Document of LE: The World Bank FOR OFFICIAL USE ONLY tewt No. P-2832-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 STATE OF MINAS GERAIS WITH THE GUARANTEE OF THE FEDERATIVE REPUBLIC OF BRAZIL FOR THE MINAS GERAIS SECOND RURAL DEVELOPMENT PROJECT May 30, 1980 Tiwumest kw r s..ldcd didrbuSIs nd may be _ed by rexcpl. only in te "edamma I dr oUid doW I% t. eWb may a siberwbe be dbadhd w_ibt Wold 3.k m_h.rlumn. CURRENCY EQUIVALENTS January 1, 1980 May 21, 1980 Currency Unit - Cruzeiro (Cr$) US$1 . Cr$ 42.33 Cr$49.95 Cr$1 - US$0.0235 US$0.0200 ACRONYMS AND ABBREVIATIONS (see next page) GOVERMENT OF BRAZIL FISCAL YEAR January 1 - December 31 STATE OF MINAS GERAIS FISCAL YEAR January 1 - December 31 The exchange rate used in the Staff Appraisal Report (US$1 - Cr$42.33) corresponds to the cruzeiro buying price as of January 1, 1980. FOR OFFICIAL USE ONLY ACRONYMS AND ABBREVIATIONS BB - Banco do Brasil (Bank of Brazil) CAMIG - Companhia Agricola de Minas Gerais (Agricultural Trade Company of the State of Minas Gerais) CASEMG - Companhia de Armazens e Silos de Minas Gerais (State Storage Company) CEMIG - Centrais Eletricas de Minas Gerais, S.A. (The Minas Gerais Electrification Company) DAE - Departamento de Agua e Energia Eletrica do Estado de Minas Gerais (State Water and Electric Energy Agency) DER-MG - Departamento de Estradas de Rodagem do Estado de Minas Gerais (State Highway Department) EMATER-MG - Empresa de Assistencia Tecnica e Extensao Rural de Minas Gerais (State Technical Assistance and Rural Extension Company) EPAMIG - Empresa de Pesquisa Agropecuaria de Minas Gerais (State Agricultural Research Institute) FUNRURAL - Fundo de Assistencia ao Trabalhador Rural (Social Security Fund for Agricultural Workers) ICM - Imposto Sobre Circulacao de Mercadorias (Tax on Product Circulation) IEF - Instituto Estadual de Florestas (State Forestry Institute) MVR - Maior Valor de Referencia (Maximum Reference Value) PCU - Project Coordination Unit of the Minas Gerais Second Rural Development Project PMC - Project Management Council of the Minas Gerais Second Rural Development Project PRODEMATA - Projeto de Desenvolvimento da Zona da Mata (First Rural Development Project in Minas Gerais) RURALMINAS - Fundacao Rural Mineira, Colonizacao e Desenvolvimento Agrario (Rural Development Foundation of Minas Gerais) SEA - Secretaria de Estado da Agricultura de Minas Gerais (State Secretariat of Agriculture) SEE - Secretaria de Estado da Educacao de Minas Gerais (State Secretariat of Education) SEPLAN - Secretaria de Estado do Planejamento e Coordenacao Geral de Minas Gerais (State Secretariat of Planning and General Coordination) SES - Secretaria de Estado da Saude de Minas Gerais (State Secretariat of Health) SETAS - Secretaria de Estado do Trabalho, Acao Social, e Desportos de Minas Gerais (State Secretariat of Labor Social Action, and Sports) SUDECOOP - Superintendencia de Cooperativismo (State Superintendency of Cooperatives) TELEMIG - Telecomunicacoes de Minas Gerais (State Telecommunication Company) UFV - Universidade Federal de Vicosa 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 MINAS GERAIS SECOND RURAL DEVELOPMENT PROJECT LOAN AND PROJECT SUMMARY Borrower: State of Minas Gerais Guarantor: Federative Republic of Brazil Amount: US$63 million equivalent Terms: Repayment in 15 years, including 3 years of grace, at 8.25% interest per annum Project Description: The objectives of the project are to increase the production and productivity of 30,000 small farms and 1,100 non-farm enterprises, to increase rural employment opportunities and to improve social and physical infrastructure for the poorest rural areas of the State of Minas Gerais. Related objectives are to increase local participation in project activities and to improve institutional capability in project execution, monitoring and evaluation. The project provides for increased rural investment credit, the strengthening of agricultural services, technical assistance for small non-farm enterprises, improved physical infrastructure and social services, and the institutional development of participating agencies and project management. The main risks faced by the project are those of not achieving active staff participation and adequate coordination among the various participating agencies. To minimize these risks, staff from the executing agencies were fully involved in project preparation, and the. State Government has established an inter- agency Project Management Council and a Project Coordination Unit. The participating agencies would each appoint a full-time project manager. The project also provides for detailed annual work plans, consultant services, and continuous project monitor- ing and evaluation. lIany of the agencies have acquired relevant experience through their participation in the first Minas Gerais Rural Development Project. - ii - Estimated Cost: --- US$ Millions---- Local Foreign Total 3/ Credit On-farm Investment Credit 18.42 2.58 21.00 Electrification Credit 12.30 4.10 16.40 Subtotal 30.72 6.68 37.40 Agricultural Services Land Titling Services 0.28 0.07 0.35 Rural Extension 1/ 15.39 1.54 16.93 Agricultural Research 2/ 3.78 0.37 4.15 Land Reclamation 1.56 0.40 1.96 Reforestation 2.16 0.19 2.35 Marketing 4.48 0.68 5.16 Assistance to Cooperative Societies 4.35 0.57 4.92 Subtotal 32.00 3.82 35.82 Small Non-Farm Enterprises Technical Assistance 2.22 0.16 2.38 Physical Infrastructure Feeder Roads 19.30 9.80 29.10 Telepbone Communication 1.09 0.36 1.45 Subtotal 20.39 10.16 30.55 Social Infrastructure Education 6.69 0.83 7.52 Health and Sanitation 6.21 0.85 7.06 Community Centers 3.47 0.51 3.98 Community Development 1.51 0.09 1.60 Subtotal 17.88 2.28 20.16 Project Management Administration and Monitoring 4.10 0.56 4.66 Evaluation 2.48 0.22 2.70 Subtotal 6.58 0.78 7.36 Total Baseline Costs 110.13 23.54 133.67 Physical Contingencies 7.46 1.59 9.05 Price Contingencies 34.50 7.36 41.86 TOTAL PROJECT COSTS 152.09 32.49 184.58 1/ Includes agricultural and social extension services, and extension assistance for land reclamation and marketing. 2/ Includes agricultural and small farm management research, marketing and agro-forestry studies. 3/ Project costs include an estimated US$5.4 million of taxes. - iii - Financing Plan: -------US$ Million-------- Local Foreign Total Government 71.6 - 71.6 IBRD 30.5 32.5 63.0 External Co-Financing 50.0 - 50.0 Total 152.1 32.5 184.6 Estimated Disbursements: --------------US$ Millions------------- Bank FY 1981 1982 1983 1984 1985 1986 Annual 3.3 8.5 15.0 16.4 14.8 5.0 Cumulative 3.3 11.8 26.8 43.2 58.0 63.0 Rate of Return: Estimated at 16% for the productive aspects of the project with directly quantifiable benefits. Appraisal Report: Report No. 2924-BR, dated May 30, 1980. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE STATE OF MINAS GERAIS 1. I submit the following report and recommendation on a proposed loan to the State of Minas Gerais with the guarantee of the Federative Republic of Brazil for the equivalent of US$63 million to help finance the Minas Gerais Second Rural Development Project. The loan would have a term of 15 years, including 3 years of grace, with interest at 8.25% per annum. PART I - THE ECONOMY 1/ 2. A report, entitled "Economic Memorandum on Brazil" (No. 2283a-BR), dated March 19, 1979, was distributed to the Executive Directors on March 30, 1979. The following discussion and related annex tables are based on the work of an economic mission that recently returned from Brazil. The mission is at present preparing its report. 3. The present Government, headed by President Joao Baptista de Oliveira Figueiredo, took office on March 15, 1979, for a six-year term. During its first year it has had to grapple with accelerating inflation and a deterior- ating balance-of-payments situation. Major economic priorities of the Govern- ment include the accelerated growth of agriculture, reduced dependence on imported petroleum, and continued expansion of manufactured exports. Success on these fronts is crucial both to the solution of the inflation and balance- of-payments problems, as well as to the sustained improvement of living standards and a better income distribution. Recent Economic Performance 4. From 1967 to 1973, Brazil enjoyed remarkable economic growth. GDP rose at a real rate of about 11% per year, with industrial value-added rising 13% per annum and agriculture 5%. Income per capita increased by more than 7% per year. This growth was achieved with no significant deterioration of the external resource balance, despite considerable trade liberalization, and there also occurred a gradual decline in the rate of domestic inflation. Although income growth was unevenly distributed, available data indicate that most Brazilians shared in the absolute improvement of living standards that was taking place. Among the sources of development were a rapid growth of public sector investments, the expansion of Brazil's agricultural frontier, the inflow of foreign capital and technology, and a more than 25% per year annual growth of manufactured exports. The total external debt (public and private) increased over this period from US$3.3 billion to US$12.6 billion, but much of this accumulation was added to international reserves, which rose from US$0.2 billion to US$6.4 billion. 5. One by-product of this process was a growing dependence of Brazil's industry and transport system on imported petroleum. Few large nations are apparently so deficient in fossil fuels as is Brazil, and despite a major exploratory effort, over 80% of its petroleum must be imported. Thus, as a consequence of the oil price increase, the cost of petroleum imports rose from US$711 million in 1973 to US$2.8 billion in 1974. With imports also 1/ This part is reprinted from the corresponding part of the President's Report for the Northeast Basic Education Project (No. P-2826-BR, dated May 21, 1980). swelled by speculative stockpiling of other commodities, Brazil's current account deficit rose in one year from US$1.7 billion to US$7.1 billion, or 7% of GDP. Coping with the trade-off between continued high growth and the suddenly tightened external resource constraint has been one of the basic problems of Brazilian economic management since 1974. 6. Brazil's capacity to manage the 1973-74 oil crisis was enhanced by its strong international reserve position; the continued rapid growth of its manufactured exports; the liquidity of international financial markets, combined with widespread confidence in the nation's creditworthiness; and the opportunities which its large domestic market offered for efficient import substitution. Drawing upon all of these assets, and pressed by the high national growth expectations generated by the 1967-73 experience, the autho- rities were reluctant to restrain aggregate demand. The strategy shifted instead toward increasing control over imports, which were held approximately constant in nominal terms between 1974 and 1977. As a result of this effort, accomplished through a variety of tariff and non-tariff trade barriers, a positive merchandise trade balance was restored in 1977, and the current account deficit was reduced to 2.4% of GDP. Meanwhile, GDP growth averaged 7.6% per year between 1973 and 1977, although with wide year-to-year variation. 7. By 1976, however, the continued high growth of demand in the face of constricted imports and increased protection of domestic industry had resulted in a reacceleration of inflation above 40% per annum, and the autho- rities acted to slow the expansion of public sector expenditures and to tighten credit. This effort intensified in 1977, and the overall GDP growth rate fell below 5% for the first time since 1966. Nevertheless, inflation remained around 40%, stimulated in part by an accumulation of additional inter- national reserves totaling almost US$3 billion in 1976-77. 8. The rate of GDP growth rebounded to almost 6% in 1978, notwithstanding a 2% decline in agricultural output caused by a serious drought in southern Brazil. The loss of food production cost the economy an estimated US$1.5 billion in foreign exchange. Hence, despite a 36% nominal increase in manufactured and semi-processed exports, total merchandise exports rose only 4.4%, compared to a 13.8% increase in merchandise imports. The contraction of agricultural output and rapid buildup of international reserves contributed to price pressures, maintaining inflation at about 40% for the third consecutive year. 9. Aggregate demand continued to grow in 1979, fueled by rapid monetary expansion, a large public sector deficit, large wage settlements in the unionized sectors, and the continued expansion of manufactured exports. Indus- trial production was up about 7% over the previous year. Agricultural output was again severely affected by a combination of droughts, floods, and frost but showed some recovery from the depressed levels of 1978. Overall, GDP growth was 6.4%, a modest increase over the preceding year. High demand, the poor harvest, and increased fuel costs resulted in a rapid acceleration of inflation in 1979. Inflation for the year reached 78%, the highest rate since 1964. 10. Increased petroleum prices, consecutive bad harvests, and a sharp rise in external borrowing costs contributed also to a progressive deterioration of Brazil's balance of payments in 1978 and 1979. Despite the continued rapid growth of manufactured exports, the merchandise trade balance fell from a small surplus in 1977 to a US$1.0 billion deficit in 1978 and a US$2.7 billion deficit - 3 - in 1979. The cost of fuel imports alone increased from 1978 to 1979 by 53%, or US$2.2 billion. Increases in the London interbank offered rate (LIBOR), to which about 60% of Brazil's external debt is tied, contributed to raising gross interest payments abroad from US$3.3 billion in 1978 to US$5.3 billion in 1979. Conse- quently, the deficit on current account grew from US$5.9 billion to US$9.7 billion, or from 3.1% to 4.7% of GDP. 11. With amortization payments totaling US$6.6 billion, gross external capital requirements in 1979 amounted to US$16.3 billion. Of this amount, US$3.2 billion was covered by reserve drawdowns, and another US$1.5 billion was provided by net direct foreign investment. Gross and net foreign borrowings in 1979, including bond issues, therefore totaled US$11.6 billion and US$5.0 billion, respectively, compared to US$14.1 billion and US$8.8 billion in 1978. Few difficulties were encountered in attracting the necessary credits, and an improvement noted in 1978 in spreads and maturities available to Brazil was sustained in 1979. The drawdown brought international reserves to US$9.0 billion at the end of 1979, or equivalent to about 5-1/2 months of goods and nonfactor service imports. Gross medium- and long-term debt rose to US$49.9 billion, or 24% of GDP. 12. Measures introduced in April 1979 to slow the inflation and reduce balance-of-payments pressures met with only temporary success and were followed by new packages of measures in December 1979 and January 1980. The most important of these measures were a 30% devaluation of the cruzeiro, accompanied by the elimination of some export subsidies and the prior deposit requirement on imports, and the imposition of a temporary export tax on primary products; increased restrictions on public enterprise investments, imports and borrowing; a modification of administered credit programs which is intended to reduce subsidies; establishment of ceilings on monetary correction and exchange rate adjustment during 1980; and the imposition of direct controls on credit expansion by the private banking system. Poverty Programs 13. Although Brazil continues to be characterized by severe income inequality, the Government has in recent years made serious efforts to relieve poverty, and significant progress has been made in a number of areas. Coverage of the social security program, for example, 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. Under this latter system, rural households headed by persons over 65 years of age are eligible to re- ceive a monthly income supplement equivalent to US$30, an amount which is almost twice the average per capita expenditure in the rural Northeast. The urban population over age 70 is covered by a similar program. Almost 2 million loans have been made for housing by the National Housing Bank since 1964. 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 6 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. 1/ Future Prosp^cts 14. Since 1973, Brazil has undertaken 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 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, and to expand domestic coal production. 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 expected to constitute US$10-12 billion (over half of Brazil's merchandise imports) in 1980, as compared to US$700 million (11% of imports) in 1973, the trade-off between growth and balance-of-payments viability continues to be a principal preoccupation of economic decision makers. 15. In view of the balance-of-payments constraint, Brazil must undergo a period of careful demand management. In addition to the measures noted above, a number of important institutional reforms have been undertaken to improve fiscal and monetary policy design and implementation. These include: the marked improvement of information flows and administrative control in the public secto-, includ ng the expenditures of the many semi-autonomous agencies and public enterprise ; incorporation into the fiscal budget of several of the subsidy programs formerly handled outside the budget through the Central Bank; and reduced earmarking of public revenues. Currently under considera- tion are the elimination of the development banking responsibilities of the Central Bank, the abolition of the Bank of Brazil's money-creating power, and a far-reaching reduction of fiscal incentives. 16. The December devaluation of the cruzeiro and the accompanying trade liberalization are intended to promote more efficient resource allocation favorable to both export growth and efficient import substitution. Toward this end also, many administratively complex tariff exemption schemes have been eliminated as part of a general rationalization of the trade regime. Although public investments may be constrained by reduced resource availabil- ities over the next several years, priority attention will continue to be given to the development of domestic energy sources, agriculture and major import-substitution projects. 17. Growth is expected to average about 5.5% per year in 1980-85 as compared to 11% in 1967-73 and 7% in 1973-79. Such a growth rate should be compatible with a declining current account deficit after 1981 and high, but declining, debt service ratios. These projections are highly sensitive, how- ever, 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 more vulnerable to external events than it has been for many years, and this situation may be expected to persist for the next several years. 1/ 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", dated October 1979. - 5 - External Assistance and Creditworthiness 18. With the forecast upward trend of real petroleum prices, Brazil's resource balance is expected to remain negative until 1983. Interest payments on the growing external debt will increase throughout the period 1980-85 despite an expected decline in international interest rates. Thus large service account deficits will result in continuing current account deficits on the order of US$10-12 billion through 1982, though declining sharply there- after. As a proportion of GDP, the current account deficit is projected to peak at 6.0% in 1980 and fall steadily to 1.0% by 1985. This projection assumes that import restraint continues to 1985, permitting a large trade surplus to appear in 1984; alternatively imports could be accelerated as the balance-of-payments constraint is eased, at the cost of a larger current account deficit in 1984 and beyond. 19. Under the assumption of continued import restraint, net medium- and long-term borrowing requirements are expected to be around US$9 million in 1980, remain in the range of US$10-11 billion from 1981 to 1983, then fall to US$6 billion by 1985. Annual gross borrowing would be maintained at a level of US$16-19 billion throughout the five-year period, with US$12-15 billion obtained as financial credits from private lenders. Consequently the net debt service ratio 1/ would peak in 1980 at 60%, falling to about 39% in 1985. As a proportion of GDP total outstanding medium- and long- term debt would reach 32% in 1982 and decline slowly thereafter. 20. In summary, after a period of very rapid growth in the late 1960s and early 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 has been 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 its large domestic market. Nevertheless, continued heavy dependence on petroleum imports, the resurgence of domestic inflation, and the rapid accumulation of external debt indicate that the adjustment process must go much further. 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. 21. 'The great sensitivity of Brazil's balance of payments to petroleum prices and international interest rates was demonstrated in 1979 and will continue to make projections subject to a wide margin of error. The present scenario also depends heavily on Brazil's continued ability to expand manu- factured exports, despite the slower anticipated 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 will not be apparent for several years. On the other hand, the Brazilian economy remains dynamic, highly diversified, and resilient. The task of economic management will not be easy, but policy makers have demonstrated their ability to adjust to changing circumstances, and recent policy measures should greatly strengthen their management capacity. Thus, despite the deterioration noted in 1979, Brazil remains creditworthy for new borrowing on conventional terms. 1/ Including both public and private debt. PART II - BANK OPERATIONS IN BRAZIL 22. By April 30, 1980 the Bank had made 94 loans to Brazil, amount- ing to US$4,772 million (net of cancellations), of which 49 u-re 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, and US$295 million in FY79. Disbursements for the first half of FY80 amounted to US$170 million and are expected to increase during the next few years. Annex II contains a summary statement of Bank loans as of April 30, 1980 and notes on the execution of ongoing projects. 23. Over the FY75-79 period, Bank lending to Brazil ranged from US$425 to over US$700 million per year. In FY75, five loans were made totalling US$426.5 million; in FY76, ten loans totalling US$498 million; in FY77, seven loans totalling US$425 million; in FY78, nine loans totalling US$705 million; and in FY79, nine loans totalling US$674 million were made. So far in FY80, five loans have been approved: a US$114 million loan for power distribution, a US$130 million loan for water supply and sewerage in the south, a US$58 million loan for industrial pollution control in Sao Paulo, a US$159 million loan for a suburban rail transport project in Porto Alegre, and a US$139 million loan for a third water supply and sewerage project in Minas Gerais. The documents for a US$32 million loan for a rural education project in the Northeast have been distributed recently to the Executive Directors. Work is relatively advanced on the preparation of two additional power loans and a second rural development project in Ceara. It is expected that loans will be proposed for these projects in the near future. 24. Of Brazil's external public debt outstanding and disbursed at the end of 1979, amounting to US$49.9 billion, the Bank held 3.6%. The Bank's share of the service on this debt in 1979 was 2.0%. In 1980, the Bank's share in total outstanding debt is expected to fall very slightly, while its share in total debt service should fall to about 1.8%. 25. As of April 30, 1980 IFC commitments to Brazil, totalled US$499 million, of which US$332.3 million had been sold, repaid or cancelled. Of the balance of US$166.7 million, US$127.4 million represent loans and US$39.3 million equity. A summary of IFC's investments as of April 30, 1980 is given in Annex II. Lending Strategy 26. 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 the productivity and incomes of the lowest income segments of the population, to broaden the economic opportunities open to those groups, and to improve their living conditions. It is to these ends that the proposed Minas Gerais Second Rural Development Project is mainly directed. Previous loans for nutrition research and development, vocational training, agricultural research, agricultural extension and polder construction in the lower Sao Francisco river basin and for integrated rural development in the States of Rio Grande do Norte, Minas Gerais, Ceara, Paraiba, Bahia, Sergipe and Pernambuco were designed to assist low-income groups in rural - 7 - areas. Additional projects to assist the rural poor are in preparation, including a rural credit project and several integrated rural development projjects in the Northeast. Loans for water supply and sewerage projects in the State of Minas Gerais, in Greater Sao Paulo, and in the Northeast for urban transport in five major cities, and for sites and services and low-cost housing are assisting to improve the living conditions of the urban population, particularly of the urban poor. Several loans to reach low-income groups in urban areas have recently been approved, including water supply and sewerage projects in three southern states and Minas Gerais and a pollution control proJect for Greater Sao Paulo. Additional pollution control, transport, and water supply and sanitation projects are in preparation. 27. 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, 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 strengthen administrative capabilities at the state, regional, and local levels. It is expected that the experiences gained by the participating agencies during the proposed project's preparation and implementation will be applied to future rural development efforts in Minas Gerais and elsewhere in Brazil. Loans for electric power, railways, industrial finance, highways, agricultural research and extension, water supply and sewerage, and urban development also have important institution-building objectives. 28. 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, by supporting projects designed to increase Brazil's export capacity and, where economical, to substitute domestic production for impcrts. 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. 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 assisting Brazil to substitute imports with large-scale efficient domestic production and aid its balance-of-payments position. Much of the Bank-assisted investment in the transport sector -- railways, ports and highways -- is designed to facilitate the smooth and economical flow of exports. Support of the steel expansion program is helping Brazil to expand domestic output of a traditional 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 hydro- electric resources and ample bauxite reserves. 29. 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 for some years to need in order to sustain rapid growth and achieve its employment creation and regional develop- ment objectives. Continued active lending by the Bank in Brazil is regarded by the international financial community as an important sign of confidence in Brazil and encourages others to continue their own programs there. In some sectors, especially in electric power and industry, Bank participation is - 8 - helping Brazil obtain additional resources in greater amounts and on more favorable terms from bilateral credit agencies and private financial institu- tions than may have otherwise been provided. Eleven co-financing operations for more than US$425 million, have been concluded since 1976 with private financial ins'-itutions, and sevcral others are in preparation. In connection with the proposed project, the State of Minas Gerais is expected to obtain a loan of about US$50 million from external banks to help finance its share of total project costs. The usual co-financing links for the commercial bank financing with the proposed Bank loan would be provided (see para. 67). PART III - The Agricultural Sector The Sector in the National Economy 30. Agriculture continues to be an important sector in the Brazilian economy, employing 36.2% (14.6 million) of the economically active population and contributing about 12% of the total GDP and 56% of total export earnings. Brazil is the world's largest exporter of coffee and orange juice, the largest producer of sugar cane, and the third largest producer of soybeans. Other major agricultural exports include meat and fish products, cotton, corn, peanuts, cocoa, castor oil, and sisal. Brazil is largely self-sufficient in basic food production, except for wheat. From 1970-74, the average annual agricultural growth rate was 6.9%. Until 1978, the value of agri- cultural production cc itinued to grow, although at a lower rate than that of the industrial sector or the GDP as a whole. In 1978, agricultural output declined by 2%, largely as a result of a severe drought in the South. In 1979, the agricultural sector showed a 3.5% growth rate, compared to 6.5% for the industrial sector and 6% for the economy as a whole. 31. Despite productivity gains, expanded production areas, and increased market integration, much of the sector, especially in the North, Northeast, and Center-West, continues to employ traditional agricultural practices and rudimentary technology. Constraints on increased agricultural production, particularly for small farmers, include: limited access to institutional credit, extension, and modern agricultural inputs; inadequate supporting services and infrastructure for marketing, storage, and transport; uncertain land tenure and a highly uneven land distribution; and the absence of a stable price policy to provide incentives for agricultural producers. Agricultural Development Policy 32. In recent years, growth in agricultural production has owed more to expansion of cultivated land than to improved productivity. However, the Government is now taking measures aimed at a more efficient exploitation of Brazil's agricultural potential, and agricultural development has been assigned a high priority in Brazil's Third National Development Plan (1980-84). Major policy objectives include: (a) the increase of basic staple and export production, especially by small and medium producers; (b) the improvement of production, storage, transport and marketing systems; (c) the expansion of agricultural research and extension activities; and (d) the decentralization of agricultural policy execution, and the increase of participation by the private sector and state and local governments. Govern- ment measures aimed at stimulating agricultural production and raising rural - 9 - incomes, particularly among small producers, include: (a) the strengthening of the research and extension services with a new emphasis on the needs of small farmers; (b) the support of special regional programs, such as POLONORDESTE in the Northeast or POLONOROESTE in the Northwest, that focus on poorer regions and small-scale farmers and/or the incorporation of new areas into production; and (c) the announcement in May 1979 of a series of actions which included increased access to institutional credit. The high cost of petroleum imports has had an important impact on recent Government agri- cultural policy. The Government has given strong support to a large-scale alcohol production program demanding increased cultivation of sugarcane. 33. An important aspect of Brazil's agricultural policy has been the practice of encouraging a large volume of agricultural credit at subsidized interest rates. With the continuing high rate of inflation, these rates are negative in real terms. The subsidies were originally introduced some years ago as a means of compensating the agricultural sector for the adverse terms of trade resulting from high prices for fertilizer, machinery, and other in- puts. They were also intended to provide incentives for the expansion of agricultural production and to give special assistance to disadvantaged groups. Since the main agricultural credit institution, Banco do Brasil (BB), is able to extend subsidized credit by virtue of large interest-free deposits which public agencies place with it, and the Government maintains various special agricultural credit financing lines, much of the financial burden of the subsidies is borne by the public sector as a whole, rather than by individual financial institutions. The system has a number of potential disadvantages, including: credit deviations from the agricultural sector to other sectors; the extension of subsidized credit to large farmers; the encouragement of unduly capital intensive techniques in larger agricultural enterprises; and the high costs of administering a complex web of credit regulations. 34. The Government is well aware of the system's drawbacks and in December 1979, took a significant first step toward the gradual elimination of subsidies for most types of agricultural credit by partially linking interest rates to the rate of inflation. An exception to this is credit granted under special programs, such as the POLONORDESTE program in the Northeast, where political and welfare considerations have been constraints on reducing subsidies. Although they remain negative in real terms, interest rates for the proposed project are subject to the new system and consequently have almost doubled in nominal terms since December 1979. Furthermore, the possible adverse effects of subsidized credit are substantially reduced in Bank-assisted rural development projects, including the proposed project, because the individual programs of the small farmer beneficiaries, many of whom are below the poverty level, are closely supervised to ensure that the credit is utilized for the intended purposes. Bank Involvement in the Agricultural Sector 35. The Bank has made 18 loans, totalling US$625.7 million, for agricul- ture and rural development in Brazil. These include two, amounting to US$125.3 million, for agro-industries; two, totalling US$60.5 million, for live- stock development; one for US$18.2 million for grain storage; one for US$40 million for agricultural research; one for US$100 million to improve agricul- tural extension services; and eleven, totalling US$281.7 million for various settlement, irrigation and rural development projects, nine of which are located in the Northeast. In addition, there have been three loans, totalling - 10 - US$196 million for fertilizer production, a loan of US$19 million for a nutrition research and development project, and two loans totalling US$165 million for secondary and feeder road projects, which are having a direct impact on agri- cultural production and rural development. The proposed loan would be the eighth loan made for an integrated rural development project ._ Brazil. PART IV - THE PROJECT 36. The project was prepared by the Fundacao Joao Pinheiro, a State planning foundation, in close cooperation with the staff of the participating agencies and the Bank. A Bank identification mission visited Brazil in April 1979, followed by several preparation missions. The project was appraised in January 1980 (Annex 3). Preparation of the project benefited substantially from experiences obtained during the implementation of the first Minas Gerais Rural Development Project (Loan 1362-BR) and other Bank-assisted Brazilian rural development projects. Negotiations took place in Washington from May 12 to May 16, 1980. The Brazilian delegation was led by Dr. Paulo Roberto Haddad, Secretary of Planning for the State of Minas Gerais. A report titled "Staff Appraisal Report, Brazil, Minas Gerais Second Rural Development Project" (No. 2924-BR dated May 30, 1980) is being circulated separately to the Executive Directors. The State and the Project Area 37. Minrs Gerais is the sixth largest state in Brazil, with an area of 587,170 km and a population of about 13 million, of which 37% is rural. Belo Horizonte, the State capital, is Brazil's third largest city, with a population of over 3 million. The State possesses a rich natural resource base which has favored mining, industrial, and agricultural development. Agriculture contributes about 14% of the total value of goods and services produced in the State. In recent years, the State has emphasized rural development programs to stimulate agricultural development and decrease rural migration. To date, the Bank-financed Minas Gerais Rural Development Project, initiated in 1977 in the Zona de Mata area, is the State's most comprehensive effort aimed specifically at improving the socio-economic conditions of the rural poor. 38. The region in which the project area is located covers the entire eastern portion of the State, and comprises almost 50% of State area and 61% of its population. Within this region, 102 municipalities were selected out of some 518 on the basis of agricultural potential and small farmer concentration. These 102 municipalities, constituting the project area, have 942,900 inhabitants, of which about 70% is rural, and an area of some 61,000 km . The project area is ecologically diverse, ranging from the dry prairielands (cerrado) of the North to the more humid, hilly lands of the South, with floodplains (varzeas) scattered throughout the area. Mean annual rainfall varies between 550 mm and 2,000 mm. The dry season ranges from 3 to 7 months. 39. The project area contains 13% of Minas Gerais' rural population. Rural population is steadily decreasing, indicating a substantial migration to urban centers, mainly outside the project area. Agriculture remains the chief economic activity, employing about 75% of the economically active population. Only 8% are employed by the industrial sector, which is mainly - 11 - limited to cottage industries and other small enterprises. Average annual per capita income in the area's industry and service sectors is roughly estimated at US$600; for small farmers the estimate is about US$200, consid- erably below the Brazilian rural relative poverty level (US$330). Educational and health services are generally weak. Only 70% of school age children attend school, and the literacy rate is low. Infant mortality is high (100 per 1,000), and malnutrition is widespread. Chagas disease (South American trypanosomiasis) affects 19% of the population, contributing to the low life expectancy of 44 years. Water supply and sanitation facilities are lacking in 85% to 90% of all homes, and only 3% of the houses in rural areas have electricity. One-quarter of the project municipalities are not adequately linked up to the federal and state road system. The municipal road network of about 20,000 km is poorly maintained. Many of the 620 rural communities in the project area are isolated, with only farm tracks connecting them to the municipal roads. 40. Although the project municipalities are located in the most important agricultural region of the State, they only produce about 8% of the State's agricultural production. Low production levels are chiefly the result of inadequate infrastructure, public services, and farm technology. About 12% of the project area is in temporary crops, 2% in permanent crops, 60% in pasture, 8% under forest, and 18% fallow or not utilized. About 0.1% of the cultivated land is irrigated. The traditional crops of beans, maize, and manioc, often interplanted, cover 63% of the cropped area. Rice, sugarcane, and cotton are important commercial crops. Most small farmers have some livestock, particularly pigs, to supplement cropping activities, while livestock production is the principal activity on the larger farms. These larger farms (above 100 ha), which account for 8% of the total number of farms, incorporate 59% of all project area farmland. About 16% of all farms and 5% of the farmland is cultivated under some form of rental or share- cropping arrangement. Agricultural extension services have been mainly credit-oriented and directed toward larger farmers, except in the Zona de Mata area where the first Minas Gerais Rural Development Project has brought about substantial changes. The State Technical Assistance and Rural Extension Company (EMATER-MG) has offices in 24 of the 102 proposed project munici- palities. Currently, public marketing services do not reach small farmers effectively, and private intermediaries remain the major link between farmers and markets. Project Objectives and Strategy 41. The proposed project would support the State's effort to assist rural poverty areas. Project objectives include: (a) increased production and productivity in small agricultural and non-farm enterprises; (b) increased rural per capita income levels and employment opportunities, improved income distribution, and decreased rural-urban migration; (c) improved physical and social infrastructure and living conditions; (d) improved institutional capabilities in project execution, monitoring, and evaluation; and (e) increased local participation in project implementation. 42. The project would concentrate on selected "development pockets", 102 municipalities, which have the highest concentration of small, low- income producers in the region. Taking advantage of the area's development potential, a broad range of project activities would be directed toward specific target groups of low-income small farmers and non-farm entrepreneurs within the development pockets. It is expected that project activities would have a strong demonstration effect on surrounding areas and would therefore - 12 - serve as a catalyst for increased rural development efforts throughout the region and, eventually, throughout the state. Concurrently, the project's emphasis on institution building would improve the general effectiveness, coordination, and implementation capabilities of the participating agencies. 43. The proposed project would build on the experience of the Bank's first rural AFvelopment project in Minas Gerais. That project, initiated in 1977, has the objective of assisting 25,500 small farmers in the Zona de Mata area and includes rural credit, agricultural support services, and social and physical infrastructure investments. The project is expected to be completed on schedule (December 31, 1981), and is substantially achieving its objectives. The proposed second project would be implemented over a much wider area of the state than the first. It would include a second phase program in part of the Zona da Mata which is being assisted under the first loan (see para. 65). The experiences of the first project have been useful in preparing the second, particularly in selecting project components, safeguarding against initial project implementation difficulties, and integrating project activities. The first project did not include marketing and feeder road components. The lack of adequate feeder roads has, in some cases limited the full participation of isolated communities, and the lack of proper marketing services has reduced the impact of efforts to actively involve farmers' communities and farmer groups in the development process. The proposed project would include selected feeder road and marketing investments and provide for a pilot community development component. Some initial difficulties in project implementation during the first project were experienced due to the lack of participation of operational personnel in project preparation. The proposed project has involved a cross-section of personnel from the participating agencies in project preparation. finally, the first project highlighted the need for better integration within and between the executing agencies. During project preparation, special attention was given to institution-building, the internal information systems of the agencies, and interagency cooperation. Features such as formal agreements regulating interagency cooperation and an administra- tive system for the community centers to be used by various participating agencies, would strengthen these aspects of the proposed project. Project Components 44. Agricultural Credit. Medium- and long-term credit for the establish- ment of permanent crops, improvements in on-farm installations, pasture improvements, livestock purchases, reforestation, and land reclamation would be financed by the project. In addition, the State would finance or make the necessary arrangements for the financing of incremental short-term credit for annual crops and the establishment of permanent crops (Section 4.01(a) of the draft Loan Agreement). General agricultural credit would be provided to approximately 30,000 small farmers who derive more than 50% of total family income from agricultural activities and who have less than 100 ha, except in the southern portion of the project area (Zona de Mata and Sul de Minas), where the latter limit would be 50 ha. In those areas, farmers with more than 50 ha generally have access to normal credit channels. For reforestation, the credit limit would uniformly be 100 ha throughout the project area. Total individual indebtedness would not exceed 100 MVR,1I/ except for farmers also accepting credit for land reclamation, charcoal production, or electrification. 1/ The MVR (maior valor de referencia) is a standard unit of value, which is adjusted periodically by the cumulative index of monetary correction for the previous 12 months. One MVR equals Cr$1,962.20 or US$46.35 (January 1, 1980). - 13 - The total limit in those cases would be 180 MVR (Section 1.02(w-x) and Schedule 7, para. 1 of the draft Loan Agreement). Project credit terms and conditions would be those established by the Government for standard rural credit lines. _/ Given Brazil's current inflation rate (83.8% from March 1979 to March 1980), rural credit interest rates would remain sub- stantially negative in real terms. However, as noted in paragraph 34, the Government in December 1979, initiated steps toward the gradual reduction in interest rate subsidies. Furthermore, potential resource misallocation is limited by the fact that credit for project beneficiaries, small farmers below the relative poverty level, would be closely supervised through the project's extension and monitoring activities. The Bank would be promptly notified of any changes in lending terms or conditions (Section 3.05(b) of the draft Loan Agreement). The State would promote the establishment within the first two years of 20 new bank posts in the project area. (Section 3.05(d) of the draft Loan Agreement). Receipt by the Bank of satisfactory agreements between the State and the financial agents, ensuring the latter's collaboration in project execution, would be a disbursement condition for the credit compo- nents (Schedule 1, para. 3(i) of the draft Loan Agreement). Additional financial agents would be included only with prior Bank approval (Section 1.01(c) of the draft Loan Agreement). 45. Rural Electrification Credit. The project would provide rural electric service in 32 project area municipalities to an estimated 5,500 farms. The electrification credit, which would finance branch lines, house connections, and metering equipment, would be granted to beneficiaries under the same terms and conditions stipulated for agricultural investment credit. The required additional trunk lines, representing 40% of total network costs, would be financed by the State Government. Funds for the timely construction of these trunk lines would be made available to the executing agencies, the Centrais Eletricas de Minas Gerais (CEMIG) and the Departamento de Aguas e Energia Eletrica (DAE) (Section 4.01(b) of the draft Loan Agreement). The average costs per km of distribution line (including trunk and branch lines) would not exceed US$3,400, and the average cost per KVA of transformer and meter installations would not exceed US$100, except with prior Bank approval (Section 3.06 of the draft Loan Agreement). It is expected that revenues would eventually fully cover operation and maintenance costs. 46. Land Titling. The project would provide land titles to about 9,000 small farmers, thereby improving security of tenure and access to institutio- nal credit. The executing agency, the Rural Development Foundation of Minas Gerais (RURALMINAS), would conduct a promotional campaign during the first year. Salaries of incremental staff, cars, equipment and materials for land surveying and document preparation, and the costs of legal procedures and advice, would be financed. Beneficiaries would be charged a nominal fee for the project's land titling services. 47. Extension. The project would expand extension services in the 78 project area municipalities which now receive either no or minimal service. Extension staff would carry out agricultural and social extension and partici- pate in project-related land reclamation, cooperative, community development, 1/ The investment credit interest rate for 1980 is subject to partial mone- tary correction (50% of the Government's 1979 index (47.19%) used for correcting adjustable treasury bonds (ORTN)), plus a flat rate of 5%. The effective interest rate in 1980 is 29% for investment credit. For short-term seasonal credit not financed by the project, the effective interest rate in 1980 is 24%. - 14 - and marketing activities. The project would finance: (a) the project period salaries and operating costs for the increase in agricultural extension staff from 43 to 143, the increase in social extension staff from 13 to 93 and the establishment of a permanent staff of marketing and land reclamation specialists; (b) improved communication services with local extension offices; (c) the establishment of 18 new local offices; (d) training for extensionists and farm families; and (e) vehicles. EMATER-MG, the executing agency, would utilize a group approach as much as possible, to reach 30,000 small farmers and their families. All of the new extension officers would be employed and trained by June 30, 1982 (Section 3.07 of the draft Loan Agreement). 48. Research. Crop and livestock, farm management, agro-forestry, and marketing research, executed by the State Agricultural Research Institute (EPAMIG), would be oriented toward the needs of project area small farmers. At least 400 experiments and demonstration plots would be undertaken annually, with at least 50% at the farm level. The project would finance vehicles, equipment, salaries of incremental staff and other incremental operating expenses, consultancies, and the publication of research results. The prepara- tion of a detailed annual experiment and demonstration program would be done in consultation with EMATER-MG. Project research results would be annually published in one of EPAMIG's monthly bulletins (Section 3.08 of the draft Loan Agreement). EPAMIG would cooperate closely with the State Forestry Institute (IEF) in agro-forestry experiments aimed at reducing the unproductive period of reforestation for small farmers. On-farm storage research would be con- ducted in cooperation with the Federal University of Vicosa (UFV), and marketing research, in cooperation with EMATER-MG, the State Agricultural Trade Company (CAMIG), and the Project Coordination Unit. The appointment of a full-time farm management specialist to the project research staff would be a condition of disbursement against expenses made under the research component (Schedule 1, para. 3(b) of the draft Loan Agreement). 49. Land Reclamation. The project would reinforce the State's capacity to assist farmers in developing appropriate systems for the reclamation and cultivation of 6,000 ha of swampland. The project would assist some 1,800 farmers. The executing agency would be the land reclamation subsidiary of RURALMINAS. The project would finance additional reclamation equipment, the establishment and certain initial operating costs for four new regional offices, the salaries of incremental technical assistance and planning personnel, and consultant services. All equipment financed would be for exclusive use in the project area during the project implementation period (Section 3.19(b) of the draft Loan Agreement). Three consultants would be employed by June 30, 1981, on terms and conditions acceptable to the Bank, to assist RURALMINAS in establishing or improving its cost accounting and preven- tive equipment maintenance systems and its general operating procedures. The consultants' reports and proposals would be sent to the Bank for comment as soon as they become available, but not later than January 1, 1982 (Sections 3.02 and 3.09(c) of the draft Loan Agreement). In the past, the pioneering nature of RURALMINAS land reclamation work forced the State to assume unex- pected additional costs and to grant some farmers subsidies on an ad hoc basis. In addition, charges to farmers for land reclamation services have been subsidized. Under the project, RURALMINAS would establish a system by December 31, 1980 to eliminate unprogrammed subsidies and would apply tariffs reflecting full machinery operating costs, replacement costs and reasonable administration costs related to on-farm investment by June 30, 1983 (Section 3.09(a-b) of the draft Loan Agreement). - 15 - 50. Reforestation. The project would develop wood and charcoal product- ion on small farms. About 10,000 ha on 4,100 farms would be reforested, and 300 ha for agro-forestry experiments would be established by the IEF in coope- ration with EPAMIG. The project would finance the establishment of nine new nurseries, seedling production in 21 nurseries, the establishment of 13 IEF local technical assistance offices, and the salaries of 15 new forestry field workers. At least seven of the new nurseries would be established by June 30, 1981, and project reforestation assistance would be limited to 10 ha per farmer (Section 3.10 of the draft Loan Agreement). The project would provide technical assistance to the beneficiaries and free seedlings, fertilizers, and insecticides for the first two planting years. The farmers would contribute labor, fencing costs, and possibly, charcoal ovens. Project agricultural credit would be available to help finance these expenses. 51. Marketing. To help create a more integrated marketing system benefiting small farmers within the project area, the project would: (a) expand agricultural input sales activities and provide for the the construc- tion of about twenty input supply outlets; (b) provide for the construction of 20 to 25 public storage facilities; (c) establish a permanent marketing re- search group; and (d) provide marketing training for project personnel. Incremental salaries, some operating costs, studies, vehicles, and equipment would be financed. Other project components would reinforce marketing activi- ties, including research and credit for on-farm storage improvement and marketing extension services. Project marketing activities would be carried out by several agencies: CAMIG (input supply and storage operation); EPAMIG (research); EMATER-MG (extension); SUDECOOP (extension in cooperatives); CASEMG (storage construction); and UFV (training). Overall control would be the responsibility of a marketing coordinator in the Project Coordination Unit. General policy guidance would be provided by a special marketing commission, composed of the presidents of the involved agencies and the State Secre!tary of Agriculture. 52. Two full-time consultants would strengthen CAMIG's organization and assist it in the preparation of a detailed program of investments for storage and input supply facilities. The employment of CAMIG counterparts for the consultants would be a condition of disbursement for the component (Schedule 1, para. 3(c) of the draft Loan Agreement). In a complementary effort, EPAMIG would undertake a survey during the first year to complete the information about current marketing problems and opportunities for the area's small farmers. The CAMIG investment program and the results of EPAMIG's study would be forwarded to the Bank for review by June 30, 1981 (Section 3.11 of the draft Loan Agreement). Disbursements against expenses made for off-farm storage facilities and input supply outlets would be contingent upon Bank approval of location and construction plans (Schedule 1, para. 3(d) of the draft Loan Agreement). Any public storage facility of 3,000 tons or larger, identified as necessary by the first-year study and the consultant findings, would be constructed with state resources, outside the project (Section 4.01(c) of the draft Loan Agreement). 53. Assistance to Cooperative Societies. The project would increase cooperative membership from 2,400 to 6,000, and assist 120 pre-cooperatives and 350 groups at the community level. SUDECOOP, working in cooperation with EMATER-MG, would be the executing agency. Technical assistance would be made available to seven existing cooperatives and about eight new cooperatives. The project would finance the establishment of three regional SUDECOOP offices; - 16 - incremental staff and related operating costs; vehicles; and training programs for cooperative members and officials, farmers and technicians of other executing agencies. Managerial assistance for each cooperative would be financed by the project, starting with 100% in the first year and thereafter decreasing annually by 20%. Each assisted cooperative would be evaluated annually by SUDECOOP to determine whether continued assistance would be justified. 54. Assistance to Small Non-Farm Enterprises. The component, to be executed by the State Secretariat of Labor and Social Action (SETAS) would improve the productivity and revenues of non-registered small non-farm enterprises, each with less than ten employees, fixed assets below 300 MVR (US$13,900), and annual sales below 800 MVR (US$27,800). The project would (a) provide managerial and technical training to 1,100 nonregistered small enterprises, 530 artisans, and 500 individuals who intend to start small enterprises; (b) assist 950 enterprises in obtaining credit from existing non-project credit lines; (c) strengthen the organization of SETAS, establish eight technical assistance centers, and train 15 field workers; and (d) provide for the study of improved technology and marketing opportunities. Salaries of incremental SETAS staff and local subject specialists, incremental operating costs, equipment, vehicles, and consultant studies would be financed by the project. A small investment fund of US$300,000 would provide assistance for marketing efforts based on the studies' recommendations. The studies' results would be presented to the Bank by June 30, 1982, and the Bank would be provided with satisfactory terms and conditions for the use of the investment fund prior to its utilization (Section 3.12 of the draft Loan Agreement). The State would make available the necessary amount of credit, about US$2 million, for some 95) of the small enterprises (Section 4.01(b) of the draft Loan Agreement). 55. Feeder Roads. To improve year round accessibility to project communities, the project would finance: (a) the improvement of about 3,360 km of municipal roads and the construction of about 100 km of new access roads; (b) the development of and the equipment for a municipal road maintenance program; and (c) the training of road maintenance personnel. Project-financed equipment would be for exclusive use in the project area (Section 3.19 (b) of the draft Loan Agreement). The State Highway Department (DER-MG) would be the executing agency. Except where the nature or scale of road activities would justify work in force account, road works would be awarded through local competitive bidding procedures. The length of roads improved under force account would not exceed 20% of the total length of feeder roads included in the project (Section 3.13(a) of the draft Loan Agreement). Before initiating road construction work, DER-MG would conclude a contract with each municipality to maintain the constructed roads adequately (Section 3.03(d) of the draft Loan Agreement). Consultants would prepare engineering designs, contract documents, and the municipal road maintenance program; supervise construction; and assist in training. The appointment of counterpart staff for the consultants would be a condition of disbursement for the feeder road component (Schedule 1, para. 3(e) of the draft Loan Agreement). The State would present the draft maintenance program to the Bank for comments by June 30, 1981, and if necessary, it would make complementary funds available for proper road maintenance at the beginning of each quarter, starting from January 1, 1982 (Section 3.13 of the draft Loan Agreement). The State would improve to BNDE (National Economic Development Bank) class E standards, by June 30, 1983, an additional 486 km of feeder roads, linking up project - 17 - area municipalities to the state and federal highway network (Section 4.01(b) of the draft Loan Agreement). These works could be financed under the existing Bank-financed Feeder Road Projects (Loans 1207-BR and 1730-BR). 56. Rural Telephone Service. To promote the efficient administration of project activities and to improve area living conditions, the project would install one public pay phone in each of 34 municipal centers where no communication now exists with the rest of the State. The State Water and Electric Energy Agency (DAE) would be the executing agent. The telephones would be initially operated by the municipality, with subsequent transfer to the State-owned telephone network (TELEMIG) for operation and maintenance. 57. Education. The project would improve primary and secondary educa- tional facilities and services. This would include: (a) the development and application of a revised primary school curriculum; (b) the training of educational and supervisory personnel; (c) the construction materials, equipment, and necessary training courses for school canteens and gardens; (d) curriculum reform, additional construction, and equipment for one primary and four secondary agricultural schools; and (e) the strengthening of project administration. The Secretariat of Education (SEE) would be the executing agent. The project would finance the salaries of incremental SEE support staff and incremental operating expenses, including materials, equipment, and vehicles. The State would furnish the results of the curriculum studies to the Bank for comment, and the new curriculum would be implemented no later than February 1, 1982. The costs associated with the provision of school meals in the project schools are not included in project costs, but would be financed by the state separately (Section 3.14 of the draft Loan Agreement). 58. Health. The project would improve primary health services and con- ditions in the project area by (a) strengthening the central and regional health administration; (b) training or retraining about 1,000 health attend- ants and 500 supervisory personnel; (c) constructing or improving 200 health centers or posts; (d) equipping 90 health posts; (e) constructing 85 simple village water supply systems and 8,000 sanitary installations; (f) carrying out a Chagas-disease control experiment; and (g) establishing a detection program for schistosomiasis-infected snails in swamplands to be reclaimed under the project. The executing agency would be the Secretariat of Health (SES). The project would finance construction costs, equipment, materials, vehicles, training and retraining costs, the salaries of incremental SES supervisory staff, and 18 months of salaries for about 200 new health atten- dants. Construction would be initiated only after conclusion of a contract between SES and the municipality regulating maintenance responsibilities (Section 3.03(d) of the draft Loan Agreement). SES would appoint and maintain sufficient personnel to execute the project and staff the health centers and posts. The final plans to strengthen SES health administration would be furnished to the Bank by December 31, 1980 (Section 3.15(a-b) of the draft Loan Agreement). SES would also supervise the construction of simple, mainly standpipe, water supply systems. Prior Bank approval would be sought for systems with construction costs exceeding US$120/family (Section 3.15(c) of the draft Loan Agreement). Prior to construction, SES would conclude a contract with either the municipality or DAE, depending on local conditions, to operate and maintain the system and to collect user charges (Section 3.15(d) of the draft Loan Agreement). For house connections, this charge would cover operation and maintenance costs, and for stand-pipe systems, a symbolic monthly charge would be established and collected through community associations. - 18 - 59. Community Centers. The project would establish, with community participation, community centers in 32 selected municipalities. The costs of building site infrastructure, the basic construction of the center (school rooms, health post, community meeting room and kitchen), and the basic equip- ment for school rooms and health posts would be financed. The Project Coor- dination Unit would supervise the construction of the centers, whereafter SETAS would take over control of the administration. The final engineering designs and cost estimates for models of four types of community centers would be presented to the Bank for review before initiating construction work, but not later than March 31, 1981. Construction plans for community centers with costs exceeding US$150/m2 would be presented to the Bank for approval. Disbursement against construction expenses would be contingent upon satisfac- tory evidence of the acquisition of land and rights of way for the respective building sites. The construction of the community centers would be completed prior to December 31, 1983. (Section 3.16 and Schedule 1, para. 3(f) of the draft Loan Agreement). 60. Community Development. The project would finance a community deve- lopment pilot project in 21 municipalities to stimulate community activities and self-help capabilities. SETAS would be the executing agency, working in close cooperation with EMATER-MG. Consultant services, incremental salaries and operating costs, vehicles, and a fund for community sub-projects would be financed. The resources of this fund would be used on sub-projects which could not be financed by other project components or other existing programs or institutions. The funds would be used in a particular community only after conclusion of a contract between SETAS and the community describing the sub-project, its costs, and disbursements. By December 31, 1982, or after disbursement of US$300,000, whichever comes first, the State would furnish the Bank with an evaluation of the operational results of the fund before continu- ing fund disbursements (Section 3.17 of the draft Loan Agreement). 61. Management. The State Government has already created a Project Management Council (PMC), consisting of the Secretaries of Planning, Finance, Agriculture, Health, Education and Labor and Social Action. The State Secretary of Planning would act as coordinator and council president, while the Secretariat of Agriculture (SEA) would be responsible for the daily coordination of the participating agencies' activities. The SEA would create a Project Coordination Unit (PCU), headed by a Project Director, to administer the project. The PCU would operate from a central office in Belo Horizonte and four regional offices. The State would maintain an adequate and qualified staff in the PCU's central and regional offices and would consult with the Bank should the Project Director have to be replaced (Section 3.18 of the draft Loan Agreement). The participating agencies would each appoint a full-time project component manager. 62. Quarterly monitoring reports would be prepared by the PCU and distributed to the PMC, the involved institutions, the project component managers, and the regional coordinators. Relevant information would be received by the local officers of the participating agencies. Monitoring reports would be made available to the Bank, and a Project Completion Report would be prepared (Section 3.20(b-c) of the draft Loan Agreement). Project evaluation would be carried out by an independent entity, the Federal University of Vicosa (UFV). A qualified full-time agricultural economist, financed by the project, would head the evaluation team. Baseline studies, annual eval- uation reports, and a post-project evaluation would attempt to formulate - 19 - and measure project impact on the development of the project area and on the target group. The baseline studies would be completed before January 31, 1981; the annual reports would be presented to the Bank by December 31 of each year; and the ex-post evaluation would be submitted to the Bank within six months after project completion (Section 3.20(d) of the draft Loan Agreement). Operating Agreements and Procedures 63. Since the project covers a broad range of activities under diverse circumstances, the timing and scope of activities would undoubtedly require adjustments during project implementation. Each participating agency would prepare an annual work plan. These plans would be reviewed by the PCU and presented to the PMC for approval. The project's work plan and budget would be presented to the State Government by September 30 to secure adequate funding in the State budget. The annual budget proposal and work plan would be made available to the Bank for comment by October 31 of each year (Section 3.04 of the draft Loan Agreement). 64. Because the project would require effective inter-institutional in- tegration, a number of written agreements (convenios) would be entered into. The State Government, through SEPLAN, would enter into an overall agreement with SEA which would specify the project's administrative structure and SEA's responsibilities and obligations as the project's coordinating agent. Sub- sequently, SEPLAN and SEA would enter into a tripartite agreement with each executing agency. With PCU assistance, agreements would also be concluded between the executing and collaborating agencies. Prior to the construction of civil works, the executing agencies would enter into agreements with the involved municipalities and communities, assuring proper operation and maintenance of the works. The State Government would enter into and maintain all such agreements throughout the project implementation period (Section 3.03 of the draft Loan Agreement). Receipt by the Bank of satisfactory signed tripartite agreements for a given component would be a condition of disbursement for that component (Schedule 1, para. 3(h) of the draft Loan Agreement). 65. Full support of the first Bank-financed project, scheduled for completion December 31, 1981, would be maintained. The State would ensure that the obligations and responsibilities of project personnel within the participating institutions and the two coordinating agencies (RURALMINAS for the first project and SEA for the proposed second project) were clearly defined. For each of the proposed project components, disbursements in the Zona de Mata area would be conditioned by the satisfactory completion of the corresponding component under the first project (Schedule 1, para. 3(g) of the draft Loan Agreement). Project Cost and Financing 66. Total project cost over the five-year project period (July 1980 to June 1985) is estimated at US$184.6 million. This includes US$5.4 million of taxes, US$9.0 million of physical contingencies (6.8% of baseline costs), and US$41.9 million of price contingencies (29.30% of baseline costs plus physical contingencies). Baseline costs were calculated in cruzeiros at January 1980 prices with an exchange rate of US$1.00 = Cr$42.33. 67. The proposed Bank loan of US$63 million equivalent to the State of Minas Gerais would finance 35% of project cost net of taxes (34% of total - 20 - project cost), the balance being financed by the State and Federal Governments and by project beneficiaries. To help finance its share of total project costs, the State of Minas Gerais intends to secure by June 30, 1981 about US$50 mil- lion from one or more external banks under co-financing arrangements (Recital C and Section 5.01(c) of the draft Loan Agreement). The amount and timing of the proposed co-financing would be reviewed with the Bank, taking into considera- tion the amount of counterpart funding required for the project, other internal and external resources available to the State, and market conditions. The usual co-financing links for the commercial bank financing with the proposed Bank loan would be provided. The Bank loan would be for fifteen years, including three years of grace. It would cover US$32.5 million of foreign exchange costs. It seems reasonable for the Bank to finance a portion of local costs in order to make a meaningful contribution to a project to which both state and federal govern- ments attach high priority, because it is designed to improve the living conditions of the rural poor by raising their productivity. Bank financing of part of the local cost would also contribute to the mobilization of additional Brazilian resources and the maintenance of a continuous commitment to the project. In addition to the items totalling US$184.6 million included in the project, the State of Minas Gerais and the Federal Government would finance essential complementary activities such as secondary roads, electrification trunklines, short-term agricultural credit, and small enterprise credit, at a cost of US$46.2 million. The state and federal governments would ensure that adequate counterpart funding would be available for the timely execution of the project and the adequate operation and maintenance of facilities and services developed under the project (Sections 3.01, 4.01, and 4.02 of the draft Loan Agreement and Section 2.02 of the draft Guarantee Agreement). Procurement 68. Farm inputs would be procured by individual farmers through local trade channels. Vehicle, tractors, and other equipment (totaling US$1.0 million) would be procured in accordance with acceptable local procurement and competitive bidding procedures. Equipment and tractors for land reclamation and feeder roads (totaling US$8.8 million) would be procured under international competitive bidding. Feeder road construction and improvement works (totaling US$16 million) would be planned annually on the basis of previous field surveys and divided in construction lots per municipality. The Bank would review the construction standards, bidding, and contract documents before the first round of bidding. Contracts for feeder road work and for civil works required for community centers, health centers, health posts, storage facili- ties and retail stores (totaling US$17.6 million) would be awarded to pre- qualified bidders on the basis of competitive bidding advertised locally and in accordance with procedures which are satisfactory. Since individual constru- tion works would be of minor size and quite diverse, foreign contractors are not expected to be interested, although they would not be excluded. Water supply and sanitation works (US$2.3 million), the necessary works for Chagas control (US$0.8 million), telephone communication (US$1.2 million), and 20% of the length of feeder road improvement in areas where contract works would not be practical (US$3.2 million) would be constructed under force account. Project financing for rural electrification (US$16.4 million) would be in the form of numerous small credits to individual farmers, who would purchase their connections from CEMIG or DAE, which would install the connections under force account. Consul- tancy services (US$4.8 million) would include about 100 worker-years (at an average cost of US$3,800 per month). It is expected that most of the consultant services could be found in Brazil, but expatriates would not be excluded (Schedule 4 of the draft Loan Agreement). - 21 - Disbursements 69. The proposed loan would be disbursed at the rate of 34% of project expenditures for each component. Disbursements would be made through the Ministry of Finance in Brasilia and the State Secretariat of Finance in Belo Horizonte to the project coordinating fiscal agency, SEPLAN, against with- drawal applications covering statements of expenditures initiated by the executing agencies and certified by the PCU. Supporting documentation for credit, salaries, administrative expenses and construction under force account would not be submitted to the Bank, but would be retained by the PCU and made available for inspection by the Bank during project supervision missions. Documentation covering civil works, vehicles, equipment, and consultancies would be submitted to the Bank. Such procedures have been satisfactorily applied under the first Minas Gerais Development Project and have enabled the determination of incremental costs. Disbursements are expected to be made over five years. To ensure that project activities and services would be effective during the 1980-81 agricultural year, up to US$500,000 in retroactive financing for expenditures made after April 1, 1980, for certain key start-up activities (principally, initial studies and the hiring of project personnel), would be provided (Schedule 1, para. 3(b) of the draft Loan Agreement). For each component, except the credit and management components, disbursements would be conditioned by the Bank's re- ceipt of a satisfactory signed agreement between SEPLAN, SEA, and the corres- ponding executing agency (Schedule 1, para. 3(h) of the draft Loan Agreement). Disbursements for the credit components would be conditioned by the receipt by the Bank of satisfactory agreements between the State and the financial agents, assuring the latter's collaboration in project execution (Schedule 1, para 3(i) of the draft Loan Agreement). Disbursements for the construction of community centers would be conditioned by the provision to the Bank of satisfactory evidence concerning the acquisition of the respective sites (Schedule 1, para. 3(f) of the draft Loan Agreement). Disbursements for the upgrading of feeder roads would be conditioned by the appointment of and actual assumption of duties by counterpart staff for the consultants (Schedule 1, para. 3(e) of the draft Loan Agreement). Disbursements for agricultural research activities would be conditioned by the appointment of a farm-management specialist to the project research staff (Schedule 1, para. 3(b) of the draft Loan Agreement). Disbursements for the marketing component would be conditioned by the appointment and actual assumption of duties by counterpart staff for the consultants, and for the construction of storage facilities and input supply outlets, by Bank approval of the location and construction plans (Schedule 1, para. 3(c-d) of the draft Loan Agreement). Disbursements for each of the proposed project components in the Zona de Mata area would be conditioned by the satisfactory completion of the corresponding component under the first Minas Gerais Rural Development Project (Schedule 1, para. 3(g) of the draft Loan Agreement). Accounts and Auditing 70. All participating agencies have an internal auditing system and also are externally audited by the General Auditor of the State and the Government Auditors of the Ministry of Finance. Both the BB and the State banks are audited by the Central Bank's auditing unit. Each of the participating agencies, including the PCU, would maintain separate accounts of project expenditures. The PCU would consolidate project accounts, which would be audited in accordance with procedures satisfactory to the Bank. Audited statements of the participating agencies', the banks', and the PCU's project accounts would be kept at the PCU and made available for Bank supervision. - 22 - Copies of the project auditor's reports, including a separate opinion as to whether the procedures and controls related to the use of statements of expenditures were in accordance with the legal project requirements and accurately prepared, would be made available to the Bank within six months of the end of the State's fiscal year (Section 4.03 of the draft Loan Agreement). Cost Recovery 71. Total project costs (including contingencies) would amount to some US$5,950 for each of the 31,000 families directly benefitting from the project. However, many more would be benefitted indirectly, since agricultural and small industries activities would generate employment and demonstration benefits beyond the direct target group, and the physical infrastructure and social service investments would also benefit a much larger group. It is expected that some 85,000 rural families would be direct or indirect beneficiaries of the project. 72. The extent to which credit for on-farm project costs would be recov- ered in real terms is difficult to estimate because of Brazil's continued high rate of inflation and the Government's subsidized credit policy. A declining inflation rate or a continuation of the gradual reduction in rural credit sub- sidies (see para. 34) would result in a higher real cost recovery. Of the estimated US$181.1 million of total off-farm Government costs associated with the project (including contingencies, about US$27.9 million in incremental staffing costs, and essential complementary investments such as electrification trucklines not financed by the project), an estimated US$71.0 million (39%) would be recuperated during the five-year implementation period through direct and indirect user charges, beneficiary contributions, and additional revenues realized from circulation (ICM) and social security (FUNRURAL) taxes applicable to incremental project production. Following this period, additional recurrent costs to the Government associated with the project, would decrease from US$3.2 million in the sixth year to US$1.0 million in the tenth year and beyond. These expenses would be incurred principally for farm and small rural industry extension services, but would also include continued operating costs for the marketing component, the maintenance costs of feeder roads, and some incremental staffing costs. These additional recurrent expenditures are expected, however, to be completely offset by an estimated US$5.5 million in user charges and incremental tax revenues, enabling Minas Gerais to fulfill its commitment to continue to operate the services developed under the project. Benefits 73. The estimated annual value of incremental farm production with the project at full development (year ten) would amount to some US$29.8 million at January 1980 farmgate prices. This would include US16.7 million of crop production, US$10.4 million of livestock production, and US$2.7 million of forestry production. Incremental farm production would be the result of an increased area under cultivation and increased productivity through better agricultural and managerial practices supported by intensified extension and research activities and an improved marketing system. Estimated production increases are likely to be no less than 20% in non-farm enterprises and would be the result of increased productivity due to managerial and technical assistance, training, and credit. - 23 - 74. Based on illustrative farm models, the annual income of a typical project farm family would be expected to rise above the Brazilian rural relative poverty level (US$330 per capita), increasing from an average of about US$1,000 to some US$2,200 over a ten-year period. The estimated annual family income of the poorest project farmers, those cultivating less than ten ha in the northeast of the project area (Jequitinhonha Valley), although still below the relative poverty level, would increase from about US$200 to US$450 per year. The estimated increase in annual family income of those beneficiaries receiving assistance under the non-farm rural enterprise component would vary according to the type of enterprise. According to illustrative small enterprise models, the weighted average annual family income would increase from about US$2,400 to US$5,475. For the slowest growing enterprises, family income increases would still be at least 50%, with incomes increasing from about US$1,800 to US$2,700 per year. 75. Some 18,040 new jobs would be created as a result of project acti- vities. New on-farm employment opportunities equivalent to an estimated 8,660 worker-years by the fifth year and 12,840 worker-years by the tenth year would be generated. An estimated 1,000 ancillary jobs resulting from increased agricultural production and 1,400 permanent jobs resulting from pro- ject execution activities, would be created. The non-farm rural enterprises would generate an estimated 2,800 new jobs at an investment cost of about US$1,200 per job, well below alternative employment creation costs in industry. 76. The project would have a beneficial environmental impact. The cul- tivated area, which would be increased under the project, would be improved as a result of better farm management and the planting of additional tree crops. This, along with the reforestation of about 10,000 ha, would result in improved erosion control. The project would also provide for the control of schistoso- miasis infection in swamplands to be reclaimed by the project, and it would reduce the possibilities of water contamination by increasing the number of sanitation facilities. 77. The project's economic rate of return is estimated at 16%. Invest- ments made to improve living standards and conditions in the project area, such as health services, social extension services, water supply, education, community development, and community centers would have an important impact, but since their direct benefits are not readily quantifiable, their costs have been excluded from the rate of return calculation. Overall, about 79% of total project costs (excluding contingencies) were included in the calculation. This includes 100% of the project costs for land titling, agricultural research, land reclamation, reforestation, marketing, cooperative development, non- farm enterprises, feeder roads, rural electrification and telephone service; 80% of the project's administration and monitoring costs; 67% of the project's rural extension service costs; and 60% of the project's evaluation costs. Project benefits from incremental production were calculated utilizing border prices where appropriate, adjusted for quality modifications and transport costs. Labor was shadow-priced at 50% below market level, reflecting the underutilization of labor during a significant portion of the year. Finally, some assumed production increases among non-direct project beneficiaries were included in the benefits to reflect the possible demonstration effect of such project activities as agricultural extension and research and the beneficial impact of improved roads, rural electrification, and communication systems. The project's economic rate of return was not found to be particularly sensitive - 24 - to change in costs or benefits. With costs increased by 10%, the estimated rate of return would be 15%; with the demonstration effects eliminated, it would be 14%. Project Risks 78. The project's success would depend on the commitment of the execut- ing staff at all levels of the participating agencies, since a large number of activities, covering a wide area with variable ecological conditions, would need to be implemented in a coordinated manner at the local, regional, and central levels. The risk of inadequate inter-agency integration is lessened, however, by the full involvement of the executing agencies' staff in project preparation, the pre-project implementation of essential organizational mea- sures, the strong line organization of the executing agencies, and the exper- ience obtained by these agencies under the first Minas Gerais Rural Develop- ment Project. Another risk, the absorption capacity of isolated municipali- ties, would be minimized by the project's emphasis on adequate communication systems and its fully integrated character. The benefits of raising the living standards of about 85,000 families in the State's rural poverty areas and of creating an institutional capability able to independently sustain the rural development process make the project risks acceptable. PART V - LEGAL INSTRUMENTS AND AUTHORITY 79. The draft Loan Agreement between the State of Minas Gerais and the Bank, the draft Guarantee Agreement between the Federative Republic of Brazil and the Bank, 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. 80. Special conditions of the project are listed in Section III of Annex III. Special disbursement conditions are described in para. 69. 81. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank. PART VI - RECOMMENDATION 82. I recommend that the Executive Directors approve the proposed loan. Robert S. McNamara President Attachments May 30, 1980 Washington, D.C. - 25 - ANNEX I Page 1 BRAZIL - SOCIa 7INDCATORS DATA SUN r IAZ.. RUUtCC CIOUPS (A TSTED A Ar.GS LANED AREA (THOUSA! D SO. 7of.) - MosT UCElT TSTLnATh TOTAL 5512.0 SANE S6tE .w= tUZGOU ACUCMLT1AL 2026.3 AT UCVAT GDOGAPC INCOME u4COtz 190 /b 1970 A ISTInT! / 88010K /: sour/ G20UP /e lNP PFE CAPITA (USS) 320.0 580.0 1570.0 1124.4 1942.6 3075.3 IQRGT CONSUIPTION PER CAPITA (KILOGRMES OF COAL EQUIlVALf) 332.0 474.0 731.0 943.1 L646.7 2515.6 POPULATION AID VTA3L STATISTICS POPULATION. HZ-MR MILK5IONS) 71.5 95.2 116.1 5nAM POPIA2oil (PURCENT Of TOTAL) S6.1 53.9 60.7. 59.3 51.2 72.1 POPO.&TIOtt P3OJl OUS POPULATION IN TEAR 2000 (MIL.IONS) 200.0 STATION1ARY P3rAATION (L.0LI0S) 361.0 MU STATIONAY POPULSION I5 ILCM7D 2075 POPULATION DENStY PM SQ. m2(. 8.0 11.0 14.0 23.3 28.2 33.5 PIZ sq. >. tGUCuc.TUR1L LAND 4.0 49.0 57.0 8 0.5 100.5 t l.3 POPULATION 4G1 STUCrUR (P!C£75) 3-14 TRS. 43.6 42.6 41.7 40.9 35... 33.3 15-64 TRB. 53.8 56.3 55.1 54.4 56.3 57.5 65 IR5. AM ABOVE 2.6 3.1 3.2 3.9 5.1 5.7 POPULATION 010V9l RATE (PERCENT) TOTAL 3.0 2.9 2.9 2.4 1.7 2.1 DUAl 5.5 *.8 4.3 3.7 3.0 M0 31 TIRTH nATE (PR THOUSAND) 40.0 38.0 36.0 32.8 27.5 31.4 CRUDE EATR RATE (PER THOUSAND) 11.0 9.0 9.0 8.5 9.1 8.2 WSS RZrAODUCTIION LATE 2.6 2.6 2.4 2.4 1.8 1.9 FAMILY PIAIIING ACCEPTORS. AOUAL (THOUSANDS) .. 111.0 203.6 ZZENS (PERCT Of WA=D tK ) .. 1.6 . 17.7 FOOD AND NUTRITION aINEx or FOOD PRfDaUCTION M CAPrTA (1969-71-100) ss.6 102.0 120.0 99.4 102.0 98.7 PER CAPITA SUPPLY .O CALClI7ES (PrCrzTr of 3EaIRDrTS) 101.0 104.0 105.0 107.0 120.8 112.7 PROTEINS (CGLAS ? DAY) 61.0 64.0 62.1 60.4 UC.9 70.3 OI WECH A8tIAL AND3 PULSE 38.0 39.0 33.6 28.3 31.3 CaILD (AGZS 1-4) MORTALITY RATE .3.0 10.0 9.0 6.7 5.1 2.5 LIP!7 CETANT AT 37T (TEARS) 57.0 61.0 62.0 63.6 65.6 68.7 INFANT MORTALITY RAZr (PER MOUSAND) .. .. .. 76.1 45. 5 20.8 ACCzSS DO SA JATER (PERCWIT OF POPULATION) TOTAL *- 56.3 77.1 63.4 69.4 73.9 aRIAN . 7. n.7 88.8 79.5 s5. 1 94 6 RUDRAL .. 29.0 56.8 38.6 43.0 64.6 ACCESS TO EXCRETA DISPOSAL (PUCENT OP POPULATION) mOTAL .. 59.9 64.8 58.8 70.1 BAN . 86.1 63.7 77.8 88.3 AL .. 26.5 31.7 24.5 33.2 POPULATION PER mPsIcAN 3600.0 1910.0 1650.0 1841.9 1343.2 981.8 PPULTATION P? YPURSING FUSON .. 3220.0 .. 933.7 765.0 397.8 POPULATION PUE ROSPIAL BED TOTAL 275.0 260.0 260.0 563.6 197.5 240.6 138AM .. .. .. 279.4 260.2 RURAL . .. .. 1140.9 1055.0 ADISSIONS PER OSPITAL BED .. 18.0 .. 25.7 17.3 19.2 aous; AVERAGE SIZE OF HOUSEHOLD TOTAL 5.1 4.d S.9 5.0 4.7 CR3Xt 4. 6. fi . 7 4.a 4 .* RURAL 5.2 5.3 5.3 3.1 AVtLMACE NLUMER JIP DSONS ?P OOM ITAL . L.1 1.L/f 1.3 1.1 UR5AN 1. 0 1.2/f 1. 3 1.2 .. RURAL .. 1.2 1.2LL L.5 1.2 ACCESS TO MLZC,tclCTT! ? T Cf oF OWEL, UNGS) -OTAL 38.7 47.6 63.0 54.3 66.3 73AS . 75.6 54. 30. 35.1i RUUL 3:~~~~~~~~~~84 192. ANNEX I - 26 -NX Page 2 BRAZIL - SOCIAL INDICATORS DATA SHEET BRAZIL REFERENCE GROUPS (ADJUSTED A'ERAGIS - MOST RECENT ESSIATE ) - SAME SAME NEXT HIGHER H^OST RECENT GEOGRAPHIC INCOME INCOME 1960 lb 1970 lb ESTIMATE /b REGION /c GROUP /4 GROUP Is IDUCATION ADJISTED ENROLLMENT RATIOS PRIMARY: TOTAL 95.0 83.0 87.7 107.3 101.7 107.6 1AL.E 97.0 83.0 0? L09.1 110.0 FEMALE 93.0 83.0 S9.2 107.4 92.8 SECONDARY: TOTAL 11.0 27.o 26.0 40.5 51.2 39.7 MALE 11.0 27.0 2r.0 40.4 56.4 FEMALE 10.0 27.0 26.0 39.0 43.7 VOCATIONAL ENROL. (2 OF SECONDARY) 19.0 17.0 47.Oa 18.5 18.3 PUPIL-TEACKE RATIO PRIMARY 33.0 28.0 27.0 37.1 27.1 SECONDARY 13.0 13.0 15.0 17.9 25.3 ANDLT LITERACY RATE (PERCENT) 61.0 64.0 64.0 77.4 86.1 CONSUMPTION PASSENGER CARS PER TROUSAND POPULATION 7.0 25.0 45.0 29.1 53.4 68.1 RADIO RECEIVERS PER THOUSAND POPULATION 66.0 126.0 158.0 172.1 225.9 210.3 TV RECEIVERS PER TELOUSAND POPULATION 18.0 66.0 LOO.0 67.9 102.6 117.7 NEWSPAPER ("DAILY GENERAL INTEREST") CIRCULATION PER THOUSAND POPULATION 54.0 37.0 39.0 76.1 78.5 CIEMA ANUAL ATTENDANCE PER CAPITA 5.0 L.9 2.6 4.2 3.6 LABOR FORCE TOTAL LABOR FORCE (TROUSANDS) 22700.0 29400.0 34100.0 FEMAL (PERCENT) 17.5 20.4 21.6 21.5 24.5 27.2 AGRICULTURE (PERCENT) 51.9 45.6 42.0 30.2 28.9 23.d INDUSTRY (PERCENT) 14.8 18.3 20.0 23.8 30.6 PARTICIPATION RATE (PERCENT) TOTAL 32.0 31.6 31.5 30.9 33.8 40.1 HALE 52.7 50.3 49.5 47.3 51.3 55.7 FEMALE 11.2 12.8 13.6 13.3 16.3 24.7 ECONOMIC DEPENDENCY RATIO 1.6 1.5 1.4 1.5 1.3 1.0 INCOME DISTRIBUTION PERCE-NT OF PRIVATE INCOME RECEIVED sY HIGHEST 5 PERCENT OF BOUSEHOLDS .. .. .. 23.7 HIGCHEST 20 PtRCENT OF HOUSEHOLDS 60.0 63.5 62.0 58.7 57.6. LOWEST 20 PERCENT OF HOUSEHOLDS 3.8 3.2 2.8 2.9 3.4 LOWEST 40 PERCENT OF HOUSEHOLDS 10.8 9.0 9.4 9.9 11.0 POVERTY TARGET GROUPS ESTIMATED A.BSOLUTE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN .. .. .. 265.6 RURAL . .. 150.0 185.1 ZSTIMATED RELATIVE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN .. .. 465.0 396.3 550.0 RURAL .. .. 332.0 308.1 403.4 ESTIMATED POPUJLATION BELOW ABSOLUTE POVERTY INCOME LEVEL (PERCENT) iRBAN . .. .. 35.2 RIRAI. .. .. .. 46.6 Not available Yotc applicable. NOTES /a The adjusted group averages for each indicator are population-weighted geometric means, excluding che extreme -values of che Indicator and cne most ,opulated country in each group. Coverage of countries among Che indicators depends on availability of data and is not uniform. /b Unless other-ise noted, data for 1960 refer to any year between 1959 and 1961; for 1970, between 1969 and 1971; and for most Recent Estimace, between 1974 and 1977. /c Lacin Amer4ca S Caribbean; /d Jpper Xiddle Income (51136-2500 per capita, 1976); /e High Incme (over $2500 per canica, 1976); /f 1972; Li 3eginning 1973, duration of general education reduced from 7 to y years, therefore data may not be comparable to those of earlier 7yars. Host Recent Estimate of GNP per capita Is for 1978. August. 1979 -27- ANNEX I DEFINITIONS OF SOCIAL INDICATORSPe NeU; The adjusted group averages for each indicator are population-weighted geometric means, excluding the extreme values of the indicator and the most populated country in each group. Coverage of countries among the indicftore depends on availability of data and is not uniform. Due to lack of data, group a-erageo for Capital Surplus Oil Exporters and indicators of access to water and excreta disposal, housing, income distribution and poverty are simple population-weighted geometric ieans without the exclusion of extreme values. LAND AREA (thousand sq. kb) Population per hospital bed - total, urban, and rural - Population (total, Total - Total surface area comprising land area and inland waters, urban, and rural) divided by their respective number of hoopital beds Agricultural - Moot recent estimate of agricultural area used tetporarily available in public and private general and specialized hospital nd re- or perna.nently for crops, pastures, market and kitchen gardens or to habilitation centers. Hospitals are establishments permanently staffed by lie fallow. at least one physician. Establishments providing principally custodial care are not included. Rural hospitals, however, include health and mcdi- GNP PER CAPITA (USf) - GNP per capita estimates at current market prices, cal centers not permanently staffed by a physician (but by a nedical as- calculted by sane conversion method as World Bank Atlas (1975-77 basis); sistent, nurse, midwife, etc-) which offer in-patient accomonodstion and 1960, 1970, and 1977 data. provide a limited r-nge of medical facilities. Admissions per hospital bed - Total number of admissions to or discharges ENERGY CONSUMPTION PER CAPITA - Annual consumption of comnercial energy frum hospitals divided by the number of beds. (coal and lignite, petroleum, natural gas and hydro-, nuclear and geo- thermal electricity) in kilograms of coal equivalent per capita. HOUSING Aeae size of household (Persona Per household) - total, urban, and rural - POPULATION AND VITAL STATISTICS A household consists of a group of individuals who share living quarters Total population, mid-pear (illio_ s) - As of July 1; if not available, and their main meals. A boarder or lodger may or may not be included in average o two end-year estimates; 1960, 1970, and 1977 data, the household for statistical purposes. Statistical definitions of house- ,Urban population (percent of total) - Ratio of urban to total popula- hold vary. tion; different definitions of urban areas may affect comparability Average number of persons per room - total, urban, and rural - Average non- of data among countries. ber of persona per room in a11, urban, and rural occupied conventional Population density dwellings, respectively. Dwellings exclude non-permanent structures and Per sq. kh. - Mid-year population per square kilometer (100 hectares) unoccupied parts. of total area. Access to electricity (percent of dwellings) - tota1, urban, and rural - Per sq. kmb agriculture land - Computed aa above for agricultural land Conventional dwellings with electricity in living quarters as percentage only. of total, urban, and rural dwellings respectively. Population aae structure (percent) - Children (0-14 years), working-age (15-64 years), and retired (65 years and over) as percentages of mid- EDUCATION year population. Adjusted enrollment ratios Population arowth rate (Percent) - total, and urban - Compound annual Primary school - total, and female - Total and female enrollment of all ages growth rates of total end urban mid-year populations for 1950-60, at the primary level an perrentagen of respectively primary school-age 1960-70, and 1970-75. populations; normally includes children aged 6-11 yeors but adjusted for Crude birth rate (per thousand) - Annual live births per thousand of different lengths of primary education; for countries with universal edu- mid-year population; ten-year arithmetic averages ending in 1960 and cation enrollment may anceed 100 percent since some pupils are below or 1970 and five-year average ending in 1975 for most recent estimate, above the official school age. Crude death rate (per thousand) - Annual deaths per thousand of mid- Secondary school - total, and female - Computed as above; secondary educa- year population; ten-year arithmetic averages ending in 1960 and 1970 tion requires at least four years of approved primary inatructino; pro- and five-year average ending in 1975 for most recent estimate. vides general vocational, or teacher training instructions for pupils Gross reproduction rate - Average nsmber of daughters a woman will bear usually of 12 to 17 years of age; correspondence courses are generally in her normal oeproductive period if she eaperiences present age- excluded. spec:ific fertility rates; usually five-year averages ending in 1960, Vocational enrollment (percent of secondary) - Vocational institutions in- 1970, and 1975. lude technical, industrial, or other programs which operate independently Family planning - acceptor, annual (thousands) - Annual number of or as departmeets of secondary institutions. acopt-ors of birtb-rontrol devices under auspices of national family Pupil-teacher ratio - primary, and secondary - Total students enrolled in planning program. primary and secondary levels divided by numbers of teachers in the corre- Familv planning - users (Percent of -arried women) - Percentage of aponding level. married women of child-bearing age (15-44 years) who use birth-cootrol Adult literacy rate (percent) - Literate adults (able to read and write) an devices to all married women in sane age group, a percentage of total adult population agad 15 years and over. POOD AND NUTRITION CONSUMPTION Index of food production per capita (1970-100) - Index number of per Pseseoger care (per thousand population) - Passenger cars conpriso rotor cars capita annual production of all food co.omdities. seating less than eight persons; exciudes ambulances, hearses and military Per capIta supply of calories (percet of requirements)1 - Computed from vehicles. energy equivaPei of net foodsu.ppli.. available in country per capita Radio receivers (per thousand population) - All types of receivers for radio per day. Availabhe supplies comprise domestic production, imports less broadcasts to general public per thousand of population; excludes unlicensed espoet, and changes in stock. Nt supplies escluds animal feed, seeds, receivers in countries and in years when rngiscrattin of radio sets v-a in quantities used in food procesaing, and losses in distribution. Re- effect; data for recent years may not be comparablo since most countries quirement. were estimated by FAO based on physiological needs for nor- abolished licensing. .al activity and health considering enviroumental temperature, body TV receivers (per thousand population) - TV receivers for broadcast to genera weights, age and sex distributions of population, and allowing 10 per- public per thousand population; excludes unlicensed TV receivers in coon- cent for waste at household level, tries and in years when registration of TV sets was in efect. Per capt2u supply of protein (groma per day) - Protein ronreor of per N-.stpa.r circulation (per thosanad population) - Shotn tho average circula- capita net supply of food per day. Net nupply of fond is defined as tion of "daily general interest newspaper", defined as a periodical publi- above. Requirements for all countries established by USDA provide for cation devoted primarily to recording general news. It is considered to a minimum allowance of 60 grams of total protein per day and 20 grass be "daily" if it appears at least four times a yeak. of animal and pule protein, of which 10 grams should be animal protein. Cinema annual attendance per capita per year - Based on the number of tickets Those standards are lower than those of 75 grams of total protein and sold during the year, including admissions to drive-in cine.as and mobile 23 grams of animal protein as an average fur the world, proposed by units. FAO in the Third World Food Srvey. Per capita protein supply from animal and pulse - Protein supply of food EMPLOYMENT derived from animals and pulses in grams per day. Total labor force (thousands) - Economically active persons, including armed Child (ages 1-4) mortality rate (per thousand) - Annual deaths per thous- forces and unemployed but excluding houseives, students., etc. Defini- and in age group 1-4 years, to children in this age group. tion in various countries are not co-parabl. Female (percent) - Female labor force an percentane of total labor force. HEALTH Agriculture (percent) - Labor force in farming, foreutry, hunting and fishing Life sxpertancy at birth (years) - Average number of years of life as percentage of total labor force. cemaining at birth; usually five-yeer averages ending in 1960, 1970, Industry (percent) - Labor force in mining, construction, manufacturing and and 1975. electricity, water and gas as percentage of total labor force. Infant mortality rate (per thousand) - Annual deaths of infants under Participation rate (percent) - total, male and female - Total, male, and one ye.s of age per thousand live birhts. lemale labor force as perc-ntages of their respective populaticos. Access to safe water (percent of population) - total, urban, and rural - These are ILO's adjusted participation rates reflectig at e-eec Number cf people (total, urban, and rural) with reasonable access to structure of the populotion, ond long tie trend. safe water supply finoludes treated surface waters or untreated but Economic dependency ratic - Ratio oE populatiot ardor 15 ard 65 and over to unoonramicated water such as that from protected boreholes, springs, tho labor force ian ag group of 15-64 years. and sanitary wells) as percentages of their respective populations. In an urban area a public fountain or standpost located not more INCOME DISTRIBUTION than 200 meters from a house may be considered as being within rea- Percencate of private income (both in cash and kind) osceived by richest 5 soau-bl access of that house. In rural areas reasonable access would percent, richest 20 percent. poorest 20 prtent, and poorest 40 percent imply that the housewife or members of the household do not have to of householdes spend a disproportionate part of the day in fetching the faily's water needs. POVERTY TARGET GROUPS Acrecs to e-oreta disposal (Percent of Population) - total urban, and Estimated absolute povertv intome level (US$ per capita) - urban and rota. - rural - Nuobec of people (total, urban, and rural) served by excrete Absolute poverty income level is that intome level below shieS a nininal dispcoal as percentages of their respective populations. Emceta nutritionally adequate diet plus essential non-food requirements is not disposal nay include tho collection and disposal, with or without affordable. treatment, of human e.creta and saute-water by water-borne systems Estimted relative poverty inoe leel (10$ per cpita) - rban_and rural or th ause of pit privies and sisilar installations. Relative poverty income level is that income level less than one-third Population per physician - Population divided by number of practicing per capita personal iaoone of tho country. physicians qualified from a medical echool at university level Estimated population below poverty incone level (percent) - urban and rural - Population per nursing person - Population divided by number of Percent of population (urban and rural) who are either "absolute poor" or practicIng sale and fomale graduate nurses, practical nurses, and "relative poor" whichever is greater. assiotact curses. Economic and Social Data Division Etononic Analysis and Projections Departtrnt O4..C 0 .44 '4 41 v~ 4Z. NN N"O 'N < 4141 CO < 4.NN C - - ;> X_ 41V v04 0 cO N . 4041 NN 4O4wN.V-V 1 _ - vxri N 0-4Iv 1 N 0 c O C .. v- 01 u R0v.-'_ m , c sc m sv .41 - NNN4I-.~~~vON N = _ N- N~~~~~~~~~~~~~~~~~~ N 0 : 0N o A N0 . N UU I N4fl <<< .41 N N1 _ NO_ ° = E14 410E o _.... 41~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ C IN CN I NO OION -o u ,, N C = =0'=_3 ~ 1 N ONN e0 3. N =1- N NN N.N 0' .10 Ir>oNxx. =c u NO Cv =' 0C NN = C1 4OCC t , u N 414 N uN >..o4w00' 1 ;Eu +vC>X+ L e o 3 1 o4 N N o91= °4cuE XtWCQC_M o W 1 WC u, 41 =141rW ,=SW 1Xc.~=zo,=f =@c vvX ,_ucc9@w cu E , O 4 2c41 UW~zli DXX> 0 41,1,>f c w~S~ I- - 29 - ANNEX I BALANCE OP PAYMENTS, EXTERNAL CAPITAL AND DEBT Peg. 5 (million US$ *t current prices) Population 122.7 million (.id-1979) CNP Per Capita: US01,633 (1979) ACTUAL PROJECTED 1970 1975 1976 1977 1978 19791k 1980 1981 1982 1983 1984 Balance of PaFmec.t Nec et porte of goode -ad aervices -583 -6,702 -6,018 -4,037 -5,999 9,774 -11,610 -12,052 -10,476 -9,086 -6,672 Export- of goods (2,739) (8I670) (10,128) (12,120) (12,659) (15.244) (23,192) (25,075) (29,715) (35.503) (42,361) l opott of goods (2,537) (12.210) (12,383) (12,023) (13,683) (17.961) (22,126) (26,256) (28.871) (31,883) (34,9899 Net cren fore 21 2 1 _ 72 17 30 40 50 50 50 Currant account balonco _562 -6,700 -6,017 -4.037 -5 927 9,757 -11,580 -12.012 -10,429 -9,036 -6,622 Ditrc privat i-vnet. V& 92 892 959 810 906 2,200 1.100 1 145 1,200 1.242 1 300 M< lop naet 767 3,760 5.023 4,631 819 4,995 9,262 13,838 11,317 103437 8,576 Tradlfiorol source (833) (1,408) (2,052) (2,648) (2,793) (2,738) (2,881) (3,538) (4,149) (4,620) (5,164) FPnancial credits (434) (4.524) (5,980) (6,118) (11,312) (8,808) (13,599) (15,222) (14,616) (11,665) (13,345) Anonci-atio- (-632) (-2,172) (-3,009) (-4.135) (-5,286) (-6,551) (-7,218) (-7,922) (-7,447) (-5,648) (-9,933) irat-lio I nane abroad (set) 1 -197 -248 -267 -358 -596 -782 -1.096 -1,434 -1,890 -2 477 Other c.pitcl n-.i. 248 1,295 2,627 _507 440 -61 - Charge ic rservoc (-i-cre ese.. -545 950 -2,344 -630 -3,880 3,219 2,000 1,125 -654 -753 -777 It,rvat.i.oal t.s.rve_4t 1.142 3,988 6,488 7,192 11,826 8,966 6,966 5,841 6,495 7,243 3.025 Rtnerv e o'th, f in. P_ 5-/ 5.5 3.9 6.3 7.2 10.4 6.0 3.8 2.7 2.7 2.7 2.3 1974 1975 1976 1977 1978 1979 Gross Disburs-eet Total gro,s disboreseet of MN7T inan 7,254 5,932 8,332 8,766 14,105 11,546_t PubIio and publicly gooronteed 2,957 3,735 4,654 4,623 13.356 Officiul *nport credit 408 3 96 368 167 413 IB30 247 250 173 299 275 Oihr nultilaotral 139 119 111 92 136 Priv-te.ource 2,143 2,966 3,972 4,062 9,532 fi non-gt naneed 4,317 2,201 3,408 4,146 3,749 Ectornul Debt Total debt outscunding and disbursed 17,576 21,920 26,934 32,224 43,174 49.904±/ Public and publicly guaranteed 9,394 12,323 15,851 19,218 27,223 Official soorco 3,276 3,854 4,320 4,612 5,229 Obthr (2,4035 (2 761) (3 ,03 (3 ,199) (3 614) Pnivutne ource 6,118 8,474 11,531 14,636 21,994 yrlvucosouD-guorocteed 8,182 9,592 11433 13,006 15.951 Uodiebur-ad debt (public only) 2,524 2,330 3,446 4,004 4,535 Debc Sorvice Tocal d bt ervica psp.ente 5,290 4,035 5,100 6,597 8,623 11.812 Intre t (grucs) (1,370) (1,863) (2,091) (2,462) (3,342) (5.261) Pay.ents 7. u o aporce bUS 38.8 43.0 47 2 5114 64.1 72.6 toy=eetaa 7% f GcipNPa 3.1 3.3 356 4.1 4.7 5.9 Avocage in. or.. t rate on vne Iaus (7.) 10.6 9.0 9.8 3.3 9.8 Official source 7.0 7.8 7.9 8.0 7.7 Av,ragena,u-ity of 1 v uns 10.9 8.7 10.2 10.1 1031 Ofticiul enurco 14.6 1.4 16 3 16.6 14.1 yrtv-tne Stre 9.7 5.9 7.0 9.0 9.6 IBD E0po1Sure 2310 030/total.D 3 (,)30 5.3 4.5 4.4 3.7 3.6 135D diDbure..to e/tutal gross diabureeents (. ) 3.4 356 2.2 3.5 1.7 2.6 IbRD debt i-/t1 debt tervie (7) 2.4 2,5 3.3 430 2.9 2.0 As . %of coccI dobrotendv st end f June 1979 Debt Structure maturity etruccure of debt out-tanding Mutoriti-s due within 5 yeare 66.3 mtturitieo dun vithin 10 yo-r. 92.6 1/ lotinato. 2/ EIcluding re-inve-tcd profitc. 5/ EOcluding dnll-r ualuattnn ad)utsests, 4/ E.cluding gold, ond including d1llur valuation adjusrte.ts. S/ Gouds only. 6/ DStaile unovoiluble April 25, 1930 - 30 - ANNEX II Page 1 THE STATUS OF BANK GROUP OPERATIONS IN BRAZIL A. SUMMARY STATEMENT OF LOANS (As of April 30, 1980) Amount less Loan # Year Borrower Purpose Cancellations Undisbursed (US$ Million) Forty-five loans fully disbursed 1,485.0 756 1971 Brazil Ports 45.0 5.5 853 1972 Brazil Land Settlement 6.7 .1 923 1973 Furnas Centrais Eletricas - Power 125.0 13.0 Itumbiara 924 1973 Brazil Agro-Industry 42.3 13.7 1008 1974 Cia. Hidro Eletrica do Sao Power 81.0 23.7 Francisco-Paulo Afonso IV 1009 1974 Banco Nacional da Habitacao Water Supply 36.0 0.3 1067 1974 Brazil Education 23.5 13.0 1074 1975 Rede Ferroviaria Federal Railways 175.0 17.9 1075 1975 Brazil Roads 110.0 25.6 1151 1975 Companhia Siderurgica Nacional Industry 95.0 48.5 1152 1975 Companhia Siderurgica Paulista Industry 60.0 49.5 1153 1975 Brazil Agriculture 23.0 11.5 1171 1975 FEPASA - Ferrovia Paulista Railways 75.0 24.0 1195 1976 Brazil Rural Development 12.0 10.4 1206 1976 Brazil Development Bank 35.0 6.2 1207 1976 Brazil Feeder Roads 55.0 46.1 1249 1976 Brazil Agriculture 40.0 29.0 1256 1976 Petrobras Fertilizantes Fertilizer 50.0 1.3 1257 1976 Companhia Paranaense de Power 49.0 8.9 Energia Eletrica - COPEL - 31 - ANNEX II Page 2 A. SUMMARY STATEMENT OF LOANS (Continued) (As of April 30, 1980) Amount less Loan # Year Borrower Purpose Cancellations Undisbursed (US$ Million) 1300 1976 Eletrobras Power 50.0 18.5 1302 1976 Brazil Nutrition 19.0 16.8 1309 1976 Banco Nacional da Habitacao Water Supply 40.0 23.0 1317 1976 Brazil Agro-Industry 83.0 83.0 1343 1977 ELETROSUL Power 82.0 38.9 1362 1977 State of Minas Gerais Rural Development 42.0 20.4 1406 1977 Petrobras Fertilizantes Fertilizer 64.0 47.6 1411 1977 Fertilizantes Vale do Fertilizer 55.0 8.2 Rio Grande S.A.-VALEFERTIL 1452 1977 Brazil Education 32.0 27.9 1488 1977 Brazil Rural Development 17.0 14.1 1525 1978 Banco Nacional da Habitacao Sewerage 110.0 98.9 1537 1978 Brazil Rural Development 24.0 21.8 1538 1978 ELETROBRAS Power 130.0 129.8 1557 1978 Brazil Roads 114.0 109.1 1562 1978 COPESUL Petrochemicals 85.0 65.6 1563 1978 Brazil Urban Transport 88.0 74.2 1568 1978 Brazil Agric. Extension 100.0 96.0 1589 1978 Brazil Rural Development 37.0 34.4 1654 1979 Banco Nacional da Habitacao Sites & Services 93.0 93.0 1656 1979 Banco Nacional da Habitacao Water & Sewerage 100.0 100.0 1660 1979 Valesul Aluminio S.A. Aluminum 98.0 84.8 1714 1979 Brazil Rural Development 26.0 26.0 1720 /1 1979 Brazil Urban Development 70.0 70.0 1721 1979 COPEL Power 109.0 109.0 1728 1979 Brazil Rural Development 40.0 40.0 1729 1979 Brazil Irrigation 28.0 28.0 1730 1979 Brazil Roads 110.0 110.0 1822 /1 1980 Brazil/BNDE Pollution Control 58.0 58.0 1823 /1 1980 BNH Water Supply 130.0 130.0 1824 /1 1980 CEEE Power 114.0 114.0 Total 4,771.5 /2 Of which has been repaid to the Bank 628.9 Total now outstanding 4,142.6 Amount sold 45.8 of which has been repaid 42.6 3.2 Total now held by Bank 4,139.4 Total undisbursed 2,239.2 /1 Not yet effective. /2 No IDA credits have been made to Brazil. - 32- ~ANNEX II B. STATEMENT OF IFC INVESIHENTS (as of April 30. 1980) Fiscal Year Obligor Type of Business Amount in US$ million Loans Equity Total 1957 Siemens do Brasil Cia. de tletricidade Electrical Equipment 2.00 - 2.00 1958 olinkraft, S.A. Celulose e Papel Pulp and Paper 1.20 - 1.20 1958 D.L.R. Plasticos do Brasil, S.A. Automotive Parts 0.45 - 0.45 1958 Willys-Overland do Brasil, S.A. Industria e Comercio Motor Vehicles 2.45 - 2.45 1959 Companhia Mineira de Cimento Portland, S.A. Cement 1.20 - 1.20 1959 Champion Celulose, S.A. Pulp 4.00 - 4.00 1966/1968/ 1972 Acos Villares, S.A. Steel 8.00 1.93 9.93 1966/1969 Papel e Celulose Catarinense, S.A. Pulp and Paper 3.78 3.41 7.19 1967/1972 Ultrafertil, S.A. - Industria e Comercio de Fertilizantes Fertilizers 8.22 3.03 11.25 1969 Petroquimica Uniao, S.A. Petrochemicals 5.50 2.88 8.38 1970 Poliolefinas, S.A. Industria e Comercio Petrochemicals 5.50 2.88 8.38 1971 Oxitepo, S.A. Industria e Comercio Petrochemicals 4.60 1.44 6.04 1971 Rio Grande - Companhia de Celulose do Sul Pulp 4.90 - 4.90 1972/1975 Companhia de Cimento Nacional de Minas Cement 29.14 3.20 32.34 1973/1974/1977 Companhia Siderurgica da Guanabara - COSIGUA Steel 76.97 7.50 84.47 1973 (apital Market Development Fund - FUMCAP Capital Market Development 5.00 - 5.00 1973/1978 Empresa de Des,nvolvimento de Recursos Nickel Mining and Minerais - CLDEMIN, S.A. Refining 85.00 8.34 93.34 1974 Industrias Villares, S.A. Elevators and Indus- trial Equipment 6.00 - 6.00 1974 Fabrica de Tecidos Tatuape, S.A. Textiles 31.00 - 31.00 1975/1979 Capuava Carbonos Industrias Ltd. Carbon Blask 6.18 1.29 7.37 1975 Oxiteno Nordeste, S.A. Petrochemicals 10.00 - 10.00 1976 Santista Industria - Textil do Nordeste, S.A. Textiles 6.45 1.00 7.45 1976/1980 Tecanor S.A. - Textil Catarinense do Nordeste Textiles 16.20 - 16.20 1977 FMB S.A. Productos Metalurgicos Iron and Aluminum Castings 20.00 - 20.00 1977 Mineracao Rio do Norte S.A. Mining 15.00 - 15.00 1978 Cimetal Siderurgia S.A. Iron and Steel 7.0 3.0 10.0 1979 Volvo do Brasil Motores e Veicules S. A. Motor Vehicles 60.00 5.00 65.00 1980 Hering do Nordeste S. A. - Malhas Ready-made Garments 2.00 - 2.00 1980 Dende do Para S/A - Denpasa - Agricultura, Industria e Comercio de Oelaginosas Palm Oil 3.50 1.00 4.50 1980 Villares Industrias de Base S. A. - VIBASA Iron and Steel 5.00 - 5.00 1980 PPH - Companhia Industrial de Polipropileno Chemicals and Petro- Chemicals 15.00 2.00 17.00 Total Gross Commitments 451.24 47.80 499.04 Less Cancellations, Terminations, Repayments and Sales 323.82 8.52 332.34 Total Commitments Now Held by IFC 127.42 39.28 166.70 123.62 6.89 130.51 Total Undisbursed - 33 - ANNEX II Page 4 C. PROJECTS IN EXECUTION 1/ As of April 30, 1980, there were 45 effective Bank loans under disbursement: Loan No. 756 Santos Port Project: US$45 million loan of June 21, 1971; Effective Date: October 29, 1971; Closing Date: September 30, 1980. After long delays, project execution is proceeding satisfactorily. Project completion is now expected by end-1980. The financial condition of the port of Santos has improved. Price escalation for civil works continues to increase the project cost. All of the increase is in local currency and is expected to be covered by addi- tional allocations from Brazil's federal port authority, PORTOBRAS. 853 Alto Turi Land Settlement Project: US$6.7 million loan of July 24, 1972; Effective Date: February 15, 1973; Closing Date: December 31, 1980. The now completed road component of the project was reduced from the original 306 to 238 km. Other aspects of the project are also nearing completion and 8,000 families have settled in the project area, more than half already receiving full project services. However, the project has taken longer than expected to complete, having been subject to administrative delays in the release of public funds, unforeseen legal complications in transfer- ring land titles to settlers, and cost overruns presently amounting to about 240%. The Closing Date for this loan has been postponed to December 31, 1980 to allow the Borrower sufficient time to meet final payments on equipment contracts. 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 75% completed. Major procurement has been completed. However, commissioning of the units is expected to be delayed about 6 months behind appraisal estimates, due to geological problems and very heavy rains which delayed construction of the earthfill dam. The present cost estimate is about 54% over the appraisal cost estimate, 10% of which is due to the need for increased physical quantities due to geological problems. The rest of the increase is due to a substantial increase in the size of the transmission works and to an increase in the cost of civil works. 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. - 34 - ANNEX II Page 5 Loan No. 924 Agro-Industries Credit Project: US$54 million loan of August 1, 1973; Effective Date: March 11, 1974; Closing Datc: June 30, 1979. Disbursements for sub-loans totalling US$14.7 million were made during 1975-76 under procedures which were not in accordance with the Loan Agreement. These funds were prepaid by the Government, reducing the effective loan amount to US$39.3 million. Commitments under this loan were almost at a standstill as a result of competing credit lines at subsidized rates and a general slow-down in indus- trial investments. The original Closing Date was postponed once-- from December 31, 1978 to June 30, 1979. In view of the slow disbursement, and the fact that commitments under Loan No. 1317-BR had not yet started, the Bank decided to allow the Closing Date to lapse, and has cancelled the amount of US$11,737,035.97, correspond- ing to the uncommitted balance of Loan No. 924-BR as of June 30, 1979. The Borrower will be permitted to draw down until June 30, 1980 up to the amount of US$16,537,353.30, corresponding to the amount of Loan No. 924-BR committed as of June 30, 1979 against approved sub-projects but not yet disbursed as of that date. 1008 Paulo Afonso IV Hydroelectric Power Project: US$81 million loan of June 17, 1974; Effective Date: April 15, 1975; Closing Date: December 31, 1980. 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 original Closing Date of December 31, 1978 has been postponed to December 31, 1980. 1009 Minas Gerais Water Supply Project: US$36 million loan of June 17, 1974; Effective Date: January 9, 1975; Closing Date: August 15, 1980 This project is substantially completed. As of April 30, 1980, 99% of the loan proceeds had been disbursed. The project has financed 41 subprojects in the capital city, Belo Horizonte, and in other cities and towns. The Closing Date for this loan was postponed to August 15, 1980 so that the borrower can meet final payments on equipment contracts. 1067 Second Education Project: US$23.5 million loan of December 27, 1974; Effective Date: April 17, 1975; Closing Date: June 30, 1981 Project execution is one year behind schedule mainly because of delays by the government in providing counterpart financing. Project imple- mentation units in all eight project states and these, together with the main project unit, PREMEN, are working well. The pre-investment studies in the Northeast, financed under the loan, have been completed and have yielded useful information for future sector investment planning. The original closing date of December 31, 1979 has been postponed to June 30, 1981. - 35 - ANNEX II Page 6 Loan No. 1074 Second Railway Project: US$175 million loan of January 17, 1975; Effective Date: June 17, 1975; Closing Date: June 30, 1981. Cost estimates for the Investment Plan, of which the project is a part, have increased substantially on several items. Therefore, the Plan has been revised and several items have been deleted or postponed. This revision is not expected to affect significantly the items included under Bank financing. Although the financial situation of the borrower has improved, further improvement is necessary for it to be able to effectively carry out its investment program. 1075 Fifth Highway Project: US$110 million loan of January 17, 1975; Effective Date: May 15, 1975; Closing Date: December 31, 1981. Project execution is proceeding satisfactorily. Roadworks are progressing well, and detailed engineering studies for road con- struction and road rehabilitation are completed. Implementation of the road weighing station program and the maintenance component is making progress after some initial delays. The closing date originally December 31, 1979 has been postponed to December 31, 1981. 1151 CSN Steel Expansion Project - Stage III: US$95.0 million loan of August 4, 1975; Effective Date: April 30, 1976; Closing Date: December 31, 1982. The latest cost estimate is US$3,530 million, an increase of about 67% over the appraisal estimate due to a slower than expected start of project implementation, higher than expected construction costs, difficulties in holding the scope of the project to its essentials, some problems in the management of the expan- sion program, and funding shortfalls from the federal government. The Government has reassigned priority to the steel sector. Substantial changes were made resulting in better management and control of the project. The project remains economically justified. 1152 COSIPA Steel Expansion Project - Stage III: US$60.0 million loan of August 4, 1975; Effective Date: March 4, 1976; Closing Date: June 30, 1980. Because of the delay in the Stage II project, the Stage III project was revised with the assistance of consultants. Stage III has been proceeding at a reduced pace in part because of uncertainty of Government allocations of the necessary funds to fully finance the project. However, with the assurance of the availability of sufficient federal funding because of the priority assigned to the steel sector by the federal government, no further delays are envisaged. The revised project cost is US$1.7 billion which is 44% above the appraisal estimate. However, the project remains economically justified. - 36 - ANNEX II Page 7 Loan No. 1153 Lower Sao Francisco Polders Project: US$23.0 million loan of August 4, 1975; Effective Date: November 25, 1975; Closing Date: December 31, 1982. Construction on this project was delayed because of heavy rains in the project area, and serious flooding in February/March 1979 and again in early 1980 has further delayed project progress. Current cost estimates show an increase of at least 80% over the appraisal estimate of US$56.5 million. These increases have resulted from design changes, rapid increases in the costs of civil works and equipment, and in the cost of land expro- priation. Further adjustment in project composition is being considered in view of the 1979 and 1980 floods. The closing date has been postponed to December 31, 1982. 1171 Third Railway Project (FEPASA): US$75.0 million loan of November 12, 1975; Effective Date: March 24, 1976; Closing Date: December 31, 1981. Project execution is proceeding satisfactorily. The Transport Master Plan Study for Sao Paulo is completed. The technical assistance program which is intended to improve FEPASA's operations, marketing, and data processing systems is showing results. FEPASA's financial position, however, continues to remain extremely weak. Active consideration is being given to ways in which this situation can be corrected. The closing date for this loan was postponed to December 31, 1981 to allow the borrower the time needed to meet final payments on equipment contracts. 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. Phase I of this project ended satisfactorily in the areas of extension, credit, applied research, and health, although one year behind the original schedule. Phase II, now just beginning, would sharpen the project's focus on the lowest income farmers and would include new components in the areas of marketing, storage, and support to cooperatives, land services, seed production, and inland fisheries. A serious drought in 1979, coupled with delays in the release of funds, has slowed down the implementation of Phase II. The closing date for this loan was postponed to September 30, 1982 to allow disbursements to coordinate effectively with Phase II. 1206 Development Banking Project: US$85.0 million loan of March 1, 1976; Effective Date: August 26, 1976; Closing Date: December 31, 1980. Due to the availability of competing credit lines at subsidized interest rates, there was little demand for loan funds, and as of year-end 1979, about US$52.5 million of the Bank loan remained uncommitted. Since this situation was expected to persist, the Government requested cancellation of the uncommitted balance of the loan, and US$50 million of the loan was cancelled as of - 37 - ANNEX II Page 8 Loan No. January 28, 1980. It is expected that the Government will request cancellation of an additional US$2.5 million. The Closing Date of the loan has been extended to December 31, 1980 to enable completion of disbursements against approved subprojects which were committed for financing under the loan but against which disburse- ments have not been completed. 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. Fourteen sub-projects involving ten different states have been approved. One additional sub-project is presently under consideration by the Bank. Construction is underway in three states, Bahia, Minas Gerais, Goias, and Mato Grosso do Sul. Fourteen percent of the physical work foreseen under the project, about 1,000 kms, is now completed. 1249 Agricultural Research I Project: US$40.0 million loan of June 23, 1976; Effective Date: September 21, 1976; Closing Date: December 31, 1981. Project implementation experienced a signifi- cant slow-down because of changes in the higher administrative positions at EMBRAPA in early 1979. Imposed hiring constraints also significantly affected the civil works, consultant services, and training components of this project. The outlook for 1980 is more favorable with a recent resumption of normal hiring procedures and an expanded program of civil works to recuperate previous shortfalls. 1256 Araucaria Fertilizer Project: US$52.0 million loan of May 19, 1976; Effective Date: July 20, 1976; Closing Date: December 31, 1980. Project completion is expected to be delayed by about 15 months due to delays in delivery of equipment to be provided by Brazilian suppliers. Total project cost has increased to US$321 million, which is US$49 million over the appraisal estimate of US$272 million. All the increase is in local currency and with the planned increases in local loans and equity commitment the project has no financing gap. 1257 COPEL Power Distribution Project: US$52.0 million loan of May 19, 1976; Effective Date: August 17, 1976; Closing Date: June 30, 1980. Major project works were completed on schedule but overall project completion is about 1 year behind schedule and about 98% completed. Procurement under the loan has also been completed. Disbursements lag about 10% behind appraisal forecast. The Closing Date has been postponed by six months, to June 30, 1980. An amount of US$3.0 million of the loan proceeds has been cancelled at the request of the Borrower since it could not be utilized for project related expenditures. - 38 - ANNEX II Page 9 Loan No. 1300 Northeast Power Distribution: US$50.0 million loan of August 27, 1976; Effective Date: January 31, 1977; Closing Date: December 31, 1980. 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. However, the Bank has post- poned the closing date to December 31, 1980. The agreed targets for connection of low income households have been widely exceeded. Substantial improvements in the management of the project companies have been achieved, particularly in the areas of financial control and planning of COELBA and CELPE. 1302 Nutrition Research and Development: US$19.0 million loan of October 1, 1976; Effective Date: December 30, 1976; Closing Date: December 31, 1980. Field tests of nutrition delivery systems are proceeding reasonably well. After initial delays, food techno- logy research, manpower training, and special studies have become fully operational. However, the overall performance of this project has been unsatisfactory. Discussions are underway with the Govern- ment aimed at improving the performance under this project. 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, 1980. 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, commitments for the second loan began only in 1979. However, the continuing existence of competing credit lines at subsidized rates may well render the balance of this loan unusable. The Government is expected to request cancellation of the uncommitted balance of this loan. 1343 ELETROSUL Transmission Project: US$82.0 million loan of February 23, 1977; Effective Date: June 13, 1977; Closing Date: December 31, 1981. The project is about 60% 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. Loan disbursements are progressing according to appraisal forecast. - 39 - ANNEX II Page 10 Loan No. 1362 Minas Gerais Rural Development Project: US$42.0 million loan of February 23, 1977; Effective Date: June 29, 1977; Closing Date: December 31, 1981. This project is progressing satisfactorily and close to schedule after initial delays. Mainly as a result of administrative difficulties, participation in this project by landless producers was initially significantly lower than originally envisaged, but concerted efforts by the state government and the participating banks have improved this situation markedly. 1406 Sergipe Fertilizer Project: US$64.0 million loan of April 29, 1977; Effective Date: August 31, 1977; Closing Date: November 30, 1981. Plant buildings and equipment foundations are under construction, but some delays have been experienced in procurement of imported equipment which may delay the project completion date by about nine months. Commercial production is now expected to begin in September 1981. The anticipated cost to complete the project is currently running about 8% below the budget estimate. 1411 VALEFERTIL Phosphate Fertilizer Project: US$82.0 million loan of April 29, 1977; Effective Date: July 29, 1977; Closing Date: October 1, 1980. The project has been progressing satisfactorily within the original budget estimate, and the plant start-up will experience only a minor delay. VALEFERTIL has been sold by CVRD to Petrobras Fertilizantes. This change in ownership is not affecting project execution. US$27.0 million of the loan proceeds has been cancelled at the request of the Borrower since the cost for equipment was much less than originally anticipated, and the funds could not be used for other appropriate project-related expenditures. 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 training centers is proceeding within cost estimates but about one year behind schedule. Administrative problems which have contributed to delays in the rural training component are being resolved, but the hotel training component continues to encounter implementation difficulties. The technical assistance program is underway at the training centers. 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 in general is proceeding satisfac- torily although local funding delays have been a recurring problem. Agricultural extension and experimentation services, agricultural credit, input supply, marketing and storage services are making good progress, while the parts of the project relating to agricul- tural mechanization and cooperative societies organization are progressing at a slower than expected rate. The recent establish- ment of a land agency in Ceara has enabled the land purchase credit component to get underway. - 40 - ANNEX II Page 11 Loan No. 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 is well advanced, and is expected to be completed before the appraisal targets. 1537 Paraiba Rural Development Project: US$24.0 million of May 8, 1978; Effective Date: October 19, 1978; Closing Date: September 30, 1983. Project implementation has slowed down due to funding delays. Civil works are underway and progressing well, and the non-farm development component is showing encouraging initial results. However, adminis- trative problems are causing difficulties in making credit available to the smaller farmers and tenants. The health and water supply components are suffering from planning and training weaknesses. 1538 South-Southeast Power Distribution Project: US$130.0 million loan of Mtay 8, 1978; Effective Date: September 14, 1978; Closing Date: December 31, 1982. Initial disbursements have been 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. 1557 Sixth Highway Project: US$114.0 million loan of May 8, 1978; Effective Date: October 13, 1978; Closing Date: December 31, 1982. Reconstruction of highways foreseen under the project is proceeding satisfactorily. There have been delays in the delegation of highway maintenance responsibilities to the states, because of staffing problems in the state highway departments resulting from low salary scales, and because the states will not accept respon- sibility for federal highways until they have been rehabilitated. 1562 COPESUL Petrochemical Project: US$85.0 million loan of July 6, 1978; Effective Date: October 30, 1978; Closing Date: June 30, 1982. Project implementation is proceeding well. Commencement of commer- cial operations is now expected in June 1982, about six months behind schedule, reflecting the slow start of some of the down- stream projects. The anticipated cost to complete the project is presently running about 2% above the original estimate. 1563 Urban Transport Project: US$88.0 million loan of MIay 22, 1978; Effective Date: September 1, 1978; Closing Date: December 31, 1981. This project is progressing satisfactorily although progress has varied widely among the five cities involved. The Curitiba sub- project is the furthest advanced. - 41 - A.NNE- II Page 12 Loan No. 1568 Agricultural Extension Project: US$100.0 million loan of May 22, 1978; Effective Date: September 22, 1978; Closing Date: December 31, 1982. The executing agency, EMBRATER, has initiated work with state/territory agencies for project implementation. The Project Coordination Unit has been effectively organized, and project execution proceeded satis- factorily during 1979. Early local funding delays appear to have been resolved by 1979. Means to resolve current problems in achieving planned levels of incremental staffing are under discussion. 1589 Bahia Rural Development Project: US$37.0 million loan of July 19, 1978; Effective Date: December 5, 1978; Closing Date: December 31, 1983. First year implementation of the project advanced satisfactorily after initial funding delays. Substantial progress was made in majority of the components, and targets for the number of farmers to be assisted with extension and credit were exceeded. However, project activities were disrupted in March 1979 with the change in state administrations and dismissal of a large number of project-funded staff. Funding delays in year two have compounded difficulties associated with the rehiring of staff, now underway, and the restoration of appropriate coordination and integration of project activities. 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. Project execution is proceeding ahead of schedule in Sao Paulo and Recife. Some initial delays have been experienced in Salvador. 1656 Northeast Water Supply and Sewerage Project: US$100.0 million loan of February 8, 1979; Effective Date: July 10, 1979, Closing 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. 1660 Valesul Aluminum Project: US$48.0 million loan of March 7, 1979; Effective Date: August 6, 1979; Closing Date: July 31, 1982. The project is proceeding satisfactorily with some minor delays. 1714 Sergipe Rural Development Project: US$26.0 million loan of June 20, 1979; Effective Date; February 5, 1980; Closing Date: September 30, 1984. All components are in the early stages of implementation. 1721 Copel Second Power Distribution Project: US$109.0 million loan of Jure 20, 1979; Effective Date: November 21, 1979; Closing Date: June 30, 1983. The project is proceeding satisfactorily. - 42 - ANNEX II Page 13 Loan No. 1728 Pernambuco Rural Development Project: US$40.0 millon loan of June 20, 1979; Effective Date: February 5, 1980; Closing Date: December 31, 1984. The project's start-up period has been longer than expected, in part due to initial delays in the release of counterpart funds. 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. The project is proceeding satisfactorily. 1730 Second Feeder Roads Project: US$110.0 million loan of June 20, 1979; Effective Date: December 17, 1979; Closing Date: December 31, 1986. The first sub-project has been approved by the Bank. It will benefit the Northeast state of Pernambuco. Nineteen other sub- project applications have been received by the National Development Bank (BNDE). Twelve of these are at an advanced stage of prepara- tion, and are presently under evaluation by BNDE. It is expected that they will be submitted to the Bank soon. ANNEX III Page 1 BRAZIL MINAS GERAIS RURAL DEVELOPMENT PROJECT SUPPLEMENTARY PROJECT DATA SHEET Section I - Timetable of Key Events (a) Time taken to prepare project: Approximately 10 months April 1979 - January 1980 (b) Project prepared by: Fundacao Joao Pinhiero (c) First presentation to the Bank: April 1979 (d) First Bank mission to consider the project: April 1979 (d) Departure of Appraisal Mission: January 1980 (e) Completion of Negotiations: May 1980 (f) Planned Deadline for Effectiveness: October 1980 Section II - Special Bank Implementing Actions None. Section III - Special Conditions (a) A system to eliminate unprogrammed subsidies for land reclamation to be established by December 31, 1980, with tariffs reflecting full machinery replacement costs, operating costs, and reasonable admin- istration costs related to on-farm investment applied no later than June 30, 1983 (para. 49). (b) The final plans to strengthen the SES health administration to be furnished to the Bank before December 31, 1980 (para. 58). (c) State Government to finance and construct 486 km of secondary roads, complementary to the project's feeder roads, by June 30, 1983 (para. 55). - 44 - ANNEX II Page 2 (d) State Government to present to the Bank for comment the draft road maintenance program by June 30, 1981 and to make available complementary funds for proper road maintenance at the beginning of each quarter from January 1, 1982 (para. 55). (e) State Government to provide the Bank with a mid-term evaluation of the operational results of the community development fund before continuing disbursements from it (para. 60). (f) State Government to obtain external co-financing for about US$50 million by June 30, 1981 (para. 67). 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