Document of The World Bank FOR OFFICIAL USE ONLY Report No. P-3221-BR REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE FEDERATIVE REPUBLIC OF BRAZIL FOR A SECOND NORTHWEST REGION RURAL DEVELOPMENT PROJECT (STATE OF MATO GROSSO) February 26, 1982 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS Calendar 1980 February 11, 1982 Currency Unit Cruzeiro (Cr$) Cr$ US$1 = Cr$53.25 Cr$134.10 Cr$1 = US$0.14 US$0.0075 GOVERNMENT OF BRAZIL FISCAL YEAR January 1 - December 31 POLONOROESTE PROGRAM FISCAL YEAR April 1 - March 31 The exchange rate used in the Staff Appraisal Report (US$1 Cr$88.10) corresponds to the cruzeiro June 10, 1981 exchange rate. FOR OFFICIAL USE ONLY GLOSSARY OF ABBREVIATIONS CASEMAT Companhia de Armazens e Silos do Estado de Mato Grosso (State Warehouse and Silo Company) CODEAGRI Companhia de Desenvolvimento Agricola do Estado de Mato Grosso (State Agricultural Development Company) CODEMAT Companhia de Desenvolvimento do Estado de Mato Grosso (State Development Company) DERMAT Departamento de Estradas de Rodagem do Mato Grosso (State Highway Department) EMATER-MT Empresa de Assistencia Tecnica e Extensao Rural do Mato Grosso (State Technical Assistance and Rural Extension Company) EMBRAPA Empresa Brasileira de Pesquisa Agropecuaria (Brazilan Agricultural Research Company) EMPA-MT Empresa de Pesquisa Agropecuaria do Estado de Mato Grosso (State Agricultural Research Company) FUNAI Fundacao Nacional do Indio (National Indian Foundation) GPC Gabinete de Planejamento e Coordenacao do Governo do Estado (State Cabinet of Planning and Coordination) IBDF Instituto Brasileiro de Desenvolvimento Florestal (Brazilian Forestry Development Institute) INCRA Instituto Nacional de Colonizacao e Reforma Agraria (National Institute of Colonization and Agrarian Reform) POLONOROESTE Programa Integrado de Desenvolvimento do Noroeste do Brasil (Brazil's Northwest Region Integrated Development Program) SANEMAT Companhia de Saneamento do Estado de Mato Grosso (State Sanitation Company) SEC Secretaria de Educacao e Cultura (State Secretariat for Education and Culture) SEMA Secretaria Especial do Meio Ambiente (National Secretariat for the Environment) SES Secretaria de Saude (State Secretariat of Health) SUDECO Superintendencia do Desenvolvimento da Regiao Centro-Oeste (Superintendency for the Development of the Center-West) This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. BRAZIL SECOND NORTHWEST REGION RURAL DEVELOPMENT PROJECT (State of Mato Grosso) Loan and Project Summary Borrower: Federative Republic of Brazil Amount: US$26.4 million equivalent, including front-end fee. Terms: Interest at 11.6% per annum. Repayment in 15 years, including 3 years of grace. Project Description: The loan would help finance a second phase of the Bank's proposed participation in an integrated development program for northwest Brazil (POLONOROESTE program). This program is designed to help bring order to the spontaneous settle- ment of a region of about 410,000 km2 covering the state of Rondonia and 14 municipalities in the central and western part of the state of Mato Grosso. The program aims at increasing the productivity, income, and social welfare of the region's present and future population, and is expected to benefit directly some 120,000 small-scale farm families. At the core of the program is the paving of the heavily traveled and badly deteriorated Cuiaba-Porto Velho road, and the investments required to achieve the balanced socio- economic development of the road's area of influence and to protect the region's Amerindian population and natural environment. The proposed Mato Grosso rural development project consists of the following main components: (a) the strengthening and expansion of agro-ecological zoning, rural extension, agricultural research and input supply; (b) the improvement of physical infrastructure, including consolidation and expansion of crop storage and drying capacity, and the improvement of municipal roads and establishment of a road maintenance capability; (c) the strengthening and expansion of education and health facilities and services, and construction of community centers and rural water supply systems; and (d) establishment of project management and coordination, including monitoring and on-going evaluation. Additional support activities such as agricultural credit, minimum price purchase mechanisms, and financing for some incremental recurrent costs not financed under the project would be provided by Government. Provisions included under the Bank-financed first phase of the POLONOROESTE program would support a series of parallel activities in Mato Grosso crucial to attaining the objectives of the proposed second-phase project, such as land tenure regularization and strengthening of IBDF's operations. The infrastructure and - ii - social services provided under the project should benefit most of the 18,700 families expected to be living in the subproject area by 1986. Agricultural services would be more directly oriented to some 10,000 of the less developed small-scale farm families within that area. The bulk of the project is being implemented over a five-year period starting mid-1981. Risks: The project area is located in an environmentally delicate agricultural frontier, but has been settled for 10 to 20 years, in contrast to the Rondonia section of the Northwest Program area rhich is still being occupied. The challenge in this project, as in other agricultural facets of the POLONOROESTE program, is to establish and maintain a fairly intensive productive base, to stabilize the existing small farmer migrant population within the region, and to help prevent irreversible harm to the ecology. This project's zoning, research and extension activities, combined with the broader environmental protection measures included in the first phase of the POLONOROESTE Program, should help to reduce these risks substantially. The project management, monitoring and decision processes have been designed to help mitigate the risk of inadequate interagency coordination. In general, however, while the risks associated with this project (or risks associated with the adequacy of execution of the measures included under the overall POLONOROESTE program) cannot be totally avoided, it is believed that the measures incorporated in the first and the second phases of the northwest region development program would result in a much lower level of risk than would exist in the absence of the POLONOROESTE program, and that the potential of the area is such that these controlled risks are worth facing. - iii - Estimated Costs: US$ Thousands A. Agricultural Services Local Foreign Total 1. Agroecological Zoning 1,152 128 1,280 2. Rural Extension 9,663 1,318 10,981 3. Adaptive Research 3,964 440 4,404 4. Input Supply 385 68 453 Sub-Total 15,164 1,954 17,118 B. Production Infrastructure 1. Drying and Storage 5,422 1,356 6,778 2. Municipal Roads 7,085 3,815 10,900 Sub-Total 12,507 5,171 17,678 C. Social Development 1. Education 10,350 1,827 12,177 2. Rural Water Supply 1,129 377 1,506 3. Health and Sanitation 2,599 459 3,058 4. Community Organizations 340 60 400 Sub-Total 14,418 2,723 17,141 D. Project Management 2,251 250 2,501 E. Total Project Baseline Costs 44,340 10,098 54,438 Physical Contingencies 4,846 1,104 5,950 Price Contingencies 13,046 2,971 16,017 F. TOTAL PROJECT COSTS 62,232 1/ 14,173 76,405 1/ G. Front End Fee on Loan - 400 400 H. Total Financing Required 62,232 14,573 76,805 1/ Including about US$1.5 million of local taxes. --iv- Financing Plan: --- US$ Millions --------- Local Foreign Total Government 50.4 - 50.4 IBRD 11.8 14.6 26.4 TOTAL 62.2 14.6 76.8 Estimated -------------US$ Millions-------------- Disbursements: Bank-FY FY82 FY83 FY84 FY85 FY86 FY87 Annual 0.9 1/ 5.0 5.9 6.1 5.7 2.8 Cumulative 0.9 5.9 11.8 17.9 23.6 26.4 Rate of Return: 24% for the directly productive components of the project, covering 68% of estimated total project costs. Staff Appraisal Report: No. 3635a-BR of February 23, 1982. 1/ Includes front-end fee of US$0.4 million. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE FEDERATIVE REPUBLIC OF BRAZIL FOR A SECOND NORTHWEST REGION RURAL DEVELOPMENT PROJECT (STATE OF MATO GROSSO) 1. I submit the following report and recommendation on a proposed loan to the Federative Repubic of Brazil for the equivalent of US$26.4 million, including the capitalized front-end fee, to help finance a rural development project in the State of Mato Grosso. This project would be the second phase of Bank participation in Brazil's Northwest Region Integrated Development Program. The proposed loan would have a term of 15 years including 3 years of grace, with interest at 11.6% per annum. PART I - THE ECONOMY 1/ 2. The most recent economic report entitled "Economic Memorandum on Brazil" (Report No. 3275a-BR dated May 29, 1981) was distributed to the Executive Directors on June 26, 1981. A mission to prepare a new country economic memorandum is scheduled for the second half of FY82. Country data are provided in Annex I. 3. The present government, headed by President Joao Baptista de Oliveira Figueiredo, took office on March 15, 1979, for a six-year term. Much of its attention has had to be devoted to grappling with inflation and a difficult balance-of-payments situation. Major economic priorities of the government include the accelerated growth of agriculture, reduced dependence on imported petroleum, and continued expansion of manufactured exports, and increasing domestic savings. Success on these fronts is crucial to the solution of the inflation and balance-of-payments problems, as well as to the sustained improvement of living standards and better income distribution. Economic Performance 4. In the 13 years ending in 1980, Brazil enjoyed a high level of economic growth, with GDP and income per capita rising at average real rates of about 9% and 6X per annum, respectively. During the 1967-73 period, growth was achieved with no significant deterioration of the 1/ Parts II, III and IV of the report are reproduced without substantial changes from the corresponding parts of the President's Report on the Northwest Region Agricultural Development and Environmental Protection Project (Report No. P-3137a-BR, dated October 30, 1981). -2- external resource balance, despite considerable trade liberalization, and there also occurred a gradual decline in the rate of domestic inflation. However, given the heavy dependence of Brazil's industry and transport system on petroleum, over 80% of which was imported, the quadrupling of oil prices at the end of 1973 resulted in a sharp deterioration in the nation's terms of trade. Excess aggregate demand and a succession of bad harvests, along with increased energy costs, resulted in increasing balance-of- payments difficulties and the reacceleration of inflation. 5. Coping with these constraints, while responding to continuing pressures to maintain high growth rates of output and employment and simul- taneously establishing the basis for long-term structural adjustment, has been the central problem of Brazilian economic management during the past eight years. At the same time that considerable success was achieved in maintaining rapid growth, an aggressive and innovative effort was launched to reduce energy consumption andI substitute domestic energy resources for imported petroleum. Through 1978, the balance-of-payments pressures were contained through the continued rapid expansion of exports (particularly of manufactures), increased import barriers, accelerated import substitution, and heavy external borrowing, inicluding large additions to international reserves. However, the rapid accumulation of external debt, compression of imports, and intensification of domestic inflationary pressures increased the economy's vulnerability to fEurther external shock, and that vulnerability was severely tested by the additional sharp increases in petroleum prices and international interest rates that occurred in 1979 and 1980. 6. A number of important measures were taken in 1979 and 1980 to improve control over public sector spending and monetary expansion. These included increased central authcwrity over the investments and borrowings of the public enterprises, the phasing-out of most tax earmarkings, and the reduction of major consumer and producer subsidies. Nevertheless, aggregate demand continued to grow strongly, placing severe pressure on prices and the balance of payments. In 1980, inflation, as measured by the General Price Index, accelerated to 110% (from 41% in 1978), and, despite a 32% growth of merchandise exports and significant reduction in the volume of petroleum imports, the current account deficit grew to almost US$13 billion (compared to $6 billion in 1978). At the same time, Brazil's international reserves fell from US$11.9 billion to $6.9 billion, and terms tightened on the nation's heavy foreign borrowings. 7. In response to the deteriorating situation, and strengthened by the institutional reforms of the previous two years, severe constraints were imposed on aggregate demand in 1981, and efforts to correct the trade balance were increased. The public sector deficit and the monetary aggregates were sharply reduced in real terms. In an effort to encourage private savings and maintain adequate export incentives, monetary correction and exchange rate adjustments, which were-allowed to lag in 1980, were brought back into line with domestic inflation. Banks were freed from interest rate controls on their commercial lending, and rates were also increased on official credits. Some tax incentives to exports, which had been eliminated in the wake of a large devaluation of the cruzeiro at the end of 1979, were restored, while the foreign exchange transactions tax on imports was raised from 15% to 25%. - 3 - 8. As a consequence of these measures, the economy entered into recession in 1981. Despite an estimated 8% growth of agricultural output, GDP declined around 4%. The industrial sector was particularly hard hit by high interest rates and cutbacks in public sector expenditures, and unemployment has increased in the major industrial centers. Manufactured exports, however, have continued to grow rapidly, 32.6% in nominal terms, and a merchandise trade surplus of some US$1.2 billion was achieved in contrast to deficits of $2.8 billion in both 1979 and 1980. The 1981 surplus also reflected a zero nominal growth of imports, including the further reduction of real petroleum imports. Despite sharply higher interest payments abroad, the current account deficit was cut by some US$2 billion. Inflation for the year was reduced to 95% with a steadily declining trend evident through the second half of the year. No problems were experienced in obtaining the US$11.5 billion in net external financing required in 1981. Contrasting with 1979 and 1980 foreign exchange reserves increased by US$600 million in 1981. Total M< external debt outstanding at year-end was about US$61.4 billion. Poverty Programs 9. Although Brazil continues to be characterized by severe income inequality, the government has made substantial efforts to relieve poverty. In addition to general efforts to maintain the growth of employment and prevent the erosion of real wages, special programs for the northeast region have been continued notwithstanding the present tight fiscal and monetary restraints. Coverage of the social security program has been expanded and extended to the rural population. More than 70% of the urban population is now covered by the social security health care system, and a cash transfer program has been established for the rural elderly poor. Almost two million loans have been made for housing by the National Housing Bank (BNH) since 1964. Improvement and extension of the primary health services to rural areas is a government priority in the health sector. A program for grassroots health and sanitation actions for northeast Brazil was initiated in 1976. Plans are underway for expanding this program into a comprehensive national primary health care program. A sites and services program was established in 1975 to benefit the urban poor more directly, and this was complemented in 1977 by a program to finance home improvement and building materials. High priority has also been given to the extension and improvement of urban water supply. Consequently, some six million households comprising about 30 million people have been connected to public water supply systems since 1971, increasing the proportion of urban dwellers who receive such services to 75%. Efforts have also been made to attack the poverty-related problems of adult illiteracy and malnutrition.2/ Future Prospects 10. Since 1973, Brazil has made major efforts to reduce the drain on the economy of petroleum imports. Investments in exploration have been accelerated, and foreign oil companies have been invited to drill under 21 For a more detailed account of these efforts see "The Distribution of Income in Brazil" (Staff Working Paper No. 356, dated September 1979) and "Brazil - Human Resources Special Report" (Report No. 2604-BR, dated July 13, 1979). -4- risk contracts with PETROBRAS, the state oil company. Investments have also been undertaken to develop the nation's extensive hydroelectric potential, to initiate nuclear power production, to substitute alcohol for gasoline, to expand domestic coal production, and to exploit Brazil's large shale oil deposits. Efforts are! also being made to induce energy conservation. While results thus far are encouraging, dependence on imported energy remains a formidable problem. With oil imports constituting an estimated US$10.3 billion (nearly 44% of Brazil's merchandise imports) in 1981, as compared to US$700 million (11% of imports) in 1973, the trade-off between growth and balance-of-payments viability will continue to be a principal preoccupation of economic decision-makers. 11. In view of the balance-of-payments constraint, Brazil must continue to experience a period of careful demand management. Accelerated devaluations of the cruzeiro, the removal of import deposit requirements, the scheduled phasing-out of tax subsidies to export, and the gradual freeing of prices and interest rates should help to promote more efficient resource allocation favorable to both export growth and efficient import substitution. Public investments may continue to be constrained by reduced resource availabilities over the next several years, and foreign lenders, including the Bank, should be prepared to finance a significant proportion of project costs including, when, necessary, a part of local costs. Furthermore, priority attention has to continue to be given to the development of domestic energy sources, agriculture and stimulation of domestic savings. 12. Growth is expected to recover to about 4% in 1982 and to average about 5% per annum in 1983-85, as compared to 11% in 1967-73 and 7.2% in 1973-80. Such a growth rate should be compatible with a stable current account deficit through 1983, falling thereafter. The debt service ratio would decline slowly. These projections are highly sensitive, however, to petroleum prices, international interest rates, and the rate of growth of manufactured exports. The combination of high debt service and a high share of petroleum in total imports leaves the economy highly vulnerable to external events, and this situation may be expected to persist for several years more. External Assistance and Creditworthiness 13. With the forecast trend of real petroleum prices, Brazil's resource balance is expected to become positive in 1982. Interest payments on the growing external debt will increase throughout the 1982-85 period, even if international interest rates should decline. Thus large service account deficits will contribute to continuing current account deficits on the order of US$10-12 billion through 1983. As a proportion of GDP, the current account deficit is projected to fall steadily from its peak of 5.4% in 1980. This projection assumes that imports grow at a moderate pace through 1985, reflecting restrained demand, continued import substitution, and a strengthening of the overall domestic savings effort. 14. Net medium- and long-term borrowing requirements are expected to be around US$11-12 billion in 1981 and 1982, and to decline progressively thereafter to about US$5 billion by 1985. Annual gross borrowing would be about US$19 billion this year and remain in the US$18-20 billion range over the five-year period, with 75-85% obtained as financial credits from private lenders. Consequently, the net debt service ratio 3/ would decline from about 67% in 1980 to about 43% in 1985. 15. In summary, after a period of very rapid growth in the late 1960s and 1970s, the sharply increased cost of petroleum imports has forced the nation to moderate its growth expectations and to adapt its economic structure to the changed terms of trade. This adjustment process was initially eased by a strong reserve position, a solid image of national creditworthiness, the aggressive expansion of manufactured exports, and the ample opportunities for efficient import substitution offered by the large domestic market. Nevertheless, continued heavy dependence on petroleum imports, the resurgence of domestic inflation, and the rapid accumulation of external debt left the economy increasingly vulnerable to further external shocks. The government recognizes the need for careful demand management and for selectivity in its investment policies emphasizing efficiency in export expansion, import substitution, employment creation, and poverty alleviation. 16. The great sensitivity of Brazil's balance of payments to petroleum prices and. international interest rates will continue to make projections subject to a wide margin of error. The present scenario also depends heavily on Brazil's ability to curtail inflation, expand manufac- tured exports despite slower growth of the world economy, and on its continued access to international capital. A major effort is underway to reduce dependence on foreign petroleum, but significant results may not be apparent for several years. On the other hand, the Brazilian economy remains dynamic, highly diversified, and resilient. The task of econoaic management will not be easy, but policymakers have demonstrated their ability to adjust to changing circumstances, and recent policy measures have greatly strengthened their management capacity. Thus, Brazil remains creditworthy for new borrowing on conventional terms in the amounts indicated above. PART II - BANK OPERATIONS IN BRAZIL 17. By September 30, 1981 the Bank had made 106 loans to Brazil, amounting to US$5,995.6 million (net of cancellations), of which 54 were not yet fully disbursed. During FY70-75, disbursements averaged US$150 million per year, reaching US$202 million in FY76, US$267 million in FY77, US$252 million in FY78, US$295 million in FY79, US$318 million in FY80 and US$378 million in FY81. They are expected to increase further during the 3/ Including both public and private debt. The figure for public debt service alone would be substantially lower. For example, in 1979 the public sector accounted for only 53% of total debt service payments. -6- next few years. Tne total undisbursed amount as of September 30, 1981 was US$2,950.2 million. Annex II contains a summary statement of Bank loans as of September 30, 1981 and notes on the execution of ongoing projects. 18. Over the FY77-81 period, Bank lending to Brazil ranged from US$425 million to over US$800 million per year. In FY77, seven loans were made totaling US$425 million; in FY78, nine loans totaling US$705 million; in FY79, nine loans totaling US$675 million; in FY80, seven loans totaling US$695 million were made. In FY81, eight loans totaling US$844 million were approved. So far in FY82, three loans totalling US$320 million for the first phase of Bank participation in the POLONOROESTE program have been approved. Work is relatively advanced on an agricultural development proj- ect in the state of Amazonas, a rural development project in the state of Maranhao, a power distribution project, an urban development project in the city of Recife, a large iron ore mining project in the Serra dos Carajas, and the third-phase project of the northwest region development program. 19. Brazil's external public and private debt outstanding and dis- bursed at the end of 1979 amounted to US$51 billion, and is estimated to have been US$61 billion at the end of 1981. At the end of 1979, the Bank held 3.6% of the debt, and its share of the service on this debt in 1979 was 2%. In 1981, the Bank's share in total outstanding debt is estimated to have risen slightly to 4.2% while its share in total debt service re- mained constant. These percentages are not expected to rise significantly in the next five years. 20. As of September 30, 1981, IFC commitments to Brazil totaled US$774.5 million, of which US$519.6 million had been sold, repaid or can- celled. Of the balance of US$254.9 million, US$193.8 million represent loans and US$61.1 million equity. A summary of IFC's investments as of September 30, 1981 is given in Annex II. Lending Strategy 21. In its lending to Brazil, the Bank has sought to help the govern- ment achieve a number of important development objectives which are inter- dependent and complementary. One important lending objective in Brazil is to help to intensify the efforts of the government to identify and develop projects that will increase t:he productivity and incomes of the lowest income segments of the populatiorn, to broaden the economic opportunities open to those groups, and to improve their living conditions. Consistent with this objective, the proposed project,complementing activities under the recently approved agricultural development and environmental protection project and the associated health and highway projects, would help improve the productivity, incomes, and health and social welfare of the northwest region's present and future populations. Previous loans for nutrition re- search and development, primary education, vocational training, agricul- tural research, agricultural extension, polder construction in the lower Sao Francisco river basin, and integrated rural development were designed to assist low-income groups in rural areas, especially those in the north- east. Further projects to assist the rural poor are in preparation, including several additional integrated rural development projects. Loans for water supply and sewerage projects in the state of Minas Gerais, in greater Sao Paulo, in the northeast and in the south, loans for urban transport in several major cities, a loan for sites and services and low- cost housing, and a loan for urban. development in medium-sized cities are assisting the improvement of the living conditions of the urban population, particularly of the urban poor. 22. Another of the Bank's lending objectives in Brazil is to support institutional development and policy reform designed to develop rational policies and procedures, establish adequate coordination and control within the public sector, and help maximize public savings and ensure that they are used economically through rational selection of investment projects. This institution-building objective is particularly important in the proposed project which seeks to build up the planning and administration capabilities required to promote the orderly human occupation and develop- ment of Brazil's fast-growing northwest frontier. The projects in the northwest region development program, of which this is the second phase, would help upgrade the Brazilian institutions charged with the protection of the region's fragile ecosystem and would help the state of Mato Grosso develop its capabilities for planning, implementing and coordinating rural development, health and road activities. Loans for urban development, electric power, railways, industrial finance, highways, agricultural research and extension, rural development, water supply and sewerage, and the recently approved loan for alcohol and biomass energy development also have important institution-building objectives. 23. Another lending objective is to ease the foreign exchange constraint on development, a constraint that has become more critical since the increase in petroleum prices in 1974, by supporting projects designed to increase Brazil's export capacity and, where economical, to substitute domestic production for imports. As a result of the deterioration in Brazil's terms of trade and balance of payments which took place at the time of the 1974 energy crisis, this objective was placed in the forefront of the government's economic policy. The proposed project would also directly contribute to this objective by helping develop a region that has a considerable potential for agricultural production. Lending for the electric power sector supports this objective, since it is based primarily on hydroelectric energy, and its development lessens the need for petroleum imports. Bank support of fertilizer and petrochemical projects is assist- ing Brazil to substitute large-scale efficient domestic production for imports and thus aid its balance-of-payments position. The alcohol and biomass energy development project directly addresses the need to restrict growth of petroleum imports. Much of the Bank-assisted investment in the transport sector -- railways, ports and highways -- is designed to facil- itate the smooth and economical flow of exports. Support of the steel expansion program is helping Brazil to expand domestic output of a tradi- tional import commodity which can be produced efficiently in Brazil due to the country's ample supply of high-grade iron ore and the scale of its internal markets. A similar objective is being achieved through the VALESUL aluminum project which will use Brazil's abundant hydroelectric resources and ample bauxite reserves. 24. A final objective which applies to all Bank lending to Brazil is to provide part of the large volume of medium- and long-term capital inflows that Brazil has needed and will continue to need for many years in order to sustain satisfactory growth and achieve its employment creation and regional development object:ives. Continued active lending by the Bank in Brazil is regarded by the international financial community as an impor- tant sign of confidence in Brazil and encourages others to continue contributing to the country's development. In some sectors, especially in electric power and industry, Bank participation has helped Brazil obtain additional resources in greater amounts and on more favorable terms from bilateral credit agencies and private financial institutions than may otherwise have been provided. Eleven co-financing operations, for more than US$425 million, have been concluded since 1976 with private financial institutions and several others are in preparation, including about US$110 million in private co-financing for the CEEE Power Distribution Project (Loan No. 1824-BR), US$50 million in private co-financing for the Second Minas Gerais Rural Development Project (Loan No. 1877-BR), about US$65 million in private co-financing for the ELETROSUL Second Power Transmission Project (Loan No. 1895-BR), ande US$250 million for the Alcohol and Biomass Energy Development Project (Loan No. 1989-BR). PART III - THE NORTHWEST REGION DEVELOPMENT PROGRAM 4/ 25. General Presentation. The northwest region of Brazil is offi- cially defined as the area of influence of the 1,500 km Cuiaba-Porto Velho road (BR-364). This area encom,passes all of the new state of Rondonia and 14 municipalities located in the central and western parts of the state of Mato Grosso. In total the nLorthwest region covers approximately 410,000 km2 -- about three quarters the size of France (IBRD Map No. 14865R2). The region was practically uninhabited, except for scattered indian communities and itinerant rubber-tappers an.d prospectors, until completion in the mid-1960s of a 1,500 km earth road linking the two major cities of the region, Cuiaba and Porto Velho, started a massive influx of migrants in search of land and employment. The 1980 regional population was estimated at 1,060,000, having grown at a rate of about 10.8% per annum over the last decade (7.8% per annum in Mato Grosso and 15.8% per annum in Rondonia); it is expected to continue to grow by about 10% per annum during the 1978-88 period. The average population. density is still less than three inhabi- tants per km2 (the national average is 14 inhabitants per km2), mostly concentrated in towns and settlements built along BR-364. One of the main attractions of the northwest region and one of its distinctive character- istics, shared by few other parts of the Amazon, is the relatively wide- spread existence of climatic ccnditions and soils suitable for agricul- ture. However, soils are quite heterogeneous and, as development in many areas is recent, systematic research and evaluation will be needed. The region is estimated to have som.e 29,000 km2 of good eutrophic podsols, mainly in Rondonia. A further half of the remaining soils are estimated 4/ For a more detailed assessment of the northwest region development potential and constraints and of the Northwest Region Development Program see "The Integrated Development of Brazil's Northwest Frontier" (Report Y-- 3042a-BR, dated December 23, 1980). - 9 - to be capable of sustaining agricultural practices and inputs. In 1978, about 1% of the region was planted in either annual or tree crops and about 80% remained in its natural state; natural and seeded pasture and forestry operations accounted for the remainder. 26. Constraints on the Region's Development. The large and uncon- trolled influx of migrants into the northwest region that has followed the opening of the Cuiaba-Porto Velho highway has brought into prominence a number of key areas of concern in the development of the regions One such area of concern is the potential threat to the Amerindian groups located in the region. They are estimated to number about 8,000 people distributed among 22 different tribal groups, some of which have yet to be contacted. There are an estimated 1,000 Amerindians living on five reserves totaling some 610,000 ha in the area of the proposed project. Only one of these five reserves has been officially demarcated. The National Indian Agency (FUNAI) has only one understaffed indian post in the area. Measures are underway for strengthening FUNAI's operations in the entire northwest region, including the proposed project area (paragraph 35). The recent swell of migration to the region has increased the transmission of diseases, such as tuberculosis, measles and influenza, to which the Anmerindians have little or no immunity, and has intensified pressures on their lands. Squatters have, in some cases, invaded officially designated Amerindian areas, although not in the area of the proposed project. 27. Increased threats to the fragile and little-known northwest region's natural environment from the rapid human occupation of the area constitute another area of concern. To date, spontaneous migrants and existing settlement schemes have, by and large, occupied areas of good soils, and the pace of deforestation, though increasing, remains much lower than commonly thought (less than 5% of the forest area had been cleared as of 1980). However, if adequate policies and institutional capabilities are not developed to help direct the increasing human occupation of the region, there will be an increasing risk that occupation of poorer soils with ill-adapted agricultural practices and uncontrolled deforestation could result in leaching and erosion of the soil, and possibly changes in the climatic and hydrological conditions. Finally, the failure of some past attempts at settling small-scale farmers elsewhere in the Amazon region has demonstrated the need to provide migrants with a range of productive and social infrastructure and services in order to fix them productively and permanently to the land and create a sense of community and security in otherwise unstable and harsh frontier conditions. 28. Program Formulation and Concept. The orderly occupation and development of the northwest region is currently of high priority to the Brazilian government. The region is perceived as an important future source of agricultural production for export and domestic markets, and as a location where migrants from other parts of Brazil can be productively and permanently settled. In August 1979, an interministerial working group was established for defining a strategy for the harmonious development of the region. The recommendations of this working group served as the basis for a federal special program called the northwest region integrated development program (POLONOROESTE program). The POLONOROESTE program, established by a Presidential decree of May 27, 1981, is the latest of 10 - several regional development programs currently underway in Brazil. Execution of the program is coordinated by the Superintendency for Development of Center West (SIJDECO). At the core of the program is the paving of the heavily traveled and badly deteriorated Cuiaba-Porto Velho earth road, and the investments required to achieve the balanced socio-economic development of the road's area of influence and to protect the region's Amerindian population and natural environment. 29. Program Components. The POLONOROESTE program calls for the execution of integrated measures in the following areas: (a) improvement of the transport system through the paving of the Cuiaba-Porto Velho highway and the improvement of the feeder road network (53% of estimated program costs); (b) establishing new settlement schemes expected to accom- modate new migrant families (24%); (c) consolidatIon of existing settlement schemes in Rondonia and Mato Grosso (15%); (d) land tenure services to provide settlers with definitive title to their land (1%); (e) environmental protection including establishment of natural reserves, institutional upgrading and eczological research (2%); (f) health activities for the territory of Rondonia and health research (2%); (g) protection of the Amerindian population (2%); and (h) program administration and coordin- ation (1%). The program is expected to be implemented over a six-year period. Bank participation in the program's financing is currently envi- saged in three overlapping phases. The first and most extensive phase includes the associated highway, agricultural development and environmental protection, and health projects approved by the Executive Directors December 3, 1981. The second phase would encompass the proposed rural development project in Mato Grosso presented in this report. The third phase would cover new planned settlement schemes in suitable areas of Rondonia. Though this new settlement phase of the program was initially expected to help place some 30,000 families on 3 million ha, availability of accessible suitable lands, execution capacity constraints, and develop- ment of appropriate production recommendations where cultivable soils of relatively lower quality are to be used, will probably limit the number of farmers and the total new area settled, or may also extend the execution period for these new settlements. 30. Measures for Protec-ting and Assisting the Program Area's Amerindian Population. Measures envisaged under the POLONOROESTE program for reinforcing the protection of the northwest region's Amerindian population have already been initiated under the first-phase loans (President's Report No. P-3137-BR) and would continue to be carried out with funds entirely provided by the government. Under a special project prepared by the federal government authorities, FUNAI is upgrading its organization and operations in the region and has already initiated a series of measures giving priority treatment to (a) the protection and demarcation of Amerindian lands, and the removal of illegal settlers; and (b) health care, through stepped-up preventive campaigns and more effective assistance to fight infectious diseases. Further lines of action would seek to promote education and economic development activities. Planning would be decentralized for more efficient field-level involvement. The government's commitments regarding the implementation of the special program is covered under Section 4.05 of Loan Agreement No. 2060-BR, (Agricultural Development and Environmental Protection Project) dated December 15, 1981 and Supplemental Letter No. 1 of the same date. 11 - 31. Program Costs and Financing. The total cost of the POLONOROESTE program, including physical and price contingencies, is estimated at about US$1.5 billion. This excludes agricultural credit on the order of US$100 million. The preliminary government financing plan for the POLONOROESTE program assumes that 43% of the program would be financed from the budgets of the various executing agencies, and 23% from special development funds. The government has requested Bank financing for the remaining 34%. Agricultural credit would be financed through existing credit programs outside the POLONOROESTE program budget. Funding would be channelled through the various implementation agencies under the supervision of SUDECO, which would coordinate and monitor all program activities. Funds allocated to agencies of the state of Mato Grosso would be channeled through the state planning secretariat. 32. Program Benefits and Justification. The northwest region has considerable potential in agriculture and forestry, and response to public investments made through the POLONOROESTE program is expected to be both rapid and extensive. The region's agricultural production is expected to grow at a 13% average annual rate (compared to a historical growth rate of 5% for all Brazilian agriculture), while more sustained cropping would be encouraged. Transport cost savings associated with program investments in transport infrastructure would result in improved price incentives to agri- cultural producers and cost-efficient access to domestic and export markets. The POLONOROESTE program would provide large numbers of poor migrants with enhanced employment and income opportunities and would sub- stantially improve living conditions, especially access to education and health services. An economic rate of return computation for the program has been attempted, based on a comparison of the "with-and-without" program situations. The "without" situation assumes no investments in the main highway or feeder roads, no institutional strengthening and no additional technical support of agriculture. The "with" program scenario incorporates all actions to be taken under the program. The internal rate of return of the entire program, computed over a 20-year period, has been estimated at over 50%, reflecting primarily the predicted substantial increase in agri- cultural output as well as improving facilities for transporting this output. Major non-quantifiable benefits include better protection of large ecologically sensitive areas, intensification of efforts to protect the Amerindian population, improved health and education services, strengthen- ing of the capacity of regional institutions, and improved knowledge of the Amazon basin environment. There are also costs which are difficult to quantify attached to the development of the region, such as those asso- ciated with possible invasions of unsuitable soils, potential threats to native flora and fauna species and pressure on previously isolated Amerindian populations. 33. Program Risks. The POLONOROESTE program is to be implemented in a frontier area of the Amazon region. The lack of some detailed regional information gives rise to uncertainties regarding the environmental risks of the program. The recently approved Northwest Region Agricultural Development and Environmental Protection Project includes measures to help protect the more fragile areas of the region and monitor land use closely so that potentially dangerous trends could be halted. These measures are being complemented under the proposed project (paragraph 47). The proposed program would also entail increased risks to the region's Amerindian - 12 - communities. The government is already taking steps to safeguard the interests of these communities. The continuity and timeliness of these actions would be closely monitored. Despite these mitigating measures, the execution of the program would entail a high degree of risk. However, this risk would be considerably lower than that which would exist were no attempts made to control the negative effects of the ongoing spontaneous and disorderly development of the northwest region. PART IV - THE AGRICULTURAL SECTOR Agricultural Sector Performance, Constraints and Policy 34. Agriculture continues to be an important sector in the Brazilian economy. It employs about 36% of the economically active population, and contributes about 11% of the total GDP and half of total export earnings. Brazil is the world's largest exporter of coffee and orange juice, the largest producer of sugarcane, and the third largest producer of soybeans. Other major agricultural exporlts include meat and fish products, cotton, corn, peanuts, cocoa, castor oil, and sisal. Whereas coffee accounted for 45% of total export earnings in the mid-1960s, its share had dropped to 11% by 1975 and is now around 14% (1980). About 66% of Brazil's natural rubber consumption is imported at present. In most years Brazil has been self-sufficient in basic food production, except for wheat. From 1970-79, the average annual agricultural growth rate was about 5%. 35. The great majority oif farmers in the north, northeast and center- west regions continue to employ traditional agricultural practices and rudimentary technology. Constraints on increased agricultural production, particularly for small farmers, include: limited access to institutional credit, extension services and modern agricultural inputs; inadequate supporting services and infrastructure for marketing, storage and transport; and uncertain land ltenure and highly uneven land distribution. 36. About 36% of the national territory (some 306 million ha) is comprised of agricultural properties. About half of the agricultural area is used for livestock production. A further 30% is devoted to extractive or planted forestry, or is productive land not currenty utilized. Brazil has traditionally relied on an expansion of its development frontiers to increase its agricultural production. This trend is likely to continue in the decades to come, despite productivity gains expected from stepped-up investments in agricultural research. During the 1981-85 period, in part due to the rapid expansion of biomass energy programs, it is estimated that up to 2.8 million ha of new land will be cultivated annually. 37. Agricultural development has been assigned a high priority in Brazil's Third National Develolpment Plan (1980-85). Major policy objec- tives include: (a) the increase of basic staple and export production, especially by small- and medium-scale producers; (b) improvement of produc- tion, storage, transport and marketing systems; (c) expansion of agricul- tural research and extension a,-tivities; and (d) decentralization of agri- cultural policy execution and the increased participation of the private sector, and state and local governments. Government measures aimed at - 13 - stimulating agricultural production and raising rural incomes, particularly among small-scale producers, include: (a) reorganization of federal exten- sion services to provide better rural extension services to a broader segment of the rural population; (b) support of special programs such as POLONORDESTE in the northeast and POLONOROESTE in the northwest; and (c) expansion of access to institutional credit. 38. An important aspect of Brazil's agricultural policy has been the provision of agricultural credit at subsidized interest rates which, with the continuing high level of inflation, are negative in real terms. The subsidies were introduced to induce an expansion in agricultural production by offsetting the high cost of inputs and by giving special assistance to disadvantaged groups. However, the drawbacks of the system -- economic distortions and administrative complexity -- have become increasingly apparent. The government recently announced increases in nominal interest rates for all agricultural credits, as well as the reduced eligibility of larger-scale farmers and specific end-uses for subsidized funding, and has indicated that it intends to continue reducing these subsidies over time. Bank Involvement in Brazil's Agricultural Sector 39. Bank-assisted operations in Brazil's agricultural sector combine an area development approach, which focusses on poor rural areas in the northeast and northwest, with a functional approach designed to bring about needed policy changes. To date, the Bank has made 22 loans totalling US$868.6 million for agricultural and rural development in Brazil. Of these, eleven, including the recently approved northwest region agricul- tural development and environmental protection project, were for rural development; two each for irrigation, livestock development, agro-indus- tries and agricultural research; and one each for land settlement, agricul- tural extension services, and grain storage. In addition, Bank loans for fertilizer production, a nutrition research and development project, secon- dary and feeder roads and a northeast basic education project are having a direct impact on agricultural production and rural development. Field appraisal for a rural development project in the northeastern state of Maranhao and the proposed Amazonas state agricultural development project have recently been completed. Completion and Project Performance Audit Reports have been issued for the grain storage and the two livestock devel- opment projects. In each of these three projects, significant differences developed between the government and the Bank regarding interest rate policy, leading to some cancellation and/or early repayments of the loans. Project Performance Audit Reports are currently under preparation for an agro-industry credit project and the Alto Turi land settlement project. PART V - THE PROJECT 40. The proposed project is part of the POLONOROESTE program and was prepared by the state and federal government authorities with the assistance of the Bank/FAO Cooperative Program. This project was appraised in June 1981 and negotiated from February 1 to February 5, 1982. The Brazilian delegation to the negotiations was led by Ambassador Leite Ribeiro of the Secretariat of Planning of the Presidency. A Staff 14 - Appraisal Report, entitled "Brazil Northwest Region Development Program: Second Phase - Mato Grosso Rural Development Project" (No. 3635-BR, dated February 23, 1982) is being d-Lstributed to the Executive Directors separately. Supplementary project data are provided in Annex III. Project Area 41. The state of Mato Grosso is a transition area between the cerrados (savannah lands) to the east and south wlich cover some 33% of the state's land area, and humid tropical jungles to the west and north which cover some 57% of the state and include about 18% of the Amazon basin region of Brazil. The remaining 10% of the state is a low-lying swampland (the Pantanal) in the basin of the Paraguay river. Rainfall varies from 1,150 mm/annum in the Pantanal to 2,000 mm/annum in the northern rain forest. 42. The project area covers some 61,500 km2 and includes nine munici- palities located in the central and western parts of the state (IBRD Map No. 15935 attached at the end of this report). Some 30% of the area can be used, with minor restrictions, for annual or perennial crops. A further 20% is estimated as capable of sustaining annual cropping with appropriate policies and inputs, 35% could best be used for seeded or natural pasture, and the remaining 15%, suitable only for forestry, should be kept as reserves. The population of the project area in 1980 was about 217,000, of which 59% was rural. Occupation of the area began in the mid-eighteenth century when gold prospectors and explorers established settlements along the rivers. Between 1960 and 1970, stimulated by the opening of the agri- cultural frontier, population growth mushroomed to about 13% per annum. Immigration slowed to about 7% per annum in the following decade, as the best agricultural areas were occupied and cheaper and better land became available in Rondonia. 43. The main economic activity in the project area is related to agriculture or timber extraction. The total area under crops in the project area was estimated at some 160,000 ha in 1979, with a further 600,000 ha under pasture. The average farm size for the overall project area is 167 ha. Only 39% of the area farmers own the land they are work- ing. The remainder are either squatters (29%), renters (27%), or share- croppers (5%). The estimated present income of the targeted beneficiary families is equivalent to a weighted average of about US$2,735 in 1981. However, some 75% of the farm families fall below the rural poverty level for Brazil, which is about US$330 per capita, or US$1,980 for a family of average size (6 people). Although the region is within 100 km of a federal highway, thus placing it under the jurisdiction of the National Institute of Colonization and Agrarian Reform (INCRA), the state land agency and colonization companies have also issued titles in the region, often without an adequate title search, resulting in overlapping claims to land and in conflicts. INCRA is proceeding with land tenure regularization activities which would be accelerated with Bank financing under the first-phase loans to the Northwest Program. - 15 - 44. Productive and social infrastructure and services in the project area are deficient. Agricultural extension services have traditionally focused on credit activities and, until recently, favored the larger farmers. Agricultural practices and technology among the area's small farmers remain largely rudimentary. Modern agricultural inputs and equipment are provided almost exclusively by private suppliers. The main government credit agencies operating in the area have few outlets, which restricts the small farmers' access to credit. Private intermediaries constitute the main link between farmers and markets. The main crop is rice (about 50% of the total area cropped in 1979), followed by beans, corn, manioc and coffee. Some farmers are experimenting with soybeans, which are grown more widely in the southeastern part of the state. Rural electrification is practically nonexistent. Health and education services are poor in the rural areas. Most of the medical services in the project area are provided through the private sector and service coverage is thin, with almost all facilities located in urban centers. The school participation rate for the rural population between seven and 14 years of age is 48% compared to an area-wide average of 65%. Teacher qualifications are poor, especially in rural areas. Project Objectives 45. The proposed project aims at stabilizing the rural population and improving the long-term agricultural development in an area which was the agricultural frontier 10 to 15 years ago, and is now settled by farmers who have established a fairly reliable productive base. Proposed project objectives are to: (a) raise the income and living standards of some 17,500 families operating farms under 200 ha, giving priority and more intensive assistance to a group of 10,000 of the least developed small-scale farmers, 95% of which are either sharecroppers or owner-operators in the 0-100 ha size category; (b) promote a sustainable development of agricultural production mainly through improvements in production techniques, with some increases in areas cropped; and (c) improve agricultural and social services in the area, expand and strengthen physical infrastructure, and improve the Government's capacity to plan and execute similar area development programs in other parts of the state. Project activities would focus on some thirty small rural communities which are the gathering points and service centers for most of the small-scale farmers in the region. These communities, already identified and surveyed, are located in areas of at least reasonable agricultural potential. Project Components 46. The proposed project would include the following activities: (a) the strengthening and expansion of agro-ecological zoning, rural exten- sion, agricultural research and input supply; (b) the improvement of physi- cal infrastructure, including consolidation and expansion of crop storage and drying capacity, improvement of municipal roads and establishment of a road maintenance capability; (c) the strengthening and expansion of educa- tion and health facilities and services, and construction of rural water supply and sanitation systems and community centers; and (d) establishment of project management and coordination, including monitoring and on-going evaluation. Additional support activities such as credit for agricultural - 16 - agroindustrial development, minimum price purchase mechanisms, and financ- ing for recurrent costs, including incremental ones, not financed by the project, would be provided by the Government. The recently approved northwest region agricultural development and environmental protection project would provide for a series of parallel activities in Mato Grosso crucial for attaining the objectives of the proposed project, such as land tenure regularization and the strengthening of IBDF operations in the area. 47. Agro-ecological Zoning. In support of longer-term development planning in the area, as well as the specific agricultural extension and adaptive research work to be carried out under the project, this component would continue efforts to identify better the natural resource potential of the area, undertake general agricultural aptitude studies, and collect and analyze environmental data with a view to preserving the ecological equi- librium of the region. The component, to be executed by the state agricul- tural research agency (EMPA-MT), would provide for soils and agricultural aptitude surveys of 55,000 km2 covering the ecologically and pedologically most diverse portion of the project area, and the Guapore Valley at a scale of 1:250,000. Vehicles and equipment, consultancy services, incremental staffing and operating costs would also be financed under this component. 48. Rural Extension. EMATER-MT would be expanded and upgraded to provide intensive technical assistance (including individual on-farm guidance) to some 10,000 small-scale farmers (owners and non-owners) in order to improve their agricultural production techniques, with particular attention given to crop diverSification and to raising on-farm produc- tivity. EMATER-MT would also initiate broader group-based agricultural orientation and promote community organization and education in nutrition, sanitation, and home economics, which measures together would benefit the larger target group of 17,500 farm families. The component would finance the establishment of 11 local offices and 150 demonstration plots, as well as vehicles and equipment, training courses for extensionists and farmers, and incremental staffing and operating costs. The field-level agricultural extension staff would be increased and a new social extension staff of about 30 persons would be established. All new local extension offices, to be located so as to serve at least 500 small-scale farmers, would be oper- ational by April 1, 1984 (Section 2.08 of the draft Project Agreement). 49. Adaptive Agricultural Research. The proposed agricultural research activities would complement the ongoing research included in two Bank-financed research projects (Loans 1249-BR and 2016-BR). Emphasis would be placed on selecting and adapting varieties and cultivation tech- niques appropriate to the ecological and logistical conditions in the project area. The newly created EMPA-MT would be the executing agency. The proposed component will help finance the establishment of a regional center for coordination and support of research activities, three local experiment stations and simple weather observation stations and hydrolo- gical observation posts. Other items to be financed include consultancy services, and incremental staLffing and operating costs. EMPA-MT would publicize each year, in a manner satisfactory to the Bank, the results of the proposed research activit:ies, and would, each year, consult with EMATER-MT and representatives of project area farmers before establishing its annual research program. A condition of disbursement for the - 17 - the research component would be that appropriate sites for the three research stations had been acquired (paragraph 3 (c) of Schedule 1 to the Loan Agreement). 50. Input Supply. The project would help improve the supply of agricultural inputs by financing the establishment of a supply store and the implantation and initial operation of three nurseries in the project area. The state agricultural development company (CODEAGRI) would be the executing agency for this component. The state government would ensure that adequate working capital be provided for stocking and operating the input supply post which would be in operation by December 31, 1982. 51. Crop Drying and Storage. The improvement of two existing 3,000- ton warehouses, including the construction of adjacent grain dryers and the construction of a new 6,000-ton warehouse, would be financed in the early years of the project. An additional 18,000 tons of grain storage and drying capacity and three further weighing and drying stations would be subsequently constructed, based on the results of studies undertaken in the project's early years. The state crop-drying and storage company (CASEHAT) would be the executing agency for this component. Construction of the additional 18,000 tons of storage capacity and of the further weighing and drying stations would be conditional upon receipt by the Bank of evidence of adequate full utilization of installed capacity in the project area during the preceeding calendar year, and on receipt of an updated regional grain storage and drying plan satisfactory to the Bank. The state and federal governments would ensure the effective implementation of the existing minimum price crop loan and purchase mechanism (Sections 2.11 and 2.12 of the draft Project Agreement and and 4.02 of the draft Loan Agreement). 52. Municipal Road Improvements. The component would include the design and construction of improvements on 1,470 km of municipal roads in the project area. A system to provide routine maintenance and emergency works on these roads would be established and its initial operation financed under the project. The component coordinating agency, CODEMAT, would contract out improvement works for 805 km of roads in the six munici- palities newly created or restructured, which are the weakest administra- tively. Works for the remaining 665 km would be executed through force account by the municipalities; four technical support teams would be estab- lished within CODEMAT by March 31, 1983 to assist the municipalities in the planning and execution of road maintenance and improvement programs. 53. Education. The component would seek to increase access to, and improve the quality of, rural primary education. Under the project, about 126 schools (equivalent to an additional 394 classrooms and 31,520 student places) and three additional multi-purpose schools (to expand vocational training opportunities) would be constructed and equipped. About 122 existing schools would be renovated. Some 1,820 teachers and administrative personnel would be trained. Curricula, coordination and monitoring of rural education activities in the project area would be upgraded. These measures should raise the primary student area-wide matriculation rate from 65% to 73% by 1987 with the rural rate increasing from 48% to 70%. The state's Secretariat of Education and Culture (SEC) -- 18 - would be responsible for coordinating the execution of the component. The location of schools to be constructed or renovated under the project would depend on an ongoing school riapping exercise which would be completed, with a satisfactory map furnished to the Bank, by September 30, 1982. A satis- factory implementation plan for multi-purpose schools, detailing oper- ational plans, objectives, and evaluation parameters would be furnished to the Bank by September 30, 1982. The Bank would be provided with a satis- factory review of the initial results of the implementation of the first multi-purpose school prior to executing the other two (Section 2.13 of the draft Project Agreement). A condition of disbursement for this component would be that the central and regional SEC coordination staffs were in place and operational (Paragraph 3(e) of Schedule 1 to the Loan Agreement). 54. Rural Water Supply. In order to support activities under the health component, and reduce the incidence of water-borne disease, the project would provide for the construction and equipping of about 24 simplified rural water supply systems and the establishment of maintenance capabilities for existing and new systems. The state water supply company (SANEMAT) would be the executing agency. Prior to initiating the construc- tion of a rural water supply system, EMATER-MT, in cooperation with SEC and SANEMAT personnel, would assist the recipient community to establish an association responsible for operation and maintenance of the system and collection of water use charges sufficient to cover operation and mainte- nance costs. SANEMAT would be responsible for routine preventive mainte- nance of the systems installed (Section 2.14 of the draft Project Agreement). 55. Health and Sanitation. The project would improve the coverage and quality of primary health care services in the project area through: (a) the construction and equipping of seven health centers and 30 health posts; (b) the expansion of an existing health center in Caceres; (c) the training of 81 health post attendants, 21 attendant supervisors, 14 sanita- tion auxiliary personnel in latrine construction and seven laboratory tech- nicians, and the provision of refresher courses for state Secretariat of Health (SES) staff in administration of health services and community orga- nizations; (d) provision of vehicles and bicycles for operation of the health services system; (e) installation of some 5,400 latrines in communi- ties trained and organized for their installation; (f) the strengthening of SES planning and supervision capacity; and (g) incremental staffing and other costs associated with first year startup activities. The state Secretariat of Health would be the executing agent for this component. A satisfactory manual for rural health attendants, including guidance in the bi-monthly routine family visitation program and other responsibilities, would be provided to the Bank by September 30, 1982 (Section 2.15 of the draft Project Agreement). 56. Community Organization. To enhance community development and participation, the project would help organize and train community councils in coordination with agents of the rural extension, health and education components, as well as other agencies active at the local level. Six community centers would be constructed. The executing agency for this sub-component would be EMATER-MT. Communities to be assisted under this component would be selected based on their demonstrated receptivity and - 19 - interest, the fact that they have a majority of small-scale farmers, are being assisted under other components of the projects, and are distributed so as to enable broad demonstration effects as well as use of facilities by nearby communities. Initiation of the construction of any community center would be conditional upon receipt by the Bank of a satisfactory construc- tion plan and evidence that a community council had been formed and was functioning satisfactorily (Section 2.16 of the draft Project Agreement). 57. Activities Parallel to the Project. On-farm investment credit would be provided principally from the existing rural credit programs. Since these operate with highly negative real interest rates, credit was not included in Bank financing for the proposed project. However, the federal government would ensure that adequate credit for working capital and investment was made available in a timely manner to the project benefi- ciaries (Section 4.01 of the draft Loan Agreement). Incremental credit requirements for the 10,000 directly assisted farmers have been estimated at US$15 million equivalent for on-farm investment credit and about US$28 million equivalent for seasonal credit. 58. The state Agricultural Planning Commission (CEPA-MT) is develop- ing a state seed production and distribution scheme, within the guidelines established by the National Seed Production Program. This scheme would establish a mechanism to evaluate potential statewide demand for the various types of certified seed, and promote mechanisms involving both the public and private sector to supply these requirements. The state govern- ment would ensure that it would, by September 30, 1982, employ a coordin- ator for the seed supply scheme and put this scheme into operation (Section 3.02 of the draft Project Agreement). Project Cost and Financing 59. The total cost exclusive of farm credit of the proposed five-year project is estimated at US$76.4 million equivalent, of which about US$14.2 million would be foreign exchange equivalent. The total includes about US$1.5 million equivalent in local taxes. Physical contingencies were estimated at about 11% of mid-1981 base costs. Price contingencies equal to 29% of base costs were calculated in US dollars on the following basis: 9% in 1981, 8.5% in 1982, and 7.5% for 1983-85. A breakdown of the estimated cost is shown in the Loan and Project Summary on page iii. 60. The proposed loan of US$26.4 million, which includes US$0.4 million for the capitalized front-end fee assessed by the Bank, would finance 35% of the net-of-tax project cost, exclusive of credit requirements, covering the entire foreign exchange component and US$11.8 million equivalent (about 19%) of local costs. It seems reasonable for the Bank to finance this portion of local costs in order to make a meaningful contribution to a project designed to improve the income and living conditions of relatively low-income farmers. Retroactive financing of up to US$2 million equivalent would be permitted to help cover eligible expenditures incurred after July 1, 1981. The federal government would contribute the balance of the project cost from the budget of the POLONOROESTE program and through regular agency and state allocations. The federal government would ensure that these counterpart funds as well as all facilities, services, and other resources required for the purpose of the project would be provided in a timely manner (Section 3.01 of the draft Loan Agreement). - 20 - Procurement 61. Civil works for mun:icipal road improvement would be relatively simple and often located in somewhat remote areas. Part of these works (totalling US$4.6 million) would be contracted out following local competi- tive bidding procedures which are satisfactory. The procedures do not preclude foreign contractors from bidding, but they are not expected to be interested because of the scattered nature of the works and limited size of construction lots (estimated costs from US$300,000 to US$500,000). The remaining part of the works (totalling US$2.1 million) would be carried out by force account. Most civil works for education, health, drying and storage and other project construction (totalling US$18.9 million) would be in relatively small lots and quite dispersed, and would be awarded follow- ing local competitive bidding procedures. A small portion of the works would be carried out by force account or by community action. Road con- struction and maintenance equipment (totalling US$2.6 million) and other equipment, materials and vehicles required by the project (totalling US$3 million) would be purchased in several stages, by executing agencies in various locations, over the 5--year execution period. They would be procured in accordance with local competitive bidding procedures which are acceptable. Satisfactory evidence of acquisition of construction sites would be furnished to the Bank prior to the initiation of construction of any school, health post or health center, or community center to be financed under the project (Section 2.17 of the draft Project Agreement and Section 3.05 of the draft Loan Agreement). 62. Consultancy Services. The equivalent of 6 man-years of consul- tancy services would be required under the project to provide technical assistance in road design, adaptive research, agro-ecological zoning, the education component, and project monitoring and administration. The cost of such consulting services, which are expected to be provided locally, would range from US$1,200 to US$4,000 per month, depending on the specialty. The selection, qualifications, experience, and terms and condi- tions of employment of these consultants would be in accordance with Bank policies and procedures (Section 2.02 of the draft Project Agreement). 63. Disbursements. The proceeds of the proposed loan would be disbursed against 34% of expenditures for each project component. In order to reduce the interval during which the Government would finance the Bank's share of project costs with its own resources, the Government may request the Bank to make advance payments in dollars from the loan account into a Special Account to be opened in the Central Bank (Section 2.02 of the draft Loan Agreement). nTe Government would be entitled to make with- drawals in cruzeiros from the Special Account upon submission of withdrawal applications to the Central BEnk. Conversion from dollars into cruzeiros would be made at the exchange rate that prevailed on the date the expendi- tures on the project were made. The Central Bank would forward the with- drawal applications to the Bank, which would then replenish the Special Account. Supporting documentation for minor civil works by force account and for operational expenses would not be submitted to the Bank, but would be retained by the agency responsible for their certification and would be made available for inspection by the Bank during project supervision missions. Standard documentation covering contracted civil works, vehicles, equipment and technical assistance would be submitted to the - 21 - Bank. Disbursement for each construction facility under the agricultural research, and crop drying and storage components would be conditioned upon satisfactory evidence of the acquisition of land required for these facilities. The loan is expected to be fully disbursed by December 31, 1986. Accounts and Audit 64. Each of the participating agencies would maintain separate accounts of its project expenditures which would be audited annually by independent auditors satisfactory to the Bank. Copies of the participating agencies' audited statements would be provided to the Bank through SUDECO within six months of the end of the POLONOROESTE fiscal year. These reports would include an opinion (and comments as necessary) on the methods employed in the compilation of the statement of expenditures, their accuracy, the relevance of supporting documents, eligibility for financing in terms of the project's legal agreements and the standard of record keeping and internal controls related to the foregoing. The Special Account would be audited by independent auditors satisfactory to the Bank (Sections 5.03 and 5.04 of the draft Loan Agreement). Project Implementation 65. Overall Coordination of the POLONOROESTE Program. SUDECO has established a POLONOROESTE general coordination unit under its Deputy Superintendency of Planning to monitor and evaluate program progress and impact, initiate special studies, and harmonize program activities. A program coordinator has already been appointed. SUDECO has already under- taken, as part of the first-phase loans, to (a) appoint two section chiefs (in charge of monitoring, evaluation and special studies, and of harmoni- zation of program activities, respectively) under terms and conditions satisfactory to the Bank, no later than March 31, 1982; (b) complete the establishment of the coordination unit by March 31, 1982; and (c) maintain this unit with personnel whose qualifications, experience and conditions of employment are satisfactory to the Bank. SUDECO would, by October 31 of each year, provide the Bank with the proposed POLONOROESTE program plan of operations and budget, by component, for the following year (Section 3.02 of the draft Loan Agreement). 66. Project Management and Organization. Although most project components would be executed by existing agencies, overall coordination and management of the project at the state level would be the responsibility of a specially created Project Management Unit (PMU) in the state's Cabinet of Planning and Coordination (GPC). GPC would enter into written project contractual arrangements (convenios) with all the executing agencies involved, providing guidelines and key targets for the execution of the component involved, understandings and procedures regarding disbursement of funds, reporting requirements and needs for collaboration with other entities (Section 2.04 of the draft Project Agreement). Receipt by the Bank of satisfactory contractual arrangements would be a condition of disbursement for each component (Paragraph 3(b) of Schedule 1 to the draft Loan Agreement). 67. Monitoring and Evaluation. A project monitoring system would be established and managed by the PMU to alert management to problems which could emerge, and to provide a basis for the annual planning exercise. - 22 - Execution information would be provided to the PMU by the executing agencies on a quarterly basis to be consolidated and submitted to SUDECO for incorporation into the POLONOROESTE program monitoring system. The project information system would build on existing reporting requirements, but would add indicators designed to indicate more clearly the quality of services provided. SUDECO already maintains a computerized data system for monitoring the physical and financial progress for all special programs. This project's monitoring system would feed into that larger system. An annual review of project impact on agricultural activities would be held at the end of the production cycle. Attainment of project objectives in health, education and community development would also be reviewed annually by PMU staff and SUDECO. These periodic impact reports would be incorporated into the regular quarterly project reports. PMU, SUDECO and the executing agencies would develop standardized data requirements and reporting formats, establish coding and analysis procedures, and provide the Bank with monitoring plans and procedures by September 30, 1982. The quarterly monitoring reports would be provided to the Bank promptly upon their completion, but not later than three months after the end of the respective POLONOROESTE fiscal quarter (Section 3.04 (b) of the draft Loan Agreement). 68. Evaluation of project activities, including ad hoc, mid-term review, and project completion studies, would be carried out as part of the overall evaluation of the PO]JONOROESTE program being financed under the first-phase loans, under the responsibility of the general POLONOROESTE coordination unit within SUDECO, with the assistance of independent consul- tants satisfactory to the Bank. It is expected that some aspects of these evaluation activities could be contracted to local agencies with adequate qualifications, such as the federal university of Mato Grosso. Benefits and Justification 69. The impact of the project on agricultural production in the project area is expected to be derived from productivity gains for annual and perennial crops and livestock, an expansion in areas of annual and tree crops, and a reduction in post-harvest losses. Although most of the pro- duction increases are assumed to come from the 10,000 farmers who would adopt proposed practices and receive more intensive extension assistance, the adoption of only a portion of the package by the remaining 7,500 farmers who only receive limited extension orientation and training would also have a positive impact on production. At estimated June 1981 farmgate prices, incremental annual production at full development is expected to amount to US$34 million. Of this, some 7% is due to rice, 47% to coffee, 8% to other perennial crops (such as rubber and bananas), 25% to other annuals (such as beans, corn, soybeans and manioc), and 13% to incremental production of beef and milk. The range of perennial and annual crops is expected to broaden with the establishment of appropriate processing indus- tries (including alcohol from sugarcane or manioc), the expansion of the marketing apparatus for tropical fruits (such as avocados, coconuts, oranges, and mangos) and as the results of the adaptive agricultural research program become available. Although the area under coffee is projected to expand some 15,500 ha, project support includes improving the productivity of existing stands (some 12,000 ha) through improved husbandry and cutback pruning. Incremental project production at full development is - 23 - estimated at 14,400 tons of green coffee beans. This represents less than 1.5% of average Brazilian production during the last five years. The International Coffee Organization (ICO) considers world oversupply of coffee by the end of the decade a possibility. ICO reintroduced quotas on exports of coffee in October 1980 and has cautioned against investment in projects designed to increase production significantly, unless such increased production is due to a diversified pattern of agriculture as part of an integrated rural development program. Production from such programs should be offset by reduced production from marginal areas taken out of coffee. The proposed project meets these criteria as the production of coffee in the project area is part of rural development efforts oriented towards relatively low-income farmers. Moreover, it is expected that the new production will replace coffee from less suitable areas such as the "frost belt" areas of Parana, where coffee production is declining. In the northwest region, on the other hand, ecological considerations make tree crops particularly suitable to protect soil resources, while other crop alternatives are limited. Brazil's interest in an orderly operation of the world market for coffee is evidenced by Brazil's consistent support of the International Coffee Agreement. The Government has represented to the Bank that its policy in the 1980s is to aim for a production capacity of around 28-30 million bags per annum, which would cover Brazil's probable export quota under the International Coffee Agreement, as well as export to non-quota countries and domestic consumption. Such a production capacity might also allow for the creation of a limited reserve stock which is required for facilitating compliance with the country's export commitments during post-frost shortages. In view of these considerations the Brazilian policy target of 28-30 million bags per annum would not present serious market risks for the remainder of the 1980s. The Government has provided us with policy statements and descriptions of its use of policy instruments such as control of working capital and investment credit and producer price guarantees. The Government's confirmation of its intention to use these instruments effectively to assure that production is within a level compatible with its international obligations and a stable world market and that coffee production in new non-traditional regions would be offset by reductions elsewhere, further reduces the risk of excess production. Project return for coffee has been computed on the assumption that prices would not rise, in real terms, from their present levels for the next ten years. 70. At full development (by 1995), the 10,000 direct beneficiary families would increase their average annual income for the average family of six from US$2,735 at present to US$6,750. Return to on-farm family labor would also double, going from the current level of US$8 per day to about US$17 per day. The project cost per family would be about US$3,700, taking into consideration the full number of families to benefit from the various project activities. This cost includes physical and price contin- gencies, but excludes on-farm development credit. 71. At full development, the government of Mato Grosso would derive tax revenues of some US$3.2 million per annum from the incremental production. These expected revenues would be equivalent to the estimated recurrent costs required to maintain the infrastructure and services established under the project. Storage and water supply tariffs would - 24 - cover the operating and maintenance costs of the services. The federal government would achieve revenues in excess of US$12 million per annum from the export tax on incremental coffee production. 72. Economic Rate of Return. The economic rate of return for the directly productive aspects of the proposed project (representing about 68% of total project costs) has been estimated at about 24%. For various other aspects of the project, such as the health, rural water supply and education components, which have significant but not readily quantifiable benefits, no economic rate of return was calculated. The cost stream included all on-farm incremental investment and operating costs, off-farm investments in infrastructure and services directly related to agricultural production, and the recurrent cost of maintaining these services during the 25-year period of analysis. The benefit stream includes incremental agricultural production for the 10,000 farmers receiving direct technical assistance and credit. The estimated return of the project is fairly insensitive to likely variations in costs and benefits. A reduction of 50% of the value of the benefits would reduce the economic rate of return to 16%, and a simultaneous 20% increase in costs and reduction in benefits would lower the economic rate of return to 19%. 73. The development of perennial crops in the project area, and the intensification of cultivation contemplated as part of the project would create employment for an equivalent of 6,500 fully employed laborers per year, of which over 90% would be drawn from family labor. The economic activity generated by the incremental agricultural production would furthermore create numerous jobs in the intermediation, milling and processing industries. Risks and Uncertainties 74. The project area is located in an environmentally delicate agricultural frontier, but has been settled and cultivated for 10 to 20 years, in contrast to the Rondonia section of the Northwest Program area which is still being occupied. The challenge in this project, as with other agricultural facets of the POLONOROESTE program, is to establish and maintain a fairly intensive productive base, to stabilize the existing small-farmer migrant population within the region, and to help prevent irreversible harm to the ecology. This project's zoning, research and extension activities, combined with the broader environmental protection measures included in the first phase of the POLONOROESTE program should help to substantially reduce these risks. The project management, monitoring and decision processes have been designed to help mitigate the risk of inadequate interagency coordination. In general, however, while the risks associated with this project (or risks associated with the adequacy of execution of the measures included under the overall POLONOROESTE program) cannot be totally avoided, it is believed that the measures incorporated in the northwest region development program would result in a much lower level cf risk than that which would exist if there were no interventions in the region and the potential of the area is such that controlled risks are worth facing. - 25 - PART VI - LEGAL INSTRUMENTS AND AUTHORITY 75. The draft Loan Agreement between the Federative Republic of Brazil and the Bank, the draft Project Agreement between the State of Mato Grosso and the Bank, the draft Supplemental Letters, and the Report of the Committee provided for in Article III, Section 4(iii) of the Articles of Agreement are being distributed to the Executive Directors separately. 76. Special conditions of the project are listed in Section III of the Annex III. Disbursements for each construction facility under the agricultural research and crop drying and storage components would be conditioned upon receipt by the Bank of satisfactory evidence that the land required for these facilities had been acquired. A condition of disburse- ment for the education component would be that the regional and central SEC project coordination staffs were in place. Additionally, disbursement for each component would be conditional upon the execution, satisfactory to the Bank, of the respective contractual arrangements referred to in paragraph 66 of this report. Failure by the Borrower, Rondonia, Mato Grosso, or the Banco Nacional de Desenvolvimento (BNDE) to comply with any covenant agreement or obligation under the Loan and Project Agreements for the northwest region first-phase projects would also constitute an event of default on the proposed project, pursuant to the Bank's General Conditions (draft Supplemental Letter No. 1). PART VII - RECOMMENDATIONS 77. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank. 78. I recommend that the Executive Directors approve the proposed loan. A. W. Clausen President Attachments February 26, 1982 Washington, D.C. - 26 - ANNEX I Pay.e I Of 5 BRAZIL - SOCIAL INDICATORS DATA SHEET BRAZIL REFERENCE GROUPS (WEIGHIED AVERAGES LA'D AREA (THOUSAND SQ. KM.) - MDST RECENT ESTIMATE)- IOIAL 8512.0 MOST RECENT MIDDLE INCOME MIDDLE INCOME ACGKICLLIURAL 2077.2 1960 /b 1970 /b ESTIMATE /b LATEN AMERICA & CARIBBEAN EUROPE GNP PER CAPITA (USS) 320.0 570.0 1780.0 * 1616.2 2609.1 ENERGY CLuSUMPTIUo PER CAPIIA (KILOGRAMS UF COAL EQILVALENT) 392.1 565.0 1061.5 1324.1 2368.4 POPULATIUN AND VITAL STAIlSTICS PUPULATION, MID-YEAR (THOUSANDb) 71513.0 95322.0 116539.0 * URB1AN PoPULATIUN (PERCENT DF TOTAL) 46.1 55.9 64.1 64.2 53.2 PoUVJLAIoNh PROJECIIONS POPULATION IN YEAR 2U0O (MlLL1ONS) 176.5 STATIUONARY POPULATION (MILLIONS) 281.0 YLAR SIAIIONARY PuPULATION IS REACHED 2U75 POPULATION DENSIIY PEK SQ. KM. 8.4 11.2 13.7 34.3 80.6 PER SQ. KM. AGRICULTURAL LAND 44.1 5C.5 55.1 94.5 133.9 POPULATION AGE STRUCIURE (PERCENT) U-14 YKE. 43.6 42.7 41.5 40.7 30.1 15-64 YRS. 53.8 54.3 55.1 55.3 61.5 65 YRS. AND ABOVE 2.6 3.0 3.4 4.0 8.3 POPULATION GROWTH RATE (PERCENT) TOIAL 3.0 2.9 2.2 2.4 1.5 URBAN 5.5 4.8 3.8 3.7 3.1 LRUDE BIRTh RATE (PER THOUSAND) 42..5 37.0 29.4 31.4 22.9 CRU2L DEATH KATE (PER THOUSAND) 12.9 10.5 8.7 8.4 9.1 GROSS REPRODUCTION RATE 3.0 2.6 2.0 2.3 1.6 FAMILY PLANNING ACCEPTURS. ANNUAL (THOUSANDS) .. 111.0 203.6 USERS (PERCENT OF MARRIED WOMEN) .. 1.6 FPOO AND NUTRITION INDEX OF FPOD PRODUCTION PER CAPITA (1969-71-100) 89.0 102.0 114.0 108.3 119.8 PER CAPITA SUPPLY OF uALORIES (PERCENT uF REQUIREMENTS) 101.0 104.0 107.2 107.6 125.7 PROTEINS (GRAMS PER DAY) 61.0 62.0 62.7 65.8 92.5 OF WHICH ANIMAL AND PULSE 34.0 34.0 35.1 34.0 39.7 CHILD (AGES 1-4) MURIALITY RATE 17.3 12.0 8.3 7.6 3.4 HEALTH LINE EXPECTANCY AT BIRTH (YEARS) 54.7 59.1 62.7 64.1 68.9 INFANT MORTALITY RATE (PER THOUSAND) 128.0 .. 92.0 70.9 25.2 ACCESS To SAFE WATER (PERCENT OF M2PULArION ) TOTAL .. 56.3 77.1 65.7 URBAN .. 77.7 88.8 79.7 RURAL .. 29.0 56.8 43.9 ACCESS TO LXCRETA DISPOSAL (PERCENT UO POPULATION) CUTAL .. 59.9 64.8 59.9 URaAN .. 86.1 83.7 75.7 RIJRAL .. 26.5 31.7 30.4 POPULATION PER PHYSICIAN 2561.2 2123.8 1700.0 1728.2 973.3 POPULATION PER NURSING PERSUN 2772.1 2992.3 .. 1288.2 896.6 POPULATION PER HOSPITAL BED TOTAL 307.0 269.0 247.7 471.2 262.3 URBAN 325.6 322.6 .. 558.0 191.8 RUKAL .. .. ADMISSIONS PER HOSPITAL BED .. 18.0 .. .. 18.2 HOUSING AVERAGE SIZE OF HOUSEHOLD TOTAL 5.1 4.8 4.9 URBAN .. 4.6 4.7 RURAL .. 5.2 5.3 AVERAGE NUMBER OF PERSONS PER ROOM TOTAL .. 1.1 URBAN .. 1.0 RURAL .. 1.2 ACCESS TO ELECTRICITY (PERCENT OF DWELLINGS) TOTAL 38.7 47.6 63.0 URBAN .. 75.6 84.9 RURAL .. 8.4 19.2 ANNEX I _27 - Pge 2 of 5 BRAZIL - SOCIAL INDICATORS DATA SHEET BRAZIL REFERENCE GROUPS (WEIGHTED AVERA9ES - MOST RECENT ESTIMATE) - MOST RECENT HIDDLE INCOME MIDDLE INCOME 1960 /b 1970 /b ESTIMATE /b LATIN AMERICA & CARIBBEAN EUROPE EDUCATION ADJUSTED ENROLLMENT RATIOS PRIKARY,. TOTAL 95.0 125.0 88.0/c 101.7 105.9 MALE 97.0 125.0 87.077 103.0 109.6 FEMALE 93.0 125.0 88.07E 101.5 102.2 SECONDARY: TOTAL 11.0 26.0 24.0/c 35.3 66.3 MALE 11.0 26.0 22.07; 34.9 73.2 A FEMALE 10.0 26.0 26.07& 35.6 59.5 VOCATIONAL ENROL. (1 OF SECONDARY) 19.0 17.0 47.0/c,d 30.1 28.4 PUPIL-TEACHER RATIO PRIF.ARY 33.0 28.0 22.0/e 29.6 26.8 SECONDARY 13.0 13.0 13.07- 15.7 23.6 ADULT LITERACY RATE (PERCENT) 61.0 66.2 75.7 80.0 75.4 CONSUMPTION PASSENGER CARS PER THOUSAND POPULATION 7.0 24.4 53.6 42.6 83.9 RADIO RECEIVERS PER THOUSAND POPULATION 66.4 123.8 155.0 215.0 181.6 TV RECEIVERS PER THOUSAND POPULATION 16.8 64.0 97.9 89.0 131.1 NEWSPAPER (-DAILY GENERAL INTEREST") CIRCULATION PER THOUSAND POPULATION 54.0 37.0 45.2 62.8 123.8 CINEMA ANNUAL ATTENDANCE PER CAPITA 5.0 1.9 1.9 3.2 5.7 LABOR FORCE TOTAL LABOR FORCE (THOUSANDS) 22869.1 30078.5 36718.3 FEMALE (PERCENT) 17.5 20.4 22.6 22.6 32.9 AGRICULTURE (PERCENT) 51.9 45.6 39.8 35.0 34.0 INDUSTRY (PERCENT) 14.8 18.3 21.8 23.2 28.7 PARTICIPATION RATE (PERCENT) TOTAL 32.0 31.6 31.5 31.8 42.3 MALE 52.7 50.3 48.9 49.0 56.5 FEMALE 11.2 12.8 14.2 14.6 28.5 ECONOMIC DEPENDENCY RATIO 1.4 1.4 1.4 1.4 0.9 INCOME DISTRIBUTION PERCENT OF PRIVATE INCOME RECEIVED BY HIGHEST 5 PERCENT OF HOUSEHOLDS .. HIGHEST 20) PERCENT OF HOUSEHOLDS 60.0 63.5 62.0 LOWEST 20 PERCENT OF HOUSEHOLDS 3.8 3.2 2.8 LOWEST 40 PERCENT OF HOUSEHOLDS 10.8 9.0 9.4 POVERTY TARGET GROUPS ESTIMATED ABSOLUTE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN .. RURAL .. .. 150.0 187.6 ESTIMATED RELATIVE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN .. .. 465.0 513.9 RURAL .. .. 332.0 362.2 385.1 ESTIMATED POPULATION BELOW ABSOLUTE POVERTY INCOME LEVEL (PERCENT) URBAN .. .. RURAL .. Not available Not applicable. NOTES /a The group averages for each indicator are population-weighted arithmetic means. Coverage of countries among the indicators depends on availability of data and is not uniform. /b Unless otherwise noted, data for 1960 refer to any year between 1959 and 1961; for 1970, between 1969 and 1971; and for Most Recent Estimate, between 1976 and 1979. /c Beginning 1973 primary and secondary educations cover age groups 7-14 and 15-17 instead of 7-10 and 11-17 in earlier years;' therefore most recent estimates are not comparable with earlier data; /d 1974; /e 1975. * The updated 1980 GNP per capita and population estimates to be shown in the 1981 World Atlas are US$2,050 (at 1978-80 prices) and US$119 million. February 1, 1982 - 28-ANEX ?COof 5 DEFINITIONSU'F ~SOCIALInICAfiNt Note: Although tn -cAi ... dra- from -L-os generalIly lodged the aniaabt-at-ssd raihlabi, in bftood alo Is -oia tha t Oo ty ton be Octet- natonll 'I . alebcas of...the1 e Ierk of standardi-ed definiLions, and ..n...ept .. used by 1 difeen con rie. in collecing the data. fhn dete-. . oteirta usefolno descibe ordrs it ug.tlnde, indicate trends, ar h-rseter.-iscntt nejordferos b--se oo... e j- Th.ntrectgrop er (I) th1, anocnrygropo il ;-jstrutryad (2) scoontry ... groyethsOsahtbLigh-raera.ge ir,...esth,uothe...ntry group ofteabrtcuty(_enrot for P'aotaSrpu 01Epotrstop sh-r "Middle lacun Not1h A trit and tiddle lost'' is cho-e b-o..n. ofetuor oo uiunaIf"o"u,s . D the Ledarro group data the s Srag. ar population e-ghtad atithnl an o aot.lac n loo ayaa anjonutly ofteruai.t ru or uafrta nino lirst- nst- o outrr sog b lh td iraeora idtepend on h-aannlsbcy ofdat Tota - Total cut r aa uno-osio lard s -aad inlan a_et-uban adralI) darided hr tbiot -I,rtco cee onhayr beda Eniuluel-tiluae oftenolun1ue adteoeily or p Idaanl onIoloi ubi rdpiae generlI ed-perftedheitnl std Ls- fr. or-ya, yastrea, narke,'t adbobngrdn rt i fallre; 19hdt.hhldaloerra-Nsfo r ec)tbharos -oraent0y neffed INO Fy byd ((i) -GNP per rapcna ant irua ttretmri rre,ok ltr tno Inldad. tR-1 boepitolI,tosr, t_lous 0eeth ruaI d byesrotainc -etda Ot0Bn Als(97-9hcsl 91 nd-sdrlooearo atntl tfted turtra htb 1970, And 1979 dan. .edit.1 -astlaton, ting, nidilfe, mr .7otlr o'to' taLent detio nod yrouide a liaited ..onge of ueflalac'tra For- an -tttr liNtitNOto FIt hayl- -t- Eoon ronhtd..o.y .. inroerId lsd org (oa"IcaI y harroara urban bopil cr.r l-dt cOc IIoI or fAnn _lbsoel-t, data. Adataatcr-a car .oarial tad - T-1a o-uehrofaIas-ttoo otages trmhsiasdtvidad by tOn nohofhna FOFOLITIDN ANI0 VITAI. STATISfTICS Tona oonlo,Ndlarccoou - 00 of J,ly 1; 1960, 1970, and 20)9 folutI7NG doff,ereo dafloftlo- of Ira ...o nI o, ffer 0 roapor... fr1y c data sod theIr ort -.a1.. A toeLero o- o o ornrro aaclddr _.rgcuttrre ; S90, 1970. nof 1079 dura. rhe hoc.ab.. for stoalcl.Faa _oosro Poac -o O_rraeen_eh-f neracll ne"I aroa,rfI'ollo' Aeagts Fooitict inyea ~2000 - Ccrrr. poculcro IL)er oo n bued o190 bin of Pern peL oo. In n urban, end tono -roied rete-,to- totl c -iat- by ogt and areord nhnfr onaoyad fero rltytrt. -llot, -eoectry. hellf arts 1, aslreo -ponuo t aturore add frt(orniortataattett irtonr-.olccrnutesooaFtc..PinnotthrealLe-nlaeuu--rorc-d raP.- Otoel nod fnon literycoo -olciao 70.0 y-eare -pitfb - pat. fnon Ica neligae elnrttnitcit9- to- tiolon oureA a psrto tentrafor ftiiliyrar Ilaohonrhro 7staanaioeerliooi -t-tl -chu,uop-rl nllna-eyoreay toob.. rnot,y it nhn ..auig-o o o hsnro -obtIron r n_tninty tDhCAlldt udfrilitc L-eds toe cr-) ot ioAFopan.-Ltutd E-ollerot Panfre trtlntooouatrrlataucur oylalr heoIanItoeh:.reFtnrtnhol-etnl.nlesdtn G-t...onl nl ar,d t eoirocotatatt. lIfe It ariron coyafe ietl .t as de.lin ::r y htnury nob tlag p Iunlos otlItfrderidengd - rthe yeor 1000 ordth rceofdelle f ntlltyetdt rylcLedoday fhoi tta. ul-od sat e-- neyordoehoa;snonar ototlorol. I aduoottnnneqult. h,esunlnat Aoreu.. areprro .d.rcdury Ltnsnc)o otto he ebono ear IIfehIId. ' -1l utt ltcltl t0eoag;crtcdttoieeaoeen Forclunit sesain rerS- dd.tyL.l L..1 df l .,,dI tota -rc; -990 190- d 19)9 i - ana. -Treudt nerbrlral, j-dretngol, orote Fciaovh - cyeute trpeod only 190- 1f urd (979 dora.. Iualtearhfn1 tho-t ynar, an 9earrdr - -oct e IeIt trc tl ledu Potulu kir Ag Structue- fecent) p- Ibdrr- Il yeana . ortg-g (5 pimar an -er1adnt Itoe- Otrd-d-nnht r-i ...rers ir th Latro 1990 19601.en 1979 dat.uutltrryrt7yr .Iterte aduts (o.hih eie-ado- uindep-d oaLeatlon I ron -t-te(ynredc-total-ed nuo groethraceLtdototLnht-d aseonnaneag o_ttnendlyooar_eedfyeradoo yaun ynoularaore ton 1951-Il, lunD-fl. snd 19(0-19, ~~~~~ ~h. 'd lotyions d ,d(6 er .d-r forp190-90,1911-f,inod1970-9.-Oss pr-orCa g (et Ihundnnodlc-ge.frcr nunn o yoyu-ar96r; 196,170, urd 1979 dana. eddtli ye LrLas ,t t U.. .t.~b d Itiliryrree;95ul_y tn1-7eun -nrft ndigi 19, 99 ad1(9 osrntneaoll9e ianlg of.d oIhtld-beartngagd ( A0-141ran bototoa Penr h-r-orn Onooe nod- AeiaarCtoltod(e hosn co,oeo(- teth eaac 0000 001 fOlftIIllO to he "dolly" If iney....earantid-eoachtort dAtln ay-L ei 10d_ o Food ~ ..doto.pa.. ir 199(-10 Idn fpt aia m01Ao.ouna.AtedreIe anr pnOonBsd nthRochro 1960tlo f l fod19r70n,tdutnecldeodndta n tickets aold doting, tbeiyear,_hc ...a dsattat d_tticruet oaclocal_oara.. Ilyrnon fi-ye ca-get -961-9i, 1970, td19(9, daro,. fia .aho Force (t1ihouads Ii_rooorol atceceannlrudo FercnoironorlorfalorAt(-teo ofra... uiren-Anr..uI-Cnpitafrn-... I nrntfcre- atdnesloyehcoaclcrcgoutolcn,atdenp..-Ia,nf,, necannoaaiotd yyo htd r bslloiufcotic dtoluti faio u e genar.f.. ollar frc:190,170-d 190 I Oandu, FOANiD oTIRITbeaNh oedno ncon-rlcasaue oyn ho sgoIdbtr Lfrrrt -t lao omIt IItrfrt0,.cot.-uu. . ooatr bocanhol miI:191-t,P90,dr it)) Iota.971-00 1970e p,-pt - . i end 1979 Atdana,. - B.d. I. Forroro_t uryo o rofti(doe pe -d-tyf -Fteltdcotrdeoo oferd ':ndc ytlrira-t-I 000 lne hIrecent -oi-1nis, d nale .1 adIanl-Fei-icaa_ o aLr lAnooo 61 groa 0pr060 pritnct yet day, otd 0 tes on1 drltl and196, 100 endc 1979 dat. d h a m uedo ly 1-t 'a ytiop1tod ate cclgy .rco. ofohh10gaahol hr actua il.ldd pr trlr PInngnd rfret_gag-ensnutce __rho y....anir_,IfndIloo t,an-od ...l Foo tiroro; ly1-1 1970 and 19(7 catba, to the irtol laborIfotca. o _ed fro ale ul; o ando65 o 19 o0 5-usa97 con Icy 191t,990cr 17 a7 C 0 yIbdz 1979UdoO 00111(oga 1-n Mrnollto ~ (co chotoo) -Ooooa-inah p-er rbotoo - o1 ,ecnun ,fFiot o,pe hO ro odkcftooolhyAhn on1h-rch; 160, 19)1 cod -e p ~ 1676 Ouo9 ao Abdol be ttp ad ouThecroterc b.In ruoiOc.Lt Ictoonlornutny loeh-ye rhutr g -I Ih.oul deta fjoot unla,e~, Th on. or.ulae Ihuloc F-r-t-Ab n Intel (00oa r-d -i g -tbo id o-dnAl kcoeatolod F WarS-- 1n6nr 65n of7 ooodnool toa,977 o oOero iuu- ntnitthne-y IIIcnIetdonnroo o-oo ourpf 00 ofthoi-tttarao- ,!-on royloroo oa u9ta anaa7 ublo Chraldenet onbengolbi reagocanin ....oau of -...I boone. Iru l Per eh- a iee nt od cate- fc- tlbeh -aa of d kirdf -Rurh-a-n b-L _ed .,d~~~~~~~~~~~~~feoae ouoin eo hoot orn oroelol(erea rI doot uf utyc 0P..I Olcoocoaco7to o rca. day c. t f 1ftrto ttti fItoo' tnua; reelt. d Oorfaa- rtoolena Rstoo-sIo .. d I ...onto9 r ldlo-rr.l f irho,- adr-y.. Etd natal Nunhnr of pertla (annol, urlso.LednAb.lrorPl-7y I-osdIbySeco-ieco-f-n-osulna rnnceniaonn of onslr respect ba poFt- lutronath.ttncnotoeIlaplsolhnor lonloi- and onana-nonr hy saren-bror e7arauncrrneuaa of pi-i-oi...and iti- Ecorca1 probat sndt. -rbcrno tedote-n losna ..oIthea I.....l..oyptg, 1001y-1~) Fouotin fa yhenrOr F_puLonion_ oddb nohr fparlioyi riaoaquciifidfnnaanedtcl tchooloiuloeraltyleoIL. ~~_ . - r_poaido oaLed tn aru - oualr il ty. 1 -. ou-le ioh Idaritctg calsardten-leuraduyrslutaaa - 29 - ANNEX I Page 4 of 5 ECONOMIC INDICATORS Population 127,0 millior. (1980) GNP Per Capita; US$2,050 (1980) Amount Average Annual Increase (Z) Share of GDP at Market Prices (Z) _______ Indicator (Million US$ Current) (at Constant 1970 Prices) (at Current Prices) 1980 1965-70 1970-75 1975-80 1980-85 01 C 1985 National Accounts Gross Domestic Product /a 248,200 7.7 10.6 6.9 5.0 100.0 100.0 100.0 100.0 100.0 Agriculture 23,365 1.9 5.7 4.7 8.2 8.7 9.4 9.4 9.4 Industry 71,590 9.2 11.6 7.6 29.1 32.6 31.8 28.8 31.8 Services 111,365 8.0 10.7 6.8 43.0 41.3 42.5 44.4 42.5 Consumption 201,040 7.7 9.8 5.7 76.9 78.6 79.8 80.5 76.3 Gross Investment 52,460 9.4 14.6 5.2 23.5 25.4 22.6 21.1 22.9 Exports of Goods and NFS 21,305 8.2 11.2 7.3 6.6 7.4 8.2 8.6 9.7 Imports of Goods and NFS 26,575 14.5 17.2 2.8 7.0 11.4 10.6 10.7 8.9 Gross Domestic Savings 47,160 7.9 12.9 6.1 23.1 21.4 20.2 19,5 23.7 Amosnt Average Annual Increase (2) Composition of Merchandise Trade (S) (Million US$ Current) (at Constant 1970 Prices) (at Current Prices) 1980 1965-70 1970-75 1975-80 1946 1970 1975 19807lb Merchandise Trade Merchandise Exports 20,132 7.8 11.9 5.8 100.0 100.0 100.0 100.0 Primary 9,840 7.3 8.3 1.1 82.9 75.1 61.8 44.9 Manufactures 11,092 7.9 28.2 18.2 17.1 24.9 38.2 51.1 Merchandise Imports 22,961 10.0 17.6 -1.4 100.0 100.0 100.0 100.0 Food 1,239 -3.8 -6.7 17.5 11.5 4.5 3.0 5.4 Petroleum 10,210 9.3 7.6 4.3 14.7 11.2 24.5 44.5 Machinery and Equipment 4,392 22.1 15.2 -7.5 15.2 21.2 14.0 19.1 Other 7,120 8.3 28.4 -1.9 58.6 63.1 58.5 31.0 1975 1976 1977 1978 1979 188moL Prices and Terms of Trade GOP Deflator (1970=100) 289.6 410.9 584.2 809.2 1,229.6 2,469.5 Exchange Rate (Cr$/US$) 8.1 10.6 14.1 18.1 26.9 53.5 Export Price Index (1970-100) 17t5.0 192.0 226.0 228.0 266.0 290.0 Import Price Index (1970=100) 242.0 255.0 286.0 317.0 389.0 431.0 Terms of Trade Index (1970=100) 72.0 75.0 79.0 72.0 68.0 67.0 As Z of GDP (at CurLent Prices) 1970 1975 1979 /b Public Finance (Central Government) Current Revenue 16.6 19.8 20.8 Current Expenditure 14.4 15.8 17.6 Surplus (+) or deficit (-) 2.2 4.0 3.2 Capital Expenditure 2.6 3.8 3.7 Financing (Net) -0.4 0.2 -0.5 1965-70 1970-75 1975-79 Other Indicators GNP Growth Rate (Z) 7.7 10.7 5.8 GNP per Capita Growth Rate (Z) 4.6 7.7 3.0 Energy Consumption Growth Pate (Z) 7.2 7.3 6.5 ICOR 2.9 3.0 3.9 Marginal Savings Rate 20.5 25.7 22.7 import Elasticity 2.2 1.6 0.3 /a At marker prices; components are net domestic products expressed at factor cost and will not add due to exclusion of depreciation and indirect taxes less subsidies. /b Estimate. /c Preliminary. February 22, 1982 -30- Page 3 of 3 8UA2410 OP PAYTS2ST, EXTERItAL CAPITAL AND DEBT (illion US$ t current pric-) Population 117 million (1980) CGNP Pe Cpt:US$2,050 (1940) ACTUAL PROJECTED 190 1975 1976 1977 1978 1979 1980 -IN ai 92 l1983 198-4 Net exports of goods and nri -583 -6,702 -6,010 -4,037 -5,999 44, 760) -13,042 -10,800 (28,000) -9,974 - 7,155 Exports of goods (2,739) (8,670) (10, 129) (12,120) (12,659) (15,244) (20,132) (23,300) (25,000) 35,195 42,244 Import af gaods (2,507) (12.210) (12,38:1) (12,023) (13,683) (18,084) (22,960) (22,100) 31,137 33,634 lN.t factor ion- -330 -1,733 -2.1858 -2,338 -3,237 -3,542 -7,030 - (-9,500) -11,536 -12,807 (ai shioh i--ret PoYmnot) _ 284) (-1,498) (-1,809) (-2,103) (-2,694) (-4,186) (-6,311) (-8,702) (-10,192) (-11,498) Not oo-faotor n-i..s -485 -1,429 -1, 574, -1,376 -1,708 -2,378 -3,184 - - 2,493 - 2,762 Nrt tronf-r 21 2 1. - 72 18 133 200 200 30 30 Correta....o.t balance -362 -6,700 -.6,013 -4,037 -3,927 -10,742 -12,887 -10,630 -10,100 - 9,923 - 7,104 Di-eo private Lbsaot/ 92 892 958 810 906 1,681 1,512 1,300 1,901 2,228 2,513- MLaT loan net 76P 3,760 3,033 4,631 8,919 4,843 6,030 9,402 8,200 10,370 7,910 Toaditioo ... ou..rce- 833) C1,408) (2,032) -(2,648) ( 2,793) (2,246) (2,409) (1,203) (1,890) 1 4,173) C4,040) Finanola ordAtE, 566) C4,324) 5 ,880) C6,118) (11,312) (9,98)) (8,661) (20,900) (13,400) (13,519) (15,454) A-otiootioo -632) (-2,172) (-3,009) (-4,133) 0-3.286) (-6,385) (-3,020) (-7,70)) (-7,200) (-9,321) (-11,604) -irxlIio o-n shroad Coot) - -192 -268 -26) -358 -185 -364 -1,000 -1,000 1,910 - 2,521 Other ospita o.e,i 244 1,295 2,627 -307 440 21,104 2,201 2,300 1 500 - - Change Inrsre -ices)/ -543 950 -2,346 -630 -3,880 3,215 3,490 4600 -500 - 755 - 799 Iore-ntls-l Reseve /d 1,142 6,036 6,544 7,236 11,826 9,689 6,913 7,503 8,003 9,301 10,099 Reenn e oths ofIxutsI 5.5 0.9 6.3 7.2 18.4 6.4 3.4 4.1 2.0 3.6 3.6 ACTUAL _______ 1974 1975 17 97 17 99 18 K.terna Dbht Total debt oatatadiog and dlshbsr-d 17,576 23,200 28,344 34,440 46,309 50,836 56,407/0f Pobio and pbslioly gornod9,394 13,608 17,211 21,434 30,137 33,092 - Official .o.ro 3,276 3,911 4,393 4,693 5,354 0,801 - 1380 ( 871) (1,093>, (1,217) (1,413) (1,602) (1,827) - oth-c (2,603) (2.8180 (3,176) (3,280) (3,732) 03,974) - Privsc.o..o.o. 6,128 9,697 12,918 16,741 24,803 29,291 - Private no-gos-at-d 8,182 9,092 11,100 13,006 16,132 15.864 Dsdishbosd dnbt (poblia omly) 2,324 3,761 6,617 8,290 10,083 13,429 - Genes Dishbss-a-t Tonal gross dinhce-ts of 858,T loan 7,234 6,912 8,076 9,242 14,921 12,181 - Puhblo and pahblaly goarsotoad 2,937 3,717 4,837 5,380 10,133 , 8,760 - Official export crdits 406 395 393 188 486 399 - 185D 247 230 173 299 273 301 - Other moltilateca1 129 1219 ill 92 136 207 - Private noarc 2,143 2,930 4,160 4,809 9,256 7,9533 rivate no,-g-sxcntend 4,317 3,183 3,239 3,962 4,794 3,421 - Debt S-vicr Total dabs serice payments 3,280 3,670 4,797 6,163 8,017 10,485 13.460 Itotees (net) (1,378) (1,4984) (1,809) (2,103) (2,694) (4,194) (6,311) Psymetn a 2 f Exports 6 N90 38.8 37.6 63.0 46.2 57.2 62.7 66.9 Payments a If GM3.1 2.8 3.3 3.7 4.2 5.1 3.4 Averge interest rats no on guaranteed loan (Z) ! 10.6 8.7 7.6 8.3 9.9 11,2 - Offial snort 7.0 8.0 7.9 8.0 7.5 8.3 - Averag eatoity of se goar-tmd loan 10.9 90 11.2 9.9 10.0 11.5 - Offtinil snort 14.6 13.4 16.2 16.4 14.4 14.1 - Privete ..ourne 9.7 6.9 9.2 8.7 9.4 11.1 - IB50 DOD/toa DCwe (2) 3.0 4.7 4.3 4.1 3.3 3.6 3.9 I380 dislnn-aetstntal g.on. disb -snnets 31.4 3.6 2.-I 0.2 1.8 2.5 I1B8D debt srfetaldebt serice (0) 2.4 2.3 2.7 3.2 2.6 2,0 2.0 As I of total debtnotndn et ad oi Do.eahe- 1979 aktuity mtr,tnr of debt otutesdiog Netocitin, duo nIthis 3 pear 66.3 arstrities duo aithin 18 peer 92.6 /b Erlodiag os-is-trd prodin.. In Exolodig dollar valution adjst-tot and mootiostion of dometic gold. /d laleig od and dollar valution sdjooMence. 7; on6d ony. 7f Detailssaviab IA Psblio debt smlp. Febr-ry 23, 1982 - 31 - ANNEX II Page 1 of 14 THE STATUS OF BANK GROUP OPERATIONS IN BRAZIL A. SUMMARY STATEMENT OF LOANS (As of September 30, 1981) Amount less Loan # Year Borrower Purpose Cancellations Undisbursed (US$ Million) Fifty-two loans fully disbursed 1,736.1 923 1973 Furnas Centrais Eletricas - Power 125.0 9.0 Itumbiara 1008 1974 Cia. Hidro Eletrica do Sao Power 81.0 19.6 Francisco-CHESF 1067 1974 Brazil Education 23.5 10.3 1074 1975 Rede Ferroviaria Federal Railways 175.0 6.0 1075 1975 Brazil Roads 110.0 21.5 1151 1975 Companhia Siderurgica Nacional Industry 95.0 22.6 1152 1975 Companhia Siderurgica Paulista Industry 60.0 25.2 1153 1975 Brazil Agriculture 23.0 5.7 1171 1975 FEPASA - Ferrovia Paulista Railways 75.0 16.2 1195 1976 Brazil Rural Development 12.0 8.4 1207 1976 Brazil Feeder Roads 55.0 33.9 1249 1976 Brazil Agriculture 40.0 16.6 1300 1976 Eletrobras Power 50.0 5.5 1302 1976 Brazil Nutrition 19.0 5.0 1309 1976 Banco Nacional da Habitacao Water Supply 40.0 3.2 1317 1976 Brazil Agro-Industry 83.0 70.0 1343 1977 ELETROSUL Power 82.0 20.0 1362 1977 State of Minas Gerais Rural Development 42.0 13.1 1406 1977 Petrobras Fertilizantes Fertilizer 64.0 32.0 1411 1977 Fertilizantes Vale do Fertilizer 55.0 2.2 Rio Grande S.A.-VALEFERTIL 1452 1977 Brazil Education 32.0 23.5 1488 1977 Brazil Rural Development 17.0 12.5 1525 1978 Banco Nacional da Habitacao Sewerage 110.0 83.3 1537 1978 Brazil Rural Development 24.0 20.0 1538 1978 ELETROBRAS Power 130.0 86.8 1557 1978 Brazil Roads 114.0 94.5 1562 1978 COPESUL Petrochemicals 85.0 20.3 1563 1978 Brazil Urban Transport 88.0 49.4 1568 1978 Brazil Agric. Extension 100.0 80.3 - 32 - ANNEX II Page 2 of 14 A. SUMMARY STATEMENT OF LOANS (Continued) (As of September 30, 1981) Amount less Loan # Year Borrower Purpose Cancellations Undisbursed (US$ Million) 1589 1978 Brazil Rural Development 37.0 30.3 1654 1979 Banco Nacional da Habitacao Sites & Services 93.0 75.2 1656 1979 Banco Nacional da Habitacao Water & Sewerage 100.0 95.5 1660 1979 Valesul Aluminio S.A. Aluminum 98.0 42.5 1714 1979 Brazil Rural Development 26.0 24.5 1720 1979 Brazil Urban Development 70.0 67.0 1721 1979 COPEL Power 109.0 95.6 1728 1979 Brazil Rural Development 40.0 36.3 1729 1979 Brazil Irrigation 28.0 20.8 1730 1979 Brazil Roads 110.0 108.1 1822 1980 Brazil/BNDE Pollution Control 58.0 58.0 1823 1980 Banco Nacional da Habitacao Water Supply 130.0 130.0 1824 1980 CEEE Power 114.0 114.0 1839 1980 Brazil Urban Transport 159.0 158.9 1850 1980 Banco Nacional da Habitacao Water Supply 139.0 139.0 1867 1980 Brazil Education 32.0 31.8 1877 1980 State of Minas Gerais Rural Development 63,0 62.J 1895 1980 ELETROSUL Power 125.0 125.Q 1924 1981 Brazil Rural Development 56.0 55.6 1939 1981 ELETROBRAS Power 54.0 54.0 1965 /1 1981 EBTU Urban Transport 90.0 90.0 1970 /1 1981 Banco Nacional da Habitacao Water Supply 180.0 180.0 1989 /1 1981 Brazil Alcohol Devt. 250.0 250.0 2015 /1 1981 Brazil Agriculture 29.0 - 29.0 2016 /1 1981 Brazil Agriculture 60.0 60.0 Total 5,995.6 /2 Of which has been repaid to the Bank 788.4 Total now outstanding 5,207.2 Amount sold 45.8 of which has been repaid 44.9 0.9 Total now held by Bank 5,206.3 Total undisbursed 2,950.2 /1 Not yet effective. /2 No IDA credits have been made to Brazil. AŁN11 i - .33 - Pal. 3 f 14 A. ITATDDIlT OF IC VtRSTMZIfiS (as of 3Sten ab.r 30. 11I) Yt tr1 0 b 1 i g o r Type of usinese Amoun tin US0 sillion fear I.c.r.~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~La. 2quity Total 1957 Siee.. do rasil Ci4. de lerticidade glectrical equipncnt 2.00 - 2.00 1958 Olinkraft. S. A. Callos. a Papl Pulp and Paper 1.20 - 1.20 1958 0. L. t. Plastic*o do Dra.il. S. A. AutootIve Parts 0.45 - 0.45 1958 Willys-Overlnd do Ir-n11 S. A. - Indostrta o Cmeercio Motor Vehicles 2.45 - 2.45 1959 Conpanhis Mineirs de Cieento Yortland, S. A. Cemnt 1.20 - 1.20 1959 Chapion Co one S. A. Pulp 4.00 - 4.00 1966/1968/1972 Acne Villaras. S. A. Steel 8.09 1.93 9.93 1966/1969 Pap.1 a Ce.lloe, Catarion.-, S. A. Pulp and 'UpV' 3.7e 3.41. 7.19 196711972 Ultrafertil, S. A. - Ind.stria a Co.errio do F-rtilioances Ferttlier* 8.22 3.03 11.25 1969 P.troqul.loa U.nio, S. A. Petroch -itcal 5.50 2.88 8.38 1970 Poliolefioas, S. A. Industri. e Co=rcio Petrochexic.ls 5.50 2.88 8.38 1971 O.Iteno. S. A. Ind..tria a Coeac.i Petrochemical 4.60 1.44 6.04 1971 RIo Grand. - Co,p.nhit da Celolosa do Sul Pulp 4.90 - 4.90 19i2/1975/1981 Co.panhia do Cioento Naci-o.l do Nins. C-emet 1I9.14 6.70 175.84 1973/197411977/1981 Conpanhia Siderurgica da G-anboro - COSIGUA Steel 76.97 11.22 88.19 1973 C.pital Market Docolop-ent Fund - FUMCAP Capital KMrket Devebopeent 5.00 - 5.00 1973/1978 Eaprene de Dtsenvlvi,ento de Rocur-on Mi-raIs - CODEMIN S. A. Nickel Mining and Refining 85.00 8.34 93.34 1974 Indu.trian Villares. S. A. levetors and Industrial Equipmnt 6.U0 - 6.00 1974 fabzIc. do TecLdo Tatapo. S. A. TeatiIes 31.00 - 31.00 1975/1979 Capuav. C.rbonos Induotrias Ltd. Carbon Black 6.18 1.19 7.37 1975 O.iteno Nord-st. S. A. Petroch.sicaln 10.00 - 10.00 1976 Santista Ind.strla - Te.til do Nord.nte, S. A. Teetile 6.45 1.00 7.45 1976/19S0 Tecanor S. A. - Tothil Catorinen.o do N.rdente Tentilen 16.20 - 16.20 1977 Frit S. A. Pr.d.ct- Mr,el.rgicee Iron and Al-ni.Z Cacirngs 20.00 - 20.00 1977 Minaracac 8- do Norte S. A. Mining 15.00 - 15.00 1978 Cinetal Sldoengi. S. A. Iron and Stell 7.00 3.00 10.00 1979 VolV do Brasil MorOres Velc.los S. A. Motor Vehicles 60.00 5.00 653C. 1980 berilg do Nordoeto S. A. - Malh.. Ready-nd. G-arents 2.00 - 2.00 1980 Send. do Paer S/A - Doenp.n - Cricult.ro. Ind..trx. pal.-Oil 3.50 1.00 1.50 a Conei. de . Ool1ginosas 1980 Vhilarrs Induntrica do B..e S. A. - VIlASA Iron end st.11 5.00 - 5.00 1980 PPH - Coepan.hi Ind.rtrl.l d. Polipropileno Chemical. and Petrocheaicals 15.00 2.00 17.00 1980 Oestilarla Clanorto S. A. Che-Icals end Peicocheelcal. - 0.25 0.25 1980 Sotave Aasoonil QOi.ica e Mineral S/A Fertilioern 16.00 4.00 20.00 1980 Poli..1 Potroquirica Cheiicala and Petrochenicala 43.00 5.00 48.00 1981 Irasllpar Money and Capital KMrkets - 1.50 1.50 1981 Conpanhi SraB ilira de Agropec.aria - COY6APE Pond and Pood Processing 5.50 3.00 8.50 1981 triunfo Che-i.le and Potroc8,onic.ln 46.00 4.00 50.00 Total Grosn Co-nltontn 701.74 72.77 774.51 L.en Cancellation. Tecinationa. Reppeynt. and Salon 507.91 11.71 519.62 Total Coi...n t No, Held by liC 193.83 61.06 254.89 Total Undiab.raad 146.45 19.20 165.65 ANNEX II Page 4 of 14 C. Status of Projects in Execution As of September 30, 1981 1/ As of September 30, 1981, there were 49 effective Bank loans under disbursement: Loan No. 923 Itumbiara Hydroelectric Project: US$125 million loan of August 1, 1973; Effective Date: October 30, 1973; Closing Date: December 31, 1982. The project is about 90% completed. Major procurement has been completed. Four of the six generating units have been in service since late 1980; the other two are expected to be com- missioned by year-end 1981. A cost overrun of about 57% is forecast due mainly to a substantial increase in the size of the transmission works and to an increase in the cost of civil works. 1008 Paulo Afonso IV Hydroelectric Power Project: US$81 million loan of June 17, 1974; Effective Date: April 15, 1975; Closing Date: June 30, 1982. Resettlement of the 9,700 families displaced by the Sobradinho reservoir has been satisfactorily completed, and new towns and villages to house the displaced population have been con- structed. The construction of the underground power station and Sobradinho Dam is proceeding on schedule. Construction of the transmission lines and sub-stations is about 12 months behind schedule. The Closing date was postponed to June 30, 1982 to allow additional time for equipment deliveries extending into the latter half of 1981, and thereafter to meet retention payments on equipment contracts. 1067 Second Education Projezt: US$23.5 million loan of December 27, 1974; Effective Date: April 17, 1975; Closing Date: December 31, 1982 Project execution is about two years behind schedule mainly because of delays during the early stages. Thirty-four of the 46 facilities to be constructed are now operating. Proposals for some expansion and minor modification of project components and a postponement of the closing date are beaing processed. 1074 Second Railway Project: US$175 million loan of January 17, 1975; Effective Date: June 17, 1975; Closing Date: December 31, 1981. Implementation of the project is proceeding satisfactorily. The execution of the items financed by the Bank will be completed 1/ These notes are designed to inform the Executive Directors regarding the progress of projects in execution, and in particular to report any prob- lems which are being encountered, and the action being taken to remedy them. They should be read in this sense, and with the understanding that they do not purport to present a balanced evaluation of strengths and weaknesses in project execution. - 35 .iNNEX LI ?ag- 5 sof 14 by the end of 1981. RFFSA's financial and operating performance has been good during the first five months of 1981, due to continued tariff increases and a decrease of about 10% (in real terms) of operating costs. The loan amount has been fully committed. 1075 Fifth Highway Project: US$110 million loan of January 17, 1975; Effective Date: May 15, 1975; Closing Date: December 31, 1981. Roadworks, detailed engineering studies for road construction and road rehabilitation have been completed. implementation of the maintenance program in the states of Minas Gerais and Rio Grande do Sul is progressing well. Installation of the 73 weighing stations (Phase I) has suffered delays because of financial constraints imposed by the federal government. Additional counterpart funds for 1981 have been provided recently and works are being reactivated. The 73 stations are now expected to be completed by 1984. The Loan Closing date will be postponed accordingly. 1151 CSN Steel Expansion Project - Stage III: US$95.0 million loan of June 9, 1975; Effective Date: April 30, 1976; Closing Date: December 31, 1982. Implementation of the Stage III project is scheduled to be completed by December 1982. Achievement of this objective, however, will require substantial resources in 1982 in the form of new equity contributions from SIDERBRAS as well as the raising of new external loans. In light of the shortfalls in the level of SIDERBRAS' equity contributions in the past and the company's already strained financial position (in terms of excessive levels of long and short term debt), raising the necessary resources may be difficult to achieve, with consequent further delays in the Stage III project. This situation has been discussed with the Government, SIDERBRAS, and COSIPA during meetings in Washington in September 1981. At that time, it was agreed that a plan of action would be submitted to the Bank in November 1981 which would specify the steps to be taken to complete the Stage III project as scheduled in 1982 as well as restoring the Company to a satisfactory financial position. 1152 COSIPA Steel Expansion Project - Stage III: US$60.0 million loan of August 4, 1975; Effective Date: March 4, 1976; Closing Date: December 30, 1983. COSIPA is facing severe financial difficulties due to inadequate equity contributions from SIDERBRAS, excessive reliance on short term borrowings, heavy debt repayment commitments and high interest rates. This situation has been exacerbated in 1981 by operating problems with one of the company's blast furnaces which has reduced production below 1980 levels and led to a loss for the first half of the year. As a result of funds constraints, imple- mentation of the Stage III project has been slowed down considerably and further substantial delays in completion are likely. This situation has been discussed with the Government, SIDERBRAS and COSIPA during meetings in Washington in September 1981. At that - 3S - ANNEX 1I 'Page 6 of 14 time it was agreed that a plan of action would be submitted to the Bank in November 1981 which would specify the steps to be taken to restore the Company to a satisfactory financial situation and at the same time ensure the tirmely completion of the Stage TII project. 1153 Lower Sao Francisco Pclders Project: US$23,0 million loan of August 4, 1975; Effective Date: November 25, 1975; Closing Date: December 31, 1982. The Bank agreed to a CODEVASF proposal to replace works previously planned for certain areas with the rehabilitation of works in several flood plain areas which suffered heavily from floods in 1979. With respect to the project works, construction of the irrigation and drainage system and settlement in the Betume flood plain has been delayed by the unexpected need to construct a new small dam to control floods in a tributary river. Roads recently constructed by the Government in the area of Brejo Grande flood plain are acting as control dikes for irrigation purposes, so previously planned project works may be excluded from the project. 1171 Third Railway Project (FEPASA): US$75.0 million loan of November 12, 1975; Effective Date: March 24, 1976; Closing Date: September 30, 1983. The project, as redefined to take into account FEPASA's weak financial position in 1976-78, is nearing completion. FEPASA's operations continue to improve significantly. Freight traffic increased 25% in 1980 compared to 1979. The railway has reduced its operating cost by 12% in real terms in the past year due to reduction in staff and improvement of train operations. 1195 Rio Grande do Norte Rural Development Project: US$12.0 million loan of March 1, 1976; Effective Date: July 30, 1976; Closing Date: September 30, 1982. PIhase I of this project ended satisfactorily in the areas of extension, credit, applied research, and health, although one year behind the original schedule. The design of Phase II, extended project activities to new municipalities, sharpened the project's focus on the lowest income farmers, and included new components in the areas of marketing. storage, support to cooperatives, land services, seed production, and inland fishertes. Serious droughts in the last three years, coupled with delays in the release of funds, have slowed down the implementation of Phase II. but activities related to land and inland fisheries have recently shown good progress. _ 37 7 ANNEX II Page 7 of 14 1207 Secondary and Feeder Roads Project: US$55.0 million loan of March 1, 1976; Effective Date: July 13, 1976; Closing Date: December 31, 1981. Sixteen sub-loans have been approved, committing the full amount of the Loan for construction or improvement of 6653 km of roads in twelve states. One-fourth of the work has been completed. Implementation has been very slow, mostly because of the constant devaluation of the ORTN, the monetary unit in which sub-loans are defined. The project is now being reformulated to reduce the scope, and/or provide additional financing for 13 sub-projects in order to restore BNDE/IBRD participation to its initial level. The project is now expected to be completed by end 1983. 1249 Agricultural Research I Project: US$40.0 million loan of June 23. 1976; Effective Date: September 21, 1976; Closing Date: December 31, 1982. With the removal of constraints on the levels of incremental staff, imports of project related equipment and controls on the training programs (abroad) for research technicians, the project is now progressing satisfactorily and the rate of disbursements has risen sharply. Provided the current levels of counterpart funding, project implementation, and consequent rate of disbursements are sustained during 1982, project completion by the current loan closing date should be substantially achieved. 1300 Northeast Power Distribution: US$50.0 million loan of August 27, 1976; Effective Date: January 31, 1977; Closing Date: December 31 1981. Project implementation is about 6 months behind schedule because of initial difficulties in obtaining a Government defini- tion regarding participation by Brazilian suppliers. Procurement is now progressing satisfactorily. The agreed targets for con- nection of low income households have been widely exceeded. Sub- stantial improvements in the management of the project companies have been achieved, particularly in the areas of financial control and planning of COELBA and CELPE. In 1981, COELCE and COELBA will not achieve the rate of return target agreed upon. 1302 Nutrition Research and Develo2ment: US$19.0 million loan of October 1, 1976; Effective Date: December 30, 1976; Closing Date: June 30, 1983. An amending Agreement to the Loan and Project Agreements was signed on January 14, 1981. The major changes in the project involved the elimination of a credit program for nutritious foods industries and the incorporation of a program for the distribution of basic foods to low-income urban families. The reformulated project responds better to the Government's institutional priorities. Since this reformulation, project operations have improved substantially. Problems still remain with the quality of evaluation studies presently carried out and counterpart funding for these studies. The rate of disbursements has risen sharply. Seventy-four percent of the loan is now disbursed. - 38 - ANNEX II Page 8 of 14 1309 Second Minas Gerais Water Supply and Sewerage Project: US$40.0 million loan of August 27, 1976; Effective Date: January 18, 1977; Closing Date: September 30, 1982. This loan has been fully committed for the financing of subprojects in the metropolitan area of Belo Horizonte, 38 subprojects for medium sized cities in the interior, and 138 subprojects for small communities mostly in rural areas of the state. The physical works financed under the project are about 60% complete. 1317 Second Agro-Industries Credit Project: US$83.0 million loan of September 22, 1976; Effective Date: March 25, 1977; Closing Date: December 31, 1982. Because of commitment delays under the First Agro-Industries Credit Project (Loan No. 924-BR of August 1, 1973, the undisbursed balance of which was cancelled as of December 31, 1981), commitments for the second loan began only in 1979. The existence of competing credit lines at subsidized rates and a temporary Government policy of prefixing monetary correction unrelated to the actual inflation rate have ended. The Government is now follow- ing a revised monetary correction system under which the level of indexing more nearly reflects the level of inflation, in line with the conditions of the Loan Agreement. Arrangements for monitoring the adequacy of monetary correction have recently been agreed with the Government. New commitments under this loan are now being approved, and disbursements began in April 1981. 1343 ELETROSUL Transmission F'roject: US$82.0 million loan of February 23, 1977; Effective Date: June 13, 1977; Closing Date: December 31, 1981. The project is about 95% complete and 100% of the contracts for supply of equipment and materials to be financed under the loan have been awarded. Project execution is on schedule. The Loan is expected to be fully disbursed by the original closing date of December 31, 1981. 1362 Minas Gerais Rural Development Project I: US$42.0 million loan of February 23, 1977; Effective Date: June 29, 1977; Closing Date: June 30, 1983. This project is progressing satisfactorily after initial delays. Participation in this project by landless producers was initially lower than originally envisaged, but concerted efforts by the state government and the participating banks have improved this situation markedly. A postponement of the closing date by 18 months, and a reallocation of loan proceeds to incorporate marketing, road improvement, and water supply activities, was recently agreed. _ 39 - ANNEX II Page 9 of 14 1406 Sergipe Fertilizer Project: US$64.0 million loan of April 29, 1977; Effective Date: August 31, 1977: Closing Date: May 31, 1982. Construction of plant buildings and erection of equipment are well advanced, but some delays have been experienced in delivery of locally ordered equipment which may delay the project completion date by about eighteen months. Commercial production is now expected to begin in October 1982. The costs to complete the project are expected to be about 15% below the appraisal estimate. 1411 VALEFERTIL Phosphate Fertilizer Project: US$82.0 million loan of April 29, 1977: Effective Date: July 29, 1977; Closing Date: December 31, 1981. The project has been in operation from August 1980. During this period it achieved an average capacity utiliza- tion of 81% for sulfuric acid, 55% for MAP and 37% for TSP. Several plant modifications have been carried out to improve performance of MAP and TSP plants. 1452 Vocational Training Project: US$32.0 million loan of September 7, 1977; Effective Date: April 5, 1978; Closing Date: December_31, 1982. Construction of the industrial training center is largely completed and the commercial centers are in the design stage. The Government is preparing a proposal to allocate funds not used for hotel training schools to the occupational safety training component. The rural training program has not been carried out as planned, and unless prompt corrective action is undertaken by the Government, the corresponding portion of the loan may be cancelled. 1488 Ceara Rural Development ProJect: US$17.0 million loan of November 17, 1977; Effective Date: March 28, 1978, Closing Date: December 31, 1982. The project is proceeding satisfactorily. Agricultural extension has been particularly successful in reach- ing target farmers, and initial land purchases for a first small group of farmers have been made. Agricultural credit has suffered from shortages of local bank funds. Physical and social infra- structure is proceeding well, although there are some difficulties in administering the health component and delays in carrying out the water supply program. 1525 Greater Sao Paulo Sewage Collection and Treatment Project: US$110.0 million loan of March 10, 1978; Effective Date: August 7, 1978; Closing Date: September 30, 1984. Physical execution of the project components financed by the Bank is on schedule; however, because of financial constraints the pace of execution is slow for those project components not financed by the Bank. Three important municipalities whose facilities are not operated by the executing agency are not building the necessary sewage collectors to connect to one of the treatment plants being built under the project. This problem has been raised with the Brazilian authorities and is expected to be solved soon. Project completion is expected to be delayed by about two years. - 40 - ANNEX II Page 10 of 14 1537 Paraiba Rural Development Project: US$24.0 million of May 8, 1978; Effective Date: October 19, 1978; Closing Date: September 30, 1983. While financial and managerial problems created significant delays in project implementation over the past two years, the situation has improved since the recent reorganization of the project administra; tion. Several components, such as land tenure services, non-farm rural enterprises, and agricultural cre.dit, show encouraging progress. However, the pace of execution of other project components, most notably, marketing, is still slow. 1538 South-Southeast Power Distribution Project: US$130.0 million loan of May 8, 1978; Effective Date: September 14, 1978; Closing Date. December 31, 1982. Disbursements were initially delayed by about one year due to necessary revisions of the beneficiaries' construc- tion programs caused by changes in the power market, reluctance by two of the beneficiaries to contract consultants as agreed, and procurement delays. Regarding the sub-project of CEKIG (one of the three beneficiaries under the Loan), the last supervision mission found that delay in project execution was now also due to financial difficulties which originated in low tariff levels that gave CEKIG a 7.9% rate of return on remunerable investment instead of the minimum of 10% allowed by Brazilian legislation. All available funds were channelled to the Emborcasao hydro project which CEMIG considered its first priority and current expectations are for a 2-year delay in project completion. The sub-projects of CELESC and ESCELSA have similar problems, and project completion is expected to be delayed by about two years. Delays in providing counterpart funds have hampered the execution of the projects of all these companies. In July 1981, ELECTROBRAS arranged for the required counterpart funds to 'be provided so that these projects can now proceed satisfactorily. 1557 Sixth Highway Project: US$114.0 million loan of May 8. 1978; Effective Date: October 13, 1978; Closing Date: December 31, 1982, Rehabilitation of highways foreseen under the project proceeded satisfactorily to mid-1980, when works were suspended because of financial constraints imposed by the federal government. However, these problems have been recently corrected and project execution has been resumed after a satisfactory revision of the highway rehabilitation component. The maintenance program in the state Of Parana is progressing well. The second phase of the weighing station program will not begin until the first phase (under Loam. 1075-BR) has been comlpleted and the effects monitored. Project completion could be delayed by two years. 1562 COPESUL Petrochemical Project: US$85.0 million loan of July 6.__121,s Effective Date: Octolber 30, 1978; Closing Date: June 30, 1982. Project implementation is proceeding well with an overall completion ratio approaching 75%. Commencement of commercial operations is expected in October 1982. The anticipated cost to complete the project is presently running about 7% below the original estimate. - t41 - ANNEX II Page 11 of 14 1563 Urban Trans-ort Project: US$88.0 million loan Effective Date: September 1, 1978; Closing Date: December 319 1981. This project is progressing satisfactorily although progress initially varied widely among the five cities invol-ved. 1568 Agricultural Extension Project: Us$100.0 million loan of M 22, 1978; Effective Date: September 22, 1978: Closing Date: June 30, 1984. The executing agency, EMBRATER, continues to work closely with state/territory agencies to achieve adequate project imple- mentation. The Project Coordination Unit has been effective, and project execution proceeded satisfactorily during 1980. Early local funding delays appear to have been resolved. The Closing Date has been postponed from December 31, 1982 to June 30, 1984, in part to allow additional time to achieve planned levels of incremental staffing, fellowships for staff training, and use of consultants. Overall, project activities appear to be pro- ceeding reasonably well. 1589 Bahia Rural Development Project: US$37.0 million loan of uy 19 1978; Effective Date: December 5. 1978: Closing Date: December 31,L 1983. The pace of project execution is now satisfactory, and delays in funding have been reduced. Extension and land titling services have been improved, but lack of land purchase credit is hampering the balanced progress of the project. The quality of feeder road construction has been uneven, but supervision of construction is being strengthened. The health component is proceeding smoothly; however, the education and water supply components are far behind schedule. 1654 Sites and Services and Low-Cost Housing Project: US$93.0 million loan of February 8, 1979: Effective Date: July 9. 1979; Closing Date: December 31, 1983. Housing targets are being met and difficulties which had been encountered in meeting the sites and services targets have been overcome. The Bank has approved a proposal that will offer a solution to the problems which have caused slow progress in this project and an amendment to the Loan Agreement has recently been signed. 1656 Northeast Water Supply and Sewerage Project: US$100.0 million loan of February 8, 1979: Effective Date: July 10, 1979, Closina Date: June 30, 1983. The National Housing Bank has approved the five year investment program of the project water companies for the period 1980-1984. The first subprojects for the capital cities have also been approved and construction is underway. However, because of initial difficulties, the project may be completed with about a one-year delay. - 42 - ANNEX II Page 12 of 14 1660 Valesul Aluminum Project: US$98.0 million loan of March 7, 1979; Effective Date: August 6, 1979; Closing Date: July 31, 1982. The project is proceeding without major problems, but a delay of six months and a cost overrun of 10% is expected. 1714 Sergipe Rural Development Proiect: US$26.0 million loan of June 20, 1979; Effective Date: February 5, 1980; ClosinR Date: September 30, 1984. Reasonable progress is being made with most project components. Extension services have come very close to first year targets and exceed second year targets. The land titling and colonization components are progressing more slowly, but remedial action is beginning to show results. The management of the project has become quite effective, and the monitoring and evaluation of project results is proceeding satisfactorily. 1720 Medium-Sized Cities Project: US$70.0 million loan of June 20, 1979; Effective Date: May 2, 1980; Closing Date: December 31, 1983. The project is proceeding satisfactorily after a slow start due to the change in Government. 1721 COPEL Second Power Distribution Project: US$109.0 million loan of June 20, 1979; Effective Date: November 21, 1979; Closing Date: June 30, 1983. Project implementation is about six months behind schedule because the Borrower postponed procurement pending loan effectiveness. The Borrower is, however, accelerating procure- ment and the project is expected to be completed on schedule. 1728 Pernambuco Rural Development Project: US$40.0 million loan of June 20, 1979; Effective Date: February 5, 1980; Closing Date: December 31, 1984. The project's start-up period was longer than expected, in part due to continuing delays in the release of federal funds. Project administration has recently improved but coordination among the entities involved in its execution is not yet satisfactory and calls for close supervision. The agency responsible for the village water supply component has not performed adequately and is being replaced by another entity. The recommenda- tions of the land tenure study are still under review in the state. 1729 Sao Francisco Second Irrigation Project: US$28.0 million loan of June 20, 1979; Effective Date: January 23, 1980; Closing Date: June 30, 1986. While previously initiated civil works have proceeded satisfactorily, local funding shortfalls and technical problems emerging in the detailed design of project works for the Boacica sub-area have slowed project progress. The infrastructure being developed by the Government outside the project, in the Brejo Grande sub-area may lead to the dropping from the project of previously planned irrigation and drainage investments there. CODEVASF is now reviewing proposals as to the number, location and management capacity of silos and central rice processing mills. The monitoring unit has been installed and is now operational. - 43 - ANN - f >4,, |.Xx .n w~~~~, po ",. i; \ ) 1 r z ~ r P1) a 0 ol Fi IY g; mpe o7 yJ rto-re hogree F ouds I.~~~~3 'A T ~~~~~~~~.. 0 Ivo~~rg..reep 0-0SF a0t, . t: :.: tg s ' > rb.v.wsa A ce, >/ 4~~~~~~~~~~~~~~~~~~~~~" h-h "t i~~~~~~~~1 K IN |1- _. d| EL H v ,.Frnneo 1Y,F' Rslpoe sPI Y / /f t {1 p a A -M rop veorderoo \ ~~~~~~~~~~~1 dj -A Le t.,gr ju g ' / /Nsaehr\ e sWrhue P~~~~~~~~~~~~~~~~~~~lr Ni;vl eeseoe4s : N zzZ27eI,,, A, - , -r g 0 tr>LI $ 1-;i Q 00 0 0 i; , . 0, gS~~~~~~~~~~~~~~~~~~~~P C- d ~ ioi; N< g RoseLlsoslr,,prsre- t __~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~~d L --t_ _. g. 141p3 \ Ags colloel~~~~~~~~~~~~41 ( ~~~~~~~> /ELoU -. NAAcp N 5' I~~~~~~~~~~~~~~~~~~~D SU 'g 'y ~ ~ oYTSE' ______ ____ ______ ____ ___________ __________ ___ _______ ___________ __________IBRDRRD 5593 1 75 0 ~~~~~~~~~~58- 56' RA I SEPTEMBER 1981 in' vOn ~~~~~~~~~~~~~~~~~~~~NORTHWEST REGION r, P"'. V. 1h. ~~~~~~~~~~~~~~~~INTEGRATED DEVELOPMENT PROGRAM, PHASE 21r / ~ ~ ~ ~ ~ ~ ~ ~ 6O ~~~~~~ Mato Grosso Rural Developmrent Project - ~~~~~~~~~~~~~AGRICULTURAL APTITUDE AND RAINFALL -~~~~~ ~ ~ ~~~ -. - ~~~~~~~~~~~~Projectarecalboudary I .~~~~~~~~~~~~~~~~~' - ~~~~~~~~~~~~~~~Road to be paved Iongord do, Serra Federal highvrays -'--~~ ,u-" -~~~ --,~~,-,'- - - ~ Stote highways and roads y cy / 1500 r 7 *'~~~~~~~~~~~-----~~~~~I* -~~~~~' v~~~~' ~ ~ ~ ~ Novi,gable rwers Parts / -~~~~~~~~. .~~~~~~- . I ® ~~~~~~~~~~~~Municipal capitals qo0lirv do Co 8eu.. Municipal bovndaries / '- RairadoBegren l6. SOy - --~~~~~~~~~~~~~~750 State bovndary Pontes e Lacerdo, / b Frogr am re boundary ,c ,i roo -nunc, __ lternot,onsol boundary / Arcputonqao',~ ~ ' Rimfall: lsohyels in -rilimeters ~~' ~~~~ f.~~~~~-\ r' . Cuio ~~~~~~~~~~~~~Agricultural aptitude: ~~~iJOti~~~~~~~~~~~O / ) . ~~~~~~~~~~~~~Cla,ss. Suitable for annual and G®\"'Crande ____Class 2,3. Suitable for perennal crops .1 ' -~~~~~~~~~~~~~~~~~~~~~ vc~~~~~~~~~~~ and arnnal crops w th som-e 0' ~~~~~~~~~~~~~Clans 4. Scitable for artificial pasture iv' / - - I i ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ~nClass 5Sa. Suitable for naitural pasture Caceres ~~~~~~~~~~~~~~~~~~~Class 5b, 6. Suitable only for forestry '-V . e~~~~~~~essn~~~~~m~~~, 'I ~~~Pocone®) -:7 ~ ~ ~ . v .Porto Cercado56 -?MArO l0-cr005o, I) 20 30 ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~~~ ugo esl I MATO GROSSO ii ThrrncnnumisnemimrsvWvuav801iOiOto 0 nvriroiv,vve,nnOv,,iOc/t~~~~~~~~iRuGQA