.0 million - was earmarked to assist small-scale, labor-
intensive subprojects creating employment at a gross capital cost per job
not greater than $6,000 or enterprises whose fixed assets are not greater
than $250,000. As of December 31, 1979, disbursements were 96% of the loan
amount.
Loan No. 1574    Third Korea Development Bank Project; $110 Million Loan of
June 21, 1978; Effective Date: September 14, 1978;
Closing Date: December 31, 1982
The loan would be used to help cover the foreign exchange require-
ments of subprojects to be financed by KDB; apart from direct imports, the
loan would be utilized by KDB to finance the foreign exchange component of
domestically produced capital goods. An amount of up to $10.0 million of
the proceeds of the proposed loan would be made available to KDB's
subsidiary, the Korea Industrial Leasing Corporation Ltd. (KILC), by way of
subloans in order to finance small- and medium-sized leasing projects.
Overall progress is satisfactory. As of December 31, 1979, disbursements were
over 51% of the loan amount.
Loan No. 1635    Seventh Korea Development Finance Corporation Project;
$100.0 Million Loan of December 7, 1978; Effective Date:
February 6, 1979; Closing Date: June 30, 1983
The loan was made to cover the foreign exchange requirements of
subprojects to be financed by KDFC over the years 1979 and 1980. In order



ANNEX II
-34-                    Page 8 of 14 pages
to support relatively labor-intensive enterprises, a component of $20 mil-
lion was earmarked for financing specifically:  (a) enterprises with fixed
assets not exceeding $750,000; or (b) projects generating employment at a
fixed investment cost per job not greater than $12,500. Also, in order to
finance small- and mediurm-sized leasing projects, an amount of up to $10.0
million of the proceeds of the proposed loan will be made available to the
Korea Development Leasing Corporation (KDLC), a leasing company affiliated
to KDFC, by way of subloans.  As of December 31, 1979, about 59% of the loan
had been disbursed.
Loan No. 1676    Electronics Technology Project; $29.0 Million Loan of
March 29, 1979; Effective Date:  June 28, 1979;
Closing Date: December 31. 1983
After initial delays in finalizing specifications and bidding
documents for engineering, support and research equipment, the project
is progressing satisfactorily.  Bids have been received and are being
evaluated for a major proportion of the equipment. The training program
is also under way.
Loan No. 1749    Third Small and Medium Industry Bank Project; $60 Million
Loan of July 23, 1979; Effective Date: September 26, 1979,
Closing Date: December 31. 1983
Apart from direct imports, the proceeds of the loan would be
utilized by SMIB to finance the foreign exchange component of domestically
produced capital goods.  To ensure that a reasonable proportion of the loan
is directed towards small, labor-intensive projects, an amount of $25 mil-
lion of the proceeds of the loan will be earmarked to finance:  (a) enter-
prises with fixed assets not exceeding $300,000; or (b) projects generating
employment at a fixed investment cost per job not greater than $8,500.  The
loan would assist SMIB in its efforts to support the Goverrument's policy of
increasing the regional dispersal of employment opportunities and of deep-
ening the industrial structure, and also to continue SMIB support of projects
which would complement large-scale manufacturing enterprises.
Population Sector
Loan No. 1774    Population Project;/1 $30 Million Loan of December 27, 1979,
Closing Date: June 30, 1984
The project will assist the Government to reduce fertility over the
next five years, and simultaneously reduce infant and maternal mortality,
particularly in rural areas. The project has been designed to reach out into
communities with primary care services, particularly maternal and child health
and family planning.  The major components are:  (a) improving the delivery
of health and family planning services by strengthening and expanding the
delivery network; (b) increasing demand for services by strengthening and
expanding information, education and communication activities in health and
/1 Not yet effective.



ANNEX II
Page 9 of 14 pages
family planning; and (c) improving the program's evaluation and administra-
tion capacities. The principal beneficiaries will be mothers and children,
primarily in rural areas, who do not have access to services.  It is esti-
mated that about 10 million people would be provided primary health care
services under the project, thus lowering fertility, mortality and morbidity.
Education Sector
Loan No. 906      Second Education Project; $23.0 Million Loan and
Credit No. 394   $20.0 Million Credit of June 13, 1973; Effective Date:
September 10, 1973; Closing Date:  December 31, 1979
The project includes assistance for re-equipping 85 educational
institutions at secondary and university levels. The Loan/Credit funds are
mainly used to finance equipment. The Government is financing related
works. Project execution remains about two years behind schedule due to
initial delays and some project changes. The project is now making satis-
factory progress. All the equipment has been contracted, and about 95%
delivered; furniture procurement has been completed; civil works were all
completed by the end of December 1978; and the fellowship program is well
underway. As of December 31, 1979, disbursements were completed under the
Credit and reached over 97% of the total loan amount.
Loan No. 1096    Third Education Project; $22.5 Million Loan of March 31,
1975: Effective Date:  June 6, 1975; Closing Date:
June 30, 1981
The project includes assistance for extension and equipping of
nine institutions (technical, agricultural and fisheries) under the Ministry
of Education (MOE) and seven vocational training institutes (VTIs) under the
Administrator of Labor Affairs (ALA). Project implementation is satisfactory.
Physical facilities and the technical assistance program have been completed.
Training operations have commenced in five VTIs. However, equipment procure-
ment under the MOE component is delayed by almost one year because of a
temporary shortage of counterpart funds. Only about 75% of equipment has
been awarded and 60% delivered. Delays of equipment procurement under MOE
required a postponement of the Closing Date by one year. Estimated total
project cost now is expected to be below, but close to, the appraisal esti-
mate. As of December 31, 1979, disbursements were 82% of the appraisal
estimate.
Loan No. 1474    Vocational Training Project; $23.0 Million Loan of
July 22. 1977; Effective Date: October 25, 1977;
Closing Date: June 30, 1982
The project includes the establishment of eight new Vocational
Training Institutes (VTIs), equipment for a National Central Vocational
Training Institute (NCVTI) and technical assistance, part of which is to be
provided by UNDP and Germany. The implementation schedule is about six months
behind original schedule. Civil works contracts have been awarded for six
of the eight VTIs and are virtually completed for two VTIs. The completed



ANNEK II
-36-                    Page 10 of 14 pages
two VTIs started classes in September 1979. The seventh and eighth VTI will
be contracted early 1980. About 60% of equipment has been awarded and about
20% delivered. Five out of ten experts are in post and the fellowship
program has been completed. Disbursements have improved significantly in
1979 and amount to US$6.8 million or about 1.05% of the appraisal estimate.
As of December 31, 1979, disbursement was about 30% of the total loan.
Since management performance, particularly reporting to the Bank, was
recently unsatisfactory, the Bank urged the Project Director to improve
content of quarterly progress reports and speed up submission to the Bank
of information regarding contracting of civil works and equipment.
Loan No. 1800    Higher Technical Education:/1 $100.0 Million Loan of
February 21, 1980: Closing Date: June 30, 1984
The aim of the sector program is to improve the quality and
content of higher technical education in Korea, so that it can contribute
effectively to the country's technological needs in the eighties. The
sector program is to be financed under the loan, covers three aspects of
higher education, viz. engineering education, management education and tech-
nical training. The program will create a flexible system of supplying
technical skills, remove the principal constraints on quarterly improvement
and reduce the investment gap in private higher technical education.  The
overall program, of which a part would be financed under the proposed loan,
would comprise about 10 national programs for organizing, curricula and staff
development, and about 55 subprojects for development of physical facilities.
Tourism Sector
Loan No. 953      Kyongju Tourism ProJect; $25.0 Million Loan of January 4.
1974; Effective Date: May 6. 1974; Closing Date:
December 31, 1979
The project forms part of the first phase of the planned develop-
ment of the Bomun Lake resort near Kyongju. It provides for a multipurpose
dam; an irrigation system for about 1,200 ha; improvement and expansion of
the water supply and sewerage and solid waste disposal systems for the city of
Kyongju and the resort area; installation of electrical supply and telecom-
munication facilities for the resort area; the construction and/or realign-
ment of about 57 m of roads, infrastructure, including storm water drainage,
environmental sanitation, community facilities, and a golf course; and a
school for training hotel personnel. The first two hotels with 600 rooms
were completed and opened for operation on April 1, 1978. Negotiations with
other private investors are under way for a third hotel and also for apart-
ments and restaurants in the Bomun resort area. The total amount of the
loan was expected to be disbursed by the Closing Date.
/1 Not yet effective.



37                  ANNEX II
Page 11 of 14 pages
Regional Development
Loan No. 1070    Secondary Cities Regional Project; $15.0 Million Loan of
January 15, 1975; Effective Date: August 18, 1975;
Closing Date: September 30, 1980
Implementation of the Secondary Cities Regional Project is pro-
ceeding satisfactorily. Three housing sites, two access roads, a city
market fishery harbor infrastructure and building complex and associated
electrical works have been completed. Installation of refrigeration
and ice handling equipment at the fishery complex has experienced some
delays; the fishery complex is now expected to be fully operational by
March 1980. Construction of houses at all three sites has been completed
and the sites are fully occupied. After the initial delays, mainly in
fulfilling conditions of effectiveness and establishing the Gwangju Regional
Development Unit, the project has moved extremely well. As of December 31,
1979, disbursement was about 79% of the loan amount.
Loan No. 1758 /1  Chungju Multipurpose Project,/1 $125 Million Loan of
December 27, 1979; Closing Date: June 30, 1985
The project would help meet the growing demand for municipal,
industrial, and irrigation water in the Han Basin for about 20 years following
its completion in 1984. It would also substantially reduce flood damage,
generate an average of 770 million kilowatt hours annually and provide 460 MW
of peaking capacity for Korea's power system. The principal features of
the project include: a 90 m high concrete dam across the south Han River;
a power plant containing four 115 MW generating units, and associated trans-
mission facilities; a reregulating dam about 20 km downstream of the main
dam; relocation of about 100 km of roads and 10 km of railway; protective
works in the reservoir area including the raising of an existing embankment
of a current plant and other miscellaneous works; implementation of a
resettlement program for some 9,300 families affected by the project; and
consulting services.
Transportation Sector
Loan No. 917      Ports Project; $80.0 Million Loan of June 27, 1973;
Effective Date:  September 18. 1973; Closing Date:
June 30, 1980
Civil works and provision of equipment financed under the First
Port Project are completed. Final estimated cost is $143 million including
$101 million foreign exchange. The excess foreign exchange requirement over
/1 Not yet effective.



ANNEX II
-38-                        Page 12 of 14 pages
the $80 million provided by the Bank loan is being provided by a Saudi Fund
for Development loan of $35 million to the Korean Government; this loan was
based upon the revised foreign exchange requirements of $115 million arrived
at following the first large increase in the price of petroleum products.
The balance of the latter loan will be spent on additional civil works.
Loan No. 1101    Fifth Railway Project; $100.0 Million Loan of April 10,
1975; Effective Date: July 15, 1975; Closing Date:
June 30, 1980
The project will help the Korean National Railraod (KNR) continue
as a major carrier of freight and passengers by providing for: the upgrading,
modernization and expansion of track, rolling stock, motive power, and other
equipment; the improvement of the efficiency of operation; and the strengthen-
ing of its financial position. The main components of the project are: an
increase in station and line capacity and improvements in signaling; acquisi-
tion of rolling stock, diesel and electric locomotives, spare parts and
repair facilities; track renewal and improvement; bridge strengthening;
completion of electrification of 71 km of industrial lines; and other
miscellaneous items. All contracts to be financed from the loan have been
awarded and most of the equipment delivered. Over 97% of the loan proceeds
had been disbursed by December 31, 1979.
Loan No. 1203    Third Highway Project; $90.0 Million Loan of February 20,
1976; Effective Date: May 17, 1976; Closing Date:
December 31, 1981
The loan provides funds to help finance: (a) the construction,
chiefly on new alignments, including paving, of about 195 km of four
national highways, including supervision of the work by consultants; (b)
paving and improvement, chiefly on present alignments, of nine national
highways totaling about 600 km, including supervision of the work by
consultants; and (c) feasibility studies by consultants of about 1,200 km of
national and provincial roads, to be followed by detailed engineering. All
contracts for construction and paving were completed by June 1979. Feasi-
bility studies by consultants started in January 1978, and are now proceeding
satisfactorily.  As of December 31, 1979, disbursements were about 97% of
the total loan. The Saudi Fund for Development is providing a loan of $35
million to assist in financing the project.
Loan No. 1401    Second Ports Project; $67.0 Million Loan of April 28, 1977;
Effective Date: July 27, 1977; Closing Date: December 31,
1982
The project consists of: (a) a 700 m extension of container
berths being financed under the First Ports Project and a 335,000 sq m
expansion of the container stacking area provided under that project with
ancilliary works; rehabilitation of piers 3 and 4, the central wharf, and
lighter wharf No. 5; (b) procurement of container cranes, mobile container



ANNEX II
-39-                    Page 13 of 14 pages
handling equipment, and tugboats; (c) Engineering Consultanft Services are
(d) Technical Assistance and Training. Contracts for the extension of
container berths and for rehabilitation of pier No. 4 and lighter warf
No. 5 were let in July and December 1979 respectively, following delay in
appointing the consultants for final engineering. Estimated costs have
increased to $170 million ($67 foreign exchange) compared with the appraisal
estimate of $112 ($70 foreign exchange). KMPA expects to introduce commer-
cial accounting from January 1, 1983. Traffic and specially ccrtainerized
general cargo traffic continues to increase at Busan.
Loan No. 1542    Sixth Railway Project; $120.0 Million Loan of April 10,
1978; Effective Date: August 3, 1978; Closing Date:
June 30, 1982
The project would provide KNR with the capacity required to meet
forecast traffic, and reduce operating and maintenance costs. It includes
continued double tracking and electrification of lines, extension of yards
and terminals, continued installation of centralized traffic control, track
and rail relIiwWL, separation of road and rail at crossings, installation of
a permanent way workshop, procurement of diesel locomotives, passenger cars
and freight cars, provision of a new passenger car workshop, installation
of additional telecommunication and power facilities and provision of tech-
nical assistance to KNR. The loan will also finance transport sector
studies. Contracts for about 98% of the equipment to be financed under the
loan have been awarded and most of the equipment is under delivery. The
feasibility of major investments for 1980 and 1981 has been carried out and
the transport sector studies are under way. As of December 31, 1979,
disbursements were about 63% of the total loan.
Loan No. 1640    Fourth Highway Project; $143.0 Million Loan of December 7,
1978; Effective Date: March 14, 1979; Closing Date:
December 31, 1982
The project consists of: (a) construction and improvement,
including paving and supervision by consultants, of 36 sections of national
roads totaling about 950 km; (b) construction and improvement, including
paving and supervision by consultants, of 10 sections of provincial roads
totaling about 280 km; (c) procurement of additional road maintenance
equipment for maintaining national roads; (d) a study by consultants of the
institutions involved in the planning, design, maintenance, construction,
administration and financing of provincial and county (gun) roads, and the
preparation of a program for improving the organization and functions of
such institutions, upgrading provincial and gun road maintenance and the
future development of the gun road system,- to be followed by detailed
engineering of about 2,000 km of gun roads; and (e) provision of fellowships
for training staff of the Ministry of Construction. Construction of one
road was started in April 1979, and bids on the remaining roads are scheduled
for August 1979. A contract for the study was signed, and work started,
in September 1979. However, due to budgetary constraints, the work is pro-
ceeding slower than originally scheduled.



ANNEX II
-40-                 Page 14 of 14 pages
Power Sector
Loan No. 1758    Gojeong Power ProJect, $115 Million Loan of December 27,
1979: Closing Date:  December 31, 1984
The project constitutes the next logical step in KECO's power
development program to meet the load growth up to 1986. The project would
provide for the installation of two 500 MW coal/oil-fired units and associated
auxiliary equipment; coal handling and storage facilities, fuel oil tanks,
ash system and storage area, a fuel unloading dock for ships up to 100,000
DWT displacement; a pumping station and a 17 km steel pipe to transport
fresh water to the station; and a 160 km double circuit, 345 KV transmission
line between the power station and Seoul, and related terminal substations
and management .ot3ulting services. The project will enable KECO to meet
part of the increased demand of the interconnected system from 1984, and it is
expected that it will help to improve KECO's planning, organization, finances,
and the structure of electricity rates. An important benefit is the intro-
duction of advanced technology to Korea, through the participation of local
manufacturers in association with foreign companies, in the manufacture of
some of the main equipment.



ANNEX III
KOREA
CITIZENS NATIONAL BANK
sa    mentay Pr   Lt Data Sheet
Se tioi: T  -- TieLtabLe of Key Events
(a)  Tine tak-n tu prepare project:  From May 1979 to November 1979
(b) Agency which prepared the project: CNB
(c) Date of the first Bank mission to
consider the project:               July 16, 1979
(d)  Departure of appraisal mission:       November 11, 1979
(e)  Negotiations completed:               February 18, 1980
(f)  Planned date of effectiveness:        July 1980
Section II - Special Bank Implementation Action
No specific action is considered necessary.
Section III - Special Conditions
(a) CNB will maintain a long-term debt/equity ratio not exceeding 7:1
(para. 54);
(b) At least 50% of the proceeds of the proposed loan will be used to make
subloans to firms employing.no more than 50 workers or with total
assets not exceeding W 250 million.In addition, only those enterprises
whose total assets do not exceed W 500 million or who have less than 100
employees if in the industrial, mining, or transportation fields, or
less than 20 employees if in the construction services or other fields,
would be eligible for subloans (para. 60);
(c) Individual subloans approved by CNB under the Bank loan shall not
exceed $400,000 equivalent (para. 61);
(d) At least 50% of the proceeds of the proposed loan will be used to
finance projects located outside of the city limits of Seoul (para. 62);
(e) A free limit of $250,000 is recommended (para. 64);
(f) CNB will calculate the Economic Rate of Return for the subloans
above the free limit (para. 64).
(g) Apart from direct imports, the proceeds of the loan will be used by CNB
to finance the foreign exchange component (estimated at 60%) of
domestically procured or manufactured capital goods (para. 64).






_____________________                                                                     ~~~~~~~~~~~~~~~~~~~~~~~~~~~IBRD 14617
s_,rnUS.Sr~.RX  ip .                 12J              \        [23-      ;               12                  JANUARy J 19
J  /        NORTH  KOREA
C H I lN A    S   /       tt                                                          > 
CIAS
A   KOREA                                                                                             Ecy st   Sea
RPOF
KOEA
Ye/low             DJAdAh                                                                                                             38. 
1Z*Q§0   5-XANV?   Dongdcheon                   ng                        X~~~~~~~~~~~~~~~~~~~~Gogrun
East   *~~  Oce anuitn9o
Chna Sea,
,'5 16                                                                                                             mcook
W 6.,*"tJ o,,y.w.dtV        In.               eO8> ASonWn             Weo               eongscen 
rho thE rtf (th tanhe  of
Bo.,mE.,j.hto<, on t h'fI V. uowe                               a
mYel ow Ste ant
tfot0to. -9Zf 16b=oooo.                             ng
37C~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~3'
35.~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~.
~mand                   enoM 
Yelo Sa                                                                    Gim
onur u                         a
17~~~~~~~~~~~~~~~~~W
t    °                                     ~~~~~CNB BRANCH NETWORK
N A         *          OFFIC E
..~~~~~~~~~~~~~~~~~____    P RIMARY  ROADS                                     34*
34'                                             "ns                                                 =   RIVERS
<   \' .<                                ,,'. >/.< ~~~~~~~~~~~~~~~~SPECIAL CITIES
_ - PROVINCIAL BOUNDARIES
_~ ~        ~        ~~~~~  --  INTERNATIONAL BOUNDA RI ES
JAIu~~~~~~~~~~~~~~~~~~~~~~~~J
Je ct q~~~~~~~~~~~~~~~~~~~~~~Jno
J-E J U                                 03o 120  1U4    6,0*  80   100   1,20, 14,0  160
CNB    BRANCH    NETRILOKETERS
123'              136'                        137'                       138o ' '                    28 ' i ' 
i7r5~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~N 126  i7-12-C29