Domm of
The World Bank
FOR OMCAuL USE ONLY
/ ,<j Q(cG 9_ xe-C
R3"t N.. P-4247-ME
REPORT AND RECOMMENDATION
OF THE
PRESIDENT OF THE
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT
TO THE EXECUTIVE DIRECTORS
ON A
PROPOSED LOAN
IN AN AMOUNT EQUIVALENT TO USS25 MILLION
TO
BANCO NACIONAL DE OBRAS Y SERVICIOS PUBLICOS, S.N.C., I.B.D.
WITH THE GUARANTEE OF
UNITED MEXICAN STATES
FOR A SOLID WASTE MANAGEMENT PILOT PROJECT
March 5, 1986
This document has a restricted distribution and may be used by recipients on!y in the performance
of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.



Currency Unit - Peso (Mex$)
On February 24, 1986, the exchange rate in the controlled
market was UeSl = Mex$431.80; the freemarket exchange rate stood at USS1
Mex$470.00.
Fiscal Year
January I - December 31
ABBREVIATIONS
BANOBRAS - Banco Nacional de Obras y Servicios Publicos (National Bank for
Public Works and Services)
CUD      -  Convenio Unico de Desarrollo (Special Development Agreement)
DGPCCA   -  Direccion General de Prevencion y Control de Contaminacion
Ambiental (General Directorate for Prevention and Control of
Environmental Contamination)
EFF      -  Extended Fund Facility
FIFAPA   -  Fondo de Inversiones Financieras para Agua Potable y Alcanta-
rillado (Investments Fund for Water Supply and Sewerage Works)
FORTAMUN - Programa de Fortalecimiento Municipal
(Program for the Strengthening of Municipalities)
GIRA     -  General Interest Rate Agreement
GOM      -  Government of Mexico
MDF      -  Municipal Development Fund
MSP      -  Municipal Strengthening Project
QRs      -  Quantitative Restrictions
SEDUE    -  Secretaria de Desarrollo Urbano y Ecologia (Secretariat of
Urban Development and Ecology)
SG       -  Secretaria de Gobernacion (Secretariat of the Interior)
SHCP     -  Secretaria de Hacienda y Credi_o Publico (Secretariat of Fi-
nance and Public Credit)
SPP      -  Secretaria de Programacion y Presupuesto (Secretariat of Pro-
gramming and Budgeting)



FOR OFFICIAL USE ONLY
MEXICO
SOLID WASTE MANAGEMENT PILOT PROJECT
Loan and Project Summary
Borrower:       Banco Nacional de Obras y Servicios Publicos, S.N.C.,I.B.D.
(BANOBRAS).
Guarantor:      United Mexican States
Beneficiaries:  The Monterrey Metropolitan Area, eight medium-sized munici-
palities, Secretariat of Urban Development and Ecology
(SEDUE) and BANOBRAS.
Amount:         US$25.0 million equivalent.
Terms:          Repayment in 15 years, including three years of grace, with
interest at the Bank's standard variable rate.
Relending
Terms:          For the implementation of subprojects under the pilot
component, the peso equivalent of the Loan would be made
available to the beneficiaries with a 15-year repayment
period including a grace period equal to the shorter of the
construction period or four years, at interest rates
specified in the General Interest Rate Agreement (GIRA).
Funds for technical assistance and training to the
municipalities would be provided as grants. For the
national component, the proceeds of the Loan would be made
available to SEDUE and BANOBRAS on a grant basis, to
finance studies and technical assistance.
Project
Objectives and  The objectives of the proposed project are:  (a) to assist
Description:    the Government to more clearly define solid waste subsector
objectives and policies and to develop national and local
institutional capability to improve subsector management;
(b) to Improve subsector services through pilot subprojects
thereby reducing public health risks and environmental
conditions in selected cities; (c) to test and evaluate
alternatives for promoting cost savings, providing training
and channelling funds in the solid waste subsector; (d) to
help national and local governments fully understand solid
waste management costs and to provide a basis for
appropriate pricing and cost recovery; and (e) to provide a
basis for preparing full-scale solid waste management
improvement projects.
Ih dowumt hb a mictd ditibutio and may be ued by recipients only in the pfornmace
of dtr ofial dutba Its contets may not otherwie be dimlosed without Worl Bdank authotn  .



- ii -
The project designed to meet these objectives comprises two
components. The pilot component would finance the develop-
ment, testing and evaluation of replicable techniques for
the delivery of services in about eight medium-sized
municipalities and one metropolitan area. The national
component, which would be executed at the federal level,
would finance technical assistance, consulting services,
studies, and equipment to: (i) define subsector policies
and options for effective and efficient delivery of ser-
vices and to reduce dependence on the Government's budget;
(ii) strengthen institutions; (iii) develop plans to
address subsector constraints; (iv) undertake plan prepara-
tion and prefeasibility studies in 26 selected cities; and
(v) prepare follow-up solid waste management projects.
Risks:          The main project risks are related to the need for close
cooperation among several entities and the possible
unwillingness of beneficiaries to borrow from the project's
line of credit. The first risk has been minimized through
institutional arrangements for project Implementation,
technical assistance and consultants to assist SEDUE in
project supervision, and reporting and monitoring provi-
sions. The second risk has been reduced by requesting
written commitments from beneficiaries showing their
acceptance of subloan terms and conditiGns.
Project Costs:
Local     Foreign     Total
U-SS thousand
A. Pilot Component
TA/Studies                          3,841.2        805.9     4,647.1
Equipment and Spare Parts           4,201.5      3,788.1     7,989.6
Civil Works                        13,063.5      2,739.2    15,802.7
Operations and Maintenance          2,697.8         -        2,697.8
Engineering/Administration            391.9         82.2       474.1
Subtotal                             24,195.9      7,415.4    31,611.3
B. National Component
Coordinating Unit
(T.A., etc.)                      1,766.3     1,305.6      3,071.9
Equipment                              24.1          9.8        33.9
Generic Studies/Training              710.0        128.1       838.1
Plan Preparation/Prefeasibility
Studies (26 cities)               1,967.5       668.0      2,635.5
Preparation of Future Follow-on
Project(s)                          826.0        159.0       985.0
Subtotal                            5,293.9      2,270.5     7,564.4



- iii -
Local     Foreign      Total
US$ thousand
Base Cost (12/85 prices):             29,489.8     9,685.9    39,175.7
Physical Contingencies                 988.1       410.9      1,399.0
Price Contingencies
(1/86-12/93)                      7,069.0      2,356.3     9,425.3
Total Project Cost                 37,546.9    12,453.1    50,000.0
Local costs include about US$0.8 million equivalent of indirect taxes on
industrial products.
Financing Plan:
Local     Foreign      Total
US$ thousand-
Bank                                12,546.9    12,453.1    25,000.0
GOM (SPP)                           12,000.0        -        12,000.0
SEDUE                               3,250.0         -         3,250.0
Beneficiary Municipalities           9,750.0        -         9,750.0
TOTAL                              37,546.9    12,453.1    50,000.0
Estimated Disbursements: 1/
1987  1988  1989  1990  1991  1992  1993  1994_
Bank Fiscal Year                            US$ milli
Annual                 6.00  6.00  4.00  2.30  2.62  1.78  1.29  1.01
Cumulative             6.00 12.00 16.00 18.30 20.92 22.70 23.99 25.00
Rate of Return:      N.A.
Staff Appraisal Report: Report No. 5952-ME dated March 5, 1986.
1/ Includes retroactive financing valued at US$2.5 million equivalent.



INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT
REPORT AND RECOMMENDATION OF THE PRESIDENT
TO THE EXECUTIVE DIRECTORS ON A
PROPOSED WAN TO BANCO NACIONAL DE OBRAS Y SERVICIOS PUBLICOS, S.N.C.,I.B.D.
WITH THE GUARANTEE OF UNITED MEXICAN STATES
FOR A SOLID WASTE MANAGEMENT PILOT PROJECT
1.        I submit the following report and recommendation on a proposed loan
to Banco Nacional de Obras y Servicios Publicos, S.N.C., I.B.D. (BANOBRAS)
with the Guarantee of United Mexican States for the equivalent of US$25
million to help finance a Solid Waste Management Pilot Project. The loan
would be repaid over 15 years including 3 years of grace, at the standard
variable interest rate. For the implementation of subprojects under the
pilot component, the peso equivalent of the Loan would be made available to
the beneficiaries with a 15-yehr repayment period including a grace period
equal to the shorter of the construction period or four years, at interest
rates specified in the General Interest Rate Agreement (GIRA). Funds for
technical assistance and training to the municipalities would be provided as
grants. For the national component, the proceeds of the Loan would be made
available to SEDUE and BANOBRAS on a grant basis, to finance studies and
technical assistance.
PART I - THE ECONOMY
2.        An Economic Report on Mexico (Mexico: Recent Economic Developments
and Prospects, No. 4996-ME) was distributed to the Executive Directors on May
14, 1984. A new Country Economic Memorandum is scheduled to be issued by
June, 1986. Recent economic developments and a provisional assessment of the
consequences for Mexico of the recent sharp decline in oil prices are dis-
cussed below. Country data are provided in Annex I.
Background
3.        Following an inward-looking growth strategy, Mexico experienced
some three decades of high and stable growth from the 1940s to the 1960s. By
1970, however, Mexico had largely exhausted the early and efficient possi-
bilities for import substitution. Against the expectation of rapidly rising
petroleum earnings, the Government attempted to foster growth through expan-
sion of public sector expenditures, rising subsidies, and the protection of
high cost domestic production. Public sector expenditures as a percent of
GDP increased by more than half between 1970 and 1976, from 20.9% to 31.9%.
In 1976, Mexico experienced a serious financial and economic crisis. Al-
though an increase in oil revenues led Mexico to a quick economic recovery in
1977, it also removed the urgency of policy reforms. Starting in 1980,
rapidly rising public expenditures unmatched by revenue growth led to
increasing public sector deficits. While inflation rose, no significant
pressure was felt to adjust the exchange rate, thanks to the oil earnings and
the relative ease of obtaining foreign finance.



4.        The crisis came to a head in 1982.  Public sector expenditures
reached the unprecedented level of 40.1Z of GDP, while the deficit reached
nearly 18 of GDP. In February, as capital flight intensified, the Bank of
Mexico stopped supporting the peso, which then experienced a 401 devaluation
in US dollar terms. A large wage adjustment and continuing slack in the oil
market tended to undo the effects of the devaluation and kept the balance of
payments under strain. Consumer price inflation nearly quadrupled from 29Z
in 1981 to 99% in 1982. The international banking community declined to
commit new funds to Mexico in the amounts required. These factors led to a
second devaluation of 35% in August 1982 and the suspension of amortization
payments on most of Mexico's external public debt. Capital flight continued
as private sector confidence was shaken by the nationalization of the banks
in September 1982 and by the mandatory conversion of US dollar deposits into
pesos. Also introduced were exchange controls and quantitative restrictions
covering all imports.
5.        Beginning in late 1982, with the support of an Extended Fund
Facility from the IMF, Mexico undertook a stabilization program based on
drastic contraction of domestic demand, through fiscal, exchange rate, and
monetary policy. The peso was depreciated to an unprecedented new I(w in
real terms, and import controls were tightened. Public sector expenditure in
relation to GDP declined over the period 1983-85, from the high of 40.1Z in
1982 to about 33% by 1985. Non-interest expenditure declined to about 22Z of
GDP by 1985, a ten-year low. Public sector investment was cut from about OZ
of GDP in the late 1970s to 6.6%, again a ten-year low, and non-interest
current expenditure also declined, though more modestly, and remained still
at the levels of the late 1970s. Real wages fell 20-25% between 1982 and
1984. Most public sector prices were raised in real terms.
6.        The stabilization effort for 1983-84 was impressive.  Imports fell
25%, non-oil exports (including border industries) rose 40%, and the trade
balance showed unprecedented surpluses in 1983-84. Despite declining oil
prices, net foreign reserves increased from a negative US$2.0 billion to $6.5
billion between the end of 1982 and the end of 1984. The 1983-84 performance
was hailed by the international financial community as a model for other
countries. A massive foreign debt restructuring was successfully nego-
tiated. Total net foreign borrowing for the three-year period 1983-85
amounted to $4.5 billion, for an actual decline in the overall debt, in real
terms, of about 4%. But the optimistic reaction to Mexico's success in
1983-84 overlooked the short-term focus of the stabilization program and the
absence of long overdue structural reforms. Optimism turned to disenchant-
ment a year later, when it became clear that stabilization in the absence of
more fundamental structural reforms could not restore Mexico's creditworthi-
ness, nor would sustainable economic growth be possible without such reforms.
7.        Despite tight fiscal and monetary policies, inflation in both 1983
and 1984 turned out to be much higher than had been projected by the authori-
ties, consumer prices rising by 80% and 59%, respectively. The fiscal defi-
cit fell substantially in 1983, to 8.5Z of GDP, but then leveled off in
1984. GDP fell in both 1982 and 1983 (by 0.5% and 5.3%, respectively), and
recovered only partially in 1984 (by about 3.5%X. GDP per capita by 1984
remained below the levels of 1980 and income per head lower still. By late



1984, as the Government prepared for the mid-term congressional elections of
July 1985, fiscal policy began to ease, and public sector borrowing increased
substantially. Monetary policy turned accommodating, the exchange rate
appreciated further in real terms, and the fiscal deficit rose well above
program targets. The demand-led growth spurt that resulted, accompanied by
higher than projected inflation, was unsustainable and short lived.
Recent Developments
8.        Most program targets were missed in 1985.  The fiscal deficit rose
to 9.8X, inflation increased to 63.8%, non-oil exports declined by over 1O0
from their 1984 levels, and most components of the balance of payments
deteriorated. Foreign reserves declined by nearly US$3.5 billion. While
external public debt actually declined during 1985, the domestic debt of the
public sector surged back up toward the level of 1982. As a result, crowding
out of the private sector in the credit markets was severe, as the share of
the public sector in total credit reached an unprecedented high in excess of
75% in 1985. The brief spurt of GDP growth between mid-1984 and mid-1985
came quickly to a halt in late 1985.
9.        In response to the emerging new crisis, the Government adopted
during the course of 1985 a series of important corrective measures, includ-
ing removing import licensing requirements from an additional 40% of merchan-
dise imports, thus increasing the share of imports not subject to QRs to 63%
of total imports.   The controlled exchange rate was devalued by almost 20%
in real terms, and the system of preannounced fixed daily crawl was replaced
by a more flexible managed float. Important economies were announced in the
public sector, including the elimination of some 25,000 full-time pcsitions
and plans to privatize over 230 small state-owned companies. The Government
also started to rationalize parastatal operations. Further, aggressive
adjustment of the controlled exchange rate and a consequent narrowing of the
margin between the controlled and free rates, combined with tight domestic
credit brought capital flight to a virtual halt in late October.
10.       In spite of the reconstruction needs created by the September
earthquakes (estimated at US$4 billion), the authorities prepared an austere
budget for 1986. This budget signaled the commitment of the administration
to renewed demand-management efforts to recover internal and external balance
and move on to a sustainable growth path by the late 1980s. The budget aimed
at halving the fiscal deficit to 4.9% of GDP, through sharp cuts in transfers
and subsidies, smaller reductions in public investment, a surcharge on
upper-income taxpayers, and large adjustments in official prices and tar-
iffs. The 1986 program also stressed the importance of continuing policies
to liberalize trade, and pushing ahead with other major reforms such as the
restructuring/privatization of some parastatal companies and the easing of
remaining restrictions to foreign investment.
11.       The recent instability in the world oil markets has lowered the
Government's revenue projections for 1986. The expectation of lower prices
and volume of oil exports for this year, despite its negative fiscal and
balance of payments implications, has not affected the Administration's
resolve to continue with the stabilization cum structural reform policy. The



1986 budget that is now being revised will undoubtedly reflect a larger
public sector deficit and larger external financing requirements. For the
fiscal deficit, part of the loss from oil taxes will be offset by further
trimming of subsidies and public expenditures. Similarly the increase in
foreign borrowing requirements will be much smaller than the actual drop in
oil export receipts, as a result of foreign interest rates, imports and
build-up in reserves all expected to be lower than the original budget
"assumptions. Hence, the picture for external financing needs, although some-
what more difficult, should remain manageable barring further major declines
in Mexico's oil export prospects.
Medium-Term Prospects
12.       Mexico's medium-term prospects for recovery and stable economic
growth remain good, provided the Government is persistent in pursuing its
current stabilization program accompanied by major structural adjustment
policies (including trade liberalization cum non-oil export promotion,
restructuring/privatization of parastatal companies), pr:vate sector confi-
dence is restored, and the international environment remains reasonably
favorable, including open markets for Mexico-s non-oil exports. Restoration
of private sector confidence is crucial, since only a strong and dynamic
private sector will be able to raise investment and production from the
present depressed levels and supply the increasing non-oil export surplus
required for the resumption of growth and the attainment of sound balance of
payments prospects.   As regards the external environment, the international
financial community should be prepared to provide fi ancing in support of
sound, growth-oriented economic policies.
13.       Under moderately favorable external and domestic conditions,
Mexico's economic growth could reach a sustainable 4-5Z a year toward the
late 1980s. However, should a more outward-oriented growth pattern compris-
ing fiscal discipline, improved domestic efficiency, and non-oil export
development fail to materialize, Mexico could enter into a period of
prolonged stagnation, characterized by insufficient labor absorption, domes-
tic price distortions, and continued balance of payments difficulties.
External Debt and Creditworthiness
14.       Mexico's external public and private debt increased by about US$6
billion during 1983-84, and fell by US$1.5 billion in 1985 to US$92.8 bil-
lion. With an international oil price of US$20/barrel, the net new borrowing
requirements are expected to average eome US$2-3 billion per annum during the
remainder of the decade, with the debt service ratio remaining a little over
50%. With an oil price of US$15/barrel, the net borrowing requirements would
be an average of US$4-5 billion per annum during the same period, while the
debt service ratio would be around an average of 55%.
15.       At the end of 1985, the Bank's share in Mexico's public debt was
5.1%. The Bank's share in Mexico's total public external interest payments
was 4.3%. The Bank's exposure in Mexico as of end-1985 amounted to 7.6% of
its total. In view of the expectation that sound economic policies will be
pursued in the future, Mexico is considered creditworthy for this loan.



- 5 -
PART II - BANK GROUP OPERATIONS IN MEXICO
Bank Operations
16.       As of September 30, 1985, Mexico had received 91 loans from the
Bank, amounting to US$7.72 billion, net of cancellations and terminations; of
these, 59 loans totalling US$3.6 billion were fully disbursed. The Bank held
US$6.1 billion, of which US$2.4 billion had not yet been disbursed. Some 40%
of Bank lending has been for agriculture and rural development, 20% for
industry, 9% for power, and 18% for transportation; the remaining 13Z has
been for water supply, tourism, urban development, and vocational training.
Annex II contains a summary statement of Bank loans as of September 30, 1985.
17.       Of the US$7.72 billion total lending, about US$4.7 billion was for
establishing or strengthening institutions for channelling credit to areas
where credit supply was deficient or non-existent, and setting up in the com-
mercial banking system the ability to carry out project-related appraisal of
investments in agriculture, industry, and tourism. These credit programs
have facilitated lending to low-income farmers and small- and medium-scale
industrial and tourism enterprises.
18.       The Government arranged adequate budget financing in the years 1978
to 1981, which significantly improved project implementation. Government and
Bank officials met periodically to review project implementation, and greater
attention was focused on project monitoring. As a result of these measures,
most of the Bank-assisted projects were being implemented satisfactorily
until mid-1982, and disbursements rose from US$91 million in FY78, to US$448
million in FY82. However, the 1982 financial crisis again caused delays in
the provision of counterpart funds; consequently, disbursements in FY83
declined to US$389 million. A Special Action Program (SAP) was established
in early 1983 to help the Government by alleviating the counterpart funding
constraints on development projects, and 18 Bank-financed projects are
receiving support under the Program. Partly as a result of the SAP, dis-
bursements during FY84 improved significantly at US$528.87 million or 352
over disbursements in 1983. The FY85 disbursement figure is US$787.93
million, 49% over 1984 or 100% over projected. A reconstruction loan has
been appraised to respond to the needs of the September 1985 earthquakes.
The proposed loan will be multi-sectoral and will cover all aspects of the
overall reconstruction program. In addition, ongoing loans have been
adjusted to address reconstruction needs.
IFC Operations
19.       As of September 30, 1985, IFC had made investment commitments in 27
companies in Mexico, for a total of US$753.9 million, of which US$572.8 mil-
lion had been sold, repaid or cancelled. A summary statement of IFC invest-
ments is presented in Annex II. IFC has been working together with the Bank
in preparing proposals to establish a facility for provision of foreign
exchange financing to private sector companies, for the importation of
machinery, equipment, and spare parts required for production of exportable
products, for efficient import substitution, and for improvements in the



- 6 -
utilization of their existing productive capacity. IFC approved a US$100
million facility (including funds mobilized from foreign commercial banks) in
1983, which is providing finance for fixed investments of a larger size than
those assisted under the Bank loan for an Export Development Project.
Bank Strategy
20.       The Bank's major objectives in Mexico prior to the 1982 crisis were
to: (a) support policies and programs leading to a wider distribution of the
benefits of economic growth; (b) help finance projects that, directly or
indirectly, contributed significantly to output and employment; (c) help
reduce Mexico's urban/regional imbalances; and (d) help free bottlenecks
which prevent rapid growth. These continue to be important objectives of
Bank assistance to Mexico. However, following the 1982 economic crisis, and
a reassessment of the Bank's role in Mexico, the Bank Management concluded
that: (a) increased Bank lending, critical to Mexico's recovery, must be
linked to central policy reforms; and (b) the Bank should play a central role
in assisting Mexico's return to voluntary lending. To prepare itself for
this new role, the Bank has intensified and broadened its economic and sector
work. Specific policy reforms that are presently being pursued through a
dialogue with the Mexican Government cover priority macro-economic and
cross-sectoral issues, such as trade liberalization, rationalization of
preferential credit systems, improvement in public sector pricing and
investment and subsidy reduction. Traditional lending incorporating project-
or sector-specific policy issues will be conducted in parallel with policy
dialogue on cross-sectoral or macropolicy issues.
21.       Because of the difficult structural problems of agriculture and the
sector's crucial importance fcr the one-third of the nation's population
living in rural areas, the Bank has made agriculture the leading sector for
its lending. The Bank's agricultural lending program in Mexico aims at (a) a
more efficient and rational use of natural resources to increase production;
(b) productivity improvements of cultivated lands, with emphasis on the
productivity of small farmers; and (c) promotion of employment generating
investments in rural areas. To support these goals, infrastructure invest-
ments in Bank-assisted projects have been complemented with support services,
such as extension, marketing programs and credit. The Bank has made 10 loans
in FYs8O-85 totalling US$1,566.0 million for irrigation, rural and agricul-
tural investwent projects, and agro-industrial and livestock credit pro-
grams. Projects for irrigation rehabilitation, extension and research, seed
multiplication, forestry, agro-industries and agricultural credit are in
various stages of preparation. Special emphasis has been placed in recent
years on the development of rainfed areas.
22.       Bank lending for industry aims at:  (a) improving competitiveness
and export growth; (b) decentralizing industrial activities away from the
major, increasingly congested, urban areas; (c) promoting greater employment
and skilled development; and (d) supporting the growth of enterprises and the
financial sector. Between FYs8O-85, seven loans amounting to US$947.30 mil-
lion were approved in the areas of small- and medium-scale industry, mining,
vocational training, development of capital goods industries, and promotion
of exports. In response to the current needs of the industrial sector,
*1



-7-
several projects to support non-oil export development, acquisition of modern
technology, and financial restructuring of enterprises are in various stages
of preparation. A Trade Development Policy Loan (DPL) is now being appraised
aiming at supporting the trade liberalization process, assisting in the
recovery of sustainabli oconomic growth and facilitating the mobilization of
commercial bank funds to cover part of the external financing needs for 1986.
23.       Bank lending for transport has focused on regional development,
strengthening of institutions and rationalization of public investment out-
lays and pricing policies. Between FYs80-85 six loans amounting to US$753.75
million were approved including two in each of the following three sub-
sectors: highways, railways and ports. Additional projects to support the
above goals were undertaken in the urban sector. During FYs8O-85 four loans
were approved in the urban sector, totalling US$408.5 million in the fields
of water supply and sewerage, and other urban investments. Additional
projects are under consideration in the transport and urban sectors aiming at
stre gthening the various institutions in the areas of planning, management,
and finance. These upcoming projects would further support the Government's
decentralization objectives.
24.       The Economic Development Institute CEDI) is assisting Mexico
through various courses/seminars dealing with policy alternatives and insti-
tutional reforms. EDI training is specifically directed at courses/seminars
on water supply and sanitation sector management, transport policy, agricul-
tural policy, industrial development and finance, and macro-policy analysis.
25.       The Inter-American Development Bank (IDB) is the second largest
source of multilateral aid to Mexico. The IDB has made loans to Mexico
totalling US$3.4 billion as of September 30, 1985. Over 50Z of the total has
gone to agricultural and rural development projects, and the balance to
transportation, industry, water supply and sewerage, tourism infrastructure,
education, municipal development and pre-investment. The IDB and the Bank
have coordinated their assistance on several projects. Each has made loans
for the national integrated rural development program (PIDER), agricultural
and livestock credit, small- and medium-scale industries development, and
hotel development projects. The International Fund for Agricultural Develop-
ment (IFAD) has approved a loan of US$22 million for a rural development
project in the State of Oaxaca, which was appraised by the Bank's staff and
for which the Bank is acting as cooperating institution for administering the
loan.
PART III - THE SECTOR/SUBSECTOR
26.       Mexico's outstanding spatial problems are the heavy concentration
of economic activity, wealth and population in Mexico City, the lack of
integration between urban and rural areas, and unbalanced inter-regional
development. Population growth has declined from 3.2% p.a. in the early
1970s to 2.6% p.a. at present. Approximately 68% of the country's 75 million



-8-
people live in urban centers of more than 2,500 inhabitants, while about 26%
of the population live in the three main metropolitan areas: Mexico City,
Guadalajara and Monterrey.
27.       Between 1970 and 1983, Mexico made significant progress In expand-
ing and improving its water supply and wastes services. During this period,
the percentage of population with access to piped water increased from 49 to
66Z and the percentage with connection to sewerage systems or sanitation
increased from 29 to 43%. However, it is estimated that about 50% of all
systems need rehabilitation. The improvements in water and sewerage coverage
have been offset by worsening water pollution and solid waste problems.
28.       Collection, transfer and final disposal of solid waste are
inadequate in virtually every city. Collection service, often erratic and
inconsistent, is available only to 70Z of the urban population, and is
generally provided with limited and/or aging facilities, deteriorating equip-
ment and untrained personnel. Adequate final disposal techniques are applied
to only 5% of the total volume of wastes collected, and open air dumps are
used for final disposal in 90% of all Mexican cities. Solid waste services
in the municipalities under the pilot component of the proposed project would
be representative of the rest of the country.
29.       Inadequate and erratic solid waste collection and disposal and lack
of public education programs on proper waste management are resulting in the
spread of debilitating diseases by insects and animals, and by direct human
contact. Growing quantities of industrial and toxic wastes which are
produced in unknown, but presumably large quantities and are stored, dumped
or discarded in unknown locations, present yet another major problem. The
proposed project would support studies on the quantities and characteristics
of industrial and toxic wastes.
Subsector Organization
30.       The Secretariat of Urban Development and Ecology (SEDUE) is respon-
sible for establishing and enforcing regulations and norms for the solid
waste subsector and promoting proper planning and operation of services by
providing technical and financial advice. lBecause of the increased apprecia-
tion of the magnitude of the solid waste problem, SEDUE has been given the
mandate to organize and develop the solid waste subsector. SEDUE has also
provided funds from its regular budget to municipalities as seed capital to
design and construct sanitary landfills (para. 35). Within SEDUE, the
Directorate General for the Prevention and Control of Environmental Pollution
(DGPCCA) comprising three departments (Standards and Enforcement, Studies and
Technical Support) is responsible for solid waste management activities. An
informal unit was established in DGPCCA to prepare this project. This unit,
which reports directly to the Director General of DGPCCA, has been formalized
and would be responsible for project management and execution of some sub-
components of the project (para. 55).



31.       BANOBRAS In a financial agent of the Government responsible for
financing infrastructure (urban development, water supply, highway, etc.)
investments. The federal government, through SHCP, controls BANOBRAS'
pollles and directs its borrowings and lending activitles. BANOBRAS onlends
funds to states and municipalities through various "windows" on varying terms
and conditions. However, in view of the internal organization requiring
coordination among four divisions (External Credit, Planning, Operations and
Training), as well as complex bureaucratic procedures for loan application
and processing, and lack of promotion, BANOBRAS has not been a major source
of funding to municipalities.
32.       The Government, as part of Its decentralization efforts, in
February 1983, modifled Article 115 of the Constitution which governs
municipal functions. This modification defined the legal responsibilities of
municipalities to include the planning, financing, implementing, operating
and maintaining of basic municipal services. Municipalities are, therefore,
responsible for the collection and disposal of municipal solid wastes.
Responsibility for collection, transport, storage, treatment and final
disposal of toxic and industrial wastes rests with the generating industries,
SEDUE and, In some cases, with the municipalities.
33.       Various arrangements are employed to handle waste management at the
municipal level. In many municipalities, one department is responsible for
collection, transport, disposal and fleet maintenance and repair. Others
have a separate department of transport to handle management, maintenance and
repair of all municipal vehicles.  In others, a municipal "empresas  handles
all aspects of waste management, including fleet maintenance. Contract
and/or private collection is employed in some municipalities, usually to
cover specific zones and institutions (hotels, hospitals, restaurants,
etc.). Lack of information precludes a clear-cut assessment of the potential
efficiency and effectiveness of private and/or contract service. This would
be studied and defined under the proposed project (para. 46). Industrial and
toxic waste management is not organized, except where municipalities have
assumed the responsibility. There are virtually no inter-municipal
cooperative arrangements or organizations to promote and manage shared
facilities and equipment.
Subsector Operational Performance
34.       Solid waste services throughout Mexico are characterized by poor
operational performance. Because of a lack of planning and funding, on
average, about 25% of the most organized municipalities' operative fleets are
out of service at any given moment. It is estimated that more than half of
the inoperative vehicles could be repaired at a cost of 10% to 15 of their
replacement cost. Although solid waste management is estimated to consume up
to one-third of municipal budgets, there are no systems to record and compile
the costs of solid waste operations. When maintenance and repairs are
performed by a general municipal workshop, costs for labor, parts, supplies,
and administration are not disaggregated by service. Without proper cost
data, cost-efficiency is not an issue of concern, much less a goal to be
achieved. Few, if any, cleaning agencies attempt to minimize exposed raw
refuse or provide separate areas for hazardous wastes. Route planning for



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activities such as waste collection, disposal and proper vehicle operation,
are particularly weak. Public education campaigns focussing on the social
and health aspects of wastes have only recently begun. Disincentives for
littering, illegal dumping and burning have yet to be developed. Finally,
operational performance has been adversely affected by lack of trained
professional and supervisory staff at the municlpal level.
Subsector Investments and Financing
35.       Municipal budgets have generally financed solid waste services
management. However, as in the past, most municipal revenues were provided
as Federal and State transfers, the majority of subsector investments as well
as operation and maintenance costs were financed on a grant basis. BANOBRAS
has lent some funds to the subsector, mainly for truck purchases, as part of
larger urban development schemes (para. 31). Between 1983-85, SEDUE provided
about US$6 million (1985 prices) to support the design, construction or
operation of sanitary landfills in selected cities. Because of the rudimen-
tary nature of the municipalities' accounting systems (para. 34), however,
the level of subsector investments is unknown. Evidence gathered from a
representative sample of cities indicates that investments made and planned
are far bilow the estimated minimum required to upgrade services and provide
a minimum acceptable level of solid waste collection and disposal. The
modification to Article 115 of the Constitution (para. 32) provides the
legal instruments for substantial increases in municipal own-source reve-
nues. Municipalities, which previously received 15% of property taxes col-
lected by states, are now responsible for collecting property taxes and
retaining 80% of collections. Furthermore, municipalities (or their agen-
cies) now collect and retain all user charges for water, sewerage and drain-
ing systems, solid waste services, markets and slaughterhouses, among other
basic services. Municipalities have adopted conservative fiscal policies and
have, therefore, considerable potential for borrowing.
Subsector Objectives and Constraints
36.       At the end of 1983, the Government established broad, medium-term
(1984-88) objectives for improvement of municipal and industrial solid waste
management. The objective in mnicipal solid waste is to increase collection
service coverage from 70% to 90% of the population in all cities with more
than 100,000 inhabitants, and to increase appropriate final disposal from 5%
to 90% of collected wastes through A program of sanitary landfill construc-
tion. The initial objectives in industrial and toxic wastes are to: (a)
identify the characteristics of wastes in 20 industrial zones; (b) draw up
regulations for industrial waste management; (c) promote financing for the
waste-generating industries to develop adequate collection systems and
construct suitable dumps; and (d) construct industrial waste disposal sites
(cemeteries) in the municipalities that have undertaken the management of
industrial wastes. Total financial requirements to meet the above objectives
are estimated at a minimum of US$500 million (USS125 million per year) in
1985 prices.
37.       Achievement of the above subsectoral objectives is constrained by
the following: (a) the country's public investment programs are being



- 11 -
sharply curtailed, and financing from private sources is not available; (b) a
national solid waste plan, including site-specific programs, has not been
prepared; (c) SEDUE's capacity to provide technical assistance to municipali-
ties and private companies on a wide scale is limited; (d) the municipali-
ties' capacity to effectively absorb the investments leaves much to be
desired; (e) options Involving the private sector have not been explored; (f)
methods of promoting financing for waste generating industries have not been
defined; (g) measures to increase efficiency and reduce costs are not being
taken or planned; and (h) constraints on sanitary landfill operating capacity
have not been considered, despite ongoing construction. In addition, key
constraints such as lack of technical and administrative knowledge, weak
planning, limited and/or aging equipment and facilities, untrained personnel,
poor operation and maintenance of equipment and facilities, unclear and some-
times inadequate pricing policies and cost recovery levels, and lack of
experience in dealing with various types of wastes are not being addressed.
As discussed in Part IV of this report, the proposed project has been
designed to assist the Government in establishing an appropriate framework
and basis to achieve subsectoral objectives by addressing the above
constraints.
Bank Sector/Subsector Strategy and Rationale for Bank Involvement
38.       The Bank's strategy in the water supply and wastes sector comprises
two elements: (a) to assist the water supply and sewerage subsector with
continued emphasis on medium-sized cities and increased attention to the
problems of small cities; and (b) to act as a catalyst in bringing about a
rational development of the solid waste management and pollution control
subsectors. In water supply and sewerage, in addition to stimulating
improved management, developing appropriate financial policies and promoting
training, the Bank is paying particular attention to the development of
regional entities to manage the cost-effective provision of services.
39.       The proposed project, the first direct Bank loan to the solid waste
subsector, would help the federal, state and municipal governments initiate
the process of rational development of the solid waste management subsector
through nationwide studies, technical assistance and pilot works. These
activities would provide a sound basis for establishing a cohesive policy
with an appropriate framework and establish pilot examples with nationwide
relevance. They would provide the grounding for future investments under a
larger scale follow-up operation. Complementing the Municipal Strengthening
Project (MSP) for which a parallel Bank loan is being processed, the project
would: (i) help improve overall public sector management at the federal,
state and municipal levels, and consolidate the Government's decentralization
program; (ii) through actions at the subsectorial and technical level,
improve the institutional and financial management of municipalities by
gradually rationalizing the system of grant transfers, and strengthening
municipal finances through application of a systematic methodology which
would lead to appropriate pricing and cost recovery policies; and (iii)
reduce federal subsidies to states and municipalities by improving access to
credit for a ke-- municipal service and improving local finance mobilization.
The proposed project would help meet basic needs of the population and
establish a sound basis for developing a critical subsector.



- 12 -
40.       Coordination with the Municipal Strengthening Project.  Future Bank
lending in both the Urban and Water Supply sectors will necessarily incorpo-
rate the revised institutional framework required as a result of the Govern-
ment's decentralization policy. The HSP would support the Government's
objectives to improve the utilization of human and financial resources and
strengthen institutions, particularly at the municipal level, to increase the
delivery of affordable and efficient urban services. The proposed project
would to the extent feasible, operate within the framework being established
under the MSP, while developing, at the federal level, the technical sub-
sector expertise and relevant institutional coordination required to provide
municipalities with financial and technical assistance and training to
adequately discharge their responsibilities in the solid waste subsector.
Because of the pressing need to expand knowledge of the subsector and develop
expertise at the federal level, SEDUE would assume a major role in implemen-
tation of the proposed project, in order to be able to adequately discharge
its assigned functions (para. 30).
41.       The proposed project would be within the Government's Program for
the Strengthening of Municipalities (FORTAMUN) which would be formally estab-
lished under a mandate from SHCP to BANOBRAS, on terms acceptable to the
Bank, as a condition of effectiveness of the MSP and of the proposed pro-
ject. The mandate agreement authorizes BANOBRAS to control funding and
establishes the basic structure of the program, including: (a) the estab-
lishment of a high level interministerial Steering Comittee (Comite
Directivo); (b) the establishment of a Technical Secretariat for coordinating
various agencies involved in municipal strengthening and the program as a
whole; (c) the establishment of a Training Support Unit; and (d) the formal-
ization of Operating Guidelines which detail the basis for the operation of
FORTAMUN. All subprojects under the proposed project would be subject to the
financial appraisal criteria established in the Operating Guidelines and
respective subloans would be reviewed and approved by the Comite Directivo.
The Operating Guidelines would be approved by BANOBRAS and the Guarantor as a
condition of effectiveness, on terms acceptable to the Bank. BANOBRAS would
agree to follow policies and procedures as outlined in the Operating Guide-
lines, which were reviewed during negotiations and would not make any changes
in the manual which would materially and adversely affect the carrying out of
the project.
PART IV - THE PROJECT
Project Origin, Background and Concept
42.       In February 1984, the Government requested Bank assistance to
develop the solid waste subsector and to help prepare a first project. Aa
April 1984 mission concluded that a modest operation which would provide
substantial technical assistance and a pilot program to test applications
would be advisable. Such a project would review options and define policies,
strengthen institutions, demonstrate the efficient delivery of subsector
services and gain experience before tndertaking a larger lending operation.



- 13 -
The resulting project was appraised in July-August, 1985. A Staff Appraisal
Report (No. 5952-HE) dated March 5, 1986 is being distributed separately.
Negotiations were held in Washington on February 18 through 25, 1986. The
Mexican delegation was led by Mr. German Sandoval of BANOBRAS.
Project Objectives
43.       The objectives of the proposed project are to:  (a) assist the
Government to more clearly define solid waste subsector objectives and
policies and to develop national and local institutional capability to
improve subsector management; (b) improve subsector services through pilot
subprojects thereby reducing public health risks and environmental conditions
in selected cities; (c) test and evaluate alternatives for promoting cost
savings, providing training and channelling funds in the solid waste
subsector; (d) help national and local governments fully understand solid
waste management costs and provide a basis for appropriate pricing and cost
recovery; and (e) provide a basis for preparing full-scale solid waste
management improvement projects.
Project Description
44.       The pilot component would consist of pilot subprojects, each
designed to improve operations and environmental protection, reduce costs,
and increase efficiency. Each subproject would be documented by audio-visual
and written materials to be used for sector-wide training and to facilitate
replication. Various combinations of subprojects would be undertaken in the
following urban areas: the Monterrey Metropolitan Area, Puebla, Merida,
Tlalnepantla, Acapulco, Ecatepec, Cuernavaca, and the Orizaba/Cordoba twin
cities. The subprojects would finance civil works, equipment and materials,
training and technical assistance for: (a) improved repair and maintenance
facilities and systems; (b) low-cost collection systems for markets; (c)
low-cost collection systems for marginal zones; (d) composting facilities
designed to operate in direct response to market demand for their products;
(e) construction of a regional sanitary landfill; (f) industrial waste
disposal sites/cemeteries; (g) improvement of institutional, financial and
organizational arrangements, including office improvements; (h) development
of public education programs; and (i) three regional transfer stations and a
sanitary landfill for establishment of a metropolitan waste management enter-
prise and studies on the economic and technical viability of employing
composting, mass burning and/or refuse-derived fuel systems of resource
recovery.
45.       The national component would finance:  (a) technical assistance and
equipment to strengthen SEDUE; (b) generic studies to define options and
solutions to solve the fundamental problems, issues and needs of the solid
waste management subsector; (c) development of plans and preparation of
prefeasibility studies in 26 cities; and (d) preparation of a f*iture
project. Draft terms of reference for technical assistance, studies and
preparation of the follow-on projects, as summarized below, were agreed with
the Government during negotiations.



- 14 -
46.       The following generic studies would be carried out:  (a) an
examination of institutional aspects of solid waste management including
legal, regulatory, enforcement, and definition of institutional/organiza-
tional options for effective delivery of services (e.g. contract, concession,
lease options, etc.) and assistance, where necessary, to the beneficiaries to
implement applicable recommendations; (b) an examination of financial and
accounting aspects of solid waste management comprising options for financing
municipal solid waste service from municipal and other resources, financing
industrial waste management, and accounting, including cost control;
(c) development and implementation of an industrial waste data base manage-
ment system and provision of training on its use; (d) design of a sampling
and analysis program to fill gaps in the data base on municipal solid waste
characteristics; (e) an evaluation of environmental impacts and costs
associated with open dumping of municipal and industrial wastes in order to
provide a basis for assessing the costs and benefits of other disposal
options; (f) development of a data base of costing factors and a simplified
computer system to enable ready comparison and analysis of collection, trans-
port and transfer options; (g) assessment of the existing and potential
markets for recycled materials and recovered resources; (h) assessment of
constraints and incentives to recycling and resource recovery and definition
of policy options and plans of action which could enhance recycling and
resource recovery.
47.       Plan Preparation and Prefeasibility Studies would include the
development of comprehensive plans of action for improving solid waste
management in 26 cities including, in each case, recommended options for
improvements.
48.       The development and preparation of future follow-on projects would
comprise the: (a) comparison of issues and proposed approaches among cities;
Cb) selection of cities based on sound selection criteria; (c) preparation of
full feasibility studies, taking into consideration information contained in
the generic studies and experience with implementation of pilot subprojects.
49.       An important feature of the project is the special technical
assistance to be provided to a number of the beneficiaries to implement
recommendations developed above. This effort would concentrate on institu-
tional and organizational options for effective and efficient service
provision, accounting and cost control, administrative procedures and systems
for analyzing collection, transport and transfer options. As specified in
the Operating Guidelines, beneficiaries would be required, under subloan
agreements (para. 60), to implement recommendations relating to cost
recovery.
Project Cost and Financing
50.       The total project cost, excluding interest during construction, is
estimated at US$50.0 million equivalent (US$40.09 million allocated to the
pilot component and US$9.91 million, to the national component with an
estimated foreign exchange cost of US$12.45 million). Costs have been based
on December 1985 prices and include physical contingencies of 4%. Price
contingencies have been estimated according to an eight-year disbursement
profile, on US dollar based values at 7.5Z in 1986 and 8% thereafter. The



- 15 -
local component includes about US$0.8 million equivalent of indirect taxes on
Industrial products. Technical assistance and consultant costs have been
based on those of similar internationally and locally recruited experts in
Mexico and other countries in the region. The costs include about 1600 man-
months of consultants' services, and 598 man-months of counterpart staff at
the national level. Construction costs have been based on bills of quanti-
ties of subprojects with advanced engineering designs, and on unit prices
developed by SEDUE or found in recent bids for similar civil works, materials
and equipment.
51.       The Bank Loan of US$25.0 million (50% of total project cost) would
finance total foreign costs and 33.5% of local costs. This is in line with
recent Bank participation in social sector projects in Mexico, and is
justified by the extensive expenditure in local currency (mainly for consult-
ing services), the technical assistance and the pilot nature of the project.
BANOBRAS would, as a condition of effectiveness, enter into contractual
arrangements, satisfactory to the Bank, with the Government providing for the
transfer of loan funds to the Government for the purposes of carrying out
FORTAMUN and repayment of the loan by the Government. The amount allocated
to the pilot component would provide initial capital to a Municipal Develop-
ment Fund (MDF) under FORTAMUN to provide subloans for the implementation of
pilot subprojects and grants for technical assistance and training to munici-
palities on terms and conditions satisfactory to the Bank (para. 60). Prin-
cipal and interest payments on subloans would be deposited in the MDF and
further onlent to municipalities for the purposes of expanding FORTAMUN.
Funds for technical assistance and training under pilot subprojects would be
provided as grants (para. 62). Funds for the national component would be
provided by the Government to SEDUE and BANOBRAS on a grant basis. Assur-
ances were obtained during negotiations on the timely availability of
counterpart funds and that the US$12.0 million of GOM counterpart funds would
be channelled through the project's account under FORTAMUN. Beneficiaries'
contributions of US$9.75 million, would be in the form of project-related
services, assets and land. SEDUE would allocate US$3.25 million of counter-
part funds from future budgets.
Procurement and Disbursement
52.       Procurement would be carried out following Bank guidelines.  All
contracts for equipment, spare parts and materials exceeding a total of
US$300,000 and in excess of US$3 million for civil works would be awarded on
the basis of international competitive bidding (ICB). Equipment, spare parts
and materials for each subproject would, to the extent practicable, be
grouped into packages in excess of US$300,000. Subject to an aggregate limit
of US$12 million, contracts for civil works of less than US$3 million but
over US$300,000, or less than US$300,000 but over US$100,000 for equipment,
spare parts and materials, would be procured on the basis of local competi-
tive bidding (LCB) procedures satisfactory to the Bank. Contracts of less
than US$300,000 for civil works and less than US$100,000 for equipment,
subject to a maximum aggregate of US$6 million, would be procured directly on
the basis of a minimum of three quotations or force account. Goods manufac-
tured locally and procured under ICB would be allowed a preference over
foreign goods of 15% of the CIF price or the level of import duty, whichever
is lower. Technical assistance and consultants' services would be procured



- 16 -
in accordance with Bank Guidelines for Use of Consultants. Prior Bank review
of feasibility studies, final designs, specifications and prequalifications,
bidding documents, awards, and contracts procured under ICB would be
required. BANOBRAS/SEDUE would retain all relevant documentation for local
procurement of goods and services for review by Bank missions. The benefi-
ciaries would maintain adequate documentation to support expenditures made
for force account works.
53.       The Bank would disburse as follows:  for the pilot component: (i)
67% for consulting services and training; (ii) 100% of foreign expenditures
for dħrect imports of equipment and materials and 37% of the costs of locally
procured goods; and (iii) 37% of total expenditures for civil works; and for
the national component, 37% for equipment and materials and 90% for consult-
ing services and training. Disbursements for eligible expenditures under
contracts valued at under US$300,000 equivalent would be made against State-
ments of Expenditures (SOEs). Supporting documentation would be retained by
BANOBRAS and made available for review during supervision missions. Retro-
active financing in an amount equivalent to US$2.5 million would be provided
for expenditures incurred after August 3, 1985. To accelerate disbursements
BANOBRAS would establish and maintain under its control, a Special Account,
with an initial deposit of US$2.0 million, which would be operated in accor-
dance with terms and conditions satisfactory to the Bank.
Accounts and Audit
54.       BANOBRAS would open and maintain a separate account to reflect all
project expenditures, including a separate sub-account to reflect all trans-
actions under the MDF. This project account, including the MDF, as well as
the Special Account, would be audited annually, by independent and qualified
auditors, and the auditors' report would be forwarded to the Bank no later
than six months after the end of each fiscal year. Beneficiary municipali-
ties would be required, under subloan agreements, to maintain detailed
subproject accounts which would be audited annually by independent auditors
acceptable to BANOBRAS. The audit reports would be made available to the
Bank for review upon request.
Project Execution
55.       Project Organization and Management.  SEDUE, through a project unit
established under DGPCCA would be the technical agent for the project. The
project unit would be responsible for overall project supervision, monitoring
and coordination. The project unit would carry out the national cowponent
with BANOBRAS' support on financial and accounting studies. The benefi-
ciaries would execute subprojects with assistance from consultants and the
project unit, if necessary. The project unit would supervise the pilot
subprojects, in collaboration with the beneficiaries and BANOBRAS, thus
providing BANOBRAS and the beneficiaries additional training. The project
unit would prepare an Institutional Development Program dealing with institu-
tional and financial arrangements for each municipality not included in the
corresponding pilot subproject using the findings and recommendations of the
national component's institutional issues study. The project unit would
provide the beneficiaries with special technical assistance to implement the



- 17 -
recommendations of the national component studies, as necessary. Terms of
reference for the long-term consultants to assist and strengthen the project
unit and the beneficiaries have been prepared and were agreed to during
negotiations. Staff of the project unit have been appointed. The Government
agreed during negotiations that, until completion of the project, the unit
would be properly staffed at all times. The project unit would be supported
at the municipal level by SEDUE's resident state delegations which would
provide a link with the beneficiaries. Each beneficiary of the pilot compo-
nent has appointed two coordinators for its subproject(s). By mutual agree-
ment among the eight municipalities of the Monterrey Metropolitan area,
Monterrey's pilot subcomponent (about 72Z of the total cost of the pilot
component) would be executed by a unit that has been set up under the State
of Nuevo Leon's Secretary of Urban Development.
56.       Implementation Schedule.  The proposed project would be implemented
over an eight-year period in accordance with experience under water supply
projects in the region (there is no experience with free-standing solid waste
projects). However, it is possible that the implementation period be signi-
ficantly reduced. Loan funds would be fully committed by December 31, 1991.
After allowing for the completion of final subprojects, the project would be
completed by December 31, 1993 and the closing date would be June 30, 1994.
57.       Status of Project Preparation.  Under the pilot component, all
subprojects have been fully costed and preliminary designs for all landfills
have been prepared. SEDUE staff and consultants have developed preliminary
specifications for major equipment items. The land needed for the workshops,
landfills and transfer facilities have been identified and are being
acquired. There are no legal issues impeding acquisition of the land and a
condition for approving each subloan would be that clear evidence of title is
furnished. Preliminary designs and specifications for the largest items
(Monterrey regional transfer stations and Merida materials recovery and
compositing facility) have been prepared. Preparation of final designs
(covering about 30% of the total) has already begun. Terms of reference for
the technical assistance to the project unit, for all studies, for
preparation of follow-on projects, as well as for the pilot subprojects, have
been prepared.
58.       Monitoring and Reporting Requirements.  Each subloan agreement
would be subject to prior approval by the Bank. The long-term consultants
would assist SEDUE with the preparation of semi-annual reports focussing on
technical and managerial aspects and project execution progress (including
expenditures on all subprojects), to which BANOBRAS would add reports on
financial aspects before forwarding to the Government and to the Bank.
Reports by the short-term consultants carrying out studies and preparation of
follow-on projects would also be forwarded to the Bank. An agreement was
reached during negotiations on the monitoring indicators as well as the plan
for progress reporting.
Onlending Terms and Procedures
59.       Subproject Selection Criteria.  Subprojects under the pilot compo-
nent have been selected on the basis of the following criteria: (a) the



- 18 -
municipality and/or the state would confirm: (i) acceptance of conditions
and willingness to adopt and act upon recomendations under the project,
including those relating to cost recovery; (II) availability of legally
unencumbered land; (III) the state's willingness to support land acquisition,
counterpart financing and operative budgets, if necessary; (i.) high priority
on project implementation; and (v) willingness to make available existing
facilities and equipment; (b) the municipality would be geographically repre-
sentative; (c) preliminary studies and plans have been prepared; (d) results
would be replicable in and applicable to other urban areas; (e) an opportu-
nity to share facilities would be provided; and (f) the beneficiary would be
able to incur debt as determined by the financial appraisal methodology of
FORTAMUN presented in the Operating Guidelines.
60.       Subloan Agreements.  The conclusion of satisfactory subloan agree-
ments between BANOBRAS and each beneficiary would be a condition of disburse-
ment for the respective subproject. A draft model subloan agreement, as well
as operating principles for the project account were provided during negotia-
tions and would be incorporated in the Operating Guidelines. Subloans would
be made at interest rates specified in the General Interest Rate Agreement
(GIRA) over a 15-year repayment period including a grace period equal to the
shorter of the construction period or four years.
61i.      GIRA is a master agreement, signed between Mexico and the Bank on
August 7, 1984, which covers interest rates on individual loans for credit
programs. It provides for the linking of interest rates to a central refer-
ence rate (an index of average cost of funds to multi-purpose banks - ACF), a
systematic accounting of subsidies, a gradual phasing out of remaining subsi-
dies for most beneficiary categories, periodic adjustment of rates and a
reduction in the dispersion of interest rates. As GIRA does not at present
include a category for interest rates in respect of urban infrastructure
lending, the Government would agree to an amendment to the GIRA providing for
the inclusion of such category with the following target rates: 68Z of ACF
for January 1, 1986, and 80% of ACF as of January 1, 1987. Thereafter,
interest rates to be applied to urban infrastructure lending would be
reviewed under the periodic consultations provided under GIRA. The effec-
tiveness of this amendment to GIRA would be a condition of effectiveness of
the proposed loan.
62.       The category to be established for urban infrastructure credit
would apply to equipment acquisitions, materials and civil works for the
pilot component. Technical assistance and training under subprojects would
be provided on a grant basis because of their pilot nature and the nationwide
relevance and demonstrative nature of the activities under the project.
Benefits
63.       The principal benefits of the proposed project would be the
positive institutional, social and health impact and an improved policy and
financial environment for solid waste management. The proposed project would
significantly improve environmental conditions thereby reducing health
hazards to the public by creating well designed and appropriately located
landfills and industrial cemeteries and by introducing sanitary disposal of



- 19 -
market wastes. Substantial technical assistance, on-the-job training, and
experience would develop the ability of SEDUE to assist and advise munici-
palities, and of the municipalities to absorb and implement sound technical
and financial advice. The audio-visual documentation produced would enable
the lessons of the project to be disseminated among other municipalities.
The proposed project would reduce dependence on the federal budget by improv-
ing access to credit, and by stimulating local resource generation through
appropriate cost recovery measures while introducing cost savings through
more efficient operations and maintenance of solid waste management systems.
A rate of return has not been estimated as none of the above benefits is
readily quantifiable.
64.       Four of the eight medium-sized municipalities included in the
project are among the economically weaker ones in Mexico. Five of the eight
municipalities comprising the Monterrey Metropolitan area are among the
poorest in the country as measured by deficiencies in basic services and by
income levels. However, the direct impact on the poor can only be measured
with accuracy in the municipalities in which marginal zone waste collections
would be improved under the project. These municipalities (Tlalnepantla,
Acapulco and Monterrey) have a combined total population of over 3.5 million
and marginal zone population is estimated at about 1.4 million inhabitants of
which about 0.9 million would be covered by the project.
Risks
65.       The main project risks are related to the need for close coopera-
tion among several entities and the possible unwillingness of beneficiaries
to borrow from the project's line of credit. The first risk has been mini-
mized through institutional arrangements for project implementation, techni-
cal assistance and consultants to assist SEDUE in project supervision, and
reporting and monitoring provisions. The second risk has been reduced by
requesting written commitments from beneficiaries showing their acceptance of
subloan terms and conditions. Tf, however, a beneficiary should drop out of
the project, similar projects being prepared in other municipalities could
replace them. In addition, the project's technical assistance grant provi-
sions will ease some of the burden.
PART V - RECOMMENDATION
66.       I am satisfied that the proposed loan would comply with the
Articles of Agreement of the Bank and recommend that the Executive Directors
approve the proposed loan.
A. W. Clausen
President
Attachments
March 5, 1986



20                            ANN1EX I
- 20-                                               Page1of 6
. OMAL  olin     (leo amaN    63*
m& (m q. nO~~~~~~~~~M(O  F. I viu
u mum  mu m                                 M
soft         so. UwrNo
TATU    IGAZ (LL                                              a..
_ 8 UTO (oW)                                                     3. .. U1 r a360.,
9OPU.ATIU    5E1
P14LuO.US. OIL  1.4313                27.7         22 .4     1340.0               "914                      1144.9
No,pIlToU Mm am0003  C
VOfwlLERU03056  4A  (2        9    3M  3.O )117).0          J OIIA)
ToneTAL          S        OT         20.0          22          2.J                  2.47                      .47
CU1 huN  mAt CP   3003                43.4         42.4        24.0                30.9                        23.
Dsis Im oIE.S:
A      5  *41.         s)            ..         23.1R1.0
m - LNmutumm
M   Iq. M.                         19.0         10.0        31.0                 4.0                       1.7
FM  sq. C  nu. Lao,37 11.0                      114          71                 ,1.1                       1A.
0-1 3 no                           46.          410         43.0                49.4                      392.
Off13   3U                           1.0         7.0         .3.1                57.1                       21.5
13 msm "                  3.3 35 3.0    * 1.1                                                                7.2
AoS5 m unm am3 (150)
TOTAL                                 3.0         3.           2.0                 2.2                        1.70
03*                                  *.4           .S        4*1.                7.2                          3.7
neu um   mm   CM   2 3)  4S.A   *).0        24.0                 30.2                       23.4
CON*3 .1.20 Lo0s CM                                            20.1) 11            7.0                        42.9
cam1O              iA2                 3      .3      3.1       2.0                2.0                          1..
A05.PIU. MSPIA   (g .AL1                                   114uh0
Cs                                 290.        9 H0.0   ..                       4..0  03 3..
WOOD M sOOD .It 
Cli71-1CO)                            97.0        IOOA0        100.0              I"9.6                      tO .1
V6I5U (                            27 0 t I )  114.0  I. 110  120.0             4122.                     121.5
r M nzg    CouM         A)          60.6         67.0    n     7.0               "A                         9.
or   ia   ARQIAL A0mm2.0                        VA          u.O&    /            4.2                       36.3
*U. Cu                                           1  0)  0 1.  7 a  3.0      *       4.                        4.7
Lm   MS. a   Kml (in)                 S7.0         *la3         0.6                6.                      - 6a.x
3C^lr mms. am   CM   M)               9.O          74.A        W.O                 SJ                         $3.3
sOU                   23..                       0.0.         s.o                27.3                        70.2
161*1                                2.4          2.7:3ft
711UL                                 ..         2.10        31.0                6 .2                        57.0
TOTAL                                 .9         370 2  .2                       S.3
gum                                               OA5 *30.1                      73.4 30.7
30UL                                  ..         27 .60                          25.3                       *7.
pamArum: MXO                                1510m           ..100 SO         Im.J                       1070.6
P.   7DtL NOUlIN   ISRSOW          3l0.  OA   0..                  z.2                                      7wY.3
P. PIt IlsptTAL M
5TOTL                               MA0.        970A0          ..                   .o                      329.3
IIUU                                70-0  It   1170.0          ..M2A                                        201.9
WL                                    ..       1370.0          ..               716.7                     4312.7
ADUSX          M     l=rL   M1                                                   V..                        ...2 20.0
lUU                                   SA          5.t           ....
sultL                                5.2          3a.....
ATZA         90. OF P9OV/
TZL                                   2.9         2.5           ....
ZA          2.2           ..                       
vi                                   3.4          3.t           ....
-UITG   air   f DLLIM       l      UNT.
Ulm                                   ..          0.7          .                    ..
.-m                                              VAl....



- 21 -                                         ANNEX I
Page 2 of 6
T A h L E 3A
yS2CCD _                  MrAL  I"OtCATOMS DATA SHgET
NRXIW                                tSEM CIEE GROUP CIJSICNED AVERAGES) /a
HOST                    (COST RscuNr anrNATE) /b
bl'b                         VIDDLS XCOU     lIDDLt InOcOC
19b 1b     zV7m.   rULTawnb         LIA. ANazICu  A cat           EURsOPE
4DJWT5W DSELUINT PATIOS
PEIRYS  TOTAL                     80.0       104.0       121.0              IU6.7                    101.9
KAtZ                   82.0       106.0       123.0              10W.5                     106.2
FErc                   77.0       102.0       119.0              104.6                     97.5
SCCOsuAu TOTAL                    11.0        22.0        54.0               66.2                     57.5
MALt                    14.0       26.0        54.0               42.7                      b4.9
rasi                    8.0        17.0        49.0               46.9                     50.0
VOCATtOIOL CZ OF scCoAR)            23.6        26.7        11.6               13.3                      21.0
PUPIIrTEAnaR RATIO
PRIM                              44.0        46.0        37.0               29.9                     25.1
SECONDY                           13.0       1.0         18.0               16.7                     19. I
PASSIENGR  AIThOUS#AD FM            12.9        24.1        61.3 A             46.0                      54.2
RADIO SRCEIVMSTIISAID NV            89.0       273.7       291.3              328.3                    170.7
TV RECEIrUITEUSAJNS  Pop            17.5        58.5       109.4              112.4                     149.3
I -WSIPA (IUXL C02UL&
IUTEE) CIWIoLATON
P3r  TWOUSAND PDPULATION           73.3         *-        139.7               81.1                      97.U
CSIQI SSL    ATENDANWCE/CAITA        9.6         6.9         3.a A              2.4                      2.7
TOTAL L1UOX rOta CTHIUS)         11191.0    14722.0    22196.0
PENAL  (PERCgNT)                  15.2        17.4        20.5               23.6                      36.3
AGRICULIURI (PERCENT)             55.1        45.2        35.6      ~        31.4                     60.8
INDUmSIT  PROT)                   19.5        22.9        25.6 A             24.3                     23.3
n'TCzcAno  RATE CPERCENT)
TOTL                              30.2        28.8        29.6               33.5                     43.1
HALE                              51.1        47.6        46.8               51.3                     55.1
PaSALz                             9.2        10.1        11.9               15.9                     31.4
EcONOI DUcENDEN   RATIO              1.6         1.7         1.6                1.3                      0.9
_-   c,,rIac 
FMMaI OIP PurVA2 riC..
!IGHST ZS   w mcs1101              ..          ..
RIC-EST 201 oF HUSZOLDS           61.1 h      60.7        57.7 lb
LOUEST 20S or MISEOLDS             3.4 7h-     3.3         2.9 A
LOVET 40S oF HOUSSOLDS             9.a 8       9.99
urnMB        awnOL    iona  inc
LEVM   USS PER CAPW
UORUI                               ..         ..          ..               288.3
a                                  ..          ..          ..               185.3
ESTUNAD RIUATIVZ POVERTY tRU
LE. CUSS m   CAPIUT)
URBAN                              ..          ..        471.0 lc           519.8
RDEAL                              ..          ..        *71.0 -7           359.7.
EST(AISD  PO. SLOW ABSOLUE
P01W! InCOwS LEVYL (C)
03.*                               ..          .....
maU                                ..          ..          .                   ..
MT? AVAILABLE
/s  The  omap averags for each Indleator ae populatlon-weighted arntlmtc aons. Coarae  of countrtes
_so% tbe  SndIeatos depends on avalLabLilty of data and Is not uniform.
lb   Unles otherwise noed, "'Oat for 1960" refer to ay yer baeton 1959 *d 1961: "Data for 1970" between
1909 end 1971; aS data for "Mot Roecent  stimte" betean 1961 end 1983.
ic  1979; Ld 1971; Ia Sered fom  water supply and sewage;  /f 1962; A  1980;  lb 1903.
.i1W6 19S5



ANNEX I
-22-                                      Page 3 of 6
DD NTlONIS OF SOCIAL INDICATORS
Nols Mlmalb   e dJadraw fines masses snWlyjadgd abs ma auarivad elb, it dsould am bhe ne it dy may not be inutiomfy
co-pnba bamm a lke Inckef adWidhd denem and aonep ued by di_em cma   in collecig the dai. The dn am sonha ueful to
decihe adm ofanmn        indim tre_ and duaaca  meta ml or dilkeaces boss cauwes
The ee  oe ant (I) the sam ucousi   poattd osubject ountryand(2)ace..uyoopwith, sawh*baIn l'th'ste ha    k   , a
poop oflke *subjet eoY (e f far  i ncme     po o" p wha 'Middl In    North Afria and Middk Em  iehon bemu wsrogcr
sodo.cudsl Siso    1o. ine      pomp dat the avaw m pop_aam weigi  ararnetc sm fior eachindiAar and how  only whe anajony
like oue tminao leedatafar ht diozSine h as ofcounriesmsng teIndiordepedsneveilbifltyo dan and is not gaf
cauomus beecaiserdi     gavera at  indiator  otT rThe averags t     ue nelcomparig the whoe f one indator sat  e a ong
the conmty sd refrence gaups
AREA (thousand sq.knm)                                        Ciue Jlt RAe (per thusad)-Number oflive birthi in the year
Toni-Total srface aim conprisiing l-d ae and inh d waters.   per thound of mid-year population: 1960, 1970, and 1983 data.
1960, 1970 and 1933 dataL                                     Crue Deth Rate (per t_shua)-Number of deaths in the year
AgII -alEeutimate of agricdturalr-  usd temporarily or        per thousand of mid-year population; 1960. 1970, and 1983 darn.
permanendy for crops. pastu, market and kitchen grden or to   Grs Reproduc  JRu-Averge number of daughters a woman
lie faUow. 1960.1970 and 1932 data.                           will bear in her normal reproductive period if she e
presnt ag-specfic fertility rates; usually five-year aveges ending
GNP PER CAPiTA (USS)-ONP per capita estimates at current      in 1960, 1970, and 1933.
market price, cal tbd by snme converion method as World       Fokidy PAfLunr-Acceapors, Anaa (dthassf)-Annual nun-
Bank Ads (1961493 basis); 1933 data.                          ber of acceptors of birth-control devices under auspices of national
ENERGY CONSUMPTION PER CAPITA-Annual appuent                  family planning prog.
consumption of commercial primary energ (coal and lignite,    Faidly Plenad-Users (perentwfaie n-mJ Thep c penn-
petroleum, natura gsu and hydro-, nudear and geothermal elc-  tage of nmrTied women of child-baring age who are practicing or
tricity) in kilogrm  of oil equivalent per caFita; 1960, 1970, and  whose husbands are practicing any form of contraception. Women
1982 data.                                                   of child-bearing age are geneally women aged 15-49. although for
some counties contraceptive usage is measured for other age
POPULATION AND VITAL STATISTICS                               groups.
Total Naiamd., M     r-Yes (sbasd -As of July 1I 1960. 1970.  FOOD AND NUTRITION
and 1983 data.
MostPopmmdm  pffc    ofsoted)-Rtauio of urban to total  Index of Feed Preauctiem PLr Capita (1969-71 - 'NJ)-Index of per
ppr    on dAien (deft of  uran    of may        t cotal      capita annual production of all food commodities. Production
population: different defiimtin of urban aes  may affect compar-  excludes animnal feed and seed fior agriculture. Food commodities
abifit of data among countric; 1960. 1970. and 1983 data.ecusanmlfdadsdfoagitu    Fd D oiis
abilit ofmdata among cournies 1960. 1970, and 1983 data,  include primary commodities (e.g. sugacne instead of sugar)
Fopuaton Peojecrea                                            which are edible and contain nutrients (e.g. coffee and tea are
ftpuhsion in year 2000-The projection of population for 2000.  ccluded); they comprise cereals. root crops, pulses. oil seeds.
made for each economy separately. Starting with infonnation on  vegetables fruits, nuts. sugarcane and sugar beets livestock, and
total population by age and sex, fertility rates, mortality rates, and  livestock products. Aggregate production of each country is based
international migration in the base year 198w. thew parameters  on national average producer price weights; 1961-65. 1970, and
were projected at five-year intervals on the basis of gcneralized  1982 data.
assumptions until the nopulation became stationary.           her Capita Spply of Curies (peet ofreqaf_rmea)- Comput-
Stationary ,opda ls one in which age- and sex-specific mor-  ed from calorie equivalent of net food supplies available in country
taliky rate-z have not changed over a long period. while agepeific  per capita per day. Available supplies comprise domestic produc-
fertility ra.s have simultaneously remained at replacement levd  tion. imports less exports, and changes in stock. Net supplies
(net reproduction rate- 1). In such a population. the birth rate is  exclude animal feed. seeds for use in agriculture, quantities used in
constant and equal to the death rate. the age structure is also  food processing, and losses in distribution. Requiremnts were
constant. and the growth rate is zero. The stationary population  estimated by FAO based on physiological needs for normal activity
size was estimated on the basis of the projected characteristics of  and health considering environmental temperaturce body weights,
the population in the year 2000. and the rate of decline of fertility  age and sex distribution of population, and allowing 10 percent for
ratc to replacement level.                                   waste at household level; 1961. 1970 and 1982 data.
Population Monuentunls the tendency for population growth to  hr Capt Supply ef rtwein (gra s per drJf-Protein content of
continue beyond the time that replacemeat-level fertihty has been  per capita net supply offood per day. Net supply of food is defined
achieved; that is. even after the net reproduction rte has reached  as above. Requirements for all countries established by USDA
unity. The momentum of a population in the year r is measured as  provide for minimum allowances of 60 grants of total protein per
a ratio of the ultimatc stationary population to the population in  day and 20 grams of animal and pulse protein, of which 10 grams
the year i. given the assumption that fertility remains at replace-  should be animal protein. These standards.are lower than those of
rnent level from year t onward, 1985 data.                    75 grams of total protein and 23 grams of aninal protein as an
A e  D-                                                       average for the world, proposed by FAO in the Third World Food
Per sqktn.-Mid-year population per square kilometer (100 hec-  Supply, 1961. 1970 and 1982 data.
tares) of total area; 1960. 1970, and 1983 data.             Phr Caita hete  Suply fim Atual ad Fale-Protein supply
Per sq.kmn. agricadawl lad-Computed as above for agricultural  of food derived fromn animals and pulses in grams per day; 1961-65.
land only, 1960. 1970. and 1982 data.                         1970 and 1977 data.
Popsaion Age Sbuaer (pereet4-Children (0-14 years), work-     ClAd (qus 1-4) Deah Rar (per theasad)-Number of deaths of
ing ag (15-64 years) and rtred (65 yeas and over) as pentage  children aged 1-4 years per thousand children in the same age
of mid-year populaion; 1960, 1970, and 1983 data.             group in a given ycar. For most developing countries data derived
PopsalasiWn Grouk Rae (percent)-oealL-Annual growth rates of  from life tables; 1960. 1970 and 1983 data.
total mid-year poultion for 1950-60. 1960-70, and 1970-43.    HEALTH
Popatie. Grwt Rae (pereea)o-wh_n-Annual growth rates          LWfe Expectuy at SA (years)-Number of years a newbom
of urban population for 1950-60. 1960-70. and 1970483 data.   infant vdwd lve if prevailing patters of mortality for al people



-23-                                       ANNEX I
Page 4 of 6
at the timh of of its birth werc to stay the saue throughout its Iife  A$r.wer Retio - prbwry. and secondary-Total students cn-
1960, 1970 and 1983 data.                                     roiled in priumy  nd secondary level. divided by numbers of
ftmar Mwt  Rae (per th.JNd)-Number of infants who die    teachers in the coresponding ewihs
before resching one year of age per thousand tive births in a given
yer; 1960. 1970 and 1983 data.                                CONSUMPIION
Acca umbe. of ph* (totcE   u  pd on-il)  uAth       able      Phsseqe_ Cas (per uhmad pepulamea-Pasnr cars com-
-Numnber of people (totaL. urban, sad ruml) with reasonable   prise motor cars sting les than eight persons; excludes ambul-
access to a e  ater supply (ncludes treatd surfac waters or   ance  heares nd militry vehices.
untreated but uncotawnat   water such - that from protcd      RaE. Reier (per th.udp.paim)-All types of reccivers
boreholsa.pi  and sanituy w ) u percentages of their mpec-    for radio broadcats to geneal public per thousand of population;
tive popultonL In an urban ama a public founttin or standpost
located not more thn 200 meters from a home may be considered  xudsn.n ofsrd  retswaes in ect;dtaror recent years may
as being within reasonable    of that housw In rural areas    notib    n omparable s ince most couwtries abotishae licentens.
reasonble ac    would imly that tbe houswife or members of the
houselhold do not have to spend . diportionate part of the day  TvRECEEm (per tdoesfdpap a iea)-TV receivers for broadcast
in fetchi  dke famays watcr needs.                           to geneal public per too_d population; exdudes unCcensd TV
recves in couotries and in yes when registrtion of TV sets was
aud rua-Number of people (total, urban. and   a)      by m      effe
excac   disposal as percentages of their respective populations.  Newsppw  C*c a (pe hudpoplso)-Shows the aver-
Excreta disposl may include the caDection and disposal with or  age cirulation of daily gmenal interest newspaper.- defined as a
without treatment, of human ecreta and waste-water by water-  periodical pubiation devoted prinariy to recording gend news.
borne systems or the use of pit privies and similar installations.  It is considred to be daily" if it appears at least four times a week.
Pepalaoe per Phsiriau-,opulation divided by number of prac-    G'i' Annual Aetewdare per Capita per Year-Based on the
tising physicians qualified from a medical school at university level.    number of tickets sold during the year. including admissions to
Pip.Ist  per Nwnsa Pers.m-Pbpulation divided by number of     drive-in cinemas and mobile units.
practicing male and female graduate nurse  aastt nurs
practcal nurse and nursing auxiliaries.                       LA R FORCE
tpeo. p-e Howdsal Bed-ciat urban, bvd rwa-Population          Total Labor Force (thous)-Economically active persons. in-
(toal urban and rural) divided by their rspectiwe number of   cluding armed forces and unemployed but cxduding housewives.
hospital beds available in public and private, gend and       students. etc.. covering population of all ages. Definitions in
hospitals and rehabilitation centers. Hospitals are establisments  various countries are not comparablek 1960. 1970 and 1983 data.
permanently staffed by -t least one physician. Establishments prov-  Feak (penvo)-Female labor force as percentage of total labor
Wing principally custodial care a  not induded. Rural hospitals.    force.
bowever. include health and medical centers not permanently staffed  Agdcubw  (perceuQ-Labor force in farming, forestry, hunting
by a physician (but by a medical assistant, nurse midwife. etc.)    and fishing as percentagc of total labor force; 1960. 1970 and 1980
which olfer in-patient accommodation and provide a limited range  data.
of medical facilitie                                         Inu&sy (percraeJ-Labor force in mining. construction. manu-
Adu'duss per Hospital Bed-Total number of admissions to or    facturing and electricity, water and gas as percentage of total labor
diharges from hospitals divided by the number of beds.        force, 1960. 1970 and 1980 data.
h"Cpaie Rte (perceur)-aornlmk, a,dfin_d--rtlicipation
HOUSING                                                       or activity rates are computed as total. male, and female labor force
Aer-    Siz ef  R eHohod (pers per hvsehco&-total, _rua,      as percentages of total, male and female population of all ages
-ad-Aul-A household consists ofa group of individuals who share  respectively; 1960. 1970. and 1983 data. These am based on ILO's
living quarter and their main meahl A boarder or lodger may or  participation rates reflecting age-sex structure of the population. and
may not be included in the household for statiical purposes.  long time trend. A few estimates are from national sources.
Average Nxmber of Persons per Room4-otal, mbm., aud rua--     Eceowam  Deadewy Ratio-Ratio of population under 15. and
Average number of persons per room in all urban, and rural    65 and over. to the working age population (those aged 15-64).
occupied conventional dwellings, respectively. Dwelins exdude
non-permanent structures and unoccupied partns                INCOME DIS!TRIlTON
Percet of DweE_s wt/h Elecrricp-4otal. bar,  ad raul -      Percefq  V Totl Dipsabk 1cme (bath m cas and kad)-
Conventional dwelings with eectricity in living quarters as percen-  Accruing to percentile groups of households ranked by total houe-
tage of total. urban. and rural dwellings respectively.       hold income.
EDUCATION                                                    POVERTY TARGET GROUPS
AX4asred EAivment Rarios                                     The following estimates are very approximate measures of poverty
Prmy scdwl - tota( male and fale-Gross total, male and       levels, and should be interprted with considerabk caution.
fmale enment of all agi  at the primary level as pexcentaggo of  EstimadAbsobie pe-ty I _Acee Le el (l VS pr p apwia) -wam
respectivc primary school-ae populations While- many countries  ad ruAl-Absolute poverty income level is that income level
consider primary school age to be 6-11 year, others do not. The  below which a minimal nutritionally adequate diet plus essential
diffrences in country prac ces in the ages and duration of school  non-food requirements is not affordabk.
arc reflcted in the ratios given. For some countris with universal  Estiualrd Rehat  Po1v  I  m   Lewd (USS per cpuwi-wbon
educaton, gross enrolmlent may exceed 100 percnt since some   and rural-Rural relative poverty income level is one-third of
pupils arc below or above the country's standard primary-school  average per capita personal income of the country. Urban level is
age.                                                         derived from the rural kvel with adjustment for higher cost of
Secondry sdcool - total. male and femal-Computed as above;    living in urban areas.
secondary education requires at least four years of approved pri.  Esimared Popa  io  Bew Absoltte Pverty lucem  Levl (per'
mary   unction; provides general, vocational. or teacher trining  centi-arbau ad rul- Pr.et of population (urban and rural
instucions for pupils usually of 12 to 17 years of ag correspond-  who are -absolute poor.-
emce courses are gaeally excuded.
Vocaiwnal EwolItei (perct of  cmoidwyJ-Vocational institu-              Comparative Analysis and Data Division
tions indude technical industriaL or other programs which operate    Economic Analysis and Projections Department
independently or as departments of secondary institutions.                            June 1985



- 2K   -
_arn - lwit fICE,            ails                                                                          I
wr~ ~ ~~t                                               IUSTU  44 as    1  lll 1  am-s1nni *ti iii                           MiSt
013.40V                                        ITS? 390 RiOt", 5311.13
up                                        3.33   2231   354    31.34  M3.AX   33.31  39ST  ELKJ   25.5   241.3    4.3    1.l   1. L13    4.n                        w8.n5  3.L4      11.1  ULU
3333   M     1F7n                        -3.37   -4.91    LU       1.4   -3.13   -4.1  -Lb d       4.  -.33.   -1.61           .       .       .       .             -I       Lu     -4.      7.0
o                                         '1.16   isLe   15.33  M3.14  397431 l.4   34.14  393.57  I31.   Ir23*. 1.10    LU                 31.3     u.n             un   13.5   hLIU    U
asm   llin. Nil              n             .31   ILa        .5n  33.77   Z6      1LI    13.31   I.44   344          .67    7.31   34.3  -31.73   I31.3                     i."        U a    II
inrs 'ICI. r3i                             .13    mae   Z.L3   3.ui   3L.    321.0    Ls33.uL D.N           L       4Let     Lee   EL.    L3         LO               LIN    US4   34.25   u,.e
5       o30                               4.46   -LU    -2.32   -L.3       9.33   19.3      .3    17.74   MA Z .3              .       .                             -.  .  -3.  -1.   9.23    1.7
53437l 4.5L   20.57   332.3?  135.I0  34I.3  131.2    33I.325  I4.3   384.41  844.4                                          41      1.3I  -3.1      3 LI7           3.3     77.21   T.L1   77.a5
335*w                                    332.    31.24   u.n9    3.0   43.24   33.37   IL"    23.7    3            53.3 Lr     3     LU    .9.93   1U.24            32t3      4       IL" l   LU
-3ML Swim5                                ILAS   b.46   3.46   41.14    9.43   43.3     1L3         3.3   41.42   Ssil     L IL             .1.71    LIS5            34.3    27n    n35    z73.
NE   ren DaK                              -3.04   -Lw    .4.C   -7.94  -32.33  -14m    -:1. -- 3.L     5  -11.3t  -u2.3    14.0    1.I  -L343          .39           -3.52   .La3.       -g. 
GM 0tA. r8N1                             3n.39   34.a4   17.54   31.n    3.n    33.3s    3.7n   31.75   304         45.9     1.74    9.3S  .51  3I.91                IL"    3L.3   2L"    13.34
Stink 03131                                                                                                                                                                       4112
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- 25 -
MLUM OF PA(NENIG, EITEIUL USISTRNCE AND DEBT 11                                                               £111 I
IuS NILLIE AT MIRENT PRICES)                                                                      PECE  WF &
CALt                                                   PRNJEClT1iU2i
(7       1ll5     145      191      1912      ING3   1994   1905tp       19*      19"
sttrE  taEM IF PayiEis
E1P0R0S illKLSING Y51                            3117     4793    23925    29424    2*149    271t4    30415    2.97    27P02    46798
11087TS IaIN10DIf IFS)                           392 IE     10    250    34420    20207    1271:    112i    I1591    19B77    379X6
3S0LRCE MIC!                                    -765    -S117    -2325    -499       1942    14383    14114      7996     9015      9732
NET FRCTO   INEME                                -479    -1459   -4991   -7548   -12135    -9050   -10719    -9275    -9124    -9.25
tINTEREST PANEITS                             -290    -1032   -5479    -382   -22230   -10197   -1954   -1048           -9565    -97,2
CUIAE1 ACCT  ILMME                             -3244    -4574    -7.22    -12544    -i221      5324      90       -279      29          7
PRIVATE UISECT IEST0F1T                           105      20      125t4     119i    1457       460      39:       400      500      91
RtLIC IL. AND LOW  TEP9  LONS, NET                241      2*2     4574      6s5    6479       2442       7      -1315     3170      IV40
ISIIS TS                                        929     4422     kWo   13M3    10549         6061     2431      .277     7352     90
REPVNETS                                       S6'    4130       4024     3779     4070      3420    M2         3493     3192     7060
IMF (NEt)                                          --       ---    -12      -3is      221      1300     3295      900       575     -U7l
0TH6EC WITOL                                      900     4210     2544     2153 -ns    4    -5124    -2299    -2704    -2734        -104
C4P1fE IP RESERVES  -IRSEI                       -302     -u45    -1023     -25       4739    -601    -34532       000    -2200    -3540
SR A    ATIIR                                      45       ---      74       70            ---           ---       ---      --       ---
Us?4 09 2945 COIIIIIIIEII;T
PULIC NED. AND L . LIoNS
I1                                            14.00   330.10  42500  13021 .0   539.90   740.30
loIp                                              ...      ...      ...      ..       ..
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CE9VED3T                                        79.9R   245.J0   990.91   671.40  111.130   224.70
SWPLIERS                                        70.40   367.3    95.90  209.00   207.0   331.70
as   A   FA ACAI L IA INSTI5TINS               170.40  337340  474.90  734.34  B419.30  5199.00
EM AN DEBT SERVICE
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(END a  PEkI- - -
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Eal    ON EIPITI E If IF                                                                                                                           PUBLIC n & L.TF
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IBRD                                     3312     4.68
MOA4CE TEIM  OF PuaLIc Es C IENTS                                                                                                                  OTHER OFF. SUaS                           uoo      b 47
1a.1 ET 51   I WF FRIMP 1EARs             7.40    30.19    11.46    14.00    14.35    £3.b4    11.26                                        OTHER PRIVATE                            59072    10.5
LL AM. 1- STUES
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(TEMS)                                                                                                                                    TOTAL.                                   4649S   100.00
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IILIC LL  _  D.
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PIBLIC DT SERVICES
It au  FIM  DFE  TO RE D 151       D L0NL TERN PaLIC DEBT 0IL1 (MS).
21  1M      1 0   9IL lPCE 5F      20  PER IMAM.
... NOT AIULE SeTTELYifT IIIT UEI T11 IE TOTEL.
S    lS t NS   OF N DEMS, a STwFF ESTTIIATES.
FEMR  273 Is



- 26 -
ANNEX II
Page 1 of 2
THE STATUS OF BANK GROUP OPERATIONS IN MEXICO 1/
A. Statement of Bank Loans (as of September 30, 1985)
Loan                                                             Amount less    Undis-
No.       Year      Borrower   Purpose                          Cancellations   bursed
59 loans fully disbursed                      3,611.19
1706-5    1979     NAFINSA    Irrigation                             92.00       40.53
1712-5    1980     NAFINSA    Industry                              175.00       22.60
1820-5    1980     NAFINSA    Small/Medium Scale Mining              40.00       14.24
1858-5    1980     NAFINSA    Irrigation                            160.00      132.10
1881-5    1981     NAFINSA    Small/Medium Scale Industry           100.00        0.46
1908      1981     NAFINSA    Irrigation                             23.00         1.70
1913      1981     BANOBRAS   Water Supply                          125.00       59.03
1929      1981     BANOBRAS   Railways                              150.00       36.45
1945      1981     NAFINSA    Rainfed Agriculture                   264.60       78.81
1964      1981     BANPESCA   Port Development                        5.45        1.51
1990      1981     BANOBRAS   Urban Development II                  164.00      115.49
2042      1982     NAFINSA    Technical Training                     90.00         1.01
2043      1982     NAFINSA    Integrated Rural Development          175.00       56.42
2100      1982     NAFINSA    Irrigation. Rehab II                   65.00       56.26
2142      1982     NAFINSA    Capital Goods Industry                152.30      103.62
2154      1982     NAFINSA    Pollution Control                      25.00        13.99
2191      1983     NAFINSA    San Fernando Agri.                     48.40       31.36
2194      1983      BANOBRAS   Urban Engineering                      9.20        6.11
2262      1983     NAFINSA    Agri. Marketing                       115.00       82.70
2281      1983     BANOBRAS   Third Water Supply                    100.30       81.52
2325      1983     NAFINSA    Third Small/Medium Industry           175.00       98.94
2331      1983     BANCOMEXT  Export Development                    350.00      243.20
2428      1984     BANOBRAS   Highways                              200.00      139.08
2450      1984     BANPESCA   Ports                                  76.30       68.44
2454      1984     NAFINSA    Agricultural Credit                   300.00       25.16
25253/    1985     NAFINSA    Chiapas Rural Roads                    22.00       22.00
2526S/    1985     NAFINSA    Chiapas Agric. Dev.                    90.00       90.00
2546S/    1985     NAFINSA    Small/Med. Scale Industry II          105.00      105.00
2559U/    1985     NAFINSA    Vocational Education                   81.00       81.00
25752/    1985     BANOBRAS   Railways V                            300.00      300.00
26102/    1986     NAFINSA    Agricultural Credit                   180.00      180.00
26122/    1986     BANOBRAS   Low-Income Housing                    150.00      150.00
TOTAL                                           7,719.74
Of which has been repaid to the Bank            1,544.13
Total now outstanding                           6,175.61
Amount sold                  92.34
of which has been repaid    92.34                   0.00
Total now held by Bank 2/                       6,175.61
Total undisbursed                                           2,438.73
1/ The status of the projects listed in Part A is described in a separate report on
all Bank/IDA financed projects in execution, which is updated twice yearly and
circulated to the Executive Directors on April 30, and October 31.
2/ Prior to exchange adjustments.
3/ Not yet effective.



- 27 -
ANNEX II
Page 2 of 2
B. Statement of IFC Investments (as of September 30, 1985)
Fiscal                                                                     USS Million
Year          Obligor                     Type of Business           Loan  Equity  Total
1958/59  Industrias Perfect
Circle, S.A. /1              Industrial Equipment           0.8    -      0.8
1958     Bristol de Mexico, S.A. /1    A.C. Engine Overhaul            0.5    -       0.5
1961     Acero Solar, S.A. /1            Twist Drills                  0.3    -       0.3
1962/65/ Compania Fundidora Fierro
66/68    y Acero de Monterrey, S.A.  Steel                           2.3   21.4   23.7
1963     Tubos de Acero de Mexico,
S.A. /1                      Steel                          0.9    0.1    1.0
1963     Quimica del Rey, S.A. /1        Sodium Sulphate               0.7    -       0.7
1964/66  Industria del Hierro, S.A. /1 Construction Equipment          -       2.0    2.0
1970     Minera del Norte, S.A. /1       Iron Ore Mining               1.5    -       1.5
1971     Celanese Mexicana, S.A./1       Textiles                     12.0    -      12.0
1972     Promotora de Papel
Periodico, S.A. de C.V. /1  Pulp and Paper                   /2     /2     /2
1973/79  Cemento Veracruz, S.A.          Cement                       15.9    -      15.9
1974/81  Cancun Aristos Hotel            Tourism                       1.0    0.3    1.3
1975/78  Mexinox, S.A.                   Steel                        12.0    3.2   15.2
1978/81
/84    Papeles Ponderosa, S.A.         Pulp and Paper               10.7    5.0   15.7
1978     Tereftalatos Mexicanos, S.A.  Petrochemicals                 19.0    -      19.0
1979/84  Cementos Tolteca, S.A. /3       Cement                      168.0    7.9  175.9
1979/81  Hotel Camino Real Ixtapa,S.A. Tourism                         -       3.1    3.1
1979     Conductores Monterrey, S.A./3 Electrical Wire and Cable  18.0    -          18.0
1980     Industrias Resistol, S.A. /3  Particleboard                  25.0    -      25.0
1980     Vidrio Plano de Mexico
S.A. /3                      Flat Glass                  114.9    -    114.9
1980     Minera Real de Angeles,
S.A. de C.V. /3              Mining                      110.0    -    110.0
1981     Celulosicos Centauro, S.A./3  Pulp and Paper                 59.5    -      59.5
1981     Corporacion Agroindustrial,
S.A.  /3                     Agri-Business                11.3    3.0   14.3
1984     Metalsa, S.A.                   Motor Vehicles
and Accessories            3.0    1.4    4.4
1984     Capital Goods Facility          Industrial Equipment        100.0    -    100.0
1985     Proteison                       Cotton Seed Flour             2.n    0.8    2.8
1985     Primex /3                                                    16.4    -      16.4
Total Gross Commitments                                    705.7   48.2  753.9
Less Cancellations, Terminations, Repayment,
and Sales                                                  550.7   22.1  572.8
Total Commitments Now Held by IFC                           155.0   26.1  181.1
Total Undishursed (including participants)                  150.4    6.5  156.9
/1    Investments which have been fully cancelled, terminated, written off,
sold, redeemed or repaid.
/2    US$25,000.
/3    Gross commitment including amounts sold to participants.



- 28 -
ANNEX III
Page 1 of 2
MEXICO: SOLID WASTE MANAGEMENT PILOT PROJECT
Supplementary Project Data Sheet
Section 1: Timetable of Key Events
(a)  Time Taken to Prepare Project:         One year and two months
(b)  Project Prepared by:                   SEDUE/BANOBRAS
(c)  First Presentation to the Bank:        February 1984
(d)  Departure of Appraisal Mission:        July 1985
(e)  Completion of Negotiations:            February 1986
(f)  Planned Date of Effectiveness:         July 1986
Section II: Special Bank Implementation Actions
None
Section III: Special Conditions
1.   The Government's Program for the Strengthening of Municipalities
(FORTAMUN) would be formally established under a mandate from SHCP to
BANOBRAS, on terms acceptable to the Bank, as a condition of
effectiveness of the proposed loan (para. 41).
2.  BANOBRAS would, as a condition of effectiveness, enter into contractual
arrangements, satisfactory to the Bank, with the Government providing
for the transfer of loan funds to the Government for the purposes of
carrying out FORTAMUN and repayment of the loan by the Government
(para. S1).
3.   The amount allocated to the pilot component would provide initial
capital to a Municipal Development Fund (HDF) under FORTAMUN to provide
subloans and grants for the implementation of pilot subprojects on terms
and conditions satisfactory to the Bank. Principal and interest pay-
ments on subloans would be deposited in the MDF and further onlent to
municipalities for the purposes of expanding FORTAMUN (para. 51).
4.   The approval of Operating Guidelines, on terms acceptable to the Bank,
by the Guarantor and BANOBRAS, would be a condition of effectiveness of
the proposed loan (para. 41).



- 29 -
ANNEX III
Page 2 of 2
5.   BANOBRAS would agree to follow policies and procedures as outlined in
the Operating Guidelines, and would not make any changes in the
Guidelines which would materially and adversely affect Li.e carrying out
of the project (para. 41).
6.   The Government would agree to an amendment to the General Interest Rate
Agreement (GIRA) providing for the inclusion of urban infrastructure
credit (including solid waste opcrations) with the following target
rates: 68% of ACF for January 1, 1986 and 80% of ACF for January 1,
1987 onwards. The effectiveness of this amendment would be a condition
of effectiveness of the proposed loan (para. 61).