'r 'CMRCULATlNG COPY

TO BE RETURNED TO REPORTS DESK

DOCUMENT OF INTERNATIONAL DEVELOPMENT ASSOCIATION

Not For Public Use

Report No. P-1146

REPORT AND RECOMMENDATION

OF THE

PRESIDENT

TO THE

EXECUTIVE DIRECTORS

ON A

PROPOSED CREDIT

TO

THE REPUBLIC OF THE PHILIPPINES

FOR A

SECOND EDUCATION PROJECT

November 30, 1972

This report was prepared for official use only by the Bank Group. It may not be published,quoted or cited without Bank Group authorization. The Bank Group does not acceptresponsibility for the accuracy or completeness of the report.

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Currency Unit - Peso (P)

US$1 = P6.8

Pi = Us$. 148

i1,000 = US$148

i1,000,000 = US$148,000

Fiscal Year - July 1 to June 30

INTERNATIONAL DEVELOPMENT ASSOCIATION

REPORT AND RECOMENDATION OF THE PRESIDENTTO THE EXECUTIVE DIRECTORS

ON A PROPOSED CREDIT TO THE PHILIPPINES.FOR A SECOND EDUCATION PROJECT

1. I submit the following report and recommendation on a proposeddevelopment credit to the Republic of the Philippines for the equivalentof $12.7 million on standard IDA terms to help finance a project fordevelopment of technical and vocational education and for improvement incurriculum development and teacher training.

PART I - THE ECONOMY

2. A report entitled "Current Economic Position and Prospects ofthe Philippines" (EAP-30a dated May 10, 1972) was circulated to theExecutive Directors on May 17, 1972. Since this report appeared,the Central Luzon area has suffered one of the worst floods of the century,and President Marcos has imposed martial law.

3. The Philippine Constitution gives the President the power todeclare martial law if there is imminent danger of insurrection. ThePresident has announced that he will undertake sweeping social andeconomic reforms in the country and at this stage there appears to beconsiderable public support for his action. However, this support maydwindle unless these reforms are implemented quickly. It is not clearhow long martial law will last. The Constitutional Convention, whichrecently voted for a parliamentary system of government, has continuedto meet and a referendum on a new Constitution could be held early nextyear. The President has begun to promulgate as decrees a number of billswhich had been awaiting Congressional approval including the customs andtariff bill and the government reorganization bill. The Government expectsthe former to increase revenues substantially. The latter could improvethe quality of public administration, including economic planning, andproject execution. It should also reinforce the efforts of the able groupof administrators that have been brought into the top levels of publicservice in the past two years.

4. The Philippine economy has grown at an average rate of about6 percent during the past decade. The ratio of gross fixed capitalformation to GNP rose from an average of about 13 percent during 1960-62to about 20 percent during 1968-70 and the marginal saving rate wasaround 20 percent. However, despite the inpressive growth in totalinvestment, public infrastructure and agricultural investments wererelatively neglected. Public investment constitutes only 10 percent oftotal investment. Moreover, little headway was made in strengthening the

-2-

balance of payments during the decade and large external borrowings wereneeded to finance current account deficits, especially in the latterhalf of the decade. Much of this borrowing took the form of suppliers'credits and short- and medium-term loans to the Central Bank. ThePhilippine economy thus faced a serious foreign exchange crisis at theend of 1969 which was aggravated by a large fiscal deficit. Thestabilization program adopted in February 1970 consisted of measuresaimed at reducing excessive liquidity in the economy and limiting thegrowth of short-term external debt. A floating rate of exchange forthe peso was adopted and import restrictions liberalized. During thelast two and a half years the Government has followed a fairly strictfiscal and monetary discipline. Although these measures slowed downoutput growth at first, econom#ic activity recovered somewhat in 1971with GNP growth estimated at 6.5 percent in real terms. This occurreddespite the inflation set off by the 1970 devaluation and sustained bya shortfall in rice production which resulted in a rice deficit for thefirst time since 1967. Management of the external accounts has alsoimproved, especially by instituting comprehensive external debt controls.However, a sharp deterioration in the terms of trade since early 197n,combined with the rice deficit, has made it difficult to strengthen thebalance of payments position.

5. The floods in July, which caused extensive damage, made theeconomic situation'in the Philippines more difficult. Publicinfrastructure, in particular, roads, flood control dikes, irrigationworks and schools, have been damaged. A recent Bank reconnaissancemission estimated that rehabilitation of infrastructure together withflood control needs'would cost about $125 million. Because of theextensive damage to the rice crop, the Philippines' rice imports willdouble to 500,000 to 600,000 tons in FY 1972/73. This will furtherstrain the balance of payments. Together with production losses anddamage to private property, the total cost of the flood damage wasestimated at about $200 million.

6. The administrative, fiscal and monetary reforms that the Marcosadministration has begun to implement under martial law could lead toimproved economic performance in the Philippines in the years ahead.Progress, however, will depend on how successfully the Government tacklesthe difficult and inter-related problems of (a) effective use 'ofinvestment resources, (b) balance of payments management, and (c) employmentcreation and income distribution.

7. Capital formation in the Philippines is quite high, and theproblem will be to ensure that investment outlays are more effective infuture. This would involve better use of industrial capacity than wasachieved during the sixties and sharply accelerated public developmentoutlays if bottlenecks in production are to be avoided and if thedeterioration in social services is to be reversed. Tne floods havemade it more urgent to accelerate public investment spending which has

been stagnating for nearly two years. Larger infrastructure spending isneeded not only to rehabilitate damaged facilities but also to create jobopportunities for rural families who have suffered a serious loss ofincome. If the minimum rehabilitation needs are to be met while maintain-ing spending levels already programmed for major projects in roads, ports,power and rural electrification, the infrastructure program would haveto rise to 1,500 million during FY73, from an actual spending of p762million in FY72. This will present a major challenge.

8. Substantial additional taxation will be needed to finance theproposed public investment program. Notwithstanding a much improvedfiscal position in FY1970/71 public savings accounted for little over1 percent of GNP and were only 5-6 percent of the fairly sizeable totaldomestic savings. A disappointing level of tax revenues is at the rootof the problem. The need for a much greater public sector developmenteffort becomes even clearer in the light of the need to regainmomentum in foodgrain production and to distribute the benefits ofdevelopment more widely. But even with greater emphasis on ruraldevelopment, the present rate of open unemployment of 7.5 percent isunlikely to be reduced over the seventies.

9. The most urgent problem facing the Philippine economyn, however,is the management of a very difficult balance of payments position. Themost important factor in the tight foreign exchange situation is thelevel of external debt repayments. While the total size of medium- andlong-term debt at $1.8 billion does not exceed 15 months' foreign exchangeearnings, nearly two thirds of this debt falls due within the next fouryears. Debt service payments, which amount to 28 percent of exportearnings, presently absorb almost the entire gross capital inflow. Thestrengthening of the balance of payments will require sustained effortsover a wide front. Rapid growth of exports, considerable progresstoward import substitution, and increased flows of official assistance,as well as continued restraint on suppliers' credits, will be neededif the present serious foreign exchange bottleneck is to be overcome,and the external debt burden somewhat reduced in the long run. The needfor quick-disbursing assistance increased substantially as a result ofthe flood damage.

10. At the June meeting of the Consultative Group in Tokyo bothJapan and the United States agreed to increase their sizeable assistanceprograms in the Philippines. The additional needs during FY1972/73 result-ing from the floods are likely to be met almost fully by increased US andJapanese aid. The other major sources of assistance are the ADB andthe Bank Group. Given the poverty of the Philippines, the magnitude ofthe debt problem, and the general improvement in the management of thecountry's economy, it is appropriate that the Bank Group continue itspolicy begun last April of providing some IDA funds for the Philippines.The $12.7 million development credit for this project would be the secondsuch credit for the Fhilippines.

11. Even with further improvements in raising public revenues, thePhilippine development program will continue to require resources inexcess of expected local savings and of the foreign capital which will.become available for financing the import component of development projects.One reason for this is that there are a number of projects of economic andsocial importance,but needing only limited amounts of foreign exchange. Insuch cases, which include this project, some local cost financing isjustified.

PART II - BANK GROUP OPERATIONS INTHE FHILIPPINES

12. The Philippines has received 17 Bank loans and one IDA credittotalling $278.3 million, net of cancellations. A little over half ofthe Bank Group's lending, about $140 million, has been for priorityinfrastructure projects in power, transportation, water supply and educa-tion. The remainder has been divided about equally between agricultureand industry: about $70 million for irrigation, livestock, rice process-ing and rural credit and about $65 million for industry in three loansto the Private Ievelopment Corporation of the Philippines.

13. Of total Bank Group lending for the Philippines of $278.3 million,two loans and one credit totalling $39.5 million were made in the lastquarter of FY1972 and disbursements on these have only just begun. Of theremaining $238.8 million, the undisbursed balance on October 31, 1972 wasabout $55.5 million, almost all of which was accounted for by five loansmade since the beginning of FY1969. Although there have been no seriousproblems on any of these five projects, disbursements on three of them arebehind schedule due in part to the general economic slowdown in thePhilippines following the February 1970 devaluation and the subsequentstabilization program. Disbursements on these loans have now begun topick up, although postponements of the closing dates of two loans arelikely. Annex II contains the status of Bank Group operations.

14. Future Bank Group lending will continue to concentrate onpublic infrastructure and agriculture which, as indicated in paragraphs7 and 8, have high priority and have been relatively neglected by theGovernment in the past. The Bank Group will also continue to helpindustry and provide more assistance-for social sector projects. In theagricultural sector, assistance to general agriculture, including rice,would be continued through further loans for rural credit, and the Govern-ment would be helped to diversify production through a fisheries projectwhich was appraised in November. The reconstruction of fishponds damagedby the recent floods is expected to be included in this project. Apossible irrigation rehabilitation project is also being discussed withthe Government. In addition, a recent agricultural sector mission hasidentified several irrigation and credit projects which would promoteexport crops, some of which may be prepared for Bank financing in theyears ahead. Bank/IDA infrastructure lending will continue to emphasizetransportation and power projects. The Bank is acting as exBcuting agency

- 5 -

for UNDP-financed feasibility studies for four major ports and for roadsand are financing detailed engineering of some further roads in Luzon underour first highway project. These studies are expected to lead to loans inthe next twelve months, and a second highway project will include rehabilita-tion of roads damaged by the floods. The Bank's fifth power project, forwhich a loan and credit were signed last April, includes feasibility studieswhich could lead to further Bank lending for power in FT1974. The proposededucation credit, together with a population project which we are helpingto prepare,would increase our role in financing social investments.

15. I expect Bank Group lending to increase substantially abovepresent levels provided the economy continues to be managed reasonablywell and provided that the Philippines continues to improve its capacityto prepare and implement projects.

16. The Bank's next economic mission will as usual analyze balanceof payments, external debt and fiscal problems. It will give particularattention to development planning and administration, the public infrastruc-ture program and industrial policy relating to exports and small-scaleindustry. Two sector missions are also scheduled for the coming year:a telecommunications mission and an industrial mission which, among otherthings, will look into the prospects for developing metal-using industries.

17. IFC has made commitments in the Philippines totalling $47.3million for investments in eight companies in the field of developmentbanking, power, telecommunications, ceramic tiles, paper, petroleumproducts and nickel mining and refining. Of these investments as ofOctober 31, 1972, $9.3 million have been sold, $O.4 million cancelledand $0.9 nillion repaid, leaving a net portfolio of $36.7 million. Onthe same date, $18.0 million were undisbursed. A loan to the PrivateDevelopment Corporation of the Philippines is being considered andpreliminary proposals have been received for an aluminum smelter and otherprojects in the pulp and paper, dinnerware, metal alloys and shipbuildingfields.

PART III - THE SECTOR

18. The quantitative achievements of the Philippine education systemare impressive: the literacy rate (72 percent) is among the highestin Asia and virtually all children of the relevant age group now attendprimary school. The enrollment ratios of 71 percent at the secondary leveland 25 percent in higher education are among the highest in the world.Elementary schools are public but about 60 percent of secondary enroll-ments and over 90 percent of higher education enrollments are in privateinstitutions. However, the uncontrolled expansion of the education systemhas led to low-quality instruction often unrelated to economic prioritiesand erployment opportunities.

19. Elementary education covers six years and English is the languageof instruction after the first two years when t-he local vernacular normallyis used. Elementary teachers are generally adequately qualified and thepupil-teacher ratio of 30:1 is acceptable. The quality of secondaryeducation, where the drop-out rate is 25 percent, is the weakest link inthe educational system. Most secondary school teachers are adequatelyqualified by local standards but mary teachers of vocational subjects lackpractical experience. Classes are overcrowded and there is a shortage ofequipment and books. Much of the higher education is also of poor quality.Training of faculty members is often inadequate. An open admission systemallows any secondary school graduate to enter college. Moreover, the coursesoffered frequently produce graduates poorly prepared to enter employmentrelated to their training.

20. Vocational and technical education is offered at public andprivate schools. There are wide differences in the quality of the instruction.The drop-out rate is high and liaison between schools and industryis inadequate. College degrees in engineering are offered at severalpublic and over 40 private institutions. The number of engineers beingtrained far exceeds demand while there is a need for more skilled crafts-men and technicians. In 1968 a national manpower training program wasstarted to promote training in skills required by expanding industries andin 1969 a National Manpower and Youth Council was set up to administer theprogram. The Government with UNDP and ILO assistance plans to developregional manpower training centers to train skilled craftsmen needed byindustry.

21. Agricultural education is provided at the secondary level by85 public high schools and a number of private high schools. Many ofthese schools originally provided practical farming courses for ruralyouth but more recently emphasis has been placed on college preparationani about 30 agriculture high schools have introduced post-secondarycourses providing training of low quality. The University of the Philip-pines College of Agriculture has started a Pilot Barrio (Village)Development School in which pupils spend 50 percent of their time carry-ing out supervised farming programs on their own or their parents' farms.The Department of Education has also recently introduced a new experimentalagricultural curriculum in some of its high schools. This increasespractical training and emphasizes agricultural economics and farm manage-ment. At the post-secondary level there are many degree-grantingagricultural colleges whose curricula tend to be too academic and notsufficiently oriented towards current problems of agriculture. Of the54 degree-granting institutions, only two offer courses in agriculturalbusiness management and six in agricultural engineering. Irrigation isnot taught as a major subject at any institution. Courses in forestry,one of the major industries in the [hilippines,are offered in only fourinstitutions and only one of these has adequate training facilities.

22. The strong demand for education in the Philippines stems fromdeeply held social values and the lack of employment opportunities.

-7-

This situation has had a pronounced fiscal impact as expenditures oneducation account for 26 percent of the national Government's budget.Assuming that the present enrollment and population trends would continue,the Government's education budget (in constant prices) would have todouble over the next ten years if present standards are maintained. ThePhilippine Education Survey Conmission, appointed by the President in1969, recommended that financial responsibility for primary education,which absorbs 85 percent of the Government's education budget, shouldbe transferred to the local governments in order to release funds at thenational level for secondary and higher education. It would be extremelydifficult, however, to secure sufficient revenues at the local level tomeet fully the costs of primary education. Whether financing comes fromthe central or local governments, measures to halt the rapid increase inexpenditures for primary education are desirable. There is also a needto rationalize institutions and to control enrollment at the secondaryand higher levels.

23. 1Masures are now being taken to tackle some of these problems.In the reorganization of the Executive Branch of Government, followingthe imposition of martial law, the Department of Education becomes theDepartment of Education and Culture, responsible for developing andimplementing education programs based on the general education objectivesand policies set by a Board of National Education. The divisionsor units in the former Department of Education which dealt, almostindependently of each other, with public, private and vocational schools,are abolished and the new Department will have bureaus for elementary,secondary and higher education. In addition, units for Planning Service,Finance and Management, Administration, and Information and Publicationwill be set up in the Department. The Office of Planning Service willundertake planning, research and project development and providesecretariat services for the Board of National Education. A Boardof Higher Education will be created to assist and advise the NationalBoard of Education in formulating objectives, policies and programs onpost-secondary education.

24. Education policy will now aim at making the educational systemmore responsive to the needs of the country by providing a broad, generaleducation and promoting the training of skilled manpower. High prioritywill be given to technical education and vocational training. Highereducation will be strengthened through a coherent system of publicuniversities and incentive schemes for inportant programs in privateeducation. New colleges can be established only on the recommendationof the National Board of Education. All these reforms should improveeducational policy-making and make it easier for the Government tomanage the educational system. Accreditation of higher educationinstitutions is in its infancy (28 institutions are members at present)and the new structure may enable the system to expand more rapidly.Nonetheless, Government control over the large number of private secondaryand higher educational institutions has been very weak up to now and itremains to be seen how far these reforms can increase it.

-8-

PART IV - THE PROJECT

Background

25. In January/February 1971, a UNESCO mission visited the Philippinesto identify a project suitable for Bank Group financing. It July 1971, theGovernment requested assistance for a project.which it had.prepared withthe help of UNESCO. The project was appraised in November/December 1971and negotiations were hel'd in Washington during July 24p-28,. 1972'. Theleader of the Government's delegation,was thle Honorable Eduardo Z.. Romualdez,Philippine Ambassador to the United States. The appraisal report (No.. PE-50a,dated November 30, 1972) is being circulated separately to the. ExecutiveDirectors.

26. This would be the second' Bank Group operation fbr' eduication inthe Philippines. The, first was a Bank loan (Loan 393P-PE.) of $6.0 millionmade in 1964 to assist the Government in financing the enwpansion of the.University of the Philippines College of Agriculture at Los Banos nearManila. Despite occasional delays in construction. resulting from short-ages in local funds the project will be completed satisfactorily by theend of this year.

Description of the Project

27. The project would provide for' some of thee needs of'an e-ducation.development program required,for re-tormvof the education,system..It would also help to meet manpower needs for economic development'.Specifically, the proposed' credit would help to. finance the followingconponents:

(i) & Curriculum Coord.inating Unit,, an Educatibn: Dbvelop-ment Center,. two Regional Science Teaching Cente'ts). and'additional equipment for two exi;sting' Centers-:

(ii) equipment for 13 4didstirrg agricultural high- schools,expansion of two agricultural col'leges, and six newpilot village development schools;

(iii) two new technical institutes) expansion of an extsst-ing technical institute, and 10 new Regional ManpowerTraining Centers;

(iv) two social (extension) laboratories, a newr agricultureradio station, and additional equipment for an e-xAst-ing agriculture radio station;. and.

(v) te:chnical assistance.

_9-

28. The items covered under (i) would help to develop improvedcurriculum and teaching standards. The Government would form a CurriculumCoordinating Unit in the new Office of Planning Service to be establishedin the Department of Educatioh. The Unit would coordinate curriculumresearch and material development and prepare a program to remedy textbookshortage. The proposed credit would finance equipment, books and materialsfor the Unit. The Government also intends to establish an EducationDevelopment Council to supervise a new Education Development Center combiningthe Science Education Center of the University of the Philippines and theSocial Studies Education Center of the Department of Education. IDA wouldhelp finance physical facilities, including office accommodation and equip-ment for the Council and the Center. The project would also support theongoing program of science teaching by establishing two additional RegionalScience Training Centers and upgrading two others by providing books andequipment.

29. The 13 agricultural high schools included in the project woulduse the new, more practically oriented curricula recently developed bythe Department of Education. The six new pilot village (barrio) develop-ment schools would provide a program of 50 percent practical classroomwork and 50 percent supervised farming. The project would upgrade twoagricultural universities, Central Mindanao University and Central LuzonState University, which should, as a result, become strong regional centersoffering courses and providing training adapted to local needs. In orderto bring overall agricultural education more in line with manpower needs,the Government plans to undertake a survey of agricultural manpower andwill ensure that, in three years time, agricultural high schools includedin the project offer courses only at the secondary level. The NationalBoard of Education has recently adopted a resolution declaring that theestablishment of additional degree-granting institutions will be consideredonly where there are clear manpower needs for development.

30. The three technical institutes included in the project would offerthree-year post secondary courses and would provide about 800 techniciansannually. Until a national polytechnic scheme is established, the threeinstitutes would be administered by a Governing Council which would ensurethat each institute applies the sare curricula and examination standards.The ten new Regional Manpower Centers wauld offer full time and eveningcourses for youth or adults. The combined output of the centers would beover 7,000 craftsmen per year. The Government would train sufficientinstructors, teachers and supervisors for the technical institutes andregional manpower centers. The IDA credit would also assist the CentralMindanao University to establish and the University of the PhilippinesCollege of Agriculture to expand agriculture radio stations and would helpCentral Mindanao University and Central Luzon State University to set up"lsocial laboratories" designed to give on-the-job training to agriculturalextension workers in the villages.

31. The technical assistance component would consist of 62 man-years ofspecialist services and 56 man-years of fellowships. The specialist

- 10

services are designed to strengthen education planning, management andcurriculum development. They would also help the agricultural collegesand technical institutes and assist in implementing the project. Someof the specialists included in the project may be financed by UNDP, inwhich case a corresponding amount of the credit may be cancelled or madeavailable for other uses related to the project. Furthermore, theGovernment intends to obtain additional technical assistance in the formof 31 man-years of specialist services needed to strengthen educationalplanning, curriculum development and manpower training as well as sixman-years of overseas fellowships for curriculum development and teachingin the ten Regional Manpower Training Centers. The Government wouldalso prepare studies on national and regional manpower needs in theagricultural sector and on ways and means to meet such needs, formulateplans for supervised farming projects at the agricultural high schoolsand pilot village development schools included in the project .and makearrangements with existing universities to improve agriculturaleducation, training and extension.

Cost and Financing of the Project

32. The total cost of the project is estimated at $17.7 million,of which the foreign exchange component amounts to about $12.4 million(for details, see Annex III, Credit and Project Summary). The creditwould finance the direct foreign exchange cost and about $0.3 millionfor equipment, furniture and educational materials, for which contractsare likely to be awarded to local manufacturers. If qualified Filipinosare available to fill some of the positions under the technical assistancecomponent, IDA would finance them. The remaining local cost of $5million equivalent would be met by the Government. To ensure that localfunds are available when needed, the Government has agreed to establish aSpecial Fund (as a condition for the Credit to become effective) and toreplenish it at monthly intervals to a level equivalent to the estimatedtotal amount of payments for goods and services required for the projectduring the next three months less the estimated amount of payments to bemade by the Association directly to suppliers, contractors and consultants.

Management Arrangements

33. The Government has established a Project Unit in the Departmentof Edacation which would be responsible for implementing the project.After consulting the Association, the Government has selected seniorstaff members of the Project Unit.

Procurement

34. Contracts for civil works would be awarded after internationalcompetitive bidding. Equipment, furniture and educational materialsmould also be procured under international competitive bidding,. with theexception of contracts for small and diverse items not exceeding.$40,000, within a total of $250,000, which may be awarded after local

competitive bidding. As in the case of Loan 637-PH, approved onAugust 12, 1969, which was the last occasion on which the Bank financeddirectly the local procurement of equipment, materials and suppliesunder international competitive bidding for a project in the Philippines,bids offered by Filipino manufacturers for items of substantiallyFilipino origin would be given a preference of 15 percent in camparisonwith other bids. The draft Development Credit Agreement makes appropriateprovision for this; the amount of local procurement eligible forpreferential treatment is not expected to be more than about $300,000.

Disbursement

35. The credit would be disbursed to meet 100 percent of the c.i.f.cost of imported, or ex-factory cost of locally produced, equipment,furniture and supplies, 38 percent of the cost of civil works (includingprofessional services) and 100 percent of total expenditures for technicalassistance for the project. The schools would be constructed and equippedin about three and a half years, but the technical assistance would bespread over six years.

PART V - LEGAL INSTRUMENTS AND AUTXORITI

36. The draft Development Credit Agreement between the Associationand the Republic of the Philippines, the Recommendation of the Committeeprovided for in Article V, Section 1 (d) of the Articles of Agreement ofthe Association and the text of a Resolution approving the proposeddevelopment credit are being distributed to the Executive Directorsseparately.

37. The draft Development Credit Agreement conforms to the normalpattern for credits for education projects and major features of theAgreement have already been described.

38. I am satisfied that the proposed credit would comply with theArticles of Agreement of the Association.

PART VI - RECO4MENDATION

39. I recommend that the Executive Directors approve the proposeddevelopment credit.

Robert S. McNamaraPresident

Attachments

November 30, 1972

ANNEX IPage 1 of 2

COUNTRY DATA - PHILIPPINES

AREA POPULATION DENSITY297,000 km 39. 4 million (mid-1972.) 133 per k 2

Rate of Growth: 3.0 (from 1960to 1970) n.a. per km2 of arable land

POPULATION CHARACTERISTICS (1970) HEALTH (.1969)Crude Birth Rate (per 1,000) 44.7 Population per physician 2819Crude Death Rate (per 1,000) 10.6 Population per hospital bed 657Infant Mortality (per 1,000 live births) 65

INCOME DISTRIBUTION (1965) DISTRIBUTION OF LAND OWNERSHIP% of national income, lowest quintile 3.5% % owned by top 107. of owners n.a.

highest quintile 55.4% % owned by smallest 10% of owners n.a.

ACCESS TO PIPED WATER (1960) ACCESS TO ELECTRICITY% of population - urban) .% of population - urban n.a.

- rural) - rural n.a.

NUTRITION LAver. 1957-1960) EDUCATIONCalorie intake as % of requirements 85% Adult literacy rate % 72% (1965)Per capita protein intake (grams 47 Primary school enrollment % 119 (1970) _/

per day)1/

GNP PER CAPITA in 1970 : US $210

GROSS NATIONAL PRODUCT IN 1971 a/ ANNUAL RATE OF GROWTH (7. constant prices)

US $ Mln. % 1960-65 1965-70 1971

GNP at Market Prices 7,658 100.0 5.0 7.1 6.5Gross Domestic Investment 1,635 21.4 12.0 9.2 4.2Gross National Saving3/ 1,369 17.9 12.1 18.8 22.6Goods & Services Acct. Balance 266 b/ 3.5Exports of Goods, NFS 1,387 18.1 9.6 2.2 11.7Imports of Goods, NFS 1,408 18.4 17.1 5.0 -5.5

OUTPUT, LABOR FORCE ANDPRODUCTIVITY IN 1971

Value Added Labor Force7 V. A. Per WorkerUS$ Mln. 7. Ml. 7 US $ %

Agriculture 2,346.8 37.5 6,440 48.7 364 77.0Industry 1,354 0 21.7 1,528 11.6 886 187.3Services 2,549.9 40.8 4,616 34.9 552 116 .7Unallocated . . 636 c/ .8

Totai/Average 6,250.7 100.0 13,220 100.0 473 lOO.O

GOVERNMENT FINANCEGeneral Government Central Government

(Pesos Mln.) % of GDP (Pesos Mln.) /I of GDP1970 1970 1965-70 1971 1971 1965-70

Current Receipts n.a. n.a. n.a. 4,298 8.5 8.2Current Expenditure n.a. n.a. n.a. 3,758 7.4 8.3Current Surplus n.a. n.a. n.a. 540 1.1 -0.1Capital Expenditures n.a. n.a. n.a. 775 1.5 1.7External Assistance (net) n.a. n.a. n.a. 8 - 0.3

-1/ The Per Capita GNP estimate is at 1970 market prices, calculated by the same conversiontechnique as the 1972 World Atlas. All other conversions to dollars in this table areat the average exchange rate prevailing during ete period covered.

2/ Total labor force; unemployed are allocated to sector of their normal occupation. "Unallocated" consistsmainly of unemployed workers seeking their first job.

3/ Excluding transfers. . not availablenot applicable

a/ Computed at exchange rate of 06.43 = US$1b/ Equals Balance of Payments Goods and Services Deficit

Plius Errors and Omissionsc/ Equals number of unemployedd/ Includes overage students

ANNEX IPage 2 of 2

COUNTRY DATA - PHILIPPINES

Mar. Mar.MONEY. CREDIT and PRICES 1965 1969 1970 1971 1971 1972

(Million pesos outstanding end period)

Money and Quasi Money 5,136 8,959 10,140 11,720 10,436 11,532Bank Credit to Public Sector 1,587 3,670 3,890 3,737 3,778 3,701Bank Credit to Private Sector 4,085 7,456 8,764 10,358 9,034 10,809

(Percentages or Index Numbers)

Money and Quasi Money as % of GDP 22.3 27.5 25.1 23.0General Price Index (1963 = 100) 108.9 127.8 147.4 181.4

Annual percentage changes in:General Price Index - 4.1 15.3 23.1Bank credit to Public Sector - 23.4 6.o -3.9Bank credit to Private Sector - 12.3 17.4 18.2

BALANCE OF PAYMENTS MERCHANDISE EXPORTS (AVERAGE 1967-fl)

1969 1970 1971 US $ Mln YO(Millions US $)

Exports of Goods, NFS e/ 1,116 1,331 1,393 Coconut Products 216 22.9Imports of Goods, NFS e/ 1,427 1,349 1,397 Sugar and Products 173 18.4Resource Gap (deficit = -) -311 IEg -4 Forest Products 266 28.1

Copper Concentrates 133 14.2Interest Payments (net) -78 -130 -97 All other commodities 155 16.4Workers' Remittances - - - Total 94 T lOQ.OOther Factor Payments (net) - - -Net Transfers +155 +119 +134 EXTERNAL DEBT. DECEMBER 31. 1971Balance on Current Account - 234 -29 33 ( b

US $ MlnDirect Foreign Investment 6 -29 -6Net MLT Borrowing Public Debt, incl. guaranteed 777.5

Disbursements 375 539 437 Non-Guaranteed Private Debt 1,013.9Amortization 2 264 302 Total outstanding & DisbursedSubtotal 243 275 13 1/

Capital Grants DEBT SERVICE RATIO for 1971-Other Capital (net) 67 77 89 %Other items n.i.e. -127 -207 -147Increase in Reserves (+) -87 -:04 Public Debt, incl. guaranteed n.a.

Non-Guaranteed Private Debt n.a.Gross Reserves (end year) 250 376 524 Total outstanding & Disbursed 27Net Reserves (end year) -78 -46 -20

RATE OF EXCHANGE IBRDIIDA LENDING, (October 31 ) (Million US $):

Through - 1971 1962-69 1970-71 IBRD IDAus $ 1.00 ' 3.92 b.43

1.00 = us $ .26 .16 Outstanding & Disbursed 142.5Undisbursed 85.0

Since - 1971 Outstanding incl. Undisbursedus $ 1.00 6.78

1.00 = US $ .15

1/ Ratio of Debt Service to Exports of Goods and Non-Factor Services.

not available

not applicable

e/ Excluding investment incoTne and payments only.TI Including commercial banks.

November 30, 1972EPD/PRD

ANNEX IIPage 1 of 5

THE STATUS OF BANK GROUP OPER&TIONS

A. Statement of Bank Loans and IDA Credits to the Philippines as of October 31, 1972

Loan or (US $ millions)Credit Amount Less CancellationsNumber Year Borrower Purpose Bank IDA Undisbursed

Eight loans fully disbursed 127.0

393-PH 1964 Republic of the Education (CollegePhilippines of Agriculture) 6.0 0.2

491-PH 1967 National PowerCorporation Power 12.0 1.3

607-PH 1969 Central Bank ofthe Philippines Agriculture Credit 12.5 8.7.

630-PH 1969 PhilippineNational Bank DFC 25.0 3.8

637-PH 1969 Republic of thePhilippines Irrigation 34.0 21.1

720-PH 1971 Republic of the Rice ProcessingPhilippines and Storage 14.3 14.1

731-PH 1971 Republic of thePhilippines First Highway 8.0 6.3

809-PH 1972 National PowerCorporation Power 22.0 22.0 *

296-PH 1972 Republic of thePhilippines Power 10.0 10.0

823-PH 1972 Republic of thePhilippines Livestock 7.5 7.5

Total 268.3 10.0

of which has been repaid 40.0Total now outstanding 22.3

Amount sold 12.6of which has been repaid 11.8 0.8

Total now held by Bank 227.5 10.0

Total undisbursed 85.0 10.0 95.0

Only about $40,000 disbursed.

ANNEX 3IPage 2 of 5

B. Statement of IFG Investments in the Philippines as of October 31, 1972

Fiscal Amount (US $ million)Year Company Loan Equity Total

1963 Private Development Corporationof the Philippines - 4.4 4.4

1967 Manila Electric Company 8.0 - 8.0

1967 Meralco S'ecurities Corp. - 4.0 4.0

1970 Philippine Long Distance Telephone'Company 4 5 4

1970 & 1972 Mariwasa Manufacturing Inc. .8 .4 1.2

1970 Paper Industries Corp. of the

Philippines - 2.2 2.2

1971 Philippine Petroleum'Corporation 6.2 1.,8 8.o

1972 Marinduque Mining aand IndustrialCorporation 5

Total 34h'5 12.;83~~ 47 -3

Less sold, acquired by o'thers,repaid or cancelled '3.9 6.7 10.6

'Now held 30.6 6,.' ,36.7

ANNEX IIPage 3 of 5

C. Projects in Execution

Loan 386-PH - Manila Water Supply

Disbursements for this project were completed by mid-1970. Theproject was delayed and local currency cost overruns high for a number ofreasons. The performance. of contractors was poor, local suppliers filedcomplaints about the award of bids which resulted in court injunctions tostop work and the agency executing the project had weak management.Implementation of a rate increase has been long delayed and the executingagency is in serious financial difficulties. Lay-offs of excess personnelhave been contested in court. Some improvement in top management has beenmade, but no substantial impact on operations can yet be observed.

Loan 393-PH - Education

This project for the expansion of the College of Agriculture of theUniversity of the Philippines has been progressing satisfactorily on thewhole, although it has encountered occasional delays due to shortage ofpeso finds. The project was basically completed by mid-1970, but theBank has agreed to the University's request to use project savings tofinance additional related site development and equipment items. TheClosing Date has been postponed to December 31, 1972 and the project isexpected to be satisfactorily completed by that time.

Loan 491-PH - Power

This project was to assist the National Power Corporation infinancing the construction of a 75-MW thermal plant on the BataanPeninsula and a 50-MW addition to the Maria Christina Hydroelectric Plantin Mindanao. Construction of the Maria Christina addition was completedin 1970 and that of the Bataan plant in March 1972. Delays haveoccurred initially because of slow government approval of contract awardsand subsequently because of financial difficulties of the civil workscontractor for Bataan, and strikes in suppliers' countries and someequipment failures. The undisbursed balance of $1.3 million of the Bankloan represents the retention requirements for equipment supplied underthe project. The Closing Date has been further postponed by 18 months toDecember 31, 1973.

Loan 607-PH - Second Rural Credit

The slow progress of the Project at first was mainly due to the steeprise in prices of farm machinery after the peso was allowed to float inFebruary 1970. The resulting increases in prices of farm produce,together with decentralization of loan sanctioning, strengthening of staffand promotional efforts, have helped improve the pace of disbursements butpostponement of the Closing Date of March 31, 1973 by 15 months willprobably be required.

ANNEX IIPage 4 of 5

Loan 630-PH - Development Finance Company

The third loan in an amount of $25 million to the Private DevelopmentCorporation of the Philippines,(PDCP) has been fully committed for sub-projects, but as of October 31, 1972, $3.8 million of the loan remainedundisbursed, a rate of disbursement slower than expected. The mainreason for this was the general deterioration in the business climatefollowing the devaluation of the peso in February 1970. A postponementof the present Closing Date of March 31, 1973 by 12 months may be needed.

Loan 637-PH - Irrigation

This project is to help finance the construction of a dam on theUpper Pampanga River in Central Luzon and the construction andrehabilitation of irrigation facilities serving about 77,000 hectares.The project got off to a good start and is progressing satisfactorily.A,supervision mission visited Manila in September/October 1972 to reviewthe progress of this project and is preparing its report.

Loan 720-PH - Rice Processing and Storage

This project was designed to provide long-term credit to the privatesector for setting up modern integrated rice processing and storage unitsin the private sector. It would increase rice processing capacity by480,000 tons of paddy rice per year or 320,000 tons of milled rice peryear. The loan was made to the Government which would in turn onlend theproceeds to the Development Bank of the Philippines, responsible foradministering the project. Disbursement has been very slow in partbecause of the deterioration in the investment climate following the pesodevaluation. Another factor was the detrimental effect of poor weather,disease and reduced use of fertilizer due to credit restrictions, on the1970/71 rice crops. The lower than anticipated demand for investment innew integrated storage units and administrative arrangements and procedurescaused some delay in processing of sub-loans. The project was substantiallyrevised in accordance with the memorandum of the President to the ExecutiveDirectors dated June 8, 1972 (R72-40) to allow for more emphasis onlending for rehabilitation and improvement of existing facilities, and tosimplify administrative arrangements and procedures. These changes areexpected to lead to an increase in the rate of disbursement.

Loan 731-PH - Highway

This project for the construction and improvement of the 'Cotabato-Digos road (160 km) in Mindanao is progressing'satisfactorily. Theproject also includes two components financed by UNDP; technicalassistance to the Bureau of Public Highways (BPH) for operationalimprovements and feasibility studies for future highway projects. Workon the technical assistance component is progressing well and thefeasibility studies'have been completed.

ANNEX IIpage 5 of 5

Loan 809-PH and Credit 296-PH - Fifth Power

Invitation to bid for main equipment is in the process of beingrevised. Prequalification of bidders for civil works is under way.A supervision mission is scheduled for late November 1972.

Loan 823-PH - Livestock

This loan became effective on November 9. The project isprogressing satisfactorily.

ANNEX IIIPage l of 2

PHILIPPINES - SECOND EDUCATION PROJECT

CREDIT AND PROJECT SUMMARY

Borrower: Republic of the Philippines

Amount: $12.7 million

Terms: Standard

Project Description: The credit would finance a project consistingof following components: a new CurriculumCoordinating Unit, a new Education DevelopmentCenter, two new and two existing Science TeachingCenters, equipment for 13 existing agricul-tural high schools, expansion of two agriculturalcolleges, six new pilot village schools, two newtechnical institutes, expansion of one technicalinstitute, a new and an existing radio stationsattached to agricultural colleges, ten newregional manpower training centers and 62 man-yearsof specialist services and 56 man-years of overseasfellowships.

Estimated Cost: (US$ million or equivalent)Local Foreign Total

Construction 2.70 1.80 4.50

Equipment,furniture & prof. services 0.97 6.56 7.53

Technical Assistance 0.47 2.10 2.57

Unallocated 1.14 1.94 3.08

5.28 12.40 17.68

Government IDA Total

Financing: 4.98 12.70 17.68

ANNEX IIIPage 2 of 2

Estimated Disbursements: Calendar ($ million)

1973 0.1

74 0.5

75 5.0

76 6.o

77 0.8

78 0.3

12.7

Procurement Arrangements: Civil works contracts will be awarded afterinternational competitive bidding. Contractsfor furniture and equipment will also be subjectto international competitive bidding, exceptthat contracts under $40,000 up to a total of $250,000will be awarded after local competitive bidding.The Association has agreed to a preference of15% in evaluation of bids for equipment, materialsand supplies substantially of Philippine originoffered by Philippine manufacturers or suppliers.

Consultants: 62 man-years of specialist services for educationalplanning and management, curriculum reform, text-book development, agricultural and technicaleducation, and project implementation.

Appraisal Report: Report No. PE-50a, dated November 30, 1972,Projects Department, Asia Region.

>2 001',' 20' k2ol2' 1 PHILIPPINES5 L'S XeelNE |SECOND EDUCATION PROJECT

'3 802 LAC2322LCNO~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~2 I

g~~~~~~~~~~~~~~~~~~~~~~~~~~~~C 2 2 0,3i 002a0@ c^L0P2C203 oooNT GIT8C COO. 82038000OIN

SSUNE,~~~~~~~~~~~" PH (2 C22C0 lCUA 9DVLr:h :Tn tBVMSONo 22 22 20 32232 !z l Ue CITY F025 A ACF N

Cf 0' 4§ |C3 t0301$S ) II ZtOA cEc TeB.N 000eR G07 PIOOOVZ

% > /+ | < v W~~~~2000> <'022CGl2A 3bZ 220C5AC HO HOC CITUA

32 1 550053, 22n . -@ 4 ZAM20A0.GA CITY' 8312 MUNOZ IVOSOUI

G O N F S I _5 | f A 27RA2 k.-e 113 .OIL ACILTY'A :LL2e T. iAL SVTUG

L i" N oo 1 I Z , 332 ML2 or b1UAN,iC LS U T_ r \SaucusyS~~~~030150 1r 203b CS2o o UL,3H l10 21 203 TCTLI2

2 .;L S ,- J. 30 1 HOI. 82 20T.NG0 LASCRPTORIGS 333 LIOVO C TV.

CA 101 _- '( .2 SO.1 20002 SHISH 800 22 IC.L 3 U l' 3R2G O,L 82280028 TRAININO2 CENTRS 8Ao 01233nJ OHlE UFri 33CCnbo .|5C8UINNPoiC 0 , nl 022 SAIiNA LA UMIONI1

I '3 o 5 :b \Y ,i e - 0 PILOT VILLOOE H328L0P2H'3TTSh00.3 3302 8231V8.8,3< \\_ 1 Gt4 /Lo'2 ( 50 NeVA °JAeSNC - '20 3222 1032231H1C.

j~~~~~~~~ ~ C'>2 30 208C8T12.YA212T 1010 H zNEAEXA S eCLSUI 1a2° 81282 Tx? ao5-mbon. 0/eo', 'J-02C COS 5UKIGNON1 P502 208 IOLSUI 1GU3IAOOLO 00Y

x-- ?/ .. A=u' .I / 2 L UZ ON - 6003 88 COMON 800213200 ZCOP UI 120 12020 CITY

HOO tTA i2LVP2C 3AGSIOLLT28CL CIADIC O S'00300

V | s ̂ Ot3322 0002Na ,e 0301 .Z MSUNtM_ ___ C 'T,CICC502IC 522l O 2,2C 00 5

i,/ bAA Mt n~~. _ .CAL 02,3 002

CDoo'oooooT .88m ,'s$o1•CoN

F- ~ ~ ~ ~ ~ ~ 1

21100202' q 22~~~~~~~~~~~~~~~~~~~~11

I O I A J _ 1t \ 5; W 88 I 0002000(

CCsr-faL~~~~~~~~00 ,3C2CC 'Ž2i 0#6 r 5i \220^2A9>, < teo lr ,;59 ' ;> -Ct,xDonox^K' 2320023

~2,, \,,-a,,,J 0 0- II'800030'\

Dgi J ANSoUEj < 0~~3 LTVi0

X ~ ~ ~~~2 32 (> - iCC/ENaL 2 L o2 0}

2-0 2C25, 0~e\ ti / fo % 020C,,C33

~~~~~~~~~~~~~~~~~2 12 < • oX 355150CCt 7_,

_< z \ < ~~~~0 * " " " N URG

/ & U / v S S G~ ~ ~~~~~~~flO3 OO JC Crr t-232 1- ,, 0,, 30'

IC 0 0o822, /5 0 5 n jJ76 CrbI 1 ' L t )

50 ]00 150 200 Zomboonq, corP I A T G~~~~~~Css , t20k X

$2/C ~ Sea6es Jo

-IIf,/aIf//,{. "1ZZU'~~~~~~~~~~~~~~~~~~I3%T *ZS'