Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No. P-242-BRREPORT AND RECOMMENDATION

OF THE

PRESIDENT OF THE

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

TO THE

EXECUTIVE DIRECTORS

ON A

PROPOSED LOAN

TO

BANCO NACIONAL DA HABITACAO

WITH THE GUARANTEE OF

THE FEDERATIVE REPUBLIC OF BRAZIL

FOR A

SITES AND SERVICES AND LOW-COST HOUSING PROJECT

January 10, 1979

This document has a restricted distribution and may be used by recipients only in the performance oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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CURRENCY EQUIVALENTS

Calendar 1977 November 20, 1978

Currency Unit - Cruzeiro (Cr$) Cr$US$1 - Cr$14.1 20.05Cr$1 - US$0.07 0.05

ABBREVIATIONS AND ACRONYMS

BNH - Banco Nacional da HabitacaoCOHAB - Companhia de Habitacao PopularCOHAB-PE - Companhia de Habitacao Popular do Estado de PernambucoCOHAB-SP - Companhia Metropolitana de Rabitacao de Sao PauloCOS - Carteira de Operacoes de Natureza SocialFICAM - Financiamento de Construcao, Ampliacao e Melhoria

de Habitacao de Interes SocialPLANHAP - Plano Nacional de Habitacao PopularPROFILURB - Programa de Financiamento de Lotes UrbanizadosSFH - Sistema Financeiro da HabitacaoUPC - Unidade Padrao de CapitalURBIS - Habitacao e Urbanizacao da Bahia

FISCAL YEAR

January 1 - December 31

FOR OFFICIAL USE ONLY

BRAZIL

SITES AND SERVICES AND LOW-COST HOUSING PROJECT

LOAN AND PROJECT SUMMARY

Borrower: Banco Nacional da Habitacao

Guarantor: Federative Republic of Brazil

Amount: US$93.0 million equivalent

Terms: Repayment in 15 years, including three years of grace

at 7.00% per annum.

Relending Termsto FinalBeneficiaries: Repayment for housing in 25 years following grace periods

of up to 3 years at interest rates of 1.0% to 6% p.a. on

indexed principal. Repayment for community facilities in18 years following grace periods of up to 3 years at

interest rates of 3% to 8% p.a. on indexed principal.

Project

Description: The project would provide sites and services, low-cost

housing, building material loans, and community infra-

structure for the urban poor in the northeastern states ofBahia and Pernambuco and in the metropolitan area of SaoPaulo. In Pernambuco, it would also include a squatter

upgrading subproject. In addition, it would include a

limited number of sites and services subprojects in other

states to show the viability and replicability of low-cost

housing options for other areas in Brazil. Also for thispurpose, the project would include a technical assistanceprogram channelled through the Borrower. The projectwould provide about 41,800 sites and services units;

19,500 embryo, semi-finished and finished low-cost housing

units; and 23,200 loans to buy building materials and toupgrade 7,200 squatter housing units. Over 80,000families, some 400,000 individuals, would directly benefit

from improved housing, infrastructure and community

facilities with concomitant improvements in their healthand education. It is estimated that 91% of the familiesbenefitting from this project would have incomes belowthree times the regional minimum wage, the measure commonlyused in Brazil to define the relative poverty group. Bank

disbursements would be limited to subprojects with average

unit costs that could be afforded by families within the

target population. Project risks are associated with

undertaking large investments in the sites and services

and low-cost housing sector in Brazil. These risks have

been minimized by selecting as executing intermediaries

This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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three low-cost housing companies that have records of

reasonable success and are willing to try new approaches,in consultation with the Bank, to improve housing condi-tions for the urban poor.

Estimated Cost: ------ US$ Million------Local Foreign Total

Part A:Low-cost Housing

Sao Paulo 23.6 6.6 30.2Pernambuco 34.5 9.7 44.2Bahia 8.2 2.8 11.0

66.3 19.1 85.4

Sites and ServicesSao Paulo 20.4 2.5 22.9Pernambuco 15.0 3.3 18.3Bahia 2.9 1.1 4.0

38.3 6.9 45.2

Loans for BuildingMaterials

Sao Paulo 18.7 5.9 24.6Pernambuco 7.1 2.2 9.3Bahia 3.9 1.2 5.1

29.7 9.3 39.0

InfrastructureSao Paulo 5.0 2.7 7.7Pernambuco 4.7 2.5 7.2Bahia 1.3 0.7 2.0

11.0 5.9 16.9

Squatter UpgradingPernambuco 14.0 6.0 20.0

Part B:Sites and Services(several states) 12.9 4.8 17.7

Total Parts A and B 172.2 52.0 224.2

Price Contingencies 32.0 9.5 41.5

Total 204.2 61.5 265.7

Financial Plan: US$ Million

Proposed IBRD Loan 93.0Banco Nacional da Habitacao 168.1State of Pernambuco 4.6

265.7

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EstimatedDisbursements: Bank FY79 FY80 FY81 FY82 FY83 FY84

Annual 0.9 11.1 27.6 28.5 19.4 5.5

Cumulative 0.9 12.0 39.6 68.1 87.5 93.0

Rate of Return: Internal economic rates of return for sample subprojects

in the three project states have been estimated at 17%(Sao Paulo), 22% (Pernambuco) and 23% (Bahia). Sensi-

tivity analysis revealed that even with a 10% increase inconstruction costs and a 20% reduction in benefits allthree subprojects are still economically justified.

Appraisal Report: Report No. 2197-BR, dated January 3, 1979.

勺

REPORT AND RECOMMENDATION OF THE PRESIDENT

OF THE IBRD TO THE EXECUTIVE DIRECTORS

ON A PROPOSED LOAN TO BANCO NACIONAL DA RABITACAO (BNH)

FOR A SITES AND SERVICES AND LOW-COST HOUSING PROJECT IN BRAZIL

I submit the following report and recommendation on a proposed loan

to Banco Nacional da Uabitacao (BNH) with the guarantee of the Federative

Republic of Brazil for the equivalent of US$93.0 million to help finance a sites

and services and low-cost housing project in Brazil. The loan would have aterm of 15 years, including 3 years of grace, with interest at 7.00% per annum.

Proceeds of the loan would be channeled to state low-income housing companies

at 0% to 3% per annum on the indexed principal. On-lending terms to final

beneficiaries would vary with the unit cost from 1% to 6% per annum on the

indexed principal and amortization period for the housing companies and the

final beneficiaries would be 25 years following grace periods of up to 36 months.

Proceeds would also be channeled to states and municipalities, in this case the

final beneficiaries, for community facilities and infrastructure at 3% per annum

on indexed principal in Bahia, 4% in Pernambuco and 7% in Sao Paulo. Amortiza-

tion periods would be 18 years following a grace period of up to 36 months.

PART I - THE ECONOMY

2. A report, entitled "Economic Memorandum on Brazil" (1665a-BR),

dated October 13, 1977, was distributed to the Executive Directors on

October 21, 1977. An economic mission visited Brazil in April 1978. A neweconomic report to be issued shortly is being prepared. The country data

sheets attached as Annex I to this report reflect the findings and projections

of that mission. The following discussion reflects our latest views on theBrazilian economy.

Recent Economic Performance

3. During the late 1960s and early 1970s, Brazil achieved very rapid

economic growth together with much reduced inflation rates and a good balance-of-payments performance. Net capital inflows fluctuated between I and 2.5% ofGDP. The petroleum crisis of late 1973 and the ensuing world recession cuminflation produced a sharp deterioration in the balance of payments and infla-

tion accelerated. Brazil's response was more successful than that of mostLDCs, even though, with 80% of its petroleum imported, it was particularlyhard hit. The growth rates of the economy and of prices were:

General

GDP Price Index

1973 14.0 15.1

1974 9.8 28.7

1975 5.6 27.7

1976 9.2 41.3

1977 4.7 42.7

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The maintenance of high rates of growth after 1973 required large amounts of

external financing. Gross capital inflows averaged $9 billion in 1974-77,compared to $6 billion in 1973. Government policies were to keep imports

approximately constant through a combination of import restrictions and import

substitution; to maintain investment levels; and to continue to stimulatenon-traditional exports.

4. The major problem facing Brazil after the onset of the petroleumcrisis was the merchandise trade balance, which turned into a large deficit in1974, as a result of a doubling in the value of imports. Since then, underthe influence of the policies described below, the trade balance graduallyimproved, and turned again into a small surplus in 1977, helped in part by the

favorable trend of coffee and soy export prices in 1976 and in the first halfof 1977. In 1978, on the other hand, agricultural exports have been adverselyaffected by falling commodity prices and have suffered the impact of a severedrought in Brazil's most important agricultural states. As a result, primaryproduct exports are estimated to have fallen by more than $1 billion. This

shortfall has been largely offset by increased manufactured exports which arerising very rapidly. Total exports, thus, are estimated to have remained atabout the same level as in 1977. The merchandise trade account has shown adeficit of about US$1 billion because of increasing imports. Borrowing require-

ments will continue to be high because of rising debt service payments.

5. During 1977, at the same time as the balance of payments was improv-

ing, the Government began to make some headway in the fight against inflation,by placing more rigid limitations on credit expansion and more effective

restraints on public sector investment. By May 1978, the annual rate of

inflation, which had accelerated sharply in 1976, was reduced to 35%, ascompared to 47% a year earlier. The restrictions on public investment playeda major role in the program to control aggregate demand. The overall size of

the public investment program leveled off in real terms in 1977, after a

decade of strong growth which had, in recent years, come to place a signifi-

cant amount of strain on available resources. In 1977, in addition, ceilings

were placed on the lending programs of the National Economic Development Bank,the National Housing Bank, and other official credit agencies. These measures

reinforced the impact of increasingly stringent policies in other areas,

including increases in bank reserve requirements and continued curbs on con-

sumer and real estate credit designed to dampen speculative demand and reverse

inflationary expectations. The anti-inflationary program induced a slowdownin the rate of growth of GDP, from 9.2% in 1976 to 4.7% in 1977. The growth

of manufacturing industry dropped to 2.3%, reflecting a slackening of both

consumer demand and gross fixed investment.

6. While information on economic trends during 1978 is still fragmentary,

it appears that a recovery of industrial activity has taken place in 1978.

Agricultural output, on the other hand, grew very little because of widespread

crop failures caused by the drought, and the overall rate of growth of the

economy is not believed to have exceeded 5%. The Government has maintained

its anti-inflationary monetary and fiscal policies. Credit policy remained

tight and current public sector investment plans did not call for a significantincrease in investment in real terms, except in the priority sectors of

petroleum, electric power and steel. The overall increase in public investment

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has probably not exceeded 5%. However, a number of factors have led to someintensification of inflationary pressures in 1978. In the first place,inflation was affected by the drought, as the decline in food production putpressure on the cost of living. Moreover, on the wage front some industrialworkers in the state of Sao Paulo were able in May-June 1978 to negotiateincreases significantly above the annual inflation adjustment and the slightreal increase authorized by the official guidelines. Finally, as the Govern-ment has continued to take advantage of favorable conditions in the inter-national financial markets to borrow in excess of requirements and build upexchange reserves, there has been a large inflow of external capital into theeconomy. Although steps were taken to minimize the domestic impact of thisinflow by sterilizing the funds temporarily at the Central Bank, the pace ofinflation has accelerated to approximately 42% a year.

Poverty Programs

7. Brazil is a country with great income inequalities and extensivepoverty. While the debate on income distribution goes on, and the statisticalevidence remains inconclusive, in recent years the Brazilian Government hasmade serious efforts towards the relief of poverty. During the Administrationof President Geisel social programs have increasingly been designed to meetthe needs of the lower income groups. Although the provision of basic socialservices such as health, education and housing is still very inadequate, therehas been significant progress in many areas. The coverage of the socialsecurity program has been expanded in the urban areas and extended to ruralpopulations in the early 1970s. The urban public health care system nowcovers more than 70% of the urban population. In the rural sector, a systemof cash transfer to poorer old persons has been established. By 1978 virtuallyall rural persons over 65 years of age received the equivalent of US$30 permonth per household--a very substantial income supplement equal to almosttwice the average per capita expenditure in the rural Northeast and a muchhigher proportion for the poorer rural recipients. A similar program coversthe urban population over 70. Literacy of the population aged 10 and over hasincreased from 48% in 1950 to 67% in 1970, and between 1970 and 1974 the adultliteracy program (MOBRAL) enrolled some 7 million persons. In the area ofurban housing, the National Housing Bank (BNH) has made over 1.7 million loansover the period 1964-77. Beginning in 1975, a new sites and services program(PROFILURB) was established to serve the urban poor and in 1977 this wascomplemented by a program to finance the purchase of construction materials.Increased priority has also been placed on improving urban water supply. Thepercentage of urban dwellings connected to general water supply networks rosefrom 54% in 1970 to 61% in 1973, and it appears likely to reach at least 70%by 1980. Available evidence suggests that malnutrition remains one of themost serious social problems in Brazil. Beginning in 1973, the Governmentestablished a National Nutrition Program (PRONAN) to attack the problem.

Long-Term Prospects

8. During the past decade, the Brazilian economy grew at an averagerate of 10% a year. The Government has now recognized the need for moderatinggrowth because of the balance-of-payments constraint and to contain inflation.

In broad terms, a growth rate of 6 to 7% a year is probably needed to absorbnew entrants into the labor force and permit the continued transfer of man-power from low to high productivity areas and sectors. GDP growth rates inthat range seem feasible through 1980, and growth might accelerate to 8 to 9%a year in the 1980s. The assumptions underlying this projection include asignificant growth of export volume (at a rate of about 10% a year in 1980-85).The terms of trade are expected to turn against Brazil sharply in 1978-80, butshould improve again slowly after 1982. Coffee prices are expected to leveloff in the early 1980s, but to resume their rise subsequently. Soybean pricesshould improve earlier. The growth of manufactured exports volume is projectedto range between 15 and 18% a year until 1983, and taper off gradually there-after, to 10% in the late 1980s. Assuming a continuation of present importsubstitution policies, a sizeable trade surplus would begin to emerge by 1980and the current account deficit would narrow in the early 1980s to about $3billion or 1% of GDP as compared to 4-5% in 1974-76. The rate of growth ofthe external debt would slow down considerably in the 1980s. In the late1980s, the growth of imports is expected to accelerate as import-substitutionprojects are completed and the import ratio to GDP can be expected to increaseas a result. At the same time the exceptional momentum of export growth canbe expected to slow down as the absolute magnitude of Brazil's non-traditionalexports becomes large by world standards. As a result, the current accountdeficit of the balance of payments is projected to increase somewhat innominal terms, although it would still remain below 1% of GDP.

9. This outlook rests on a number of basic assumptions, including, inparticular, the expectation of a relatively favorable world economic situationand the continued expansion of market opportunities for manufactured exports.Although there are indications of increasing protectionism in industrialcountries, Brazilian commercial policy has so far proven extremely flexible.Brazil can be expected to diversify its export products and markets and reviseits commercial strategy within a wide range of options to overcome emergingobstacles in international trade. Even under a less favorable set of assump-tions, however, Brazil can still be expected to sustain a long-term growthrate of about 6.5% a year, a growth rate which would constitute a reasonablygood performance, and would in all likelihood be adequate to satisfy theexpected demand for employment opportunities.

10. Brazil's current development strategy was defined in the secondNational Development Plan (1975-79). it relies on rapid expansion of bothagriculture and industry. Agriculture grew by an impressive 5% per year over

the past decade, largely by expansion of land under cultivation. The culti-vated area makes up less than 5% of Brazil's surface, and there is everyindication that rapid agricultural growth will continue to meet both export

and domestic demands, though the development of frontier lands will becomeprogressively more expensive. In the industrial sector, manufacturing hasbeen expanding at the average rate of 11% over the past 10 years. In the late

1960s and early 1970s the leading sectors were automobiles, consumer durablesand light equipment, with basic industry lagging behind. Since 1975, however,Brazil's strategy has been to promote a more balanced pattern of industrial

growth and reduce dependence on imports by emphasizing heavy industry. One

- 5 -

element of this policy involves stepping up the development of Brazil's rawmaterial resources to supply industrial input needs. Large investment programsare now being carried out, often with substantial public sector involvement,in steel, petrochemicals, fertilizers, pulp and paper, non-ferrous metals andcement. At the same time, Brazil is building up its capability in themachinery and equipment sectors, moving into the production of heavy andmore sophisticated equipment, and equipment made to order. The recent decisionto build the turbines for the Itaipu dam (one of the largest in the world) inBrazil reflects the growing capability of the sector. The National EconomicDevelopment Bank (BNDE) is supporting these efforts through its large dreditprogram.

11. Public sector investment plays a key role in Brazilian nationaldevelopment plans. Defined broadly, public sector investment accounts formore than half of total fixed investment in the Brazilian economy. Federalinvestment has been heavily concentrated in infrastructure and basic industry.These two areas together account for about 70% of total investment by federalGovernment agencies and enterprises. Regional development and social programsabsorb most of the remaining 30%. Until 1975, the rapid expansion of publicinvestment reflected a heavy emphasis on road construction and regional devel-opment. The Second National Development Plan added the massive programof import substitution in basic industrial inputs, and an acceleration inthe pace of social programs. Since 1977, with the restraints placed onpublic investment, road and rail transport expansion plans have been cut backsharply. Investments in electric power, on the other hand, are maintained ata high level. In basic industries such as steel, non-ferrous metals andpetroleum, investments are being stepped up considerably. The share ofregional development programs in total federal investment has now stabilizedat about 7%. The percentage allocated to social investment is increasinggradually, reflecting continued expansion of federal investment in housing,water supply and sewerage, and other urban development programs. State andmunicipal governments also devote a substantial proportion of their resourcesto health, education, welfare and other public services.

External Assistance and Creditworthiness

12. Although Brazil's resource gap may be expected to turn into asurplus in the early 1980s - barring major unforeseen developments in theworld economy - and its balance-of-payments current account deficit isexpected to be reduced by half in 1980 as compared to the levels reachedin 1974-1976, external capital requirements will remain high in 1979-84because of heavy debt service payments. The gross capital inflow neededduring 1979-84 is projected at US$10.7 billion annually, compared with aUS$8.3 billion average medium- and long-term capital inflow (including net

direct foreign investment) in 1974-77. Of this, gross disbursements ofsuppliers' credits are expected to average US$1.6 billion a year, bond issuesare projected to continue at the current annual rate of US$1 billion andthe gross inflow of financial credits needed should average US$5.2 billion a

year over the 1979-84 period, or about the same as in 1974-77. This level ofborrowing would represent mostly the roll-over of existing credits. In

contrast to the period 1974-77, when financial credits supplied a net inflow

of US$3.8 billion a year, the net contribution from this source is expected to

- 6 -

drop to less than US$1 billion a year, on average, in 1979-84. The remainderwould be made up of direct private investments and bilateral and multilateralcredits.

13. On December 31, 1977, Brazil's public and publicly guaranteedmedium- and long-term external debt amounted to $19.3 billion. Financialcredits make up a little more than half of this amount. Total external debt(both public and private) registered by the Central Bank at the end of 1977was $32.0 billion. Of this total, $21.5 billion, or about two-thirds, was inthe form of financial credits. During 1977, the share of financial credits intotal debt outstanding declined slightly, as a result of an increase in netdisbursements by multilateral agencies and bilateral lenders, and a significantrise in bond issues. The share of public and publicly guaranteed debt intotal external debt has continued to increase, largely reflecting the growingneeds of public sector entities for investment capital. Reflecting thischange in the composition of the total debt, the public debt service ratio isexpected to rise from about 20% in 1977 to 31% in 1978. The net debt serviceratio (debt service less interest earned on reserves) on the total externaldebt, which reached 49% of exports of goods and non-factor services in 1977,is also expected to increase to about 55% in 1978. This ratio will be high in1978, because of the exceptional factors depressing Brazilian exports in thatyear, but can be expected to improve steadily beginning in 1979 and fallgradually to about 28% in 1985. The public debt service ratio can also beexpected to decline from its 1978 peak, as a result of the growth of exportsand the improvement of the debt profile.

14. During 1974-77 Brazil has been able to finance a cumulativecurrent account deficit of nearly $25 billion, while increasing reserves bymore than $1 billion and improving the terms at which it obtains credit in theworld financial markets. With the balance-of-payments deficit on currentaccount expected to continue to improve in the early eighties, and withfurther improvement in the terms of new borrowing, the rate of growth of debtservice payments should slow to an average of about 5% a year in 1980-85, ascompared to more than 25% a year during the period 1974-77. In sum, Brazilmay be expected to remain fully creditworthy for Bank lending.

PART II - BANK OPERATIONS IN BRAZIL

15. By October 31, 1978, the Bank had made 82 loans to Brazil, amountingto US$3,887.1 million, of which 40 were not yet fully disbursed. DuringFY70-75, disbursements averaged US$150 million per year, reaching US$248million in FY75, US$202 million in FY76, US$267 million in FY77 and US$252million in FY78. The decline in disbursements in FY76 was due primarily tothe reduced level of lending in FY73-74. Disbursements are expected toincrease during the next few years. Annex II contains a summary statement ofBank loans as of October 31, 1978 and notes on the execution of ongoingprojects.

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16. Over the FY75-77 period, Bank lending to Brazil amounted to betweenUS$400 and US$500 million per year. In FY75, five loans were made totallingUS$426.5 million; in FY76, ten loans totalling US$498 million; and in FY77seven loans totalling US$425 million. In FY78, nine loans totalling US$705million were made. Work is advanced on the preparation of an industrialpollution control project in Sao Paulo; an aluminum project; a second irriga-tion project in the lower Sao Francisco river valley; a power distributionproject in southern Brazil; two rural development projects in the northeast;a medium-sized cities development project and a water supply and sewerageproject in the northeast. We expect to propose loans for these projects inthe near future.

17. Of Brazil's external public debt outstanding and disbursed at theend of 1977, amounting to nearly US$19.3 billion, the Bank held about 8.0%.The Bank's share of the service on this debt was about 7.0%. When Brazil'stotal (public and private) external debt is considered, the Bank's share inthe total outstanding at the end of 1977 was 4.8%, and its share in Brazil'sexternal debt service was about 2.9%. By 1980, the ratios of the Bank's sharein total outstanding debt and in total debt service are expected to rise to6.2% and 3.3%, respectively.

18. As of October 31, 1978, IFC commitments to Brazil totalled US$395.2million, of which US$265.4 million had been cancelled, repaid or sold. Of thebalance of US$129.8 million, US$98.7 million represent loans and US$31.1million equity. A summary of IFC's investments as of October 31, 1978 isgiven in Annex II.

Lending Strategy

19. In its lending to Brazil, the Bank has sought to help the Governmentachieve a number of important development objectives which are interdependentand complementary. One important lending objective in Brazil is to helpintensify the efforts of the Government to identify and develop projects thatwill increase productivity and income of the lowest income segments of thepopulation, to broaden the economic opportunities open to those groups, and toimprove their living conditions. The loans for nutrition research and develop-ment, vocational training, agricultural research, agricultural extension andpolder construction in the Lower Sao Francisco as well as for integrated ruraldevelopment in the States of Rio Grande do Norte, Minas Gerais, Ceara, Paraibaand Bahia were all designed to assist low-income groups in rural areas.Additional projects designed to assist low-income groups in rural areas are in

preparation, including a rural education project, several integrated rural

development projects in the Northeast and a second irrigation project in the

lower Sao Francisco river valley. The loans for water supply and sewerage inthe State of Minas Gerais and in Greater Sao Paulo and for the first urban

transport project are assisting to improve the living conditions of the urbanpopulation, particularly of the urban poor. Several projects to reach

low-income groups in urban areas are in preparation: a medium-sized cities

development project, a water supply and sewerage project for northeastern

Brazil, and a second urban transport project. The proposed project wouldbetter the standard of living of the urban poor in the States of Pernambuco

and Bahia and in the city of Sao Paulo through the construction of sites and

services and low-cost housing.

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20. Another of the Bank's lending objectives in Brazil is to supportinstitutional development and policy reform designed to develop rationalpolicies and procedures, establish adequate coordination and control, and helpmaximize public savings and ensure that they are used economically throughrational selection of investment projects. This institution-building objectivehas been important in Bank assistance, for example, in the transportationsector where there has been emphasis on the rational selection of investments,the strengthening of railway operations, and the improvement of railways'financial performance and in the power sector as well. The proposed projectwould assist three low-income housing companies to improve their projectplanning and execution capabilities. We expect that the experience gainedfrom structuring the proposed project will be instrumental for the developmentof similar projects in other areas of Brazil.

21. Another lending objective is to ease the foreign exchange constrainton development, a constraint that has become more critical since the increasein petroleum prices, by supporting projects designed to increase Brazil'sexport capacity and, where economical, to substitute domestic production forimports. As a result of the deterioration in Brazil's terms of trade andbalance of payments which took place at the time of the 1974 energy crisis,this objective was placed in the forefront of the Government's economicpolicy. Lending for the electric power sector supports this objective, sinceit is based primarily on hydroelectric energy, and its development lessens theneed for petroleum imports. Bank support of fertilizer and petrochemicalsprojects is assisting Brazil to substitute imports with large-scale efficientdomestic production and aid its balance-of-payments position. Bank lendingfor agro-industries in the Center and South of Brazil is also supporting thisobjective and much of the Bank-assisted investment in the transport sector --railways, ports and highways -- is designed to facilitate the smooth andeconomical flow of exports. Support of the steel expansion program is helpingBrazil to expand domestic output of a traditional import commodity which canbe 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 objectivewould be achieved through the aluminum project being prepared.

22. A final objective which applies to all Bank lending to Brazil is toprovide part of the very large volume of medium- and long-term capital inflowsthat Brazil has needed and will continue to need for some years in order tosustain rapid growth and achieve its employment creation and regional develop-ment objectives. Continued active lending by the Bank in Brazil is regardedby the international financial community as an important sign of confidence inBrazil and encourages others to continue their own programs there. In somesectors, especially in electric power and industry, Bank participation ishelping Brazil obtain additional resources in greater amounts and on morefavorable terms from bilateral credit agencies and private financial insti-tutions than may have otherwise been provided. Eight co-financing operationsfor more than US$275 million, have been concluded since 1976 with privatefinancial institutions and several others are in preparation.

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PART III - THE URBAN HOUSING SECTOR

Urbanization and Urban Poverty

23. Brazil's urbanization over the last 30 years has been characterized

by rapid growth, large absolute size of urban population and geographical

imbalance. Between 1950 and 1970, the urban population (according to the

generally accepted definition) grew at an annual rate of above 5.5%, rising

from 13.0 million to 37.8 million (52 million according to the Brazilian

definition) 1/. The current rate of growth is estimated at 4.4% p.a. and is

expected to slow down to 4% during the 1980-1990 period. Nevertheless,

the urban population is likely to reach 85 million by 1990.

24. There are nine metropolitan areas with populations close to, or

over, one million inhabitants in Brazil: Porto Alegre and Curitiba in the

south; Sao Paulo and Rio de Janeiro in the southeast; Belo Horizonte in the

center west; Salvador, Recife, Fortaleza in the northeast; and Belem in the

north. Traditionally the urban population has been concentrated along the

coastal areas, particularly in the southeast. During the 1950-1970 period,

the rates of urban growth were highest in the south and in the center west.

as a result of the expansion of Belo Horizonte and the creation of Brasilia.This, however, was not enough to overcome the large imbalance between the

southeast and other regions.

25. Brazilian agencies in the urban sector define the urban poverty

group as families with monthly incomes of up to three times the regional

minimum wage (to account for regional differences in the cost of living).

This definition is close to the Bank's definition of relative poverty level of

one third of per capita personal income, adjusted for differences in the cost

of living between urban and rural areas or about US$465 equivalent per capita

in 1977. Since all income statistics in Brazil are kept in terms of multiples

of the regional minimum wage, for operational purposes, we have set the

relative poverty line at three times the regional minimum wage. Accordingto this definition, the percentage of families living in urban poverty ranged

from 41% in Sao Paulo to 77% in Recife at the time of the last comprehensive

national census in 1970.

Urban Housing and Services

26. The rapid growth of the urban population has created a huge demand

for housing and urban services. Between 1964 and 1977, the number of urban

households increased by 6,740,000 or about 480,000 annually. During thesame period, the number of housing units financed through the formal housing

finance system totalled 1,740,000 or about 125,000 units per year. Thus, over75% of the housing needs have had to be accommodated outside the formal

housing system. This has led to proliferation of squatter settlements,illegal subdivisions and widespread use of precarious structures. In 1970,

1/ While the generally accepted definition of urban population includes

people living in cities of at least 20,000 inhabitants, the Brazilian

definition also includes people living in communities of smaller size

that are considered urban on the basis of their administrative status.

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20% of urban housing structures in Brazil was estimated to be substandard,i.e., overcrowded, built from non-durable materials or lacking elementaryservices, such as water, sanitation and electricity. Since then, the contin-uing growth of the urban population has contributed to the further aggravationof the housing problem.

27. Many of the urban poor are recent migrants who squat on the peripheryof metropolitan areas, or in central neighborhoods in illegal and precarioussettlements. Furthermore, the demand-supply gap has consistently driven upthe price of land, infrastructure provision, and construction materialsmaking it increasingly difficult for the low-income population to participatein the shelter market.

Housing Conditions in Recife, Salvador and Sao Paulo

28. The bulk of the shelter financed under the project would be inthe metropolitan areas of Recife, Salvador and Sao Paulo. These three areascontained close to 20% of the urban population of Brazil in 1970, over11 million persons, of which an estimated 4.7 million were in the povertygroup.

29. The housing deficit in the Recife metropolitan area is estimated tobe 122,000 units. Of these, approximately 67,000 units are needed in the cityof Recife, and the rest in surrounding municipalities. Most of the populationwith deficient housing, estimated at 63% of the total metropolitan population,live in illegal settlements on steep hillsides or swampy land. These sites aresubject to torrential floods, landslides and offer conditions propitious forthe rapid transmission of contagious diseases.

30. In Greater Salvador, 137,000 housing units could be classifiedas substandard dwellings, 27% of the city's population lack access to pipedwater and 90% access to sewerage. About 20,000 families live under the mostprecarious conditions in the constantly flooded area of Alagados. The situa-tion is likely to get worse in the coming years as the metropolitan populationcontinues to grow. It is estimated that by 1985 the deficit would reach250,000 units.

31. In Sao Paulo, close to 500,000 housing units are classified as sub-standard; they shelter 2.9 million people or about 30% of the 1976 metropolitanpopulation. The major housing problem of Sao Paulo is the sprawl of unserviced,often illegal, settlements that have sprung up around the city to accommodatethe 5.6% average annual population growth experienced over the last 15 years.The combination of a baseline deficit of 500,000 units and a population growth

rate approaching 5%, which requires between 80,000 and 100,000 additionalhousing units a year, indicates the magnitude of the problem.

Housing Policy, Institutions and Financing

32. In 1964, the federal government started a very large effort toimprove housing conditions in Brazil. At that time, it established the HousingFinance System (Sistema Financeiro da Habitacao-SFH) and the National HousingBank (Banco Nacional da Habitacao-BNH). By the time the National Commission

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on Urban Policy and the National Fund for Urban Development were created in1975, BNH and its related agencies had already established strong policy

guidelines and working procedures and controlled about 70% of public invest-ment resources in the urban sector. BNH had become and is expected to remain

the key institution in the housing sector. It is the largest government

banking institution in Brazil dedicated to social development. One of itstasks is to guide, regulate and control the Housing Finance System comprisingthe local executing agencies and the Brazilian savings and loan system which

is the fourth largest such system in the world. BNH also finances urbaninfrastructure, in particular water supply and sewerage.

33. BNH is a financially strong institution whose total assets equalledUS$11.6 billion equivalent in 1977. Including US$14.5 billion through thesavings and loan system BNH directs the use of US$26 billion. The BNH-financed

investments in 1977 totalled US$2.4 billion representing 1.4% of GDP or 6.5%

of the Gross Capital Formation of the country. About 70% of the BNH invest-

ments are in the housing sector with the balance in sanitation and urban

development. Since 1964, over 1 million families have bought housing unitsfinanced by BNH. Low-income housing that could be afforded by families with

monthly incomes of up to five times the minimum wage, averaged under 20% of

BNH commitments during the 1964-1976 period. As a result of progressive

policy changes, investments in low-income housing over 1978-1980 would increase

to about 26%.

34. BNH promotes the social objectives of the SFH through a complex

series of cross-subsidization schemes: BNH's low-income housing programs are

subsidized by its higher-income programs (it charges interest at 0% to 3% p.a.

on the indexed principal of loans for the former; 3% to 10% p.a. for the

latter); more prosperous southern states pay higher interest rates (8% p.a.)

than northeastern states (3% p.a.); and low-income housing companies pay lower

interest rates for urbanized lots than for finished houses.

35. In order to encourage house acquisition, the Government authorized,

starting in 1971, a deduction of interest payments from the taxable income of

SFH beneficiaries. However, this system did not reach families who did not

pay income taxes--a majority of the potential beneficiaries of BNH low-income

programs. In order to correct this distortion, the government introduced in

1974 a fiscal incentive to beneficiaries of SFH. This is a rebate equal, on

the average, to 12% of the beneficiary's actual loan repayments in the previous

fiscal year subject to a minimum of about US$50 and a maximum of US$300,

respectively, and credited against the current year payments. BNH and COHAB

officials believe that the fiscal benefit has had a very positive impact

. on payments by the beneficiaries and has improved the cash position of CORABs.

36. By its statutes, BNH is prevented from executing and managing the

operations it finances. It has therefore taken steps to encourage the creation

of viable intermediaries at the local level to execute and manage housing and

urban development operations. For low-income housing, its intermediaries are

low-income housing companies (Companhias de Habitacao Popular--COHABs) owned

by states and municipalities. There are now 34 COdABs in operation.

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Low-Income Housing Program - PLANHAP

37. In 1973, BNH established a comprehensive planning framework for its

low-income housing operations through the National Low-Income Housing Program

(Plano Nacional de Habitacao Popular - PLANHAP). PLANHAP operations involve

(a) BNH's Directorate of Social Operations (COS), (b) CORABs, and (c) stateand municipal governments. COS is responsible for all low-income housingoperations of BNH. defining the rules and regulations of PLANHAP, approving

COHABs' subprojects and providing financing. COHABs are responsible for the

preparation and execution of subprojects, selection of final beneficiaries andsale of houses and lots to them. States and municipalities, are responsiblefor the financing and execution of infrastructure and community facilities and

often facilitate land acquisition for low-income housing. Thus, support fromlocal governments is essential to the success of the program.

38. The original goal of PLANHAP was to eliminate within ten years the

housing deficit for families with monthly incomes of up to three times the

minimum wage. This deficit was estimated at two million housing units.

PLANHAP I, as the first program was called, had a disappointing early perfor-

mance, mainly as a result of the difficulties encountered by the COHABs and

the states to fulfill their financial obligations and the rapid increase inland and construction costs, which grew more rapidly than the minimum wage.As a result, the target population was unable to afford conventional housing.

To correct these problems, BNH introduced a series of modifications in PLANHAP

I and established a new planning framework for its low-income housing activi-

ties through PLANHAP II. The goal of PLANHAP II is to (a) expand housingproduction as fast as supply capacity permits; and (b) develop a wider rangeof shelter alternatives. The target population of PLANHAP II was expanded to

include families with monthly incomes of up to five times the minimum wage.PLANHAP II operates through a series of subprograms and lines of credit. Themain subprograms are: (a) land acquisition; (b) construction and acquisition

of finished houses including embryo houses, detached houses, semi-finished andfinished apartments or a combination of these; (c) production and acquisitionof sites and services (Programa de Financiamento do Lotes Urbanizados -PROFILURB); and (d) construction, completion, enlargement, or improvement ofindividual houses (FICAM). Loans under these subprograms are made to COHABsand are refinanced by BNH when CORABs sell the units to the final beneficiaries.

Only shelter units costing up to about US$7,375 equivalent are eligible forBNH financing under PLANHAP.

39. In addition, BNH finances the provision of infrastructure andcommunity facilities through three lines of credit: (a) FIEGE--for roadsand drainage; (b) FISIP--for power, gas, water and telephones; and (c) FIEP--

for health care, education, manpower training, and other public services.Loans under these lines of credit are made directly to the state and municipalgovernments.

Performance under PLANHAP

40. Under PLANHAP I, BNH approved loans to COHABS for 15,000 and 16,000

housing units in 1973 and 1974 respectively. Since BNH started PLANHAP II in

1975, the number of units financed has expanded significantly. At the end of

1977, COHABs had completed 265,300 units; had 131,000 units under construction

and 102,400 units in final design or tendering stages.

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41. In spite of this impressive performance, most housing projectsin PLANHAP II were affordable only to families in the three to five times the

minimum wage range because of the high cost of land and construction and thepreference of COHABs and local governments to construct finished housing. The

sites and services program (PROFILURB) was established in 1975 to counter thetendency to price finished housing out of the reach of families in the one tothree times the minimum wage range. After an initial slow start causedlargely by the reluctance of COHABs and local governments to support theprogram, it is now progressing significantly. Sixteen thousand units wereapproved by 1977 which is two times the number of units approved durin'gthe previous yea.

42. In addition to the initial reluctance of the COHABs and local govern-ments, lack of BNH financing for individual house improvement and buildingmaterials also adversely affected PROFILURB's performance and excluded manylow-income dwellers. To remedy this situation BNH created a new program forindividual house improvement and construction (FICAM) which may also be used

for tenure regularization purposes. Since its inception in 1977, BNH hasapproved financing for 5,000 units under this program. It is expected thatthis program will become increasingly important to meet the needs of thelowest-income segments of the population.

43. While PLANHAP performance compares favorably with housing programsof other countries at a similar level of development, its major shortcominghas been its inability ta affactively reach the lower strata of its targetpopulation--families with monthly incomes of up to three times the minimumwage. The proposed project is designed to assist BNH to reach this segment ofthe target population which constitutes the urban poverty group. Housing

conditions of the urban poor will be improved; squatter upgrading will bepromoted; reduction of design standards, particulary for infrastructure, andof housing construction costs will be sought; COHAB's financial and physicalplanning procedures will be improved; and the terms and conditions of PLANHAPlines of credit will be monitored to ensure that they encourage low-costsolutions while providing adequate remuneration to the COHABs.

PART IV - THE PROJECT

Project Background

44. A report entitled "Staff Appraisal Report of a Sites and Servicesand Low-Cost Housing Project" (No. 2197-BR dated January 3, 1979) is beingcirculated separately to the Executive Directors. The dialogue started withBNH, in 1975, on possible Bank financing of BNH's sites and services program.It culminated in BNH requesting the Bank, early in 1977, to consider for possiblefinancing a project including sites and services, semi-finished and finishedhousing. Families within the relative poverty group would be able to afford theaverage cost of the shelter units included under each subproject. BNH subse-quently prepared a detailed report reviewing the PLANHAP program, its past per-formance and future prospects, and proposed a housing project in the States of

Bahia and Pernambuco and in the city of Sao Paulo for Bank financing. The project

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was appraised by a Bank mission which visited Brazil in mid-1978. Negotiationswith the Borrower, Guarantor, COHABs and related local governments were heldin Washington, D.C. from November 13 to 27, 1978. BNH was represented byMessrs. Jose Maria Aragao and Fabio Alvares. A supplemental project datasheet, including a timetable of key events and a summary of special conditionsis presented in Annex III.

Project Objectives

45. The principal objectives of the proposed project are: (a) topromote sites and services, low-cost housing and building materials creditsubprojects support a pilot squatter upgrading effort; and encourage the useof lower housing and infrastructure design standards; (b) to contribute to theinstitutional development of the selected COHABs and strengthening of theiroverall delivery capacity, in particular, development of on-site assistance tothe beneficiaries of sites and services and building materials loans; and(c) to improve financial and physical planning and closer coordination amongagencies in charge of providing infrastructure and community facilities.

46. The proposed project would include the construction of subprojectsoffering a balanced social mix of beneficiaries. It would focus on the devel-opment of sites and services and a credit program for the acquisition ofbuilding materials. However, it would also include low-cost housing units,ranging from embryo houses to one- to three-bedroom houses. In this way, itwould create opportunities for social integration and cross-subsidization infavor of the lowest income groups within each subproject.

47. To facilitate the achievement of the institution-building objectivesof the project, the bulk of the subprojects would be located in the city ofSao Paulo in the south and in the States .of Pernambuco and Bahia in thenortheast. The three project areas provide a good cross-section of urbanshelter problems in Brazil and the three respective COHABs have reasonablerecords of success in building traditional low-cost housing and are willing totry new approaches. Together, they accounted for 33% of PLANHAP housing unitsapproved by BNH in 1977 and 32% of estimated PLANHAP disbursements. Theproject would seek to demonstrate, using the three COHABs, the feasibility,replicability and public acceptance of large-scale sites and services andsquatter upgrading operations. The experience derived from it could then beapplied to BNH's low-income housing program across Brazil.

Project Description

48. The project would consist of sites and services and low-cost housingsubprojects and credit programs for the acquisition of building materialsincluded under the 1979-1981 PLANHAP program for the COHABs of the states ofBahia and Pernambuco and the municipality of Sao Paulo, community facilitiesand infrastructure for selected subprojects, and an experimental squatterupgrading operation in Recife. In addition, it would include a limited numberof sites and services subprojects to be carried out by COHABs in other states.The project would be complemented by a comprehensive technical assistanceprogram. Bank financing would be limited to subprojects with average cost ofhousing units that can be afforded by families with monthly incomes of up tothree times the regional minimum wage. Criteria for subproject approval arediscussed in para. 62.

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49. On the basis of the analysis of the investment programs of thethree beneficiary CORABs and of their execution capabilities the proposedproject would include:

(a) about 31,800 urbanized lots under the PROFILURB program, includingbasic urbanized lots, hydraulic wall lots 1/ and sanitary unit lots;

(b) about 23,800 home improvement and construction loans under theFICAM program, which would be provided in connection with, but notrestricted to, the PROFILURB subprojects;

(c) about 19,500 core units, low-cost finished and semi-finisheddwellings;

(d) complementary infrastructure and community facilities provided inconnection with selected sites and services and low-cost housingsubprojects;

(e) experimental squatter upgrading in Pernambuco.

50. The project would also include selected sites and services (PROFILURB)subprojects (up to a total of about 10,000 units) in other states. Further-more, the project would include a program of technical assistance financed byBNH which would expand and complement ongoing BNH programs. The program wouldfocus on the following priority areas: COHABs operational and financialmanagement, reporting and incentives; design efficiency; lowering of infra-structure standards and construction costs; and squatter upgrading. Theprogram would also include monitoring and evaluation of COHABs subprojects(Annex to Schedule 2 to the draft Loan Agreement).

51. The states of Bahia and Pernambuco and the municipality of Sao Paulowould provide the community facilities and infrastructure required for thesubprojects (Section 6.07 of the draft Loan Agreement). In accordance withBNH's regulations, financing of these investments through PLANHAP lines ofcredit would be limited to special cases when difficulties in obtainingfinancing from other sources might lead to delays in the execution and salesof subprojects. It is estimated that 10% of the loan amount would be devotedtowards the financing of community facilities and infrastructure.

52. The experimental squatter upgrading program in Pernambuco meritsspecial mention since it would be one of the first projects of its kind inBrazil. It would include the legalization of tenure, the provision of basicinfrastructure (drainage, water, sanitation, roads and electricity andcommunity facilities) and the upgrading of housing conditions for about7,100 families through partial house improvements, construction of low-costdwellings and provision of about 1,200 urbanized lots of which 300 would beused to relocate families affected by on-site upgrading works. These actionswould be complemented by a series of community development programs, andtechnical assistance for the development of the productive activities andsmall-scale enterprises funded and implemented by the government of the

State of Pernambuco and its agencies (Section 6.06 of the draft Loan Agreement.

1/ Lots with a wall containing hook-ups for bathroom and kitchen facilities.

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Costs of Housing Units

53. Unit costs for different types of shelter categories financed byBNH range from US$440 to US$1,620 for sites and services; US$740 to US$2,600for materials loans; and US$2,600 to about US$7,375 for finished houses.Differences in unit costs reflect differences in design standards between the

three COHABs and construction costs in their respective areas. It is expectedthat the COHABs would progressively reduce their construction costs, through

more efficient layout design, smaller plot sizes and lower infrastructurestandards during project execution. The subproject review system and 'technical

assistance program have been designed to attain these objectives (Annex toSchedule 2 to the draft Loan Agreement).

The Executing Agencies

54. The three main intermediaries and executing agencies for the project

would be Companhia Metropolitana de Habitacao Popular de Sao Paulo (COHAB-SP),Companhia da Habitacao Popular do Estado de Pernambuco (COHAB-PE) and Habitacaoe Urbanizacao da Bahia (URBIS).

55. COHAB-SP operates in the metropolitan area of Sao Paulo. Itsperformance has improved dramatically over the last years as a result of theappointment of a dynamic management team in 1975 and the modifications intro-duced in the low-cost housing programs of BNH. Up to 1975, it had completedonly 3,600 units. But by end 1977, it had completed 9,400 additional units andhad 30,500 either under construction or out to tender and 9,000 more awaitedbids. COHAP-SP has developed a community development program for the residentsof its housing complex, a pilot self-help program providing building materialsloans to low-income families and is researching the use of soil cement inhouse construction.

56. COHAP-PE was created by merging two COHABs, one state and the othermunicipal. COHAB-PE is an efficient company with a well-organized, competent

and dedicated staff. In the period 1975-1977, it obtained approval from BNHfor 28,000 housing units as compared with 1,200 in the previous two years. In

addition to construction it has put much effort into helping form residents'

associations to encourage self-help. Also, it has established a variety of

training programs oriented largely towards women in their homes. To improvethe design of subprojects, COHAB-PE would conduct an experimental program ofeconomic analysis of subprojects to help decide on the mix of dwellings for agiven site during project design (Section 5.10 of the draft Loan Agreement).

57. URBIS was established in 1965. It has not been as effective as theother two COHABs as a result of an inexperienced middle management team,excessive centralization of decisions in the President's office and inefficient

deployment of its staff. Production of housing units declined between 1971to 1974, after a good start between 1967 and 1970. However, URBIS has nowimproved its performance and, by the end of 1977, had 7,400 units underconstruction, with another 3,600 at tendering stage and 1,453 awaiting BNR

approval. URBIS is also developing building materials credit operations,

has approved financing for 2,122 loans and has another 5,000 in the pipeline.

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Under the project, a management diagnosis of URBIS would be carried outas part of the technical assistance program and the state would undertaketo improve the physical facilities provided to URBIS (Section 6.04 of thedraft Loan Agreement).

58. Under the project, the three CORABs would improve their financialplanning and budgeting systems by expanding their financial staff and bypreparing annual financial statements for the ensuing three-year period. Aspart of a continuing policy dialogue with the Bank, they would inform the Bankof proposed changes in operating policies that may affect the execution of theproject and allow the Bank a reasonable opportunity to comment on such changes(Sections 5.06 and 5.08 of the draft Loan Agreement).

Project Cost and Financing Plan

59. Total project cost, including price contingencies, has been estimatedat US$265.7 million at January 1979 prices. The foreign exchange componentamounts to US$61.5 million (23% of project cost) practically all of which isindirect. Technical assistance, which would be carried out by BNH's staff,has not been included as part of the cost of the project. Project costs weredetermined on the basis of actual average unit costs of subprojects that wouldsatisfy Bank's criteria. Since actual unit costs of comparable subprojects wereused to estimate the base cost of the project, no provision for physicalcontingencies has been made over and above the 10% provision included in theseunit costs. Any increase in the real costs of construction in excess of in-creases in the minimum wage would require a decrease in the total number ofhigher cost units and an increase in the number of lower cost units (para. 64).BNH's accounting unit was used in calculating the base project cost. Over theyears, the relative value of this unit in relation to the US dollar has remainedapproximately constant. Thus, the price contingencies have been calculated inUS dollar terms and are based on Bank projections of worldwide inflation. Theyamount to 7.5% in 1979 and 7% p.a. in 1980 and 1981.

60. Bank financing of 35% or US$93.0 million of total project cost isproposed for the project. The proposed loan amount would allow the Bank tomake a significant contribution to the cost of a project that would improvethe living conditions of the urban poor and strengthen both federal and localinstitutions responsible for the development of the sites and services andlow-income housing sector. The balance of the project funds would be suppliedby BNH. The states of Bahia and Pernambuco and the municipality of Sao Paulowould finance most of the community facilities and infrastructure required forthe project out of their own budgetary resources or loans under other programsof BNH. The state government of Pernambuco would finance complementaryfacilities and infrastructure for the squatter upgrading subproject in Recife(Section 6.06 and 6.07 of the draft Loan Agreement).

Channelling of Funds and On-Lending Terms

60. Under the project, BNH would make subloans to the CORABs. Proceedsof the Bank loan for shelter subprojects would be channelled to CORABs incruzeiros on the terms specified in BNH's PLANHAP regulations (Sections1.02(b) and 3.03(a) of the draft Loan Agreement); 0% to 3% p.a. on the

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indexed principal. I/ Interest rates for subprojects would vary in relationto the cost of shelter units included. The on-lending terms to the finalbeneficiaries would also vary with the unit cost from 1% to 6% on the indexedprincipal. The amortization period would be 25 years. The proceeds of theBank loan for community facilities and infrastructure would be channelled incruzeiros to the states and municipalities responsible for their execution onstandard BNH terms: 3% on indexed principal in Bahia, 4% in Pernambuco, and8% in Sao Paulo. The amortization period would be 25 years for housing and18 years for infrastructure and community facilities following the constructionand sales period of up to three years. A change in any of the PLANHAP regula-tions which materially and adversely affect the carrying out of the Project orany subproject would be an event of default under the Loan Agreement (Section7.01(d) of the draft Loan Agreement). The difference between the rate ofinterest paid by BNH to the Bank and those it would charge to the COHABs; andthe repayments of principal due to the Bank but not received from the COHABswould be met by BNH out of its own resources. Given the strong financialposition of BNR and the fact that its program for low-income housing is smallcompared to its medium- and large-sized housing programs, where it makessubstantial profits, BNH should be able to absorb the cost of the projectwithout difficulty.

Implementation Arrangements

62. The overall project coordination would be ensured by a specialworking group within BNH. BNH would be responsible for subproject appraisaland approval, technical assistance and channelling of funds to COHABs. Sub-project preparation up to detailed engineering, would be the responsibilityof the COHABs, which would also be responsible for tendering and direct super-vision of shelter construction. They would also carry out all complementaryactivities such as selection, orientation, and community development assistance,as well as administration of subloans to final beneficiaries. The financingand construction of infrastructure and community facilities would be theresponsibility of the States and Municipalities. To facilitate the smooth andefficient execution of their programs, the three intermediaries would employspecialized staff to guide and counsel final beneficiaries in self-help buildingtechniques and to prepare standard plans and building manuals for shelterconstruction. They would also establish a system to ensure the regular supplyof building materials and credit to final beneficiaries and adjust theirorganizational structure for the execution of sites and services and buildingmaterials credit programs (Section 5.09 of the draft Loan Agreement).

63. Over the life of the project it is expected that changes in theimplementation capacity of the intermediaries, land availability and shiftsin demand may require periodical revisions of their investment plans. BNH

1/ Principal and interest of BNH's loans are adjusted in accordance withchanges in the national treasury bond index (ORTN index). Inflation inBrazil in the years 1975-77 was 28%, 41% and 43% respectively and isexpected to average about 40% p.a. during 1978-80. The ORTN index usedin public sector lending increased 24%, 37% and 30% over the same periodand is expected to increase on the average 32% p.a. during 1978-80.

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and the COHABs would undertake an annual review of such plans with theBank (Section 5.07 of the draft Loan Agreement).

Subproject Approval Procedures

64. Subprojects eligible for Bank financing would be selected on thebasis of the following criteria: (a) they should form part of the agreed1979-1981 investment program; (b) the average unit cost should be such thatit can be afforded by families with monthly incomes of up to three times theregional minimum wage; (c) subprojects should have efficient design in termsof location, land use and infrastructure; and (d) subprojects should beeconomically viable. The first sites and services and the first housing

subprojects from URBIS, COHAB-PE and COHAB-SP and the first two sites andservices subprojects from COHABs in other states would be first approved byBNH and then forwarded to the Bank for approval. The supporting documentation

would include the project summary submitted by the COHABs to BNH and BNH's ownreport. For subsequent subprojects, BNH would notify the Bank of its approvaland keep the documentation for review. Should the Bank determine that a

subproject had been erroneously approved, it would have the option to cancela part of the loan equivalent to the value of the expenditures eligible forBank financing under the subproject (Schedule 5 to the draft Loan Agreement).

Procurement

65. Procurement of civil works contracts for low-cost housing costing

more than US$2.4 million equivalent and sites and services costing more than

US$1.5 million equivalent under the responsibility of URBIS, COHAB-PE and

COHAB-SP (about 60% of the value of procurement under the project) would be

subject to international competitive bidding in accordance with the Bank's

guidelines. Local procurement procedures acceptable to the Bank would be

applied to civil works contracts for: (a) low-cost housing costing less than

US$2.4 million and sites and services costing less than US$1.5 million equiv-

alent; (b) infrastructure and community facilities under the responsibility of

States, Municipalities and ,state-controlled agencies; and (c) sites and

services subprojects outside of Pernambuco, Bahia and Sao Paulo. These

procedures would allow foreign contractors to bid. However, it is expected

that foreign firms would not be interested in participating in the contracts

to be procured under local competition since they would be relatively small in

size and the works would be scattered over several states of Brazil. Overall,

it is expected that most, if not all, of the works under the project would be

contracted to local firms since Brazil's construction industry is well advanced.

Disbursements

66. Bank disbursements would consist of the reimbursement of 35% of all

BNH disbursements on its subloans for eligible subprojects in accordance with

certificates of expenditures to be submitted by BNH to the Bank. The documenta-

tion in support of such certificates would be available to the Bank for inspection

during the course of project supervision missions. Unallocated funds (amounting

to 15% of the loan) would be used, as approved by the Bank, for subprojectsincluded in the investment programs of any of the three COHABs, according to

their demonstrated execution capacity. The last disbursement is expected to

occur in the fourth quarter of 1983.

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Project Benefits

67. The beneficiaries of the proposed project would be some 80,000families (including beneficiaries of the building materials credit program),about 90% of them with monthly incomes of less than three times the regionalminimum wage. Furthermore, it is estimated that 82% of the project cost willdirectly benefit families below the relative poverty level. The constructionactivities under the project would generate an estimated 70,000 man-years ofemployment. The project would reduce by about 10% the estimated housingdeficit in the project areas.

68. All sites and services units, building materials loans, embryo

houses in Sao Paulo and about one-half of finished houses in Bahia andPernambuco could be afforded by families in the poverty group. The followingtable presents, by type of shelter unit, information regarding the expectednumber of beneficiaries, average unit cost and percentage of families in the

poverty group that could afford each type of unit.

Urbanized Lot with Embryo CompletedPlot type: Lot Sanitary Core House Housing

Services: Industrial /1 Industrial Industrial Industrial

Access to building materialcredit program: Yes Yes Yes Yes

Percent of investment goingto poverty group 100% 100% 100% 50% /2

Number of householdsbenefitted /3 ----- 41,800 ----- 9,300 10,200

Cost to purchaser /4(US$ per unit) 959 1,623 3,127 4,071 to 5,531

Monthly payments(US$ per household) 6.79 10.33 18.00 28.03 to 48.38

Minimum monthly income required(US$ per household) 52.00 80.00 133.00 155.00 to 251.00

Percentage of families inpoverty group that canafford each type of unit:

Sao Paulo 88 n.a. 42 15 /5Pernambuco 78 70 25 12 /5Bahia 78 72 33 10 15

/1 Connected to public water supply and power distribution systems./2 One-bedroom units in all states and two-bedroom units (in Pernambuco and

to a large extent in Bahia) can be afforded by families with monthlyincomes of up to three times the minimum wage. Three-bedroom units canbe afforded by families with monthly incomes of 3.5 times the minimumwage in Sao Paulo, 4.1 in Pernambuco and 4.8 in Bahia.

/3 Does not include beneficiaries of building materials credit program./4 Costs (January 1979 prices) are based on unit types in Pernambuco where

housing costs are close to average for the project as a whole./5 Refers to one-bedroom units only.

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69. The cost of the housing component (90% of the project costs)

would be recovered through the repayment of loans by final beneficiaries.Costs for infrastructure and community facilities (10% of the project costs)would be recovered through utility charges and property taxation by localgovernments.

Internal Rate of Return

70. Given the sectoral nature of the project, it was not possible tocarry out an economic evaluation for the project as a whole. However, ananalysis has been done for sample subprojects--one from each of the threeCORABs--which have been or will be submitted to BNH for approval this year.Costs and benefits of urbanized lot and embryo house consolidation have beenincluded in the analysis for these three sample subprojects. Imputed marketrents were used as a measure of benefits. Internal rates of return are 17%for Sao Paulo, 22% for Recife, and 23% for Salvador. Sensitivity tests onreduction of benefits and increase of costs were also carried out. In allcases the subprojects have rates of return above 12%.

Project Risks

71. Implementation of the sites and services program, timely provisionof infrastructure, squatter upgrading, and location of subprojects are themain areas where project risks appear.

72. The three CORABs have only limited experience with the sites andservices program. However, the resulting risk of inadequate executing capacityis considered manageable in view of their previous experience with other low-cost housing programs and the specific steps they have taken (such as on-sitetechnical supervision) or would take to ensure adequate funding and staffingfor the execution of the project (Section 5.09 of the draft Loan Agreement).

73. Timely provision of infrastructure during project construction isdependent on state agencies. To minimize the risk of delay, the State Govern-ments of Bahia and Pernambuco and the Municipality of Sao Paulo would undertaketo provide the required infrastructure on time (Section 6.07 of the draft LoanAgreement). Also, BNH's regulations require the COHABs to obtain firm commit-ments for the provision of infrastructure for subprojects from the concernedlocal agencies before the submission of subprojects to BNH for approval.

74. The squatter upgrading component in Recife would represent a newundertaking for COHAB-PE and the metropolitan planning agency. Its successwill require close cooperation between the two agencies and the support of theState Government. The complex question of tenure regularization will alsorequire close cooperation between all agencies involved. To ensure thesuccess of this venture, the State of Pernambuco would coordinate the actionsof the various agencies participating in the subproject (Section 6.06 of thedraft Loan Agreement).

- 22 -

75. Due to high land prices in the three metropolitan areas, sites oncity outskirts are often the only ones available for COHAB projects. Manyfamilies to be selected for sites are likely to be employed in the city centerand the time and cost of commuting could be a serious problem. To limit thisrisk, several measures are proposed. First, the site location will be aparameter of design efficiency to be used as one of the project selectioncriteria. Second, during appraisal, a sample of sites were reviewed and foundto have adequate access to centers of employment. Third, the States of Bahiaand Pernambuco and the Municipality of Sao Paulo would: (a) use their legalpower to facilitate land acquisition by the COHABs; and (b) take into accountthe location of COHAB operations in their plans for public transport (Section3.07 and Schedule 5 to the draft Loan Agreement). The availability of landfor at least the next 18 months was reviewed and found satisfactory.

PART V - LEGAL INSTRUMENTS AND AUTHORITY

76. The draft Loan Agreement between the Bank and Banco Nacional daHabitacao, Habitacao e Urbanizacao da Bahia S.A., Companhia de HabitacaoPopular do Estado de Pernambuco, Companhia Metropolitana de Habitacao deSao Paulo, State of Bahia, State of Pernambuco, and Municipality ofSao Paulo, as well as the draft Guarantee Agreement between the FederativeRepublic of Brazil and the Bank and the draft Report of the Committee providedfor in Article II Section 4(iii) of the Articles of Agreement are beingdistributed to the Executive Directors separately. Special conditions of theproject are listed in Section III of Annex III.

77. A special feature of the draft Loan Agreement is the possibilityof declaring it effective for each one of the three COHABs separately (Sections8.01 and 8.02 of the draft Loan Agreement).

78. I am satisfied that the proposed loan would comply with the Articlesof Agreement of the Bank.

PART VI - RECOMMENDATIONS

79. I recommend that the Executive Directors approve the proposed loan.

Robert S. McNamaraPresident

AttachmentsJanuary 10, 1979Washington, D.C.

-23- ANNEX I

BRAZIL - SOCIAL INDICATORS DATA SHEET

BRAZIL REFERENCE GROUPS (ADJUSTED AVERAGES

LAND ARLA (THOUSANSQ M) I- MOST RECFNT ESTIMATZ)TOTAL 8512.0 SAME SAME NEXT HIJ.ER

AGRICULTURAL 2066.0 MOST RECENT GEOGRAPHIC INCOME INCOMS

1960 & 1970 L ESTIMATE lb REGION L GROUP Id GROUP fe

GNP PER S 320.0 580.0 1390.0 1066.7 1796.4 2839.0

ENERGY CONSUAMPTION4 PFR CAPIIA(KILOGRA.1, OF CAL EQUIVALENT) 332.0 474.0 670.0 911.1 1525.0 2176.4

POPULATION A ND Vl'fA%. FIATISTICSTOTAl. POPULATIO7N, MID-YEAR

(MILLIONS) 69.8 92.8 113.2URBAN POPULATION (PERCENT OF TOTAL) 44.5 55.7 61.4 57.9 52.2

POPULATION DENSITYPER SQ. KM. 8.0 11.0 13.3 25.6 27.6 55.8PER SQ. KH. AGRICULTURAL LAND 44.0 49.0 55.0 77.6 116.4 83.6

POPULATION AGE STRUCTURE (PERCENT)0-14 IRS. 43.0 42.0 41.7 42.0 34.8 40.0

15-64 YRS. 54.0 55.0 55.1 52.2 56.0 55.365 YES. AND ABOVE 3.0 3.0 3.2 3.7 5.7 3.8

POPULATION GROWTH RATE (PERCENT)TOTAL 3.0 3.0 2.8 2.7 1.6 2.911RBAN 5.5 5.0 4.4 4.3 3.4

CRUDE BIRTH RATE (PER THOUSAND) 40.8 38.4 37.1 35.8 27.0 31.7CRUDE DEATH RATE (PER THOUSAND) 11.7 9.9 8.8 9.1 9.9 7.9GROSS REPRODUCLO RATE 2.t 2.6 2.5 2.6 1.9 1.6FAMILY PLANNINGACCEPTORS, ANNUAL (THOUSANDS) .. 111.0 203.6USERS (PERCENT OF MARRIED WMEN) .. 1.6 .. 15.1 19.3.

FOOD ANDS NU'Rl'TIONINDEX or Fool) PRODUCTIOF

PER CAPITA (1970=100) 87.8 100.0 112.3 102.1 103.8 114.7

PER CAPITA SUPPLY OFCALORIES (PERCENT OF

REQUIREMENTs) 102.0 104.0 105.0 103.9 110.4 113.4PROTEINS (GRAMS PER DAY) 61.0 64.0 62.1 60.3 77.7 89.9OF klHICH ANIMAL AND PULSE 38.0 39.0 33.6 26.7 22.2 48.0

CHILD (AGES 1-4) MORTALITY RATE .. .. .. 8.7 1.9

HEALTHLIFE EXPECTANCY AT BIRTH (YEARS) 56.0 59.4 61.4 62.6 63.0 60.2INFANT MORTALITY RATE (PERTHOUSAND) 180.0 110.0 .. 56.9 38.2 22.1

ACCESS TO SAFE WATER (PERCENT OFPOPULATION)

TOTAL .. 56.3 71.7 60.7 67.7 83.0URBAN .. 77.7 83.2 78.0 83.5 100.0RURAL .. 29.0 52.9 34.9 41.5

ACCESS TO EXCRETA DISPOSAL (PERCENTOF POPULATION)

TOTAL .. 59.9 65.5 61.1 70.3 57.8URBAN .. 86.1 86.3 80.3 90.7 99.3RURAL .. 26.5 39.0 25.4 38.3

POPULATION PER PHYSICIAN 2170.0 1910.0 1650.0 /f 1899.3 1310.8 976.9POPULATION PER NURSING PERSON .. 3220.0 2920.0 I 1220.1 849.2 676.1POPULATION PER HOSPITAL BED

TOTAL 275.0 260.0 260.0 422.3 275.4 325.8URBAN .. .. .. 258.2 129.9 250 0RURAL .. .. ** 2281.6 965.9 770.0

ADMISSIONS PER HOSPITAL RED .. 18.0 ** 25.6 18.9 18.7

HOUSINGAVERAGE SIZE OF HOUSEHOLD

TOTAL 5.1 4.8 ** 3.2 3.9URBAN .. 4.6 ..RURAL .. S.2 ..

AVERAGE NUMBER OF "ERSONS PER ROOMTOTAL ** 1.1 1.1 f 2.0 0.9URBAN .. 1.0 1.2 f 2.1 0.8RURAL .. 1.2 1.2 ff 2.7 1.0

ACCESS TO ELECTRICITY (PERCENTOF DWELLINGS)

TOTAL 38.7 47.6 55.1 51.2 59.2URBAN .. 75.6 77.9 77.3 78.0RURAL .. 8.4 12.5 12.8 12.5

-24- Page 2. ~-24-.

BRAZIL - SOCIAL TNDICATORS DATA SHEET

BRAZIL REFERENCE GROUPS (ADJUSTED AVERAGESLa

- MOST RECENT ESTIMATE)SAME SAME NEXT HICHER

MOST RECENT GEOGRAPHIC INCOME INCOME1960 b 1970 L ESTIMATE 1b REGION c CROUP Ld CROUP Le

EDUCATIONADJUSED ENROLLMENT RATIOS

PRIMARY: TOTAL 95.0 83.0 90.0 103.5 97.6 104.1FEMALE 93.0 83.0 90.0 102.9 87.4 120.3

SECONDARY: TOTAL 11.0 27.0 26.0 37.2 47.8 44.7FEMALE 10.0 27.0 20.0 37.9 42.6 46.0

VDCATIONAL (PERCENT OF SECONDARY) 19.0 17.0 47.0 jg 14.7 22.7 18.7

PUPIL-TEACHER RATIOPRIMARY 33.0 28.0 22.0 * 32.8 25.4 30.6SECONDARY 13.0 13.0 11.0 17.8 24.9 16.3

ADULT LITERACY RATE (PERCENT) 61.0 66.0 .. 74.9 96.3

CONSUMPTIONPASSENGER CARS PER THOUSAND

POPULATION 7.0 25.0 35.0 26.9 32.3 53.4RADIO RECEIVERS PER THOUSAND

POPULATION 66.0 60.0 60.0 173.5 201.9 195.5TV RECEIVERS PER THOUSAND

POPULATION 18.0 66.0 83.0 69.6 97.7 108.4NEWSPAPER ("DAILY GENERALINTEREST") CIRCULATION PERTHOUSAND POPULATION 54.0 37.0 39.0 72.8 70.9 108.0CINEMA ANNUAL ATTENDANCE PER CAPITA 5.0 1.9 .. 4.3 4.4

EMPLOYMENTTOTAL LABOR FORCE (THOUSANDS) 22700.0 29400.0 34100.0 .

FEMALE (PERCENT) 17.5 20.4 21.6 21.4 17.4 26.9AGRICULTURE (PERCENT) . 52.0 40.4 37.8 37.8 38.4 25.7INDUSTRY (PERCENT) 14.8 18.3 .. ..

PARTICIPATION RATE (PERCENT)TOTAL 32.0 31.6 31.5 30.8 33.7 40.1MALE 52.7 50.3 49.5 47.2 50.8 55.8FEMALE 11.2 12.8 13.6 13.2 12.6 24.7

ECONOMIC DEPENDENCY RATIO 1.6 1.5 1.4 1.7 1.4 *1.6

INCOME DISTRIBUTIONPERCENT OF PRIVATE INCOMERECEIVED BY

HIGHEST 5 PERCENT OF HOUSEHOLDS 27.7 lh 34.9 /h ** 28.9 20.2BIGHEST 20 PERCENT OF HOUSEHOLDS 54.4 /h 62.2 /h .. 57.7 47.9LOWEST 20 PERCENT OF HOUSEHOLDS 3.5 /h 3.2 lh .. 3.2 3.2LOWEST 40 PERCENT OF HOUSEHOLDS 11.6 /h 10.0 /h .. 10.7 13.7

POVERTY TARGET GROUPSESTIMATED ABSOLUTE P.VERTY INCOMELEVEL (US$ PER CAPITA)

URBAN .251.9RURAL .. .. 150.0 200.6 157.9

ESTIMATED RELATIVE POVERTY INCOMELEVEL (US$ PER CAPITA)URBAN .. .. 465.0 403.1 448.8RURAL .. .. 332.0 258.0 313.1

ESTIMATED POPULATION BELOW POVERTYINCOME LEVEL (PERCENT)

URBAN .. .. 34.0 24.8 23.2RURAL .. .. 55.0 65.2 54.5

Not availableNot applicable.

NOTES

.L The adjusted group averages for each indicator are population-weighted geometric means, excluding the extremevalues of the indicator and the most populated country in each group. Coverage of countries among theindicators depends on availability of data and is not uniform.

b Unless otherwise noted, data for 1960 refer to any year between 1959 and 1961; for 1970, between 1969and 1971; and for Most Recent EstimaLe, between 1973 and 1977.

I Latin Anerica t Caribbean; /d Upper Middle Income ($1136-2500 per capita. 1976); fe High Income(over $2500 per capita. 1976); f 1972; [& Beginning 1973. duration of general education reducedfrom 7 to 4 years, therefore data may not be comparable to those of earlier years; jh Data referto economically active population.

September. 1978

-25-ANNEX I

DEFINITIONS OF SOCIAL INDICATORS Ipu 3

U"g: 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 indicators depends on availability of data and is not uniform. Due to lack of data,group averages for Capital Surplus 011 Exporters and indicators of access to water and excreta disposal, housing, income distribution and poverty aresimple population-weighted geometric means without the exclusion of extreme values.

LAND AREA (thousand sq. km) 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 hospital beds

Agricultua - Most recent estimate of agricultural area used temporarily available in public and private general and specialized hospical and re-or permanently for crops, pastures, market and kitchen gardens or to habilitation centers. Hospitals are establishments permanently staffed bylie fallow. at least one physician. Establishments providing principally custodial

care are not included. Rural hospitals, however, include health and medi-

GNP PER CAPITA (US$) - GNP per capita estimates at current market prices, cal centers not permanently staffed by a physician (but by a medical as-calculated by same conversion method as World Bank Atlas (1975-77 basis); sistant, nurse, midwife, etc.) which offer in-patient accommodation and1960, 1970. and 1977 data. provide a limited range of medical facilities.

Admissions ret hospital bed - Total number of admissions to or dischargesENERGY CONSUMPTION PER CAPITA - Annual consumption of commercial energy Arom 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

Averase nize of household (persons per household) - totalI urban, and rural-POPULATION AND VITAL STATISTICS A household consists of a group of indIviduals who share livin quartersTotal population, mid-year (millions) - As of July 1; if nor available., and their -...1 mears A boarder or lodger soy or may not be included Ic

average of two end-year estimates; 1960, 1970, and 1977 data. the household fur statistical purposes. Statistical definitions of house-

Urban population (percent of tctal) - 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 num-

of data among countries, bar of persons per coon in all, urban, and rural occupied conventional

Population density dwellings, respectively. Dwellings exclude non-permaneot srtructures and

Per so. ho. - Mid-year population per square kilometer (100 hectares) unoccupied parts.of total arts. Access to electricity (percent of dwellings) - totl, urban, and rural -

Per sq. ho. agriculture land - Computed as above for agricultural land Comventional dwellings with electricity in living quarters as percentageonly. of total, urban, and rural dwellings respectively.

PopulatIon ago structure (percent) - Children (0-14 yearn), working-age(15-64 years), and retired (65 years and over) as percentages of mid- EDUCATION

year population. Adjusted enrollment ratiosPopulation growth rate (percent) - total, and urban - Compound annual Primary school - tctai, and female - Total ad female enrollment of all ages

growth rates of total and urban mId-year population fur 1950-hO, at the primary level as percentages of respectively primary school-age

1960-710, and 1970-75. populations; normally includes children aged 6-11 years but adjusted for

Crude birth rate (per thcusand) - 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 exceed 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 rote (ser 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 instruction; pro-

and five-yesr average ending in 1975 for most recent estimate. vides general vocational, or teacher training instructions for pupilsGross reproduction rate - Average number cf daughters a woman will bear usually of 12 to 17 years of age; correspondence courses arn generally

in her normal reproductive period if she experiennes present age- excluded.specific fertility rates; usually five-year averages ending in 1960, Vocational enrollment (percent of secondary) - Vocational institutions in-1970, and 1975. clude technical, industrial, or other programs which operate independently

Family planning - acceptors, annual (thousands) - Annual number of or as departments of secondary institutions.acceptors of birth-control devices under auspices of national family Pupil-teacher ratio - primar, sod secondary - Total students enrolled in

planning program. primary and secondary levels divided by numbers of teachers in the corte-Pamily planning - users (percent of married women) - Percentage of spending levels.married women of child-bearing age (15-44 years) who use birth-control Adult literacy rate (percent) - Literate adults (able to read and write) asdevices to all married women in same age group. a percentage of total adult population aged 15 years and over.

FOOD AND NUTRITION CONSUMPTIONIndex of food production ret capita (1970=100) - Index number of per Passenger caro (per th.usad Dulatic - Passenger cars comprise motor cars

rapita annual production of all food commoditiesi seating loss than eight persons; excludes ambulances, hearses an rildtary

Per capita stpply of calories (percnt of requirements) - Computed from vehicles.

energy equivalent of net ced supplies available in country per capita Radio receIvers (per rhousand polation) - All types of receivers fur radioper day. Available supplies comprise domestic production, imports less broadcasts to general psblic per thousand of population; excluden unlicensedexports, and changes in stock. Net supplies exclude animal feed, seeds, receivers in countries and in years when registration of radio sets was in

quantities used In food processing, and losses in distribution. Re- effect; data for recent years may not be comparable since mo.t countriesquirements were es timated by FAO based on physiological needs for nor- ebolished licesing.mal activity and health considering environmental temperature, body TV receivers (per thousand population) - TV receivers for broadcast t, generalwights, age and sex dietributions of population, and allowing 10 per- public per thousand population; excludes unlicensed TV receivers in coun-cent for waste at household level, tries and in years when registration of TV sets was in effect.

Per capita supply of protein (grams per day) - Protein content of per Nespaper circulation (per thosano population) - Shown the average circula-capita net supply of food per day, Net supply of food 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 nees. It is conid.red toa minimun allowance of 60 grams of total protein per day and 20 grams be "daily" 1f it appears as least feur vixen a wek.of animal and pulse protein, of which 10 grams should be animal protein. Cinema annual attendance per copita per year - Based on the number .a ticketsThese standards are lower than those of 75 grams of total protein and sold during the year, including adnissions to drive-in cinemas and mobile23 grams of animal protein as an average for the world, proposed by umits.FAO in the Third World Food Survey.

Per capita protein supply from animal and pulse - Protein supply of food EMPLOYMENTderived from animals and pulses in grama per day. Total labor force (thousands) - Economically active person, includieg erred

Child (acs i-h) moality rate (per thousand) - Annual deaths per thous- forces and unempioyed but excluding housewivrs, stuens, etc. Definid-and in age group 1-4 years, to children in this age group. tions in various countries are not comparable.

Female (percent) - Female labor force as percentage of total lbor force.HEALTH Agriculture (percent) - Labor force in farming, forestry, hunting and fishingLife expectanuy at birth (years) - Average number of years of life as percetago of tral labor force.

remaining at birth; usually five-year averages ending in 1960, 1970, Industry (ec - Labor force in mining, construction, manufacturing andand 1975. electricity, water and gas as percentage of total labor force.

Infant mortallty rate (per thosand) - Annual deaths of infants under Particpton rate (percent) - total, male, and female - Total, oalo, odone year of age per thousand live birht.. remale labor force as percentages of their rosyective populations.

Access to safo water (percent of populatin) - total, urban, and rural - Thesears ILO's adjusted participation rates reflecting ase-usNumber of people (total, urban, and rural) with reasonable acceos to structure of the populatiao, and loop time trend.af ater supply (includes treated surface waters or untreated but tconomic dependenc0yrais- Outdo of poupla t uonocder 15 and 65 and oor touncontuminated woer such as tha t from protectead boresholes, springs, the labor force in age grtup of lb-64 yeartand sanitary wells) as percentages of their respective populations.In an urban area a public founab or s tandpost located not more INCOME DISTRIBUTIONthan 200 meters from a house may be considered as being within rea- Percentage of private income (both in cash and kind) received by richest 5sonable access of that house. In rural areas reasonable access would percent, richest 20 percent, poorest 20 percent, and poorest 40 percentimply that the housewife or members of the household do not have to of households.spend a disproportionate part of the day in fetching the family'swater needs. POVERTY TARGET GROUPS

Access to escreta disposal (Percent of population) - total, urban, and Estimated absolute poverty income level (US$ per capita) - urban and tura -rural - Number of people (total, urban, and rural) nerved by excreta Absolute poverty income level is that income level below which a mccina

disposal as percentages of their respective populations. Excreta nutritionally adequate diet plus essential non-food requiremen s is ncotdisposal may include the collection and disposal, with or without affordable.treatment, uf human excreta and waste-water by water-borne systems Estimated relative poverty income level (US per capita) - crua and rural -or the use of pit privies and similar installations. Relative poverty income level is that income level less than cre-shrd

Population per physician - Population divided by number of practicing per capita personal income of the couetry.physicians qualified from a medical school at univeraity level. Estimated posulation below poverty icrome level (per,cnt) - urban and rural -

Population per nursing person - Population divided by number of Percent of population (urban and rural) who are either "abnolute poet" orpracticing male and female graduate nurses, practical nurses, and "relative per" whichever is greater.assistant nurses.

fEnconic and Socal Datu DivisiontE.onoic Analysisa Projeccios Department

АииГЛ IPaRC 4

есочою lс Пеvеьп,+мгvт �АтА sнгет

А С Т U А L ` `_ -- � - Р R 0 S Е С Т Е D _ Т � А пnцц l Gtovlh да t е

1974 - 1975 197 о 1477 1978 197 Ч 1930 19 В5 � 1990 1975-77 1978-BU 1 Э81-85 1986-9 1974 1977 19 В0 1985 1990

As Регсеп [ of С� УА . NATIONAI ACCOUNTB

(М1111 опв оЕ U5 а[ 1975 рг l сеа)1. GDP (Merket Prices) 116,218 123,0 Э3 1Э4,334 140,664 1G7,20U 157,327 167, б94 252,452 38h.088 6.6 Ь . О 8.5 8.9 99.9 98.9 100.4 100,2 99.9

2. Gа1пв Егот ТТ 45 - 1,278 1,531 51 -300 -)02 597 323 . . . . -- 1.1 -0.4 0.2 0.1

Э , Стоьв Domeaclc Income 116,263 12 Э ,030 135, Ы 2 142,194 14],251 L57,027 166,992 251,855 ЭRб ,411 6.9 5.5 8.6 8.9 100,0 100.0 100.0 100,0 100.0

4, lmporte 1й ,963 14, з08 14,277 12,965 12,386 12,770 12,706 19,182 31,5 в4 -4. Ч -0.7 8. Ь 10.5 12.9 9.1 7.6 7. Ь 8.2

5. Exporca - volume e,s91 9, з7ь 9, з9а 1а,479 11,09 з 1z,76a 1з,997 z2,479 32,9 П2 ь.е 1о.1 9.9 7.9 7.4 7. а в.4 8.9 в.56. Exporta - ТТ Adju в tad 8,6 Э7 9,376 10,676 12,010 11,145 12,G Ь5 13,295 21, В81 3 Э ,225 11.6 3.4 10.5 В .7 7,4 � В ,4 8.0 8.7 8- Ь

7. Rеьоигсе Сар (4- Ь) 6,326 4,932 3,601 955 1,241 305 -589 -2,699 -1,641 5,4 � .7 -0.4 -1,1 -0.4

8. Coneumption апд Scocks 94,077 96,778 104,151 110,172 115,515 L21,386 127,581 187,481 285,444 5.4 5.0 8.0 3,8 80.9 77.5 76.4 74,4 7 Э .9

9, F1xed Inveetment 28,513 Э1,192 35,062 Э2,978 32,978 Э5,946 38,822 Ы ,67 Э 9 Ч , Э?i 5.0 5. Ь 9.7 10.0 2 й .5 23.2 1 Э .2 24.5 25.7

10, иational 5avl пgs 21,130 24,492 29,149 29,448 2 В ,841 32,573 Э6,144 60,429 95,5 ЭЬ 11.7 7.1 10.9 9.8 18.2 20,7 21.6 24,0 25.0

11. Domeetlc 5avinge 22 � 186 2о ,2 Ь0 31,461 32,027 31,737 35, Ьй1 39,411 Ьй ,373 100,966 13.0 7.2 10.3 9.4 14,1 g22,5 23.6 25.6 26.1

В . MERCNANDIBE TRADEопа о 08 в[ ситхеп[ рг l сев) А в ' r сеп[ of то [ а1 � orte

1. Importa еConaumer Gooda 1,598 1,357 1,392 1,217 1,556 1,747 1,898 Э , Ь05 6,574 -9.5 15.9 1 Э .7 12, В 12.6 1П .1 12.7 11.8 10.3

Ге[ хо l еит апд Пerlvaclve в 2,962 3,100 7,84G 4,069 4,370 5,009 5,]40 11,813 23,343 11.1 12.2 15.5 14.6 23.4 3Э .9 78.5 Э8.7 Э6.7

Other Incermediata Goode 4,962 3, В19 3,552 Э , ЬЭЬ Э ,555 3,760 2,443 5,964 16,906 -11.0 -1.9 15.1 19.4 Э9.3 ЗО . З 23.1 22.8 26.6

Capltal Goode ;,119 3,9 Э4 Э ,556 Э , П74 2,892 3, Э5' Э ,85 Э S,t70 15,79_^ -0.5 7.7 1i.3 1i.5 2/ ь 7 2'+ Ь 2i.7 2', � 7 2" � 4

Тоса1 (FOB) 12,541 12,21 �) 12,346 11,996 12,3?7 1 Э ,873 14,924 3 �J,552 G3,5ti -1.8 7.6 15.4 15,8 100.0 100.0 100.0 100,0 100.0

А в Percent of То[ а1 Ехрог[ в _2. Ехротса

CoF£ ее 9 В0 Э34 2,398 2,642 2,175 2,151 2,29 Ь 3,4i3 5,560 39.0 -4.8 9.5 10,0 12. Э 21.8 13.6 9.2 7 � 7

Other Agrlculturel Goode 3,3 В5 3,407 2,993 Э ,873 2,992 4,342 4,796 10,079 18,829 4.6 7.4 16,0 13. Э 12. Ь 31.9 28. Э ?6.7 26,0

М l пегаl е 670 1, П96 1,118 970 1,008 1,01 Э 1,153 2,4 � Э 4,225 1Э .1 6.2 15.6 11,9 8.4 9.0 6.9 6.4 5.8

5ет 1- Ргосеьвед Соодо 634 645 790 988 1,234 1,4 П8 1,591 3,234 6,101 15.9 17.0 15.4 13.5 8,0 8.1 9. Э 8.6 8,4

Мапи£ асситед Соодв 2,086 2, Э79 2,449 Э ,3 ВВ 4,405 5, Э95 6,747 17,996 36,99D 17.5 26.0 22.0 15.5 26.2 27.9 39.8 47,7 51.0

Other Goode 195 209 Э81 278 300 Э27 Э5 Ь 539 77 В 12.6 8.6 8. � 7.6 2.5 2.3 2.1 1.4 1,1

Тлее1 (FOB) 7,'151 8,670 10,128 12,139 12,114 14,636 16,9 ЭЧ Э7,702 72, й8 Э 15.2 11.7 17- Э 14,0 100.0 100,0 1J0.0 100,0 100.0

С , SECTOR OUTPOT(Shere of WP вt Factor Сов[ et 1970 Гт l сеа) .

1. Agrlwlture 10.8 10.5 10,0 17,5 10,1 10,5 1 � .4 8,9 7.5 5.7 5.5 5,2 5.2 '2. ]пдивt гу 39.2 3Э.4 40.1 Э9.7 39.9 Э9. Э 39.8 Э9, е 4П. Р 6.9 5 J 8.7 9.03. 5ervlcea 50,0 5J.1 49,9 49.8 50.0 50,1 50. Э 51. Э 52.3 5.3 д.4 8.9 9.2D, PRICES (1975=100) �

1. Ехрог[ Рг1се Index 9Ч 100 115 122 115 120 127 178 234 7,2 1, Э 7,0 5.6z. гтроте Рс1се Index 98 100 101 107 115 1zз 1з4 r гз zэ1 з.0 7,е ь.4 4. вЗ . Твттв о£ Ттаде I пдех 101 100 114 115 100 9В 95 97 1014. General Рк1се Index 78 100 141 202 . . � � �s. д�ага8а е:сьвпВв еаса ва 10о 131 v4 . , , ; ; ; : ; : '

Е , SBLECTED INDICATORS 1975-77 1978-80 1981-85 1986-90 F, ЕР@i,OYMENT 1970 1975 -

1. 1с0 А 4.160 Э .923 2.782 2,813 1, Labor Force (m111ion) 29,4 34.12. Impor[ Hleetlctty -0.908 -0.202 1.009 1.131 2, Uпетгlоупизп[ 7.5 5.03. Avaz вge NвСl олв l Savl пg в Rв t в 0,212 0,210 0,2 Э4 0,2 ч9 (% оЕ F,1.)4. Merglnal Natlonal 8avinge Rв[ е 0.265 0.2J9 0.28 в 0.271 3. Етр l оутеп[ (т 1111 оп) 27.2 32.45. ]mpor[a/CDP O.LOS П .080 П ,075 � .079 (% вh вкев)6. 2nvee[ment/CDP 0.25J 0,22 д 0,2 Э9 J,252 3.1. AgrlcultuYe G3,8 Э9.57. Reaource Gap/CDP 0,02i 0,002 -0.008 -0,007 Э ,2, lndua[r7 18,0 19,8Э . З . 5ervlcee 38,2 40,7

е . PUBL1c F7NANCE e7 1974 1975 197G 1977

l. Ситтелс Reve пue 10,7 Ч ,5 10.7 10,41.1. твх Revenue 10,3 9.4 10,2 10.0

2. Сиггеп[ Ехрепд l[ игев Ь / Э ,5 8,7 9,7 �3. Current 5avinga 1,2 0,8 1,0 �4. Сар1[ а1 Expendl[vre в 0.6 0,8 0,9 .,

4.1, Covernmene £l хед Сар l се l Formation � j 4,0 4, Э � �

в / редвгвl Governmenc. ` У ' �Ь ) TnCluding capltal Cransfere.с/ Includfng в[все впд типl сlрвl government дl гесс Е1нвд l пvевстепс, Septem бer 1, 1978

-- lees [h вп h в1£ thz апв ll ев t u � it вh оwп.. ail вSle

. пос врр ll сеЫ е

[ , 11 1

ANNEX IP.g

BALANCE OF PAYMENTS AND EXTERNAL ASSISTANCE

(Million US$)

A C T U A L P R 0 J E C T E D1974 1975 1976 1977 1978 1979 1980 1985 1990

A. Summary of Balance of Payments

1. Exports (incl. NFS) 8,471 9,376 10,797 12,826 12,772 15,373 17,775 40,115 76,8922. Imports (incl. NFS) 14,678 14,308 14,440 13,847 14,194 15,749 16,987 35,166 73,0943. Resource Balance -6,207 -4,932 -3,643 -1,021 -1,422 - 376 788 4,94) 3,798

4. Net Factor Service Income - 916 -1,770 -2,339 -2,859 -3,44o -3,873 -4,374 -7,068 -10,1291. Net Interest Payments - 652 -1,498 -1,809 -2,103 -2,284 -2,412 -2,521 -3,538 -4,6042. Direct Investment Income - 248 - 235 - 380 - 455 - 493 - 542 - 590 -1,030 -1,7753. Other Factor Service Income - 16 - 37 - 150 - 301 - 663 - 919 -1,263 -2,500 -3,750

5. Current Transfers (Net) 1 2 4 6 7 7 7 7 7

6. Balance on Current Account -7,122 -6,700 -5,978 -3,8741 -4,855 -4,242 -3,579 -2,112 -6,324

7. Net Private Direct Investment 887 892 962 84o 780 770 76c 750 750

Medium and Long Ter. Lpnsa. Traditional SourcesA

8. Disbursements 1,956 1,612 2,054 2,553 3,303 3.571 4,005 6,599 10,3269. Amortization - 739 - 992 -1,350 -1,701 -1,280 -1,218 -1,518 -3,818 -6,146

10. Net Disbursements 1,217 620 703 852 2,023 2,353 2,487 2,781 4,182b. Financial Credits

H. Disbursements 5,103 4,524 5,978 5 940 5,671 5,644 6,603 3,574 8,52312. Amortization -1,181 -1,193 -1,664 -2,426 -3,526 -4,150 -5,008 -3,907 -4,94713. Net Disbursements 3,922 3,331 4,314 3,514 2,145 1,494 595 - 333 3,576

14. Use of IMF Resources - 7 - - -15. Short-term Capital and Capital n.e.i. 138 788 -2,25616. Reserves (-- Iner.... )

1. Reserve Accumulatjo,,/ 95B 1,062 -2,255 -699 -93 -375 -263 -1,086 -2,1832. Dollar Valuation Adju 5 tme t 185 176 -252 -16 - -3. Changes in Re8erve Level.SY 1,143 1,238 -2,507 -715 -93 -J75 -263 -1,086 -2,18317. Foreign Exchange Reserves 5,272 4,034 6,541 7,256 7.349 7,724 7,987 11,894 20,160(End of Period)

B. Grant and Loan Commitments

1. Total M&LT Loans 7,179 7,005 9,482 9,637I.I. IBRD 242 426 498 4251 .2. IDB 203 167 186 2701.3. Governments 518 512 1,251 1,1841.4. Suppliers 1 .088 1 .376 1,300 1 '1001 .5. Bonds 25 - 269 7181.6. Financial Credits 5,103 4,524 5,978 5,940

C. Memorandum Items

1. Grant Element of Total Commitments 2.5 2.5 2.5 2.82. Average Interest (Percent) 9.5 9.5 9.4 9.33. Average Maturity (Years) 9.0 9 9 8.3 8.9

2/ Includes Multilateral agencies, bilateral lenders, suppliers- credits and bond issues.b/ IFS Line 79d.T/ IFS Line Id.

September 1, 1978

ANNEX IPage &

DEBT AND CREDITW)RTHINESS

Actual

1974 1975 1976 1977

A. Medium and Long-Term Debt(Disbursed only)

1. Total Debt Outstanding (end of period) 17,166 21,171 25,985 32,0371. By type of Debt

1, Financial Credits 11,211 14,561 1,8,194 21.5282. Traditional Lendersal 5,955 6,610 7,791 10,509

2. By type of Borrower

1. Public and Publicly Guaranteed 8,533 11,461 ;4,852 19,3092. Private 8,633 9,71u 11,133 12,7a.

2. Net Debt Service 2,572 3,683 4,825 6,2301. Total Interest 1,370 1,863 2,091 2,4622, Net Interest 652 1,498 1,810 2,103

3. Public Debt Service 1,287 1,550 1,982 2,500

B. Debt Burden

1. Net Debt Service Ratio b/ 30.4 39.3 44.7 48.62. Total Net Debt Service Ratio c/ 33.3 41.8 48.2 52.13. Public Debt ServiA Ratio 15.2 16.5 18.4 19.64. Liquidity Ratio - 23.0 33.3 43.0 39.25. Net Debt Service/GDP e 2.6 3.0 3.6 4.06. Public Debt Service/GDP e 1.3 1.3 1.5 1.67. Total DOD/GDP e/ 17.0 17.2 19.2 20.5

C. Terms

1. Interest on Total DOD/Total DOD 10.9 10.9 9.9 9.52. Net Debt Service/Total DOD f/ 20.5 21.5 22.8 24.0

0. Dependency Ratios for M&LT Debt

1. Gross Disbursements/Imports (incl. NFS) 48.1 42.9 55.6 61.32. Net Transfer/Imports (inal. NFS) 25.7 14.6 20.3 13.83. Net Transfer/Gross Disbursements 53.4 34.0 36.4 22.4

E. Exposure

1. IBRD Disb./Gross Total Disb. 3.5 4.1 2.! 3,52. IBRD DOD/Total DOD 4.9 5.2 5.0 4.83. IBRD Debt Service/Net Debt Service 3.0 2.5 2.4 2.9

F. External Debt (Disbursed Only) Outstanding December 31, 1977Amount Percent

I. IBRD 1,540 4.82. Other Multilateral 815 2.53. Governments 2,939 9.24. Suppliers 3,773 11.85. Bonds 1,222 3.86. Financial Credits 21,528 67.27. Other 219 0.78. Total M&LT Debt 32,037 100.09. Total Public M&LT Debt 19,309 60.3

G. Debt Profile*

1. Net Debt Service 197845/Total DOD end of 1977 199.0

a/ Includes multilateral agencies, bilateral lenders, suppliers' credits, bond issues and M&LT loans n.e.i.b/ Net Debt Service as percent of exports of goods and NFS.c/ Including Direct Investment Income in debt service,d/ Net Debt Service as a percent of exports of goods and NFS plus exchange (at beginning of year)

in excess of 3 months imports.el In constant 1975 prices.f/ As percent of DOD at beginning of 3ear.

Note: Debt service ratios have been calculated on the basis of net ratherthan gross interest payments in order to take into account interestearned upon Brazil's international reserves.

September 1, 1978

-29-

ANNEX II

Page 1

THE STATUS OF BANK GROUP OPERATIONS IN BRAZIL

A. SUMMARY STATEMENT OF LOANS(As of October 31, 1978)

Amount lessLoan # Year Borrower Purpose Cancellations Undisbursed

(US$ Million)

Forty-two loans fully disbursed 1,352.1

755 1971 Brazil Education 8.4 .0 1/

756 1971 Brazil Ports 45.0 13.9

828 1972 Companhia Siderurgica Industry 64.5 1.2Paulista

829 1972 Centrais Eletricas de Minas Power 60.0 .1

Gerais - Sao Simao853 1972 Brazil Land Settlement 6.7 3.8923 1973 Furnas Centrais Eletricas - Power 125.0 45.9

Itumbiara924 1973 Brazil Agro-Industry 54.0 31.31008 1974 Cia. Hidro Eletrica do Sao Power 81.0 34.7

Francisco-Paulo Afonso IV1009 1974 Banco Nacional de Habitaco Water Supply 36.0 6.1

1067 1974 Brazil Education 23.5 20.01074 1975 Rede Ferroviaria Federal Railways 175.0 37.51075 1975 Brazil Roads 110.0 48.31151 1975 Companhia Siderurgica Nacional Industry 95.0 85.21152 1975 Companhia Siderurgica Paulista Industry 60.0 55.71153 1975 Brazil Agriculture 23.0 17.51171 1975 FEPASA - Ferrovia Paulista Railways 75.0 41.71195 1976 Brazil Rural Development 12.0 11.21206 1976 Brazil Development Bank 85.0 74.21207 1976 Brazil Feeder Roads 55.0 55.01249 1976 Brazil Agriculture 40.0 37.51256 1976 Petrobras Fertilizantes Fertilizer 50.0 29.51257 1976 Companhia Paranaense de Power 52.0 38.7

Energia Eletrica - COPEL

-30-

ANNEX II

Page 2

A. SUMMARY STATEMENT OF LOANS (Continued)(As of October 31, 1978)

Amount lessLoan # Year Borrower Purpose Cancellations Undisbursed

(US$ Million)

1300 1976 Eletrobras Power 50.0 42.51302 1976 Brazil Nutrition 19.0 18.31309 1976 Banco Nacional de Habitacao Water Supply 40.0 34.31317 1976 Brazil Agro-Industry 83.0 83.01343 1977 ELETROSUL Power 82.0 56.81362 1977 State of Minas Gerais Rural Development 42.0 34.81406 1977 Petrobras Fertilizantes Fertilizer 64.0 60.61411 1977 Fertilizantes Vale do Fertilizer 82.0 64.8

Rio Grande S.A.-VALEFERTIL1452 1977 Brazil Education 32.0 31.41488 1977 Brazil Rural Development 17.0 16.61525 1978 Banco Nacional de Habitacao Sewerage 110.0 110.01537 1978 Brazil Rural Development 24.0 24.01538 1978 ELETROBRAS Power 130.0 130.01557 1978 Brazil Roads 114.0 114.01562 1978 COPESUL Petrochemicals 85.0 85.01563 1978 Brazil Urban Transport 88.0 88.01568 1978 Brazil Agric. Extension 100.0 100.01589 1978 Brazil Rural Development 37.0 37.0

Total 3,887.1 /2

Of which has been repaid to the Bank 509.0

Total now outstanding 3,378.1

Amount sold 45.8of which has been repaid 32.3 13.5

Total now held by Bank 3,364.6

Total undisbursed 1,820.1

/1 Balance less than US$50,000./2 No IDA credits have been made to Brazil.

ANNEX IT

-31- Page 3

B. STATEMENT OF IFC INVESTMENTS (as of October 31, 1978)

Year Obligor Type of Business Amount in US$ millionLoans Equity Total

Siemens do Brasil Cia. de Eletricidade Electrical Equipment 2.00 - 2.00

Olinkraft, S.A. Celulose e Papel Pulp and Paper 1.20 - 1.20

* D.L.R. Plasticos do Brasil, S.A. Automotive Parts 0.45 - 0.45

Willys-Overland do Brasil, S.A.Industria e Comercio Motor Vehicles 2.45 - 2.45

Companhia Mineira de Cimento Portland, S.A. Cement 1.20 - 1.20

Champion Celulose, S.A. Pulp 4.00 - 4.00

1968/Acos Villares, S.A. Steel 8.00 1.93 9.93

1969 Papel e Celulose Catarinense, S.A. Pulp and Paper 3.78 3.41 7.19

1972 Ultrafertil, S.A. - Industria e Comerciode Pertilizantes Fertilizers 8.22 3.03 11.25

Petroquimica Uniao, S.A. Petrochemicals 5.50 2.88 8.38

Poliolefinas, S.A. Industria e Comercio Petrochemicals 5.50 2.88 8.38

Oxiteno, S.A. Industria e Comercio Petrochemicals 4.60 1.44 6.04

Industria de Celulose Borregaard, S.A. Pulp 4.90 - 4.90

1975 Companhia de Cimento Nacional de Minas Cement 29.14 3.20 32.34

1974/1977 Companhia Siderurgica, da Guanabara - COSIGUA Steel 76.96 7.50 84.46

Capital Market Development Fund - FUMCAP Capital MarketDevelopment 5.00 - 5.00

1978 Empresa de Desenvolvimento de Recursos Nickel Mining andMinerais - CODEMIN, S.A. Refining 85.00 8.34 93.34

Industrias Villares, S.A. Elevators and Indus-trial Equipment 6.00 - 6.00

Fabrica de Tecidos Tatuape, S.A. Textiles 31.00 - 31.00

Capuava Carbonos Industrias Ltd. Carbon Black 6.18 1.08 7.26

Oxiteno Nordeste, S.A. Petrpchemicals 10.00 - 10.00

Santista Industria - Textil do Nordeste, S.A. Textiles 6.45 1.00 7.45

Tecanor S.A. - Textil Catarinense do Nordeste Textiles 6.00 - 6.00

FMB S.A. Productos Metalurgicos Iron and AluminumCastings 20.00 - 20.00

Mineracao Rio do Norte S.A. Mining 15.00 - 15.00

Cimetal Siderurgia S.A. Iron and Steel 7.0 3.0 10.0

Total Gross Commitments 355.53 39.69 395.22

Less Cancellations. Terminations, Repayments and Sales 256.85 8.51 265.36

Total Commitments Now Held by IFC 98.68 31.18 129.36

Total Undisbursed 10.38 6.94 17.32

-32-

ANNEX IIPage 4

C. PROJECTS IN EXECUTION 11

There are now 40 effective Bank loans under disbursement:

Loan No.

755 Education Project: US$8.4 million loan of June 21, 1971; EffectiveDate: October 28, 1971; Closing Date: June 30, 1978. The projectis substantially completed. Final project costs are US$25.2 millionwith a cost overrun of US$4.2 million (20%) being met by the Borrower.Final disbursements of the Bank loan are underway.

756 Santos Port Project: US$45 million loan of June 21, 1971; EffectiveDate: October 29, 1971; Closing Date: June 30, 1979. After longdelays, project execution is proceeding satisfactorily. Constructionof the railway access Paratinga-Pereque by FEPASA is completed. Theinability of RFFSA to pay its share of the costs for the left bankrail access was overcome by PORTOBRAS which obtained a loan fromBanco do Brasil for this purpose. Because of insufficient increasesin tariffs to compensate for inflation, Santos port is experiencingfinancial difficulties.

828 COSIPA Steel Expansion Project, Stage II: US$64.5 million loanof June 14, 1972; Effective Date: October 5, 1972; ClosingDate: June 15, 1979. The Stage II project will be substantiallycomplete by December 1978 at a total project cost of US$970 million.This is thirty months behind the appraisal schedule and at a cost ofUS$593 million (157%) higher than anticipated at the time of appraisal.However, the project is still justified. Production reached 1.54million tons of raw steel equivalent in 1977. Production reachedthe project's design capacity of 190,000 tons of raw steel per month(the annual equivalent of 2.3 million tons) during one peak month inmid-1978.

829 Sao Simao Hydroelectric Project: US$60 million loan of June 14,1972; Effective Date: September 20, 1972; Closing Date:September 30, 1979. Construction of the project is proceedingaccording to schedule, and is expected to be completed by March of1979. An anticipated 50% cost overrun, which does not affect theeconomic justification of the project, is being covered by local andforeign borrowing. The first four units of the power plant werecommissioned in June of 1978.

I/ These notes are designed to inform the Executive Directors regarding theprogress of projects in execution, and in particular to report any prob-lems which are being encountered, and the action being taken to remedythem. They should be read in this sense, and with the understandingthat they do not purport to present a balanced evaluation of strengthsand weaknesses in project execution.

-33-

ANNEX II

Page 5

Loan No.

853 Alto Turi Land Settlement Project: US$6.7 million loan of July 24,1972; Effective Date: February 15, 1973; Closing Date: June 30, 1980.The settlement agency, COLONE, has prepared revised farm developmentplans whose credit component, to be financed by public financialinstitutions, will be significantly higher than originally estimated,although still low in comparison to other settlement projects.Administrative delays in the release of public funds for farmcredit, road construction and COLONE working capital requirementsand difficulties in recruiting project staff delayed the startof project execution. COLONE continues to be hampered by lack ofassured financing, and this problem is compounded by cost overrunspresently amounting to about 240%.

923 Itumbiara Hydroelectric Project: US$125 million loan of August 1,1973; Effective Date: October 30, 1973; Closing Date: December 31,1982. Construction of the earth-fill dam was delayed by aboutnine months due to very heavy rains. However, construction of theconcrete dam and power house is ahead of schedule. FURNAS expectsto complete the power plant in December 1981, about four monthsbehind schedule. The present cost estimate is about 88% over theappraisal cost estimate, 13% of which is due to the need forincreased physical quantities due to geological problems. The restof the increase is due to a substantial increase in the size of thetransmission works and to an increase in the cost of civil works.However, the project remains economically justified.

924 Agro-Industries Credit Project: US$54 million loan of August 1,1973; Effective Date: March 11, 1974; Closing Date: December 31,1978. Disbursements for sub-loans totalling US$14.7 million weremade during 1975-76 under procedures which were not in accordancewith the Loan Agreement. These funds have now been prepaid bythe Government, reducing the effective loan amount to US$39.3million. Commitments under this loan are almost at a standstill asa result of competing credit lines at subsidized rates and a generalslow-down in industrial investments. However, disbursements areexpected to improve in 1979, as the Government now plans to restrictthe availability of subsidized credit at the end of 1978. TheGovernment has indicated it will request a postponement of theClosing Date.

1008 Paulo Afonso IV Hydroelectric Power Project: US$81 million loan ofJune 17, 1974; Effective Date: April 15, 1975; Closing Date:December 31, 1978. Resettlement of the 9,700 families displaced bythe Sobradinho reservoir has been satisfactorily completed, and newtowns and villages to house the displaced population have been con-structed. The construction of the underground power station andSobradinho Dam is proceeding on schedule. Construction of thetransmission lines and sub-stations is about 12 months behindschedule. A postponement of the Closing Date will be required.

-34-

ANNEX IIPage 6

Loan No.

1009 Minas Gerais Water Supply Project: US$36 million loan of June 17,1974; Effective Date: January 9, 1975; Closing Date: August 15,1979. Difficulties in subproject preparation, which are now resolved,caused disbursements to fall behind schedule. The loan is now fullycommitted to 41 subprojects of which 10 are under construction and31 completed. The 10 subprojects under construction are expected tobe completed in early 1979.

1067 Second Education Project: US$23.5 million loan of December 27,1974; Effective Date: April 17, 1975; Closing Date: December 31,1979. Project execution is one year behind schedule mainly becauseof delays by the government in providing counterpart financing.Project implementation units have been established in all eightproject states and these, together with the main project unit,PREMEN, are working well. The pre-investment studies in theNortheast, financed under the loan, have been completed and haveyielded useful information for future sector investment planning.

1074 Second Railway Project: US$175 million loan of January 17, 1975;Effective Date: June 17, 1975; Closing Date: June 30, 1979.Project execution is progressing satisfactorily and appropriatesteps are being taken to strengthen project management and control.Cost estimates for the Investment Plan, of which the project is apart, have increased substantially on several items. Therefore,the Plan has been revised and several items have been deleted orpostponed. This revision is not expected to affect significantlythe items included under Bank financing. Although the financialsituation of the borrower has improved, further improvement isnecessary for it to be able to effectively carry out its investmentprogram. The Government has decided to deregulate most freighttariffs and is expected beginning in 1979 to make payments to therailways to meet deficits on uneconomic services which it requiresto remain in operation. These actions should significantly improvethe borrower's financial position.

1075 Fifth Highway Project: US$110 million loan of January 17, 1975;Effective Date: May 15, 1975: Closing Date: December 31, 1979.Project execution is proceeding satisfactorily. Roadworks areprogressing well, and detailed engineering studies for road con-struction and road rehabilitation are now completed. Implementa-tion of the road maintenance component is making progress.

-35-

ANNEX IIPage 7

Loan No.

1151 CSN Steel Expansion Project - Stage III: US$95.0 million loan ofAugust 4, 1975; Effective Date: April 30, 1976; Closing Date:December 31, 1982. The latest cost estimate is US$3,530 million, anincrease of about 67% over the appraisal estimate due to a slowerthan expected start of project implementation, higher than expectedconstruction costs, difficulties in holding the scope of the projectto its essentials and some problems in the management of the expan-sion program. At the request of the Bank, a thorough review of theproject was made. Substantial changes were made resulting in bettermanagement and control of the project. The project is now progress-ing satisfactorily in line with the revised cost estimate andschedule, and remains economically justified.

1152 COSIPA Steel Expansion Project - Stage III: US$60.0 million loanof August 4, 1975; Effective Date: March 4, 1976; Closing Date:June 30, 1980. The project is about two years behind schedule. Thecold mill has been deleted from the project to reflect changes inforecast demand. The Bank has recently agreed to three additionalchanges in the project's scope as follows: construction of a con-veyor belt system to deliver iron ore to the raw materials yard(in lieu of a second rail line), an additional reheating furnace forthe hot strip mill, and changes in the port layout. COSIPA is pre-paring for Bank review a comprehensive report on Stage III includingrevised project capital cost, implementation time schedule andfinancial projections. Due to a shortfall in the government'sequity contributions, COSIPA is experiencing some financial dif-ficulties in spite of its improved operations.

1153 Lower Sao Francisco Polders Project: US$23.0 million loan ofAugust 4, 1975; Effective Date: November 25, 1975; Closing Date:December 31, 1979. CODEVASF made only limited progress on construc-tion for this project during 1977 and 1978 because of heavy rains inthe project area. Physical completion of the project will probablyextend to 1981, and postponement of the closing date will be required.Current cost estimates show an 80% increase over the appraisalestimate of US$56.5 million. These increases have resulted fromdesign changes, rapid increases in the costs of civil works andequipment, and in the cost of land expropriation. Modifications inthe design of emergency and irrigation works are being studied byCODEVASF and its consultants with a view to limiting further costincreases. Project implementation had encountered certain opposi-tion from the population of the project area, which disagreed withthe principles and procedures for land expropriation, settlement,future land tenure and the structure of the proposed cooperativesystem. The implementing agency CODEVASF has revised the socialstrategy to be followed under the project and is improving communi-cations and relations with the area population.

-36-

ANNEX II

Page 8

Loan No.

1171 Third Railway Project (FEPASA): US$75.0 million loan of November 12,

1975; Effective Date: March 24, 1976; Closing Date: June 30, 1979.Project execution is proceeding satisfactorily. The TransportMaster Plan Study for Sao Paulo is presently under way and the first

results are expected shortly. The technical assistance programwhich is intended to improve FEPASA's operations, marketing and dataprocessing systems is showing results. FEPASA's financial position

is not satisfactory. The Government recently deregulated mostfreight tariffs and is starting to make payments to the railways tomeet deficits on uneconomic services which it requires to remain inoperation. These actions should assist in improving FEPASA'sfinancial position. However, the need for a significant redimen-

sioning of FEPASA's operation is becoming apparent.

1195 Rio Grande do Norte Rural Development Project: US$12.0 million loan

of March 1, 1976; Effective Date: July 30, 1976; Closing Date:

June 30, 1981. Progress is being adversely affected by fundingdelays and marketing problems in the principal project crop, peren-

nial cotton. Means of resolving the problem are under discussion.

Implementation of the research and credit components of the projecthas been successful. Disbursements are behind the original appraisal

schedule, partially because of funding delays.

1206 Development Banking Project: US$85.0 million loan of March 1, 1976;

Effective Date: August 26, 1976; Closing Date: March 31, 1979.Project implementation is behind schedule. The major reasons are:(i) an initial delay in the commitment of funds under this project

because of differences between the relending terms of the agencies

concerned and those required under the Loan Agreement. Thesedifferences are now partly resolved; (ii) a leveling off of the

industry's demand for investment financing; and (iii) resource

constraints of the National Development Bank (BNDE). To acceleratecommitment of the loan, the Bank agreed to amend the Loan Agreement

so as to finance the full foreign exchange cost of subprojects.However, commitment of the loan is progressing slowly because of

the existence of competing credit lines at subsidized rates and a

general slow-down in investments.

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. Five sub-loans totalling US$101 million have

been committed with a total Bank contribution of US$23.5 million.

Prospects are good that the full amount of the loan will be com-

mitted by the end of 1978 or in early 1979.

-37-

ANNEX IIPage 9

Loan No.

1249 Agricultural Research I Project: US$40.0 million loan of June 23,1976; Effective Date: September 21, 1976; Closing Date:December 31, 1981. The project is progressing well and in spme

areas ahead of schedule. Implementation of the civil works programis actively in progress at 10 of the 21 research stations includedin the project, and is expected to be accelerated during 1979.

Facilities and research programs at seven experiment stations in thethree priority regions (North, Northeast and Central-West) areproceeding in accordance with project goals. Staffing is in advance

of project goals, but technical assistance being provided by consul-tants and the training program are somewhat behind schedule.

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 Braziliansuppliers. 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 increasesin 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: December 31,

1979. Project execution is on schedule and about 60% completed.Disbursements are behind appraisal forecast, mainly because of delays

in procurement of major subtransmission equipment. The Borrower is

updating its 1976-79 distribution expansion program, and the adjustedprogram should bring disbursements closer to the original schedule

by year-end 1978.

1300 Northeast Power Distribution: US$50.0 million loan of August 27,1976; Effective Date: January 31, 1977; Closing Date: June 30,

1980. Project implementation is about 12 months behind schedule

because of initial difficulties in obtaining a Government definitionregarding participation by Brazilian suppliers. Procurement is

now progressing satisfactorily.

1302 Nutrition Research and Development: US$19.0 million loan ofOctober 1, 1976; Effective Date: December 30, 1976; Closing

Date: December 31, 1980.

The INAN project unit is seriously under-staffed which is adversely

affecting the progress of the project. The nutrition delivery

system's field tests are proceeding reasonably well. Disbursements

under the industrial credit components are behind schedule because

of competitive programs at subsidized rates. Measures to deal with

these problems are under study.

-38-

ANNEX IIPage 10

Loan No.

1309 Second Minas Gerais Water Supply and Sewerage Project: US$40.0million loan of August 27, 1976; Effective Date: January 18, 1977;Closing Date: September 30, 1980. The loan is now fully committedto 65 subprojects in cities of less than 5,000 inhabitants, 38subprojects in cities of between 5,000 and 20,000 inhabitants andwater supply and sewerage subprojects in Greater Belo Horizonte.

Execution of the project is progressing satisfactorily.

1317 Second Agro-Industries Credit Project: US$83.0 million loan ofSeptember 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 loanhave not started.

1343 ELETROSUL Transmission Project: US$82.0 million loan of February23, 1977; Effective Date: June 13, 1977; Closing Date: December31, 1981. The project is about 30% complete and about 60% of thecontracts for supply of equipment and materials to be financed underthe loan have been awarded; the remainder are expected to be awardedby mid-1979. With the exception of a relatively minor component,project execution is on schedule. The shortfall (25%) in loandisbursements, caused by delays in the procurement process, isexpected to be reduced to 10% by mid-1979 and eliminated by the endof that year.

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. Organization of this project is progressing

satisfactorily after initial delays. The credit component isexpected to gather momentum in the near future. Mainly as a result

of administrative difficulties, participation in this project by

landless producers is significantly lower than originally envisaged,but concerted efforts by the State Government and the participating

banks have improved this situation recently. Both the health andeducation components have advanced significantly.

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.

1411 VALEFERTIL Phosphate Fertilizer Project: US$82.0 million loan of

April 29, 1977; Effective Date: July 29, 1977; Closing Date:

May 31, 1980. The project has been progressing satisfactorily

within the original budget estimate, and the plant start-up willexperience only a minor delay. The reorganization of VALEFERTIL

in December 1977 should improve the efficiency of project execution.

Personnel recruitment and training are underway.

-39-

ANNEX IIPage 11

Loan No.

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 and procurement of equipment areproceeding according to schedule. With one exception (FUNDACENTRO),the technical assistance program is underway at the training centers.

1488 Ceara Rural Development Project: US$17.0 million loan ofNovember 17, 1977; Effective Date: March 28, 1978, Closing Date:December 31, 1982. The implementation of the project has proceededsatisfactorily after initial local funding delays. Agriculturalextension and experimentation services, agricultural credit, inputsupply, marketing and storage services are making good progresswhile the parts of the project relating to land purchase credit,agricultural mechanization and cooperative societies organizationare progressing at a slower than expected rate.

1525 Greater Sao Paulo Sewage Collection and Treatment Project: US$110.0million loan of March 10, 1978; Effective Date: August 7, 1978;Closing Date: September 30, 1984. The project is proceedingaccording to schedule.

1537 Paraiba Rural Development Project: US$24 million of May 8, 1978;Effective Date: October 19, 1978; Closing Date: September 30,1983. The project is proceeding according to schedule.

1538 South-Southeast Power Distribution Project: US$130.0 million loan ofMay 1, 1978; Effective Date: September 14, 1978; Closing Date:December 31, 1982. Initial disbursements have been delayed by aboutsix months due to necessary revisions of the beneficiaries' construc-tion programs caused by changes in the power market; however, it isnot certain that project completion will also be delayed.

1557 Sixth Highway Project: US$114.0 million loan of May 8, 1978;Effective Date: October 13, 1978; Closing Date: December 31, 1982.The project is proceeding according to schedule.

1562 COPESUL Petrochemical Project: US$85.0 million loan of July 6, 1978;Effective Date: October 30, 1978; Closing Date: June 30, 1982. Theproject is proceeding according to schedule.

1563 Urban Transport Project: US$88.0 million loan of May 22, 1978;Effective Date: September 1, 1978; Closing Date: December 31, 1981.The project is proceeding according to schedule.

1568 Agricultural Extension Project: US$100.0 million loan of May 22, 1978;Effective Date: September 22, 1978; Closing Date: December 31, 1982.The project is proceeding according to schedule.

1589 Bahia Rural Development Project: US$37.0 million loan of May 22, 1978;Effective Date: December 5, 1978; Closing Date: December 31, 1983.

The project is proceeding according to schedule.

-40-

ANNEX III

Page 1

BRAZIL

SITES AND SERVICES PROJECT

SUPPLEMENTARY PROJECT DATA SHEET

Section I - Timetable of Key Events

(a) Time taken by country to prepare project: Approximately 2 years

(b) Project prepared by: BNH and the low-cost housing companies of theStates of Bahia and Pernambuco and of theMunicipality of Sao Paulo

(c) First presentation to the Bank: January 1977

(d) Departure of Appraisal Mission: May 1978

(e) Completion of Negotiation: November 27, 1978

(f) Planned Deadline for Effectiveness: April, 1979

Section II - Special Bank Implementing Actions

None.

Section III - Special Conditions

(a) States of Bahia and Pernambuco and Municipality of Sao Paulo

to provide community facilities and infrastructure requiredfor subprojects (paras. 51 and 60);

(b) State of Pernambuco to undertake community development programsand provide technical assistanc for the development of small-

scale enterprises (para. 52);

(c) BNH to undertake studies to reduce construction costs and lowerinfrastructure standards (para. 53);

(d) COHAB-PE to conduct an experimental program of economic analysis

of subprojects to help decide on the mix of dwellings for a given

site (para. 56);

(e) State of Bahia to improve the physical facilities provided to

URBIS to increase its productive efficiency (para. 57);

-41-

ANNEX IIIPage 2

(f) CORAB-SP, COHAB-PE and URBIS annually to prepare financialstatements based on their investment program for the ensuingthree-year period for the purpose of financial planning(para. 58);

(g) COHAB-SP, COHAB-PE and URBIS to inform the Bank of any proposedchanges in policy that may affect the execution of the project andallow the Bank a reasonable opportunity to comment on such changes(para. 58);

(h) State of Pernambuco to finance infrastructure for the squatterupgrading subproject in Recife (para. 60);

(i) BNH to relend proceeds of Bank loan under standard PLANHAP terms

(para. 61);

(j) COHAB-SP, COHAB-PE and URBIS to strengthen their implementationcapacity to ensure the smooth and efficient execution of sitesand services and building materials loans subprojects(paras. 62 and 72);

(k) BNH, COHABs and the Bank to undertake annual review of thePLANHAP investment plans (para. 63);

(1) Bank to have the right to cancel from loan account amountequivalent to the value of expenditures eligible for Bankfinancing under subprojects incorrectly approved by BNH(para. 64);

(m) State of Pernambuco to assure coordination of the various stateagencies involved in the squatter upgrading subproject (para. 72);and

(n) The State of Bahia, the State of Pernambuco and the Municipalityof Sao Paulo to facilitate land acquisition by the CORABs (para. 75).

ô

ss

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18RD 13746.61 DECEMBER 1978

CANDEJAS

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97; BRAZIL

SITES AND SERVICESAND LOW COST HOUSING PROJECT

SaKador Metropolitan Area