CIRCULATING COPY TO BE RETURNED TO REPORTS DESK DOCUMENT OF INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Not For Public Use F L I COPY Report No. P-1233-PAN REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO PANAMA FOR A LIVESTOCK DEVELOPMENT PROJECT April 19, 1973 This report was prepared for official use only by the Bank Group. It may not be published, quoted | or cited without Bank Group authorization. The Bank Group does not accept responsibility for the accuracy or-completeness of the report. RATE OF EXCHANGE Currency Unit Panamanian Bulboas (B) I US$1.00 - B1.OO Fiscal Year - January 1 - December 31 REFORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC OF PANAMA FOR A LIVESTOCK PROJECT 1. I submit the following report and recommendation on a proposed loan to the Banco Nacional de Panama with the guarantee of the Republic of Panama for the equivalent of ;$h.7 million to help finance a livestock devel- opment project. The loan would have a term of 16 years including a five- year grace period, with interest at 7-1/4 percent per annum. PART I - THE ECONOMY 2. The Bank's most recent economic report (Updating Report on the Economy of Panama CA-22) was distributed to the Executive Directors on August 21, 1972. The economic data in Annex I stems from that report. An economic mission is now in Panama to review the country's recent perform- ance. For four years the Government, which took over in October 1968, has successfully combined a move towards social justice with rapid economic development. General Omar Torrijos, head of the National Guard, has exer- cised leadership of the provisional Government and has relied on civilians to staff all levels of Government including the Presidency. An assembly, elected last August, approved a new constitution and re-elected Demetrio Lakas President. Major cabinet and administrative changes were made soon after the election. Effective power remains in the hands of General Torrijos. L. During 1971 and 1972 the Panamanian economy continued its rapid growth. Real GDP grew 8.6 percent in 1971, slightly above the 7.7 percent average of the previous two years. Domestic tranquility has been maintained and foreign investment encouraged; the expropriation of a foreign-owned utility company in 1972 was quickly resolved by an agreement acceptable to the Government and the U.S. owner (Boise Cascade). As a result of this fav- orable climate and its U.S. dollar currency, Panama is fast becoming a major international financial center. During 1968-1971 foreign deposits in the banking system more than quintupled to over $600 million. Although much of this money was relent abroad, over one-third was invested in Panama. Free-zone warehousing activities and tourism have also expanded rapidly. 5. The Panamanian economy has now averaged close to an annual 8 per- cent real growth since 1950, and its per capita GNP of $730 ranks fifth in Latin American nations. Open unemployment has been maintained at about only 6-7 percent of the labor force; relatively low by regional standards. Panama's geographic location, dynamic entrepreneurs, and open economy have been basic in this rapid and continuing growth. In the past, the growth of traffic through the Panama Canal and related activities in the Canal Zone had provided much of the external stimulus to the economy. This growth, however, generated few benefits for the half of the population not residing in the urban centers along the Canal Zone. Some recent income distribution studies show that Panama's wide disparities in income stem from a large differential between average rural and urban incomes. Average per capita income for Panama City, for example, was $875, but only $200-250 for most rural provinces. Past public expenditure was limited both in size and scope, -2- as governments followed a policy of limited economic intervention. me new Governmrent through public policies and expenditures has aimed since 1968 at a better income distribtution compatible with rapid growth. So far, this ihas been most noticeable for urban workers. A ne.w labor code, an extra montht.s salary,. and Rn 'tediilnti nnal tax", all. imolemented in the nast two years, have increased the relative earniings of salaried workers. 6. The provisional Government also launched a greatly enlarged oublic expenditure program after 1968 under a strategy aiming particularly at providinmg much needed infrastructure and expanding support to education and he.lt,!. Initially,the investment emp.Lsis was given to quick-impact pro Jects for Job creation purposes while preparation work was accelerated on large infrastructure projects in Panama City and in the rural areas. Subsequently, the Government supported the gro-wth of urban services by investments in airports, power, urban development, a convention center, and expsn.-;ed euciation.al services. Unt4.1 1972 the Government had restric- ted -LtS rurai investments to roads and social facilities. It is now preparing projects designed to increase agricultural output. A sector study, which wi].l provide the information needed for a coordinated attack on agricul.tural and rural problems, will be completed this spring by an interministerial group. At present the average income disparity between urban and rural workers is about three to one; to reduce this disparity the Government mnusi. enhance prciductivity in agriculture. 7. The response of international and bilateral lending agencies to the Government's investment strategy has been favorable and strong. Since 1.968 the -inter-American Devel-o0pment Bank (L-B), the U.S. Agenicy for International De.velopment (AID), and the Bank have approved $167 million in loans for public investment projects. In addition, the U.S. Government has approved a $60 million grant to complete the Pan-American highway in the Darien area. With construction now under way on projects receiving official external fixancing, the volume of public investment in 1972 may well have exceeded the record 1971 level by 30 percent. Sixty percent of the 1972 pub:!'-., investuments were accounted for by the IBRD-financed Bayano power projekt. rural and urban roads, and a Government sugar mill; another one-fifth was for water and sewerage works, mainly in Panama City. 8. wihile public investment and external aid has increased sharply in recent years, Panama continues to have a serious fiscal problem reflected in a lack of adequatie public savings. A 1972 tax package did not produce the large revenue increase the Government had expected, and the normal growth of revenues continued to be absorbed by current expend- tures, notably for health and education for the heretofore neglected poorer Panamanians. In 1972 savings of the Central Government and the Social Security System probably amounted to less than 20 percent of Central Government investment; the rest was financed mostly from abroad. The financial situation of the public sector as a whole was probably better; in 1971,about one-third of' total public sector investment was financed out of public savings. While foreign borrowing has increased from official lending agencies, substantial net borrowing by the Central Government on medium-terms also continued. Besides suppliers' credits, the borrowing - 3- from private sources has been from consortia of U.S. banks, which used the Eurodollar market as a prime source of funds. Maturities have averaged between five and seven years but the 1973 borrowings recently arranged directly with a European consortium are at 10-year terms. 9. The balance of payrients problem usually associated with a rapidly increasing debt service does not occur in Panama since it has no central bank, uses the U.S. dollar as currency, and virtually all of its official and private debt is in dollars 1/. The fiscal burden of the debt service has become substantial, however. Government debt ser- vice has grown from the equivalent of 12 percent of government revenues in 1968 to 30 percent in 1972. The Rank has continued a close dialogue fith the Panamanian Government over its fiscal policies. Our last economic report concentrated on the fiscal problem, emphasizing the need to control the growth of current expenditures. Many of its recommenda- tions were accepted by the Government. 10. Because of its concern over the rising debt service burden, the Government is undertaking an austerity program during 1973, under which current expenditures are budgeted to increase only slightly above their 1972 level, minor investment projects have been dropped and almost three-quarters of the Goveinment investment planned for 1973 will be for projects associated with the major lending agencies. Current subsidies to some autonomous agencies have also been reduced or discontinued. Major administrative reforms now being initiated are the consolidation of the operations of the principal agricultural agencies into the Ministry for Agricultural Development and the main housing agencies into a new Housing Ministry. The Planning and Finance Ministries are also being strengthened in an effort to control closely the budgets and borrowing of the whole public sector. These recent measures are important steps toward improving the fiscal performance and justify our proceeding with this loani. PART II - BANK GROUP OPERATIONS IN PAN.AMA 11. From 1953 to 1962 the Bank made five loans totalling $18.6 mil- lion, including two (totalling $13.1 million) for road construction, two rela-tively small loans for agriculture, and one for electric power. All five loans have been fully disbursed and three have been fully repaid. Because of lack of development oriented policies and continuous political interferences in the operation and management of key public entities, the Bank suspended lending between 1962 and 1970. Since then, the Bank has lent $42.0 million for power (Bayano), $20 million for an airport, and $3.4 million for fisheries. Implementation of these loans has fallen behind schedule but steps are being takeii to overcome the causes of delay. In FY1971,IFC made its only investment in Panama, a commitment to acquire $0.3 million of equity in the Corporacion de Desarrollo Hotelero, S.A., and lent to it $1.2 million to build a new international hotel. IFC is not considering any further operations in Panama in the near future. Annex II contains a summary description of Bpnk/IFC operations in Panama. 1/ Although Panama mints its own coins, the only legal paper currency is the U.S. dollar. Thus, for all practical purposes, the Panamanian balboa is not only equivalent to a U.S. dollar, it is a U.S. dollar. 12. The main sources of external assistance to Panama in recent years are suimmarized below (in $.millions): IBRD IDB AID '.ending 1960-1968 11.2 37.2 72.2 Lending 1969-1972 65.L bI.6 116.9 ' Power 46.0 - Education and Health - 12.b 17.0 ;griculture, Fisheries, and Livestock 6L 16.6 7 Industry - 1.0 9.1 Waler and bewerage - 13.8 36.0 liouising - 16.6 20.2 Transport 27.2 19.5 72.5 V Other 1.9 2 .9 lo tal 76.6 81.8 189;.1 j Includes $60 million grant from U.S. Govermaent for coTmletion of Darien Gap portion of Pan-American highway. AID has concentrated on social services in recent years through a sector loan to education, water and sewerage loans, famiily planning assistance, and some small loans for subsistence farmers; it has also helped finance a new convention centre in Panama City. IDB has provided suh..port for vocational and university education, general agricultural credit for poor ana medium- size farmers, and. seccndary road construction. 13. As in recent years, the main prospective Bank lending to Panama is focussed on helping to meet the bottlenecks caused by neglect of infractructure in the 19606 and by Panamals exceptiWonally rapid development and to provide agricultural credit in areas not covered by other financing agencies. Becduse of the country's small size and rapid grow-th, relatively large in- Y'ras;i;ruct,ure projects will- be periodically needed to assure a contiinual growth. Ihe Bank is plann.ing to assist the Goverrunent not oily in financing such ojects, but Jn ensuring that the timing and size of the investments are aprropriate. A power project covering generation, transmission and distri- >r,ion is now being appraised. -Projects are at an earlier stage of prepara- t.- r.n for a fishing port and the Panama City-Colon highway. PART III - THE. AGRICULTURAL SECTOR l1L. Panama's agricultural sector provides a livelihood lor approx- ir,ately 50 percent of the country's population and accounts for almost the ,-,ve percentage of total employm,ent. It also contributed some 75 percent tLhe country's merchandise exports over the last five to six years; 6LŽnanas alone make up 55 percent of these exports. - 5 - 15. Agriculture's contribution to the nation's Gross Domestic Product (GDP) declined from about 23 percent in 1960 to about 18 percent in 1971, but the sector showed an average annual growth rate over the same period of approximately 5.3 percent in real terms, relatively satisfactory for Latin America, This was mainly due to a rapid increase in banana pro- duction, which grew at an annual rate of about 11 percent, while production of foodstuffs for domestic consumption grew at a rate only slightly above 4 percent annually. Because of expanding domestic demand, food imports have been increasing and now amount to about 10 percent of the total value of all imports. Panama is a net importer of meat and meat products, mainly in high value processed forms such as hams. In 1971, Panama imported about $4,6 million and exported about $1.3 million of meat. The country is also a net porter of dairy products; in 1971 imports made up 40 percent of consumption (about $5 million). Over the past decade, livestock production increased from about $30 million to about $50 million, at about the same pace as total agricultural output. 16. The average per capita income in 87,000 small and medium-sized farms (farms with fewer than three employees, or about 90 percent of all farms) has been estimated at about $400 per year, compared to the average annual income level of $2,500 in manufacturing, $3,000 in the construction industry, and $1,700 for other non-agricultural workers. In spite of some urban unemployment, many farmers have migrated to towns. 17. In 1962, an Agrarian Code was approved by the Government as the first step toward an agrarian reform. The Code's general objective is to transform the land tenure structure, trying to combine greater social justice and efficiency. An Agrarian Reform Commission (CRA) was established in 1963 to implement the agrarian reform, but it had no significant effect until 1969. In February 1969, soon after the new Government was established. CRA began to distribute unexploited and tax delinquent private properties. This land was sold ir. three or four years to its de facto occupants who, in the meantime, were organized into land reform settlement enterprises (asentamientos) and given training in improved production technology. By July 1972, about 130 asentamientos, involving about 5,500 families and 80,000 ha, had been organized. 18. Agricultural and livestock credit is provided by public and private banks. The banking system in Panama is well developed and competi- tive and covers the country with some 190 outlets. Although institutional credit to the agricultural sector increased 2-1/2 times between 1967 and 1971, much of the increase was short-term credit for crop and livestock fattening and there remains a need for long-term credit with appropriate grace periods, particularly to develop a sound comnercial livestock industry. PART IV - THE PROJECT 19. The proposed Project is the first Bank operation for livestock in Panama and would be the first stage of a long range comprehensive livestock development program. It was appraised in June-July 19720 Negotia- tions were begun in Washington in January 31-February 3, 1973 and completed, following a reorganization within the Panamanian Government, on March 26, 1973. -6- 2). The Project described in detail in Annex III, is designed to support the development of about 570 cattle enterprises of five different tvpes consisting of: Average Loan Net Present Size Average Oper- ating Income US$ US$ oi) 50 small dairy farms with intensive production systems 10,500 590 (2) 300 beef/dairy ranches with extensive production techniques 12,8C0 2,020 (3) 200 breeding/fattening ranches empha- sizing better livestock herd management practices 20,400 4,270 (I) 10 breeding/fattening ranches covering asentamientos 36,000 - 9901/ 5,) 10 purebred breeding centers for up- grading the national herd 68,ooo 21,0140 Investments would be in posture development, fencing, purchase of livestock, facilities for better management of livestock, technical and consultant services. The project would also include a feasibility study for livestock development on the Atlantic coast. 21. The project is clesigned to help expand commercial livestock production, initiate new techniques for small viable dairy farms, and develop lrge-scale economdcal livestock production in land reform settle- ments. As a commercially oriented operation, it complements existing agricultural and livestock credit prograrns for which the Government prefers to utilize soft, though limited, funds of IDB and USAID. As an extension a 19`0 loan to helo small and medium farmers and ranchers IDB has recently approved a $1.3 million loan and plans to consider a larger loan later thiis year. Following up on its earlier lending for subsistance farmers, AID is 'planming a loan of about $8 million for a Small Fnrmers Improvement Proj.ject, of which a!-oit $L milLion would be for agricultural and livestock irodir and technical assist-ance and nearly $4 million for health, nutrition, bc,us'ni and community development. 22. B3anco Nacional de Panama (BNP), an autonomous Government agency, 4s the countryts largest commercial bank as well Eas the Government's fiscal agent. In recent years, BNIP has taken an increasing interest in development _/ Ranches on asentamientos have so far operated at a loss. - 7 - lending for agriculture, which now accounts for about 15 percent of its portfolio. BNP is capably managed and staffed and it is expected that it will lend directly about 70 percent of the funds to be provided under the proposed loan. 3NP would also serve as a channel for passing on project funds for on-lending through the Agricultural Development Bank (BDA) and, possibly, through private banks. BDA was recently established as an autonomous public agency which would specialize in lending to asentamientos and to small and medium farmers. It will incorporate the operational and financial departments of the Lnstituto de Fornento Economico (IFE), which it replaces. IFE's staff had developed consider- able expertise in extending supervised credits to agriculture and it is expected that about $1,000,000 of the proposed loan would be channelled through 3DA. However, EDA is not yet in operation and it was agreed that it would become eligible to participate in the project only after its administrative and financial structure and lending policies had been reviewed and found satisfactory by the Bank. The private banks, which have been predominantly involved in extending short-term credit to agriculture, are expected to participate in the project to only a limited extent. 23. Participating financial institutions would extend loans to ranchers, farmers and asentamientos to cover about 80 percent of new investments for development and working capital. Repayment terms for loans would be flexible, ranging from seven to twelve years, wiith grace periods of three to four years. The interest ra-te would be a minimulm of 1() percent on outstanding balances, which is somewhat above IFE's 9 percent lending rate to medium farmers, in view of the more commercial nature of the operations under the proposed Bank loan. No additional charges such as application, inspection, or commitment fees would be made. Loans to asentamientos would be guaranteed by the Government. 21". Execution of the Project would be directed by a Management Unit to be established for the Project. The Unit would include a project director, an agricultural economist, a dairy production specialist, and livestock technicians. The Government would pay special attention to the selection of managers for asentamientos financed under the Project. 25. Procurement through international competitive bidding would not be appropriate because of the diversity of items, small size of individual purchases, and need for free choice by the individual borrowers. Accordingly, local commercial channels will be used. Price quotations will be obtained from at least two suppliers for the procurement of vehicles. Panama has a good network of dealers in agricultural inputs, competition among local suppliers is keen and facilities for maintenance and servicing of vehicles and machinery are adequate. Vehicles for Project Unit use (about 15) would also be obtained through commercial channels, since purchases would be spread over three years and bulk procurement would 'e impracticable. Fertilizer, grass seed, fencing, agricultural machinery and equipment, and vehicles are regularly imported from Australia, Costa Rica, Japan, the United Kingdom, the United States and TiWestern European countries and supplies are adequate and imports are either free of duties or at low rates. No country enjoys preferential tariff rates on goods to be procured for the Project. 26. The Project would yield an economic rate of return of about 15 percent and it veuld have a significant influence on the future development of the livestock industry. Animal husbandry practices, pasture management and the level of technology would be improved; productivity wvould be increased; and better quality breeding stock would become available for later phases of development. Furthermore, small viable dairy farms-would be established that could serve as models in further operations, and large-scale livestock production would be introduced on asentamientos, which would. have a beneficial effect on their developm11e tlt'. PART V - LEGAL fl4STRUNIEN1TS ANI) AUTHORITY 27. The draft Loan Agreement between the Bank and BNP, the draft Guarantee Agreement between th.e Republic of Panama and the Bank, the report o{ the Committee provided for in Article III, Section 4(iii) of the Arti.cles of Agreement, and the text of a Resolution approving the proposed loan, are being distributed to the Executive Directors separately. 28. The draft A-greements contain provisions to reflect the various arrangements described in Part- IV above, incl.uding the usual covenants for livestock projects. Section 3.06 of' the Gruarantee Agreement is of special interest; with this provision, the Government undertakes to maintain its policies, regulations and measures for the control of foot- and-mouth disease and to t.ake the actions necessary to prevent introduc- tion of the disease in its territory. 29. I am satisfied t-at the proposed loan would comply with the Articles of Agreemeni:. of the Bank. PART VI - R0ECO iNDATIN- 30. T recommend that the Execu-tive Di.bzectors approve the proposed loan. Robert S. McNamara President by J. Burke Knapp Senior Vice President Attachments Ivashington, D.C. April 19, 1973 ANNEX I Page 1 of 2 pages COUNTRY DATA - PaDLays AREA 2 POPULATION DENSITY 74,000 km million (mid-1971) 1.47 million 20 per km2 Rate of Growth: 3.3% (from 1965 to 1971 ) 295 per km2 of arable land POPULATION CHARACTERISTICS 1971 HEALTH 1970 Crude Birth Rate (per 1,000) 37.1 Populatfon per physician 1760 Crude Death Rate (per 1,000) 6.8 Population per hospital bed 270 Infant Mortality (per 1,000 live births) 36.8 INCOME DISTRIBUTION 196_ DISTRIBUTION OF LAND OWNERSHIP 1970 % of national income, lowest quintile 5 % owned by top 10% of owners 33 highest quintile 57 % owned by smallest 10% of owners 1 ACCESS TO PIPED WATER ._U.7Q ACCESS TO ELECTRICITY 19 % of population - urban 100 % of population - urban 1 - rural 15 - rural NUTRITION 1970 EDUCATION 1970 Calorie intake as % of requirements 115 Adult literacy rate % 80 Per capita protein intake 69 grams/day Primary school enrollment % 95 1/ GNP PER CAPITA in 197 I US $725 GROSS NATIONAL PRODUCT IN 1971 ANNUAL RATE OF GROWTH (%. constant prices) US $ Mln. % 1960-65 1965-70 1971 GNP at Market Prices 1,011.6 100.0 8.2 7.7 8.6 Gross Domestic Investment 275.9 27.3 10.7 16.5 Gross National Saving 2 207.1 20.5 11.6 16.4 Current Account Balance.! - 68.8 6.8 8.7 16.9 4.1 Exports of Goods, NFS2/ 390.1 38.6 11.9 6.8 13.2 Imports of Goods, NFS2 _ 424.7 42.0 11.4 9.1 10.6 OUTPUT, LABOR FORCF AND PRODUCTIVITY IN 190 Value Added Labor Force V. A. Per Worker US $ Mln. % Thou. % US$ % Agriculture 180.7 17.3 232 49.8 780 34.8 Industry 282.4 27.0 46 9.9 6,140 273.6 Services 582.7 55.7 155 33.3 3,76o 167.6 Unemployed - 33 7.0 Total/Average 1,045.8 100.0 li66 100.0 2,244 100.0 GOVERNMENT FINANCE General Government Central Government ( B c4ln.) % of GDP ( B Mln.) % of GDP 1971 1971 1969-71 1971 1971 1969- Current Receipts 219.5 18.8 14.9 181.2 15.5 15.0 Current Expenditure 189.7 16.3 16.1 169.0 ].4.5 14.3 Current Surplus 2. 1.8 12.1 1.0 0.7 Capital Expenditures 81.9 7.0 7.2 77.1 6.6 7.1 External Assistance (net) 7.6 0.7 0.5 7.6 0.7 0.5 1/ The Per Capita GNP estimate is at 1970 market prices, calculated by the same conversion technique as the 1972 World Atlas. All other conversions to dollars in this table are at the average exchange rate prevailing during the period covered. 2/ On National Accounts basis, differs slightly from balance of payments. Panama does not treat worker earnings in the Canal Zone as a factor service. not available not applicable ANNEX I Page 2 of 2 pages COUNTRY DATA - Panama MONEY. CREDIT and PRICES 1965 1969 1970 1971 (Million Balboas outstanding end period) Money and Quasi Money" 124.7 229.8 302.2 344.7 Bank Credit to Public Sector - 7.5 2.5 4.4 18.1 Bank Credit to Private Sector 165.0 306.1 407.9 525.2 (Percentages or Index Numbers) Money and Quasi Money as % of GDP ... General Price Index (1963 = 100) 102.9 108.1 111.3 113.3 Annual percentage changes in: General Price Index 0.5 1.7 2.9 1.8 Bank credit to Public Sector .. 76.0 311.1 Bank credit to Private Sector 20 33.3 28.8 BALANCE OF PAYMENTS MERCHANDISE EXPORTS (AVERAGE 1968-71) 1965 1970 1971 US $ Mln % (Milliona US $) Bananas 59.7 56.4 Exports of Goods, NFS 176.4 299.4 333.0 Refined Petroleum 22.4 21.2 Imports of Goods, NFS 243.1 417.7 457.3 Shrimp 10.0 9.5 Resource Gap (deficit = -) -123.9 Sugar 5.3 5.0 -6.7 -123.3 Beef & Meat 1.6 1.5 All other commodities 6.8 6.4 Workers' Remittances 53.5 76.2 77.0 Total 105.8 l0Q,0 Other Factor Payments (net) -18.7 -34.3 -25.0 Net Transfers 4.2 3.3 2.8 EXTERNAL DEBT, DECEMBER 31, 1971 Balance on Current Account -TV7 -7ffI -69.1 US $ Mln Direct Foreign Investment 10.9 25.0 15.7 Net MLT Borrowing Public Debt, incl. guaranteed 365.3 Disbursements 17.7 76.8 73.4 Non-Guaranteed Private Debt Amortization 5.2 3.o 31.3 Total outstanding & Disbursed 365.3 Subtotal 12.5 42.8 2.1 3/ DEBT SERVICE RATIO for 1971- Other Capital (net) -3.3 -L.1 -6.4 % Other items n.e.i j 3.1 -2 .14 --1 Increase in Reserves (+) 4.5 40.8 3U8- Public Debt, incl. guaranteed 10.9 Non-Guaranteed Private Debt Gross Reserves (end year'-/ 35.3 73.0 117.8 Total outstanding & Disbursed I:TV Net Reserves (end year)1 22.6 05.1 81.5 Govt. Debt Service/Govt. Revenues 27.2 RATE OF EXCHANGE IBRD/IDA LENDING, (anuary 1973 ) (Million US $) IBRD IDA US $ 1.00 = B 1.00 1.00 = US $1.00 Outstanding & Disbursed 18.L Undisbursed 52.2 Outstanding incl. Undisbursed 70.6 / since Panama has no central bank and accepts the U.b. dollar as currency (The quantity of which is impossible to calculate) money is treated only as domestic deposits and "reserves" are relatively meaningless for the usual balance of payments analysis. Only demand deposits have therefore been counted as "money' / Changed from negative to positive. / Ratio of Debt Service to Exports of Goocs and Non-Factor Services. .Not applicable Not available Latin America and the C-ribbean Country Programs Department I ADril 19, 1973 ANNEX II Page 1 of 2 TRiE STATUS OF BANK GROUP OPERATIONS 1N PANAMA il. STAT4IIUIT OF LOANS (As of March 31, 1973) US$ million Loan Amount Undis- x-nmbers Year Borrower Purpose (less cancellations) bursed L6 PAN 1C53 Instituto de Fomento Agrriculture .6 Econ6mico 87 PAN 19G53 Instituto de Fomento Grain Silos .3 Econo6mico 123 PAN 1955 Panama Roa.ds 5.9 264 PAN 1960 Panama Roads 7.2 22 2PAN 1562 Instituto de Recursos Power 4.0 Hidra5licos y Electrificaci6n (IRHE) 661 PAN 1I70 IRHE Power 42.0 29.2 7d3 PAN 1S>71 Direcci6n de AeronA.utica Airport 20.0 18.( Civil 7L3b PEA 1971 Banco Nacional de Panam' Agriculture 3. 3.3 (Fisheries) Total (less cancellation) 83.4 of which has been repaid 12.8 Total now outstanding 70.6 Amount sold 2.6 of which has been repaid 2.5 .1 Total now held by Bank 70.5 Total undisbursed 51.lh Page ' of 2 3. -.TrTESsi'OF IFC INVES~TIOgIT' (As of December 31, 1972) AmounAt (t\mill1ion) Year Company Loan Equity Total 'c?71 Corporacion de Desarrollo Hlotelero, S.A. 1.? .3 1.5 C. FROJECTS IN EXECUTION Ln No. 661 Second Power PI-o;ect- US$h2.0 Million Loan o archl 1970; ClosiDate: April 30, 1976. The project is about nine months behind schedule because of difficulties in finding suitable aggregates for concrete and f'ill material for the cofferdam. Detailed engineering design indicates that the project is likely to cost at least $73 million, 26 percent more than originally estimated. The Project was justified as the least costly alternative to help meet the electric power demand of the country. The demand forecast is still valid today and the project is still the least costly alternative, even with the current time and cost overruns. Ln No. 783 Tocumen International Airport Project; US$20.0 Million Loan of August 2, 1971; Closing Date: December 31, 1975. Due to unf'oreseen soil conditions this project is approx- imately one year behind schedul.e. However, it is now proceeding satis- factorily within the original cost estimates. Ln No. 784 Fisheries Projet US$3.4 Mill1on Loan of August 2 1971; Closi Dat Vroiect pr--ress is bl'eind sclhedui.V because relGenderirig for :ashing vesseLs is required; on'-y one valr.id bid was recelved, wrhile under FanrrL,anian l aw at leat vwt, xra.ii ><-ids are required. D. VJ7t4e TTS IN EXECUTIOiN Ccr=or-aciorn d:i Desaro-1o 'Jotelero - 1971 Tle investitiont in thse Gorporacion de Desarollo Hotelero has been delayed considerably because some original lenders and equity invest- ors withdrew from the venturo and had to be replaced. The sponsors indicate that construction can now begin shortly. 1/ These notes are designed to inform the Executive Directors regarding the progress of projects/investments 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 understanding that they do not purport to present a balanced evaluation of strengths and weaknesses in project executioin. ANNEX III Page 1 of 2 PANAMA - LIVESTOCK DEVELOPMENT PROJECT Loan and Project Summary Borrower: Banco Nacional de Panama Guarantor: Republic of Panama Amount: US$4.7 million equivalent Terms: Interest: 7-1/4 percent per annum Commitment Charge: Standard Term: 16 years, including 5 years of grace Relending Terms: 8 percent per annum to participating banks; 10 percent per annum to beneficiaries. Project Description: Support development on about 570 cattle enter- prises: (i) small dairy farms; (ii) beef/dairy farms; (iii) breeding/fattening ranches; (iv) breeding/fattening ranches on land reform settle- ments; (v) purebred breeding centers. Help fin- ance a feasibility study to serve as a basis for future livestock development on the Atlantic coast. Cost of Project: Category (uS$'ooo) % 1/ Local Foreign Total FEC On Ranch Investments Pasture Development 1,178 1,522 2,700 56 Fenching 184 736 920 80 Watering Facilities 48 162 210 77 Baildings 252 113 365 31 Stock Handling 370 356 726 49 Machinery & Equipment 129 516 645 80 Veterinary Equipment 31 35 66 52 Saddlery 28 18 46 h0 Livestock Purchases 5,133 361 5,494 7 Miscellaneous Items 412 281 693 41 Subtotal 7,765 4,100 11,86 37 Technical Services Project Management 955 445 1,400 32 Feasibility Studies 50 150 200 75 Subtotal 1,005 1,600 37 TOTAL PROJECT COST 8,770 4,695 L3,4652/ 35 1/ Foreign Exchange Cost. 2/ Rounded to $13.5 million. ANNEX III Page 2 of 2 Estimated Disbursements: Calendar Year 1973 1974 1975 1976 1977 1978 Total Amount ($'000) 300 1,300 1,6o0 900 400 200 4,700 Percent 6 28 34 19 9 4 100 Procurement Arrangements: Goods and vehicles would be procured through existing commercial channels because the diversity, small size of individual purchases, and free choice to be left to the individual borrower would make international bidding impractical. Panama has a good network of dealers in agricultural inputs, competition among local suppliers of these goods is keen, and the facilities for maintenance and servicing of vehicles and machinery are adequate. Consultants: To carry out a feasibility study for livestock development on the Atlantic coast to determine priorities of regions and phasing of development. Rate of Return: 15 percent Appraisal Report: h2-PAN IBRD 10159 63 -' eo U- bl rs $7 SEPTEMBER 1972 C A R I B B E A N S E A < _r _J X PANAMA os c * ISLAS DE SAN BLAS r '0,~~UFC. ,4- 10.10Cb.OLON or t °j1 del Tore LIVESTOCK DEVELOPMENT PROJECT Free z22r¶ , < , ,__ono r * A rron'r 9 K BANKING SYSTEM - .:0 mC--. 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