Document of

The World Bank

FOR OMCAL USE ONLY

RepwtNe. P-4328-BR

REPORT AND RECOMMENDATION

OF THE

PRESIDENT OF THE

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

TO TIE

EXECUTIVE DIRECTORS

ON A

PROPOSED LOAN

IN AN AMOlJNT EQUIVALENT TO US$ 57.0 MILLION

TO THE

FEDERATIVE REPUBLIC OF BRAZIL

FOR THE

UPPER AND MIDDLE SAO FRANCISCO IRRIGATION PROJECT

May 22, 1986

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CURRENCY EQUIVALENTS

US$1.00 = Cz$ 13.80 (February 28, 1986) 1/Cz$1.00 = US$0.072464 (February 28, 1986) 1/

FISCAL YEARS

Government of Brazil = January 1 to December 31Northeast Rural Development Program = April 1 to March 31Project = April 1 to March 31

/ A new currency, the Cruzado, equal to 1,000 cruzeiros, was introducedeffective February 28, 1986, at the exchange rate shown above. The cruzeirowill continue to be legal tender until March 1, 1987, but will be devaluedagainst the Cruzado at a daily rate of 0.45% starting February 28, 1986.

FOR OFFCAUL USE ONLY

GLOSSARY OF ACRONYMS

BB Banco do Brasil(Bank of Brazil)

BNB Banco do Nordeste do Brasil(Bank of the Northeast of Brazil)

CODEVASF Companhia de Desenvolvimento do Vale do Sao Francisco(Sao Francisco River Valley Development Company)

COELBA Companhia de Electricidade do Estado do Bahia(Electric Company of Bahia)

COTIA Cooperativa Agricola de Cotia(Agricultural Cooperative of Cotia)

DER Departamento de Estradas de Rodagem(Department of Roads)

DNOCS Departamento Nacional de Obras Contra as Secas(National Department of Drought Works)

DNOS Departamento Nacional de Obras de Saneamento(National Department of Sanitary Works)

EMATERBA Empresa de Assistencia Tecnica e Extensao Rural deBahia(Technical Assistance and Rural Extension Company ofBahia)

FAO/CP United Nations' Food and Agriculture Organization/WorldBank Cooperative Program

FSESP Fundacao de Servicos de Saude Publica(Public Health Service Foundation)

ICB Concorrencia Internacional(International Competitive Biddings)

LCB Concorrencia Local(Local Competitive Biddings)

PIN Plano de Integracao Nacional(National Plan of Integration)

POLONORDESTE Programa de Desenvolvimento de Areas Iategradas do

Nordeste(Program of Development of Integrated Areas of theNortheast)

This document has a rstricted distribution and may be used by rmcipients only in the performanceof their of1icial duties Its contents may not otherwise be disclosd without World Bank authorization.

PROCANOR Programa Especial de Apoio as Populacoes Pobres dasZonas Canavieras

(Special Program of Support for Poor Populations of theSugar-Growing Zones)

PROHIDRO Programa de Recursos Hidricos(Water Resources Use Program)

PROVARZEA Programa para Irigacao de Varzeas(Program of Irerigation of Flooding Lands)

SERTANEJO Programa Especial de Apoio ao Desenvolvimento da RegiaoSemi-Arida do Nordeste

(Special Program of Support for the Development ofthe Semi-arid Region of the Northeast)

SUCAM Superintendencia de Campanh*s Medicinais(Superintendency of Public Health Campaigns)

SUDENE Superintendencia de Desenvolvimento do Nordeste(Superintendency for the Development for the Northeast)

UNDP United Nations Development Programme

BRAZIL

UPPER AND MIDDLE SAO FRANCISCO IRRIGATION PROJECT

Loan and Project Summary

Borrower: Federative Republic of Brazil

Pr!Ject Executing Sao Francisco River Valley Development CompanyAgency: (CODEVASF)

Amount: US$57.0 million equivalent

Terms: Repayable in 15 years on a fixed amortizationschedule, including 3 years of grace, at the Bank'sstandard variable rate.

Beneficiaries: The project would benefit about 9,200 low incomefamilies comprising (a) 2,600 farmer families inexisting CODEVASF irrigation perimeters operating up

to 6 ha plots; (b) 2,200 landless families to besettled on newly irrigated land in 4 ha holdings; and(c) about 4,400 additional rural families throughcreation of permanent and part-time jobs.

ProjectDescription: The proposed project is part of the Federal Irriga-

tion Program, designed to increase the income of thesmall farmers living in one of the driest areas of theNortheast Region. It would also provide support forCODEVASF to develop the capability required forexecuting, operating and managing its entire irriga-tion program. The project would provide for therehabilitation of 17,800 ha of irrigated lands and theirrigation of some 11,000 ha of new lands. Incre-mental outp.t from the project wou'd conatribute tooffset regioral deficits of basic foods and to producesignificant dmounts of horticultural and export crops*

Risks: CODE'TASF has limited experience in multi-facetedoperations and qualitative and quantitative limUita-tions at middle management level to superviseengineering consultants and contractors. The projectincludes considerable technical assistance andinstitutional strengthening to help overcome presentshortcomings and to develop CODEVASF capability tooperate and maintain the investment at full develop-ment. The expected benefits of the proposed projectcannot be achieved through irrigation alone; itrequires interinstitutional cooperation among a nimberof agencies responsible for assisting the farmers withagricultural extension services, credit and inputsupply. During project preparation, institutionalweaknesses were identified and measures introduced toimprove institutional effectiveness and coordination.

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- - - - US$ Millions - - - -Estimated Project Costs Local Foreign Total

As New Pbrmoso A Irrigation 24.7 17.2 41.9B. Rehabilitation Schemes 17.4 13.0 30.4C. Production Support Activities 5.8 1.0 6.8D. Investment Credit 3.4 0.6 4.0E. Social Investments 2.7 1.6 4.3F. Institution Building 3.4 3.9 7.3

Tbtal Baseline Cost 57.4 37.3 94.7

Physical Contingencies 6.5 5.1 11.6Price Contingencies 11.2 b.1 17.3

Total Project Cost 75.1 48.5 123.6 1/-~~~~

Financing Plan

Govertment 66.6 - 66.6IBRD 8.5 48.5 57.0

TOTAL 75.1 48.5 123.6

Estimated Disbursement- - - - - - - - - - -US$ Millions - - … - - - - - - -

Bank F! 1987 1988 1989 1990 1991 1992 1993 1994

Annual 4.72/ 8.6 15.2 12.4 8.7 4.3 1.7 1.4Cumulative 4.7 13.3 28.5 40.9 49.6 53.9 55.6 57.0

Rate of Return: 15X 3/

- Rehabilitation SchemesEstreito: 14%Sao Desiderio: 16%

- New Formoso A Irrigation: 15%

Map: IBRD 19210

1/ Including about US$11.2 million of local taxes.7/ Including initial deposit of US$2.5 million into the Special Account.

_ This figure is based on calculations for three schemes (Estreito, SaoDesiderio and Formoso A) and estimates for the other five.

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

REPORT AND RECOMMENDATION OF THE PRESIDENTTO THE EXECUTIVE DIRECTORS

ON A PROPOSED LOAN OF US$57.0 MILLIONTO THE FEDERATIVE REPUBLIC OF BRAZIL

FOR THE UPPER AND MIDDLE SAO FRANCISCO IRRIGATION PROJECT

1. I submit the following report and recommendations on a proposedloan to the Federative Republic of Brazil for the equivalent of US$57.0million to help finance the Upper and Middle Sao Francisco IrrigationProject. The loan would have a term of 15 years, including 3 years ofgrace, at the Bank's standard variable rate.

PART I - THE ECONOMY

2. An economic report entitled Brazil: Country EconomicMemorandum" (Report No. 5373-BR, dated February 26, 1985) was distributedto the Executive Directors on March 7, 1985.

3. Brazil's Government changed in March 1985 following indirectelections in January for the first civilian president in 21 years. Thiscompleted a major stage of the return to a fully democratic government andinvolved a change in regime as well as administration, re-establishing theauthority of elected Federal and State representatives throughout Brazil.In this changed environment the inability of the successful presidentialcandidate, Mr. Tancredo Neves, to take office, created a crisis for the newGovernment. On Mr. Neves' death in April 1985, Vice-President Jose Sarneybecame President and has since faced the task of pursuing the objectivesstated by Mr. Neves, while also establishing his own authority in the NewRepublic.

4. The Sarney government is committed to a program of reform,economic growth and inflation control, with a strong social and anti-poverty orientation. Its first National Development Plan for 1986-89,presented to Congress in November 1985, stresses social objectivesincluding the gradual recovery of real wages and, among Governmentprograms, a concentration on improving health, nutrition and housing forlow-income Brazilians. Reform of the public sector is a strategicobjective. The Government intends to concentrate more on "traditional'functions, such as the provision of social services and basic infra-structure, leaving directly productive activities increasingly for privatesector initiative. Given population growth of 2.2% p.a., and a more rapidincrease in the labor force, the Plan states as an essential condition areturn to GDP growth of at least 6% a year. Three major stabilization aimsare embodied in the Plan: reductions in the public sector deficit, re-negotiation of the external debt, and the control of inflation.

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Recent Economic Performance

5. Brazil achieved a remarkable 11% average annual growth in realGDP in the years 1967 to 1973, with declining domestic inflation and asignificant liberalization of both foreign and domestic trade, Furthersubstantial growth occurred in the years from 1974 to 1980, at an annualaverage rate of 7%, but in greatly changed circumstances. Following thelarge increases in 1973 in the price of imported oil, the internationalrecession, and the sharp deterioration in the terms of trade, successiveBrazilian governments sought to maintain output and employment growththrough policies characterized by generous credit and tax incentives forindustrial and agricultural exports and import substitution; rising importbarriers; investment in domestic energy resources to substitute forimported oil; the expansion of state enterprises; and heavy foreign borrow-ing. Between 1975 and 1980, Brazil's medium- and long-term debt more thandoubled from US$23.5 billion to US$56.5 billion, with total obligations ofapproximately US$70 billion, including short-term debt. The efforts toredress the external imbalance after 1974 created strong internal pressuresand increased inflation. The economy remained vulnerable to externalshocks, and when further increases in oil prices occurred in 1979 and 1980,and international interest rates increased, the current account deficitmore than doubled to US$12.4 billion. Domestic inflation accelerated to110%.

6. Stabilization measures, relying heavily on monetary policy,resulted in a decline of GDP in 1981, ending the long period of sustainedgrowth. Incipient recovery was checked in 1982 by a combination ofesternal developments, including declining world commodity prices, economicproblems of some major trading partners, and regional events leading to thedebt crisis of August 1982. Faced with the loss of its reserves, thereluctance of foreign banks to roll over existing loans or extend newcredits, and bleak internatinnal market prospects, Brazil sought assistancefrom the International Monetary Fund in support of an intensified adjust-ment program. In February 1983, the IMF pledged financial assistanice ofthe order of US$5.4 billion through the Extended Fund Facility andcompensatory financing for the years 1983-85. Associated with this werecommercial bank commitments for 1983 of US$4.4 billion in new loans, therescheduling of US$4.6 billion in loan repayments due in 1983, and othermeasures of financial support. A similar agreement for 1984 provided,inter alia, for the rescheduling of US$4.7 billion in loan repayments, andthe 6ommitment of US$6.4 billion in new commercial bank loans.

7. With this support, and through adjustment measures which includeda 30% devaluation of the cruzeiro early in 1983, import restrictions, andtight monetary and fiscal restraints, Brazil weathered its foreign exchangecrisis. A trade surplus of US$6.5 billion was achieved in 1983 as importsdeclined by 21% and exports increased by 9%; the current account deficitwas reduced from US$14.8 billion in 1982 (equivalent to about 5% of GDP) toUS$6.2 billion in 1983.

8. The short-run cost of these adjustments was nevertheless high.Inflation reached 211% in 1983 as a whole, exacerbated by crop shortages,

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very high real interest rates, and the effects of devaluation. Real GDPfeLl by 3.2% in 1983, with the greatest reductions concentrated in theindustrial and commercial sectors. Per capita GDP declined by over 12%during 1981-83 and industrial employment by over 20%, with the largestreductions in incomes and employment concentrated in the main industrialcenters. Much of the social progress made in the 1970s--when all incomegroups gained from economic growth and the expansion of education, health,housing and urban and rural development programs-was undermined by therecessicn.

9. The recovery began in 1984. Balance-of-payments performance wasagain highly positive, aided by exchange rate changes which fully accountedfor domestic inflation and by the strong growth of the US economy. Anunprecedented trade surplus of US$13.1 billion wps generated. Althoughtotal imports, especially of oil, continued to fall, much of this surplusresulted from export expansion. Measured in current US dollars, totalexports for 1984 were 23Z greater than in 1983; the comparable increase forindustrial exports was 37%. Refl_cting the favorable trade performance,and substantial net capital inflows, Brazil's international reserveposition also improved markedly in 1984 with a net increase of over US$7billion. Sparked by the export resurgence, GDP for 1984 is estimated tohave grown by 4.5% in real terms, or over 2% per capita. The increase inmanufacturing exports helped industrial recovery, despite the fact that formost sectors the proportion of total output which is exported remainedsmall. Overall expansion was still inhibited by depressed domestic marketconditions, high inflation (224%), and real interest rates of 30-40%.

10. In 1985, GDP growth accelerated and is estimated to have reached8.3% in real terms for the year as a whole. The recovery was led byindustry, which expanded by an estimated 9.0%, though investment spendingremained low. Industrial employment increased by 6%. Open unemploymentdeclined significantly in 1985, in the major urban centers. Agricultureexpanded by an estimated 8.8%, contributing both to the balance of paymentsand to domestic supply. Temporary price restraints imposed by the newGovernment resulted in a reduction in price increases from nearly 12% amonth in the first quarter of 1985 to 7.6% in the second. Subsequentincreases, however, brought the 1985 annual rate to 235%. Externally, thetrade surplus amounted to over US$12.4 billion, the current account deficitwas about 0.5% of GDP, and gross intcrnational reserves remained at a levelequivalent to about 8 months o' imports.

11. The high GDP growth of 1985 was achieved by relaxing demandpolicies in the belief that the increased demand could be absorbed by thesubstantial excess capacity in the economy. The public sector deficit,adjusted for monetary correction, increased from about 1.6% of GDP in 1984to an estimated 3.3% in 1985. Generous wage settlements in the organizedindustrial sector, including partial quarterly adjustments of wages,resulted, at least temporarily, in real wage gains of 8-10% for theseindustries, and Federal Government salaries #ere also increased tocompensate for large previous declines. Profits were high in many privatesector activities. Monetary policy from August 1985 was accommodating; infact, some of the expansion in the monetary aggregates that occurred was

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aimed at reducing interest rates. With a sharp reduction in foreignftnancing, the growing public debt was financed domestically at high,though later declining, real interest rates. The real rate on Governmentsecurities declined from 21% in August to 15% by the end of the year. Forthe year, as a whole, the monetary aggregates increased faster than the235Z inflation: 251Z for the monetary base, 312% for MI, and 262% for M3.

12. By the end of 1985, inflation was causing new concern. The rateof inflation increased late in the year because of the need to raise publicsector and other regulated prices that had been held down in previousmonths and through anticipation of the effects of a drought in the Southwhich damaged food crops and coffee. Inflation reached monthly rates of11% in November and 13% in December, followed by rates of 16% and over 14%in January and February of 1986, respectively. In late 1985, theGovernment had prepared a program to reduce inflation gradually which wascentered around a substantial reduction of the fiscal deficit. Taxes wereincreased and there were cuts in Federal Government and state enterpriseexpenditure. Budgetary control was strengthened in January 1986 by theunification of the fiscal and monetary budgets, transferring to theTreasury the responsibility for programs previously financed by the CentralBank and Bank of Brazil; the termination of the Bank of Brazil's role as asecond monetary authority; and the establishment of a National TreasurySecretariat to centralize budget disbursements. A program forrestructuring and -elective privatization of state enterprises wasinitiated. Alarmed by the spurt in inflation in December and January, theGovernment tightened consumer credit and announced a plan to increase foodimports to offset the drought-related increase in agricultural prices. Atthe same time, a more radical comprehensive program to stop inflation wasbeing prepared.

Economic Outlook

13. On February 28, the Government initiated its new program forstabilization and currency reform. Until then, the inflation outlook for1986 was threatening. There were a number of inflationary factors needingto be dealt with, including the disappearance of excess capacity in anumber of industries, the pressures to raise wages to pre-recession levelsand to protect workers from higher future inflation, the poor agriculturalharvest, and the need to raise some public sector tariffs and prices.Moreover, there was a growing awareness that maintaining inflation at200-250% a year, the rate of the prior three years, was likely to be verydifficult over the medium term. The economy was reacting very quickly tonew, negative shocks, and the indexation system made it hard to bringinflation down, once the shocks were reflected in the price index. Inaddition, the small size of the monetary base relative to GDP (about 2%)and the high liquidity of Government bonds complicated the use of monetarypolicy to reduce aggregate demand.

14. The new program seeks both to eliminate the impact of past,indexed inflation and to change future inflation expectations. It featuresa currency reform, with the new cruzado initially worth 1,000 cruzeiros; atemporary price freeze on goods and services; an exchange rate set at

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Cz$13.8 to the US dollar for a period to be determined; wage adjustments totheir average real value over the previous 6 months, with annualadjustments thereafter, at least partly indexed to inflation; the freezingfor one year of rent and mortgage payments; prohibition of indexation offinancial contracts for periods of less than a year, except for personalsavings accounts; the conversion of nominal cruzeiro contracts toappropriate cruzado values; the conversion of indexed Government bonds tocruzados at the parity existing on February 28, without any adjustment, atleast for one year, in the nominal value of the new bonds; and a number ofmeasures intended to liberalize the financial system. These sweepingfinancial reforms were accompanied by a continued effort to reduce thefiscal deficit and to use monetary policy to stabilize and, if possible,reduce real interest rates. A limited unemployment insurance program wasintroduced. Initial political and public reactions have been highlypositive.

15. Preliminary assessments suggest that the reforms will provideincreased stability and encourage productive private sector investment,although there are risks inherent in the reforms, including problems ofadjustment for the financial sector. The transition period could be markedby a temporary reduction in growth. Nevertheless, GDP growth is expectedto be substantial, even with below-normal agricultural growth due to therecent drought. The exchange rate remains competitive; previous mini-devaluations against the US dollar, and the decline of the dollar relativeto the currencies of Brazil's other trading partners, have resulted in a15-20% fall in the real effective exchange rate since early 1985. TheFebruary 28 wage adjustments do not raise real wage costs. The large tradesurplus remains a positive factor for growth. While progress needs to becarefully monitored, the economic outlook has been substantially improvedby the measures to restore internal stability to complement the strongBrasilian performance in external trade and the balance of payments.

16. The medium-term economic outlook for Brazil is thus encouraging,assuming the maintenance of a sound exchange rate policy, reasonablesuccess in the implementation of the new stabilization package, and thepresent determination to reduce the public sector deficit. A focus onfurther export promotion, greater productive efficiency, improved resourceallocation and increased savings and investment will be required if annualGDP growth rates are to remain high enough (6-7% on average) to restoreliving standards and generate the employment growth (at least 4% per annum)to fit new entrants into the labor force and reabsorb those still affectedby the recent recession.

17. The country's prospects depend on external factors outside thecontrol of Brazilian policy makers as well as on economic and socialpolicies pursued within the country. Recent developments, including thedecline in international interest rates and the fall in oil prices, havebeen positive for Brazil. A 1% drop in average interest rates means abalance-of-payments gain of about US$800 million. The agreement reached inMarch with commercial bank creditors reschedules 1985 maturities, rollsover 1986 maturities until early 1987, and reduces interest rates on thisdebt from 2-1/8 to 1-1/8% over LIBOR. This agreement, which affects about

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20% of Brazil's variable rate debt, will reduce annual interest payments bysome US$140 million. A reduction of a dollar per barrel in oil pricesmeans a net gain of over US$100 million a year.

18. Brazil remains dependent on its success in exporting andtherefore on the international economy, market access, and its own tradepolicies. However, major structural changes in its trade accounts inrecent years, including substantial export growth and recent efficientimport substitution in both industrial products and petroleum, should makeit feasible to continue to generate large trade surpluses for severalyears, even with nominal growth in non-oil imports of up to 20% a year.

External Financing and Creditworthiness

19. On the basis of relatively cautious assumptions about theinternational environment, but assuming continued domestic economic growth,Brazil could achieve substantial improvements in its balance of paymentssituation, external debt outlook, and creditworthiness indicators. Bankanalysis, based on expected macro-economic and sector performance undercurrent and planned economic policies, results in projections of GDP growthaveraging about 7% in 1985-90, with additional foreign financing. Brazil'snet medium- and long-term financing needs are projected to average US$3.6billion annually in the period 1986-90. Of this amount, approximately US$2billion would be needed annually from commercial banks, which would resultin a gradual reduction in commercial bank exposure in Brazil in realterms. With these moderate levels of net new foreign borrowing, Brazil'stotal medium- and long-term debt would grow at an annual rate of 3.8% from1985 to 1990, below the projected rate of international inflation.

20. Brazil's creditworthiness indicators are expected to improvesubstantially by the end of the decade. The medium- and long-term debtservice ratio is projected to fall from 69% of goods and non-factor serviceexports in 1985, before the March rescheduling, to 52% in 1990. Similarly,the ratio of total external debt to exports, which amounted to 3.6 in 1985,is projected to decline to 2.6 by 1990. Nonetheless, debt service paymentswill remain high. Interest payments alone would be equivalent to 24% ofexports in 1990, compared to 39% of exports in 1985. Therefore, Brazilwill need to continue rescheduling its commercial bank debt until the endof the decade, unless it can obtain new foreign resources in excess of itsnet medium- and long-term borrowing requirements. With such rescheduling,continuation of its adjustment program and of its sound balance-of-paymentsperformance, and moderate infusion of new foreign financing, Brazil'slong-term prospects are good.

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PART II - BANK OPERATIONS IN BRAZIL

21. By March 31, 1986, the Bank had made 145 loans to Brazil,amounting to US$11,147.1 million (net of cancellations), of which 66 werenot yet fully disbursed. During FY70-75, annual disbursements averagedUS$155.0 million, and US$285.0 million during FY76-81, reaching US$472.0million in FY82, US$764.0 million in FY83, US$1,405.0 million in FY84, andUS$1,054.5 million in FY85. The undisbursed amount as of March 31, 1986was US$3,687.9 million. Annex II contains a summary statement of Bankloans and IFC investments.

22. Over the FY77-84 period, annual Bank lending to Brazil rangedfrom US$425 million to about US$1,573 million per year. In FY84, 10 loanstotalling US$1,573.8 million were approved. Nine loans totallingUS$1,523.0 million were approved in FY85. Thus far in FY86 five loans havebeen approved; they are: a small towns improvement project in the amount ofUS$24.5 million; a Northeast urban reconstruction project for US$100.0million; an irrigation engineering project for US$48.0 million; ametropolitan urban development project for US$55.0 million; and a secondagricultural extension project for US$155.0 million. A Northeast Healthproject, for US$57.0 million, is scheduled to be considered by theExecutive Directors on May 22, 1986. Work is advanced for a secondagricultural sector project; an agricultural credit project; a power sectorproject; several projects in the Northeast region including five r3raldevelopment projects; and a public sector management project.

23. Brazil's external medium- and long-term public and private debtoutstanding and disbursed is estimated to have been US$88 billion at theend of 1985. The Bank's share in-this total is estimated at 4.8% while itsshare in total debt service is estimated at 4.1%.

24. As of March 31, 1986, IFC commitments to Brazil totalledUS$1,041.14 million, of which US$710.73 million had been sold, repaid orcancelled. Of the balance of US$330.41 million, US$255.47 millionrepresent loans and US$74.94 million equity. A summary of IFC'sinvestments as of March 31, 1986 is given in Annex II.

Lending Strategy

25. Brazil has been through a difficult transition period, achievingonly at substantial domestic cost, and with international cooperation, theadjustments required to regain reasonable equilibrium in its balance ofpayments. Economic recovery, export-led, began in 1984 when the GDPincreased by some 4.5%. For 1985, growth is estimated at over 8%. Thedomestic stabilization measures which were introduced on February 28,1986, improved the prospects for maintaining satisfactory growth rates inthe medium term. Stability and growth will depend on tighter public sectorexpenditure and deficit control, increased savings and investment, and asound balance of payments. External and domestic resources will continueto be constrained. Tne Bank lending strategy is therefore designed to

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support the ongoing restructuring process, promote the mobilization andeffective use of resources, and contribute to the attainment of social andregional development objectives to which high priority is being attached bythe Government.

26. In the short run, the Bank will continue to help ease Brazil'sfinancing constraints through several modalities of the Bank's SpecialAction Program, approved by the Executive Directors on February 22, 1983.These include working capital financing and finaricing of a higher share ofproject costs. Also, greater use is being made ot Project Special Accountsinto which Bank funds are deposited in advance in order to reduce the needfor the Government to prefinance the Bank's share of project costs.

27. The Ban;, s longer-run lending strategy is directed toward helpingBrazil in sustaining efficient growth. One focus of the lending program ison structural transformation and efficient resource use. Expanding exportcapacity in industry and agriculture will ease the foreign exchangeconstraint on development while promoting efficiency through exposure tointernational competition. Sector loans to industry and agriculture,envisaging a restructuring of incentive and trade policies in support ofGovernment initiatives, have been approved by the Executive Directors.Follow-up loans designed to support the next steps in this adjustmentprocess are under preparation. Given agriculture's large potentialcontribution to export growth and import substitution, adjustments in thissector will be crucial to Brazil's stabilization and growth. Sector loansin support of financial and fiscal reforms will help promote the flow ofresources to the private sector. Lending in support of the financialrestructuring, rehabilitation and development of the energy and industrialsectors is also envisaged.

28. Another lending priority is the rehabilitation and development ofinfrastructure. Lending for energy development has addressed the need toreduce petroleum imports while providing the energy required formaintaining high rates of economic growth in the future. In the electricpower sector, the Bank's role will be to assist the Government and sectorauthorities in their efforts to improve the financial condition of thesector through realistic investment and financial policies. Lending fortransportation will be directed toward the rehabilitation and maintenanceof the existing transportation network with expansion in areas whereeconomic activity is outgrow-Ing present capacity.

29. A third lending objective is to help intensify the efforts of theGovernment to increase the productivity of the lowest income segments ofthe population, to broaden the opportunities open to those groups, and toimprove their living conditions. Previous loans for primary education,vocational training, agricultural research, agricultural extension, polderconstruction in the lower Sao Francisco river basin, and integrated ruraldevelopment were designed to assist low-income groups in rural areas,especially those in the Northeast and the Northwest. Loans for watersupply and sewerage projects throughout Brazil, loans for urban transportin several major cities, a loan for sites and services and low-cost

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housing, and four loans for urban development in two metropolitan areas, inmedium-sized cities, and in small market towns, are assisting theimprovement of the living conditions of the urban population, particularlyof the urban poor. Following up on a nutrition research and developmentproject and a first health project for the northwest region, a basic healthcare project in the state of Sao Paulo and a national health studiesproject are helping promote efficiency, cost effectiveness and equity inthe delivery of health services in Brazil. Future lending in the healthsector will seek to extend coverage of basic health services in theNortheast, and to combat endemic diseases in the Northeast and theNorthwest. Continued lending for integrated rural development andirrigation projects in the Northeiast of Brazil will support theGovernment's objectives to further illeviate poverty, by addressing theregion's vulnerability to drought, inadequate structure of regionalinstitutions, and concentration of land ownership. Further lending forurban development will address ways to improve urban services andinfrastructure, while simultaneously strengthening the financial basis ofmunicipalities, particularly in the Northeast region, with a view towardself-financing of investments and cost recovery. New projects for watersupply and sewerage will also foster these goals while extending servicesto rural areas and to the low-income urban population. Education lendingwill continue to strengthen financial and administrative institutions whilealso increasing the contribution of education to the development process,especially in the Northeast. The proposed project, the third to beundertaken by the Bank with CODEVASF (see para. 41 below), would have aconsiderable impact on rural poverty (para. 35) and the beneficiaries'ability to withstand adverse climatic conditions in the Northeast andwould strengthen CODEVASF to undertake an expanded irrigation program(paras. 44-47).

30. Improving the efficiency of the public sector and supporting theGovernment's efforts to reduce the public sector deficit are importantcomponents of the Bank strategy for Brazil. A special Public SectorManagement project, designed to strengthen planning and managementcapabilities at the Federal level, is advanced in preparation. The Bank isalso undertaking a review of public sector investment programs and issupporting the Government's efforts to rehabilitate state enterprises.

31. Continued lending by the Bank in Brazil is regarded by theinternational financial community as a sign of confidence in Brazil'sdevelopment prospects. In some sectors, especially in electric power andindustry, Bank participation helped Brazil in the past to obtain additionalresources from bilateral credit agencies and private financialinstitutions. Since 1976, 11 cofinancing operations for about US$570million were arranged and signed with private financial institutions.Cofinancing opportunities were rather limited in Brazil in the past fouryears, as the volume and terms of commercial bank financing available toBrazil were determined within the framework of debt reschedulingnegotiations. Given Brazil's recent progress in restoring balance-of-payments stability and the current efforts to control inflation, theprospects for obtaining new external financing from commercial sources arenow improving. Cofinancing could become important again in the near

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future, and the new cofinancing instruments developed by the Bank couldplay a role in encouraging commercial banks to provide Brazil additionalresources for High priority projects, with better financing terms.

PART III - AGRICULTURE IN THE NORTHEAST

A. Agriculture in the National Economy

32. Although its relative importance in the Brazilian economy hasdeclined, agriculture remains an important sector, employing about 30% ofthe labor force and contributing about 11% to the GDP and about 38% tototal export earnings (1982). During the 1970s, the gross value ofagricultural production grew at an annual rate of nearly 5%. Since 1980,however, the value of agricultural output has declined, reflecting lowerinternational commodity prices, adverse domestic pricing policies,unfavorable climatic conditions, and a restricted agricultural creditsupply. Per capita production of basic foods, such as maize, beans, rice,and cassava, has also fallen. In most years, Brazil has remainedself-sufficient in food, except for wheat. However, periodic imports ofbeans, maize, and rice have occurred, particularly in bad crop years.

33. In recent years, the share of agricultural land devoted toindustrial and export crops (sugarcane, cocoa, soybeans, citrus, andtobacco) has risen sharply. Brazil is the world's largest producer ofcoffee and sugarcane, the second largest of soybeans, and the largestexporter of coffee and orange juice. The changing structure ofagricultural production reflects the fact that most productivity gains,expansion of production area, and increased market integration haveoccurred in the South and Southeast, while the North and Northeast havecontinued to follow traditional agricultural practices. Because of thesector's key role in increasing rural incomes and food supplies, andimproving the country's balance of payments, the Government has shown astrong commitment to agricultural development.l/

B. The Rural Northeast

34. The Northeast is comprised of the States of Maranhao, Piaui,Ceara, Rio Grande do Norte, Paraiba, Pernambuco, Alagoas, Sergipe andBahia, as well as the federal territory of Fernando do Noronha and thenorthern portion of the State of Minas Gerais. Its area is over 1.5million km2, or 18% of the country's total area. The Northeast has been

1/ For further discussion on the agricultural sector, see A Review ofA!rIcultural Policies in Brazil, September 11, 1981, Report No.3305-BR.

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viewed as the nation's foremost problem region since the late 1800s. Thecountry's wealthiest region during the colonial period, it subsequentlylagged behind, as industrial, agricultural and commercial activity shiftedto the south.

35. Drought and uncertain rainfall, highly skewed land distribution,and limited urban employment opportunities have resulted in widespreadpoverty and underemployment. From 1970 to 1983, 3.3 million peoplemigrated from the Northeast. The large number of recent migrants is atleast partially the result of five successive years of severe droughtaffecting large areas of the Northeast from 1978 to 1983. In 1980, theNortheast had a population of 35 million (about 29Z of the national total)growing at 2.2% per annum and an average population density of 22.5inhabitants per square kilometer. About one-half of the population livesin rural areas, and more than one-half of the regional work force isengaged in agriculture. Ownership of agricultural land throughout theNortheast is highly concentrated: farms under 10 ha (70% of all farms)occupy less than 6% of total farm area; farms over 500 ha (1% of all farms)occupy more than 40% of the total farm area. Rural incomes are very low.As of 1980, over 80% ot the rural population earned one minimum salary(about US$675 annually) or less, a little over 35% of the national average,and the poorest 50% received only about 10% of total regional income.

36. The Northeast contributes about one-fifth of the total value ofBrazilian crop production; many regionally produced commodities (sisal,cassava, sugar, cocoa and cotton) represent significant shares of nationalproduction. The zona da mata, a narrow, fertile, coastal strip, containsone-third of the regional population and a major proportion of industry andplantation agriculture (largely sugarcane and cocoa). The agreste is atransitional zone with some semi-arid areas, dominated by mixed farming forthe domestic market as well as the raising of beef and dairy cattle. Thesemi-arid sertao, comprising some 750,000 km2, but only sparsely populated,is the largest of the subregions and the most vulnerable to periodicdroughts.

37. Rainfed agriculture in much of the Northeast, and especially inthe semi-arid sertao, is limited mainly to subsistence crops and toextensive livestock production. Due to high climatic risks, difficulty inobtaining land, lack of access to credit, and inadequate production supportservices, most rainfed farmers in the drought polygon are unwilling toadopt high value crop production methods. The large sums spent by theGovernment in the Northeast for disaster in drought years relief have goneprimarily to support rural small holders in the semi-arid sertao whoserainfed crops have failed.

C. Government Policy for the Rural Northeast

38. Until the 1950s, most Government interventions in the ruralNortheast were limited to drought relief works and emergency programs andto incentives for export crops. The slow pace of socio-economicdevelopment and the need for improved regional planning led to the creation

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in 1959 of the Superintendency for Development of the Northeast (SUDENE).SUDENE was originally responsible for the coordination of all publicinvestment activities, drought emerge&.-y measures, and fiscal and creditincentives to attract new private investment. In the 1970s, initiative forregional policy formulation was transferred to the Ministry of Interiorwith SUDENE coordinating federally-funded special rural programs.

39. The special rural programs have followed two approaches. Thefirst is based on the integrated development of selected subregions and isfocused on specific target groups. Programs following this approachinclude the Program of Development of Integrated Areas of the Northeast(POLONORDESTE), the Special Program of Support for the Development of theSemi-Arid Region of the Northeast (SERTANEJO), which is largely concernedwith alleviating the effects of the recurring droughts, and the SpecialProgram of Support for Poor Populations of the Sugar Growing Zones(PROCANOR). Several parallel programs, including the Northeast WaterResources Use Program (PROHIDRO), the Semi-Arid Tropics Research Programand the Drought Emergency Relief Program, as well as large federal publicirrigation projects, have attempted to increase the productive use ofscarce water resources or to provide temporary drought relief assistance.

40. The second approach to the problems of rural development whichevolved in 1982, implied more attention to the security of tenure, thequality of the soil and the availability of water on the farm. The specialrural programs were no longer to be integrated area by area, but consideredon a state-wide basis along functional lines. A series of region-widesector programs has been worked out to support this approach. One of theseprograms is a fifteen-year Federal Irrigation Program based on acomprehensive regional policy framework and dealing with irrigation workswhich are part of rural development projects.

D. Past Bank Lending in the Northeast

41. The Bank has made 35 loans, totalling US$2,248.6 million, foragricultural and rural development in Brazil. Many of these loans were forprojects with nation-wide impact, but about fifteen were for varioussettlement, irrigation and rural development projects, located in theNortheast2/. Completion and Project Performance Audit Reports for theAlto Turi Land Settlement Project (Loan 853-BR) showed that the projectraised settler incomes beyond expectations, but was less successful in theareas of environmental protection, community organization, and thestrengthening of cooperatives. The recent Project Completion Report forthe Leower Sao Francisco Polders Project (Loan 1153-BR) showed that despiteimplementation delays due to design changes and social tension in the area,beneficiaries' net incomes increased beyond original estimates and smallfarmers were capable of moving successfully from subsistence to commercial

2, A preliminary evaluation of impact is provided in the World BankCountry Study, Brazil: An Interim Assessment of Rural DevelopmentPrograms for the Northeast, Washington, D.C., 1983.

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agriculture. The ongoing Sao Francisco Second Irrigation Project (Loan1729-BR) is progressing satisfactorily and should be completed by CODEVASFin a seven-year period, by December 1986.

42. Ten of the Bank-financed projects located in the Northeast arePOLONORDESTE rural development projects in eight states. Approved from1976 to 1983, all these projects have experienced implementation anddisbursement delays. Among the reasons are the unusually severe andprolonged 1978-83 drought, delays in providing local funds, limitedexecution capacity for carrying out small-scale irrigation activities andinitial lags in the generation of drought-resistant technology for smallfarmers.

43. As part of the Northeast Rural Development Program of 1984, whichdeals with both rural development and irrigation, the Executive Directorsapproved in April 1985 the First and Second Northeast Rural DevelopmentProjects in Sergipe and Rio Grande do Norte (Loans 2523-BR and 2524-BR) andan Irrigation Engineering and Technical Assistance Project in March 1986.Loans for the rural development projects in Bahia and Piaui have beennegotiated and are scheduled for presentation to the Executive Directorsshortly. Other rural development projects have been appraised in Ceara andMaranhao and are in preparation in Minas Gerais, Paraiba and Alagoas. Landtenure improvement activities in the Northeast have been planned under theNortheast Region Land Tenure Improvement Project approved by the ExecutiveDirectors in June 1985.

E. Irrigation in the Northeast

44. The National Irrigation Law of 19793/ defines nationalirrigation policies, rights, obligations and institutionalresponsibilities. The Law distinguishes between "public" and "private"irrigation. Federal public irrigation systems id the Northeast areplanned, constructed and operated by the Sao Francisco River ValleyDevelopment Company (CODEVASF) and the National Department ofDrought-Related Works (DNOCS). CODEVASF, a Government owned companyestablished in 1974 and run along private enterprise lines, is responsiblefor the execution of major public irrigation systems in the Sao FranciscoValley. DNOCS, established in 1945 as a Government agency and subordinatedto the Ministry of Interior until February 1986, is responsible for thedevelopment of public irrigation elsewhere in the semi-arid Northeast. Inthe last few years, the National Department of Sanitary Works (DNOS),another Government agency established in 1940 and subordinated to theMinistry of Urban Development and Environment until February 1986, has alsobegun to develop irrigation projects in the Northeast. Private irrigationprojects are those carried out through private initiative with--orwithout--Government assistance and incentives. Most of them are financedwith the help of the nation-wide Program for Irrigation of Flood Plains andthe Financing Program for Irrigation.

3/ Irrigation Law No. 6662 of June 25, 1979.

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45. At present CODEVASF operates 18 irrigation projects, with some40,000 ha fully developed and 25,000 ha in various stages of construction.DNOCS has 27 irrigation projects in operation, covering a total area ofabout 26,800 ha. However, agricultural production in the irrigatedperimeters has been generally disappointing. The principal constraints toachieving results originally projected have been the poor performance ofexecuting agencies and the erratic annual budgetary allocations to CODEVASFand DNOCS, which tended to be related to the incidence and severity of thedroughts.

46. Brazilian laws provide for the recovery of the entire operationand maintenance cost of the system, as well as part of the capital cost.Charges are levied on a volume basis to cover operation and maintenancecosts and on an area basis to recover part of the capital (see paras. 63-64below).

47. The traumatic effects of the 1978-83 drought have caused theGovernment to review its development policies, priorities and plans for theNortheast. In the outcome of the review, a five-year Irrigation Programfor the Northeast was enacted by Decree on January 29, 1986. Its target isquite ambitious: it proposes to increase the area under public and privateirrigation in the Northeast by one million hectares during the years1986-90. Two weeks later, in order to streamline the decision-making andspeed up the preparation and execution of irrigation projects, thePresident of the Republic appointed a 'Minister of State Extraordinary forIrrigation Affairs" for a term of three years. The appointment was made inthe Decree of February 12, 1986, instituting a three-year NationalIrrigation Program and subordinating to the Minister the three Federalirrigation agencies, DNOCS, DNCS and CODEVASF, with all personnel and otherresources. The Minister is being assisted and advised by an ExecutiveSecretariat for the National Irrigation Program. Responsibility forirrigation components of rural development projects remains with SUDENE;SUDENE will also assist the Minister in managing private irrigationmatters.

PART IV - THE PROJECT

Proj ect History

48. The proposed project is a component of the Federal Iri7qtionProgram (see para. 47 above) established under the framework of tI&Northeast Rural Development Program, and aims at reducing the risks ofrainfed farming in the region. These risks are the result of poor soils,erratic climate, and periodic multi-year droughts that have decimatedregional agricultural production in recent years.

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49. The Federal Government requested Bank assistance in preparing theproject in October 1983. Preparation work was carried out by CODEVASF,with guidance from the FAO/World Bank Cooperative Program and assistancefrom private consultants. The project was appraised during July 1985, andnegotiations were held in Washington, D. C., in March 1986. Mrs. StaelMartins Baltar, of the Federal Planning Ministry and Mr. Eliseu Alves,President of CODEVASF led the Brazilian delegation. A Staff AppraisalReport (No. 5975-BR) is being distributed separately to the ExecutiveDirectors. Annex III provides other key project data.

Project Area

50. All proposed subprojects (Formoso A, Estreito, Sao Desiderio/Barreiras Sul, Formosinho, Ceraima, Curaca, Manicoba and Gorotuba) arewithin the Sao Francisco River Basin in Brazil's Northeast (Map IBRD19210). All are within the drought-prone area and contain fertile soils,well suited for irrigation. Water availability and quality would not beconstraints for the project's requirements. CODEVASF holds title to allthe land in the project area, except in Sao Desiderio/Barreiras Sul whereit has been sold already to small farmers. CODEVASF policy is to awardtitle to its own lands to the present and future operators. The existingcommunication systems and transportation services are adequate to satisfythe service demands expected to arise from the project's execution.

Project Objectives

51. Major project objectives would be: (a) improving the incomes andaccess to social services of about 9,200 rural families; and (b) increasingagricultural production to alleviate regional basic foods deficits and toincrease volumes available for export. To achieve these objectives theproject would: (a) increase the economic return of past investments byrehabilitating seven areas where the irrigation infrastructure is alreadybuilt but where cropping intensity and yields remain below acceptablelevels; (b) develop new irrigation schemes on public lands with expectedhigh returns on Government investments; (c) improve farm technology andprovide farmers agricultural production and social services; (d) strengthenCODEVASF's capacity to plan, construct, operate and maintain the irrigationand drainage works included in this project as well as in its other opera-tions which are part of the federal irrigation program for the Northeast(see paras. 40 and 47 above); and (e) transfer to farmers most of theresponsibilities for the operation and maintenance of internal irrigationand drainage networks. Project objectives are consistent with the Bank' sstrategy (para. 29 above) for the economically disadvantaged Northeast.

Project Description and Detailed Features

52. The project would include the following activities:

(a) Rehabilitation of seven existing irrigation schemes out ofCODEVASF's 18 existing schemes. The total net area covered bythis component would be about 19,730 ha, including 1,910 ha ofnew extensions to the irrigated areas. These schemes were putinto operations some ten years ago. Defects in original designs

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or construction standards, inadequate land preparation andfarming practices, and unsatisfactory maintenance have all led toprecarious water supply in some areas and to rising water tablesin others. Project works would consist of rehabilitation ofcommon irrigation and drainage infrastructure, on-farm upgradingthrough land-levelling, soil amendments and field networkimprovements, and rehabilitation and surfacing of about 105 km ofaccess and service roads. Sprinkler irrigation systems would beinstalled in the new extensions because CODEVASF's experienceshowed that inexrerienced farmers are more willing to adopt thistechnology than surface irrigation.

(b) Construction of the New Formoso A Irrigation Scheme: The FormosoA irrigation scheme would cover a net area of 9,130 ha, of whichsome 7,070 ha (or about 77Z) would be distributed among 1,800small farmers, each owning a 4 ha plot, and the remainder leasedto medium- and large-size farmers. It would involve constructionof an irrigation and drainage network, pumping stations, on-farmworks (including land levelling, installation of sprinklerequipment and construction of field drains), and about 80 km ofaccess and service roads and the installation of electricaltransmission and distribution lines and associated equipment.

(c) Provision of Operation and Maintenance Equipment and Services:This component would include the construction and equipping ofabout 6 workshops, about 7 stores, offices, and acquisition ofheavy machinery and vehicles. Staff salaries and other recurrentcosts needed to operate the system during the seven-year projectimplementation period have also been included in the costestimates.

(d) Provision of Extension Services to Farm Families to help thembecome self-sustaining units, including selection and settlementof farmers in newly irrigated areas and training of farmers andtheir associations in the operation and maintenance of on-farmirrigation and drainage infrastructure and equipment.

(e) Social Services and Infrastructure: New construction or repairsof about 24 schools, about 12 health posts, and at Formoso A,construction of six service centers for delivery of socialservices; construction of housing for about 1,500 farm familiesand carrying out of sanitary erradication and preventiveeducation campaigns against waterborne diseases.

(f) Staff Training and Technical Assistance Programs to provide some1,600 CODEVASF staff the specialized technical, operational andmanagerial skills necessary to implement CODEVASF's entireirrigation program (1986-1990). This component will be financedby the Bank and CODEVASF. However, if UNDP funds becameavailable for this purpose during project execution, US$1.0million of the proposed loan would be cancelled. Duringnegotiations, CODEVASF and the Bank agreed upon the detaileddesign of the staff training subcomponent, and on the draft of a

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FAD Technical Ass1stance Project Document. The effectiveness ofthe FAO Project Document would be a condition of loan effectlive-ness.

(g) Medium- and Long--term Investment Credit for farmers: lt would beavailable in both new and rehabilitation areas to purchasetractors, draft animals and related tillage equipment, and tobuild sheds and on-farm grain storage. Financing would cover upto 100% of the above goods required for on farm development, witha maximum repayment period of 12 years including up to 6 yearsgrace. Sugarcane plantations, irrigation schemes larger than 4ha and automobiles would not be eligible. Cooperatives would beeligible if at least 70% of their members were small farmers whowould benefit directly from the proposed investment. Short-termproduction credit (custeio) would be provided, on a prioritybasis, to project beneficlaries by participating banks. Bothinvestment and production credit would be channeled through theexisting agencies of Banco do Brasil (BB) and Banco do Nordestedo Brasil (BNB). Credit norms would be those specified in theRural Credit Manual issued by the Central Bank (see para. 62below). Extension agents would assist farmers in formulatinginvestment plans. Assurances have been received that thesecriteria would be applied.

Project Implementation

53. Project implementation would begin in 1986 and be completedwithin seven years. CODEVASF, which operates under the Ministry of theInterior, would have overall responsibility for the construction, operationand maintenance of the project, except for the investment credit component,to be carried by the Central Bank and selected government banks. Theschedule takes into account CODEVASF's capability to carry out the farmers'settlement project component in the new Formoso A perimeter and the need tolimit interference of construction activities with cropping in therehabilitation components. As a company, with a core of experienced staff,CODEVASF has more freedom than Government agencies in certain areas, suchas in establishing salaries, borrowing money, and participating financiallyin agroindustrial enterprises. However, CODEVASF has only limitedexperience in multi-faceted operations and quantitative and qualitativelimitations at the middle-management level to supervise engineeringconsultants and contractors. The project's technical assistance component(para. 52 (f) above) aims at giving CODEVASF the capability required forplanning, executing and operating the project. The First, Second and ThirdRegional Directorates of CODEVASF would be the units responsible forproject implementation. In addition to its overall coordination role,CODEVASF would directly manage the settlement program and operate andmaintain the major irrigation. -nd drainage works. Within each perimeter,CODEVASF would organize an operation and maintenance division headed by acivil, mechanical or agricultural engineer (depending on type ofcomponent); the engineer would be directly responsible to the head of theperimeter. The division would be structured into (a) an operational

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unit responsible for day-to-day operation, including irrigation schedulingand water distribution; and (b) a maintenance unit. Both units would beheaded by qualified technical staff in line with project demands.CODEVASF's recently revised guidelines for operations and maintenance aresuitable for the physical conditions to be found in the area after projectcompletion. CODEVASF would provide most of the personnel for agricultural,technical and management services for the rehabilitated subprojects. Asconditions for loan effectiveness, CODEVASF would (a) selectinternationally and retain a construction management firm to assistCODEVASF with all construction phases of the Formoso A subproject; (b)appoint qualified staff as Chiefs of the Districts of Bom Jesus de Lapa andSao Desiderio; (c) appoint at least three suitable and qualifiedspecialists within the Agri ultural Development Unit of each regionaldirectorate involved in project implementation; (d) create a RehabilitationUnit in the Second Regional Directorate, to be responsible for theconstruction of the rehabilitation works; and (e) appoint a high-levelresident engineer to head the Rehabilitation Unit.

54. The State Road Department of Bahia (DER) would be responsible forthe maintenance of the road system to be built by CODEVASF at the Formoso AIrrigation subproject, while COELBA would build, operate and maintain thetransmission lines and electrical distribution systems required by theproject. The Technical Assistance and Rural Extension Company of Bahia(EMATERBA) or another specialized agency acceptable to the Bank would be incharge of extension at the Formoso A irrigation sub-project under terms andconditions satisfactory to the Bank. Existing CODEVASF or COTIA personnelwould continue to provide this assistance to the present and new farmers inthe rehabilitation subprojects using the same norms and working methods asthose in the Formoso A irrigation subproject. As a condition of loaneffectiveness, CODEVASF would sign agreements catisfactory to the Bank withDER, COELBA and the selected extension agency.

55. CODEVASF consultants have already (a) prepared detailed engineer-ing designs and bidding documents for the Formoso A subproject and (b) forthe rehabilitation schemes of Sao Desiderio and Estreito, compared theoriginal designs with the actual situation in the field, prepared adetailed inventory of project rehabilitation work requirements, anddetailed engineering designs. CODEVASF has also agreed to retainconsultants acceptable to the Bank to carry out the engineering design forthe remaining five rehabilitation schemes. As a condition for disbursementfor each one of these five rel-abilitation schemes, CODEVASF would (a)prepare an economic analysis in a manner satisfactory to the Bank and (b)demonstrate, to the Bank's satisfaction, that the proposed investments foreach such scheme are economically justified (see paras. 70-72 below oneconomic benefits).

56. The Government has provided assurances that, in order to carryout the social services component of the project (para. 51(e) above),CODEVASF would, as a condition of loan effectiveness, enter into agreementswith the Secretariat of Education of the State of Bahia (SEDUC), and theFederal Public Health Service Foundation (FSESP) in respect of projectareas to be brought under irrigation and would modify or maintain, as the

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case may be, similar existing agreements in respect of rehabilitation areasalready under irrigation. These agreements would provide inter alia thatCODEVASF would build and maintain the schools and health posts, and bearthe total cost of their operation and maintenance for a period of sevenyears, while SEDUC and FSESP would provide qualified teaching and healthstaff in sufficient numbers and the curricula and guidelines for thosefacilities' operation, and will assume responsibility for the costs oftheir operation and maintenance at the end of the above seven-year period.

57. Assurances have been received that CODEVASF would organize waterusers' groups along tertiary or quaternary canals (sectors) in order forthe farmers to assume responsibility for their operation and maintenance.These groups would be trained in basic financing and basic water managementto assume responsibility for water allocation and water charges collectionwithin their sectors. The organization of, at least, one of such farmers'groups for each rehabilitation scheme would be a condition of disbursementof any loan funds required to finance works at each of the irrigationrehabilitation schemes.

58. The CODEVASF 1983 Settlement Manual outlines criteria andprocedures for selection and settlement of new farmers which are consistentwith Bank policies on rural development. Assurances have been receivedthat such manual would be applied in the selection and settlement offarmers required to carry out the project.

Environmental Impact

59. The project is not expected to have adverse effects ondown-stream water users. Extension agents would advise farmers onselection and use of pesticides in accordance with Bank guidelines.Schistosomiasis in the existing irrigation subprojects would be reducedthrough an endemic disease control program to be developed by the federalSuperintendency of Public Health Campaigns (SUCAM). Through this campaign,SUCAM would implement measures aiming to reduce human exposure towaterborne diseases. In addition, the drainage systems and the reductionof seepage from water bodies would reduce the number of potential habitatssuitable for disease veLtors. A condition of loan effectiveness would bethat CODEVASF sign with SUCAM an agreement satisfactory to the Bankensuring the implementation of the campaign against waterborne diseases inthe project area.

Project Cost Estimates

60. Total project costs, over a seven-year execution period(beginning in April 1986) are estimated at US$123.6 million (June 1985),including a direct and indirect foreign exchange component of about US$48.6million or about 39%, and local taxes equivalent to about US$11.2 million.A breakdown of cost estimates is provided in page ii of the Loan andProject Summary. Physical and price contingencies are equivalent to 12%and 19% of baseline costs, respectively. Physical contingencies were addedto baseline costs at 10% for the civil works under the Formoso A, SaoDesiderio and Estreito subprojects and at 15% for the remaining five

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rehabilitation subprojects; at 10% for other construction; and at 5% forequipment, vehicles, vehicle operation and maintenance, and training.Price contingencies were estimated in terms of US dollars based oninternational inflation rates estimated at 7.0% for 1986 and 1987; 7.5% for1988, 7.7% for 1989, 7.6Z for 1990, and 4.5% annually thereafter. It wasassumed that periodic local currency devaluations, estimated on apurchasing power parity basis would compensate for the difference betweenprojected US dollar inflation and local inflation rates.

Financing Plan

61. The amount of the proposed Bank loan would be US$57.0 millionequivalent, which would finance 50% of the total estimated costs, net oftaxes, or 100% of the direct and indirect foreign exchange costs andapproximately 11% of local costs. The loan would be payable in 15 years,including a 3-year grace period. UNDP might, at a later time, contribute aUS$1.0 million grant for the staff training and technical assistanceproject component (para. 52(f) above). The Bank loan would be made to theFederative Republic of Brazil which would carry the foreign exchange riskand provide counterpart funds as uecessary to complete the project. Inaddition, the Government-owned participating banks (BB and BNB) wouldfinance short-term seasonal credit, not included in project costs, forproject beneficiaries. During negotiations, the Government providedevidence that counterpart funds for the first year of projectimplementation have been included in its budget for 1986.

On-Lending Terms

62. The proceeds of the loan would be made available, on a grantbasis, to the Central Bank for the investment credit component and theremainder to CODEVASF; the latter would make available to all other federaland state agencies participating in the execution of the project suchportions of the loan as they might require to carry out their parts of theproject, all in accordance with the agreements referred to in paras. 53,54, 56 and 59 above. The Central Bank would rediscount the sub-loans forinvestment extended to farmers by the Government-owned participating banks(BB and BNB). Following the February 28, 1986 financial and monetaryreform (para. 13 above), the Government decided, in May 1986, to adopt anew interest rate policy for rural credit. This policy-which wouldprovide part of the policy framework for the proposed Second AgriculturalSector Loan(paras. 22 and 27 above)--would be aimed at maintaining interestrates that would be positive in real terms and would fluctuate according tomarket conditions. Another important policy objective would be to reducecredit subsidies substantially. There would be a general agriculturalinterest rate, applicable to rural investment credit operations outside theNorth and Northeast regions, equal to the rate on commercial banks'certificates of deposit (Certificados de Deposito Bancario, CDB) minus 10percentage points. This rate would be adjusted every six months, on March1st and September 1st of each year, to a level 10 percentage points belowthe CDB rate prevailing then. For short-term credit, the interest ratewould be initially set at the level prevailing for investment cred't at thetime of signing the contract and would remain fixed for the term of the

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loan. Until February 28, 1987, the general rate has been fixed at 10% andit is expected that, in subsequent periods, the rate will fluctuate near10% in real terms. The interest rates to be applied to the Northeastfarmers who would benefit from the proposed project (para. 52(b) above)would be: 2 percentage points below the general rate, for investments insugarcane, cocoa, coffee and rubber; and 3 percentage points below thegeneral rate, for investments in irrigation works and related on-farmequipment and facilities (para. 52(g) above), which would be changed to 2.5percentage points below the general rate in 1987, and to 2 percentagepoints below in 1988 and thereafter. These rates represent a substantialimprovement over the ones prevailing until last February.

63. During negotiations, the Federal Government provided assurancesthat: (a) the Central Bank would provide sufficient funds to theparticipating banks to carry out the project's investment credit component;(b) the Central Bank and the other participating banks would carry out thiscomponent in accordance with the lending terms and conditions set forth inparas. 52(g) and 62 above; (c) each of the participating banks wouldprovide monthly information to the Bank on investment credit availability,demand and lending per bank agency; and (d) priority would be given by theparticipating banks to allocations of short-term production credit to theiragencies serving the project area in amounts adequate to finance theworking capital requirements of project beneficiaries. The new ruralinterest policy referred to in para. 62 above would provide the basis foran amendment to the original agreement between the Bank and the Governmenton rural interest rates (negotiated in February 1983), in connection withthe Agricultural Credit and Export Project (Loan 2348-BR). This amendmentwould also provide for an annual review of Brazil's agricultural creditpolicy by the Bank and the Government. The signing of the above amendmentwould be a co-dition of signing for the loan proposed in this report.

Recovery of Project Costs

64. Until recently CODEVASF charged farmers only a small fraction ofthe operation and maintenance (O&M) costs and relied mainly on Governmentallocations to operate its irrigation perimeters. Cost recovery throughwater charges was established on March 29, 1984, through Decree 89.496which regulates the National Irrigation Law. The Decree stipulates thattwo charges shall be levied on public irrigation schemes: a volume-basedcharge to recover O&M costs and an area-based charge to reflect the valueof public investment in off-farm infrastructure. In the case of smallfarmers, current regulations permit CODEVASF to recover 100% of O&M costsand public investments in common irrigation and drainage infrastructureover a 50-year period. Under these regulations, the initial investment isrevalued but without charging interest. Currently, in those schemes nowrequiring rehabilitation works, CODEVASF is charging only 60% of its O&M

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to the users. During negotiations CODEVASF provided assurances that O&Mcosts will be recovered in full by January 1, 1992, through successivereductions in the above-mentioned rebates of the order of 15% during 1987,30% during 1988, 50% during 1989, 75% during 1990, and 100% during 1991.The effectiveness of water charge collections by CODEVASF varies from 45%in projects located in the Second CODEVASF Regional Directorate to morethan 90% in the irrigation perimeters financed by the Bank in the lower SaoFrancisco (Loans 1153-BR and 1729-BR). During negotiations CODEVASFprovided assurances that accounts receivable shall not exceed 15% ofCODEVASF's total water charges by January 1, 1989. Specifically, CODEVASPintends to adopt the following measures to increase its ability to collectwater charges: (i) making the beneficiaries' land tenure rights contingenton the payment of water charges; (ii) transferring to water users'associations the responsibility for collecting the charges from theirindividual members; (iii) carrying out educational campaigns amongirrigation beneficiaries; and (iv) proposing to the authorities that watercharges be eligible for production credit financing.

65. In addition, the Government is entitled, pursuant to Decree90.991 of February 26, 1985, to recover from beneficiaries the cost ofpublic investments in land acquisition and on-farm irrigation woiks over a25-year payback period (including five years of grace), at 6% interestwithout monetary correction. Assurances have been received that (a) as acondition of loan effectiveness, Decree 90.991 would be modified to bringit in line with the terms applicable to investment credit (para. 62 above),and (b) these terms would thereafter apply to the recovery of all publicinvestment in land acquisition and construction of on-farm works under theproject.

Procurement

66. Procurement arrangements are summarized in the table below:

(US$million)

Type of ProjectExpenditure Procurement Method Total Cost

NoneICB LCB Other Rei4Ad

Civil Engineering Works 26.9 43.5 70.4(10.8) (17.4) (28.2)

Vehicles, Machinery andEquipment 22.8 1.9 24.7

(17.2) (1.5) (18.7)Consultants 3.3 3.8 7.1

(3.3) (3.8) (7.1)Training 3.6 3.6

(1.4) (1.4)Investment Credit (41 0 ) (41

Recurrent Expendituresin SaiaLiZ. and O&M 13.8 13.8

TOTAL 53.0 45.4 3.8 21.4 123.6(31.3) (18.9) (3.8) (3.0) (57.0)

Note: figures in parentheses are the respective amounts expected to betinanced by the Bank.

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67. Irrigation and drainage civil works for the new Formoso Asubproject would be procured through international competitive bidding(ICB). Since the civil works for the rehabilitation component aredispersed and small, foreign contractors are not expected to bid but wouldnot be excluded from doing so; consequently, these works would be procuredthrough local competitive bidding procedures (LCB) acceptable to the Bank.Irrigation equipment would be grouped into three separate contracts forlarge pumping equipment (US$4.7 million), sprinkler irrigation equipment(US$6.8 million) and pipes and fittings (US$5.6 million), all to be awardedthrough ICB. Transmission lines and electrical equipment would also beacquired through ICB (US$4.4 million). O&M equipment would be grouped,whenever possible, into contracts valued at US$100,000 or more and would beprocured through ICB. A margin of preference equal to the lesser of 15% ofthe c.i.f. bid price of imported goods or the actual custom duties andimport taxes, would be allowed for domestic manufacturers. Vehicles andequipment (other than that to be procured through ICB as explained above)would be procured in accordance with local competitive bidding procedures,acceptable to the Bank, up to an amount not exceeding US$1.9 millionequivalent. All civil works contracts over US$1.0 million and services andequipment contracts over US$200,000 (about 70% of total procurement) wouldbe subject to prior Bank review of bidding documents, bid evaluation andaward proposals. Other contracts, which are expected to cover about 20% ofthe value of works and 10% of the equipment value, would be subject toselective post-award review. Consultant services would be contracted inaccordance with Bank guidelines. Detailed engineering consultant costs areestimated at US$2.5 million for the seven rehabilitation subprojects. Theconstruction management services for Formoso A (see para. 53(a) above)would provide for 224 man-months of consultant services, and the cost ofvehicles, survey equipment, local transportation and some other minoritems.

Disbursements

68. The proceeds of the loan would be disbursed at the rates of40X of expenditures in civil engineering works; 75% of expenditures invehicles, machinery and equipment; 100% of expenditures in consultants'services; 40% of expenditures in investment credit; and 100% of foreignexpenditures or 30% of local expenditures in training. The projectedseven-and-a-half year disbursement period for this project is based on theinvestment program and the administrative capacity of CODEVASF's managementto carry out the project efficiently. The regional disbursement profilefor this type of project is ten years and for the first two Bank loans forCODEVASF projects, disbursements required eight and seven yearsrespectively. The proposed seven and a half years disbursement periodwould thus be realistic; furthermore, the administrative structure alreadyexists, and most of the rehabilitation works (about 32% of base cost) aresmall subprojects which would be managed simultaneously by three differentregional CODEVASF directorates.

69. Disbursements for all eligible expenditures under US$50,000 wouldbe made against statements of expenditure certified by CODEVASF.Supporting documentation would not be submitted to the Bank but would bemade available during project supervision. Standard documentation for

- 24 -

eligible expenditures over US$50,000 would be submitted to the Bank. Inorder to reduce Government prefinancing requirements, a Special Accountwould be opened in the Central Bdnk where the Bank would, at Governmentrequest, make an initial deposit equivalent to US$2.5 million. Withdrawalsin cruzados from the Special Account, supported by statements ofexpenditure and other required documentation, would be made at the exchangerate that prevailed on the date of expenditure. The Central Bank wouldsend the corresponding withdrawal applications to the Bank, which wouldthen replenish the Special Account.

Project Benefits

70. The economic rate of return has been estimated at about 15% forthe new irrigation scheme of Formoso A and at about 16% and 14% for,respectively, the rehabilitation schemes of Sao Desiderio and Estreito.Preliminary estimates for the other 5 rehabilitation schemes show thattheir EROR would be in the range of 14% to 18%. These results are based onthe quantifiable benefits from crop production in the areas allocated tosmall farmers. The project would settle 2,200 landless families andsubstantially increase the income of an additional 2,600 small-scalefarmers already settled in the irrigation schemes to be rehabilitated.Incomes of existing small-scale irrigation farmers are expected to increasethree-to-five times while those of the landless families (most of which nowearn less than USS33v annually per capita) eventually would increase abouteight-fold, reaching from US$3,500 to US$5,000 per year in 1985 dollarsupon project completion. The project would also create about 4,400man-years of additional demand for hired labor, including permanent andpart-time employment.

71. The economic rates of return are based on the followingassumptions:

(a) that the development of the various crops will follow projectionsin the respective farm models and investment plans (see para. 73 below);

(b) prices for traded commodities, including fertilizers, werecalculated according to Bank projections for 1985 in constant internationalprices and adjusted for handling, processing and transportation costs toreach an average farmgate price; for other products prevailing farmgateprices were used; labor costs were adjusted to opportunity cost estimates;family labor was considered to be 80% of the unskilled market price; hiredunskilled labor was estimated at 70% of its market price. Other productioncosts were priced at local market conditions on the grounds that this bestreflects opportunity costs, given the market structure and currentGovernment policies;

(c) the period of analysis is 35 years; and

(d) calculation of the economic rate of return includes all thecapital and recurrent costs, except those related to the construction andoperation of the social infrastructure and the campaign against water-bornediseases (see para. 51(e) above).

- 25 -

72. Sensitivity tests showed that particular project components arenot sensitive to changes in costs. Civil engineering works could increaseup to 100% in the new Formoso A irrigation scheme and 50% for the rehabili-tation schemes, and the economic rates of return could still remain above12%. Likewise, project benefits could be reduced by 20% for Formoso A andEstreito and by more than 30Z for the Sao Desiderio rehabilitation scheme,and the economic rate of return would still be above 12%. A lag aboutthree years in achieving project benefits would be required to cause theeconomic rates of return to drop to 12%, assuming that the cost outlayswould occur as planned.

73. Economic benefits projections assume that, at least initially,cropping patterns will be based on traditional crops, such as cotton, maizeand beans. It can be reasonably expected that, as farmers develop acapability to take advantage of existing market opportunities, vegetablecrops, such as watermelons, pumpkins, onions and garlic would be introducedgradually in the project area and that cropping intensities in the 150-160%range could be achieved by the fifth year of project implementation.

Project Risks

74. The project would be difficult to implement. CODEVASF haslimited experience in rehabilitation activities and quantitative andqualitative limitations at the middle-management level. However,considerable technical assistance and institution strengthening is builtinto the project to help CODEVASF overcome these shortcomings.

75. Sustained high yields and production cannot be achieved throughirrigation alone; they require that line agencies cooperate with CODEVASFby assisting the farmers in the project area with credit, extensionservices, and input supply. During project preparation institutionalweaknesses were identified and measures introduced to improve institutionaleffectiveness and coordination arrangements. The project's incrementalproduction, though significant for the project beneficiaries and the localeconomy, is relatively small and could be easily absorbed by the urban andindustrial markets within the project's reach.

PART V - RECOMMENDATION

76. I am satisfied that the proposed loan would comply with theArticles of Agreement of the Bank and I recommend that the ExecutiveDirectors approve the proposed loan.

A. W. ClausenPresident

Attachments

May 22, 1986Washington, D.C.

-26- ANNEX IPage 1 of 7

HMIT (nO2 aRNT UTmIs) aa~~oL igit*t 1083 NICOLE INCON NICK NCS

19*08! 1970Lb asTzmTLN LILT. A.1ICA A CAR WUlFP

nu CSTuaD IQ. s0TOTAL 612.0 3512.0 812.O0AGRICULTURAL 1636.4 19812 2376 7

ir Pu cea (8) .. .. VW)6.O 1875.9 2144.3

1010 ouiens a cerr(KILocRMS OF OIL SQUIVALVNT) 264.0 412.0 740.0 993.4 1119.8

OIUTLAEOUNa VITaL anmcuPOPULATIoN.NID-TIAR (THOUUANISD 72594.0 93847.0 129662.0URNS POPULATIW (I 0? TOTAL) 44.9 35.6 70.7 67.7 47.5

POPULATION PUIDRCTONSPOPULATION IN YEA 2000 CHILL) 176.1STATlONARt POPULATION (HILL) 297.0POPULATION NON#lUN 1.6.

POPULATION DUSITYPER SQ. IX. 8.3 11.3 15.2 46.0 34.7PIr SQ. IN. AULl. LAD 44.4 48.4 53.4 91.1 16.9

POPULATION AGR STRUCTUR (Z)0-o RS 453.3 42.6 37.2 36.5 31.2

15-64 YmS 53.8 54.2 58.7 57.1 61.565 AND ASOVC 2.6 3.0 4.0 4.2 7.2

POPULATION GURM RATE (C)TOTAL 3.1 2.8 2.3 2.4 1.6URiA 5.7 5.0 4.0 3.6 3.7

CRUDE BIRTH RATE (Pr THOUS) 42.7 35.0 30.3 30.9 23.4CRUDE DEATH RATE (PER TDUWS) 12.9 10.3 6.2 8.0 8.9GROSS RSPRODUCTION lATE 3.0 2.4 1.9 2.0 1.5

FAILT PLANINGACCEPTORS AMIEAL (THOUS) .. 111.0UShS (E OF HARRIED VENZ) .. .. 50.o 45.3

FM Am 1NDO2 OF FOOD PUw. PER CAPITA(1969-71-100) $9.0 102.0 130.0 109.6 109.1

PER CAPITA SUPPLY OFCALORIES CX OF RRQUHUTS) 101.0 103.0 111.0 113.2 131.5PROTEINS (CROAS Pr DAT) 60.0 60.0 64.0 69.4 92.4OP WHICI ANIML AND PUL 35.0 34.0 36.0 Ic 34.2 34.5

CiILa CAGES 1-4) DRAI RATE 16.2 11.6 6.0 4.8 4.7

LIFE EXPECT. AT BIRTH (YTARS) 54.7 58.9 63.7 64.8 67.2INFANT WORT. RATE (PER TENUS) 115.5 95.5 70.0 59.7 53.3

ACCESS TO SAFE WATE (ZPOP)TOTAL * 55.0 71.0 /d 65.3 70.2URAN 78.0 80.0 Td 76.5 89.4RURAL *- 26.0 51.0 7 44.2 57.0

ACCESS TO EXCRZTA DISPOSAL(I OF POPULATIO)

TOTAL 58.0 64.6 /a 56.3 59.6URBAN * 85.0 83.7 7 73.4 65.9RURAL *- 24.0 31.7 7; 25.5 47.6

POPULATION PER PHYSICIa 2210.0 2130.0 .. 1909.7 1070.6POP. PER NURSING PERSON 2810.0 1120.0 .8. 60.2 769.5POP. PER HOSPITAL -M

TOTAL 310.0 270.0 250.0 /a 362.0 328.3URBAN 250.0 320.0 .. 422.0 201.9RURAL .. .. .. 2716.7 4519.7

ADMISSIONS PR HOSPITAL eD .. 18.4 .. 27.5 20.0

80SCiAVERASE SIZE OF HOUSEOLD

TOTAL 5.1 4.8 4.9 /aURBAN *. 4.6 4.7 7;-RURAL *- 5.2 5.3 7e*

AVERSE NO. OF PERSONS/ROOMTOTAL *- 1.1URBAN .. 1.0RURAL .. 1.2

PERCNTAGE OF DELLINGS WfITH ELECT.TOIAL 38.7 47.6 67.4 /dURBAN .. 75.6 88.5 ...RURAL 6.4 20.6 71.

- 27 - ANNEX IPage 2 of 7

HAZIL - SOCIAL INDICATORS DATA SHEETSRAZIL REERENCE GROUPS (U IGHTED AVERACES)

HOST (MOST RECENT ESTINATE) Lb19601± 97ab RECRNT MIDDLE INCONE NIDOLE INCOME

19 ESTIMATEk

b LAT. AMERICA A CAR EUROPE

moaomADJUSTED ENROLLMNT RATIOS

PRIMARY: TOTAL 95.0 84.0 96.0 tt 106.7 101.9MALE 97.0 64.0 98.07 108.5 106.2FMALE 93.0 84.0 93.011 104.6 97.5

SECONDARY: TOTAL 11.0 26.0 32.0 l 44.2 57.5MALE 11.0 26.0 29.0 42.7 64.9PDWLE 10.0 27.0 35.01 44.9 50.0

VOCATIONAL (K OF SECONDARY) 0.0 0.0 0.1 fA 13.3 21.0

PUPIL-TAIR RATIOP3RDtAR 33.0 26.0 26.0 /h 29.9 25.1SNCONDARY 13.0 12.0 14.0 7j 16.7 19.1

cmmon?=PASSUIWR CARS/THOUSAND PoP 7.6 16.6 48.9 fd 46.0 54.2RADIO RICEIVERSITR0USAND POP 65.4 108.4 354.9 328.3 170.7TV RCItIVERS/THOUSAND POP 16.5 44.3 122.2 112.4 149.3NEWSPAPER ("DAILY CEAL

INTERE3') CIRCULATIONPER THOUSAND POPULATION 52.9 35.6 43.0 /h 81.1 97.0

CINEMA ANNUAL ATYKNDANCE/CAPITA 4.4 2.0 1.1 2.4 2.7

1A YOMTOTAL 1A.40 FORCE (THOUS) 23326.0 30411.0 43736.0

ENILE (PERCENT) 17.2 20.1 23.5 23.6 36.3ACRICULTURE (PERCENT) 51.9 45.6 29.9 /d 31.4 40.8INDUSTTY (P1RCNT) 14.8 18.3 24.4 24.3 23.3

PARTICIPATION RATE (PERCENT)TOTAL 32.1 31.7 33.7 33.5 43.1MILE 32.7 50.3 51.6 51.3 55.1nEALE 11.2 12.6 15.6 15.9 31.4

ECONOMIC DEPNDENCY RATIO 1.4 1.4 1.2 1.3 0.9

XRE DIS_11MPERCZIT OF PIATE INCMRECEIVED Y

HIGCHST 3 OP HOUSEHOLDS .. O HICHEST 20S OF HOUSEHOLDS 60.0 63.5LOWEST 20S or HOFUSEOLDS 3.8 3.2LOIST 402 0F HOUSEHOLDS 10.8 9.0

- T -SISTIMATED ABSOUIT POVERTY IN-OLEVEL (UaS Ma CAPItA)

URWN .. .. .. 288.3RUMAL .. .. 150.0 Ie 183.3

ESTIMLTD RELATIVE POVERTY INCOMELEVEL CUSS PER CAPITA)

URBN .. .. 465.0 /e 519.8RURAL .. .. 332.0 7-c 359.7

ESTIMATED POP. SELOW ABSOLUTEPOVERTY INCOME LEVEL (Z)URBAN ..

RURAL ..

nor AvALNOT APPLICI.E

N O T E S

/a The group averagee for each indicator are population-veighted aritbmetic mans. Coverage of countrieaamong the Indicator depende on availability of data and la not uniform.

/b Unlear otherrwis noted, "Data for 1960" refer to any year between 1959 and 1961; "Data for 1970" between1969 and 1971; ad data for "Moat Rent Estiate" betwen 1981 and 1983.

/c 1977; /d 1980; /e 1976; /f Begnning 1973. prlry a"d secondary education cover age group. 7-14 and15-17 tnutead of o10 and 11-17 in earlier yeara; tberefore, most recent estimates are not c aorablewith earlier data; /I 1978; /h 1979.

JUNE, 1985

- 28- ANNEX IPage 3 of 7

D3VNrIONS OF SOCIAL INDICATORSNolu AlIthoug the data aredrawn from mourcn. purally judped she moat authoritative ai reliable is should alo be noted that they may not be inanafmentlyco_mparble became of the lck of emtadrdmd deinidom mnd rempa uted by dilers countmrie in elbctaing the data The dame a. nonthede umeful todtnuibe ordem of magnitude. indicate [rnd, and characterie catin major dilferena between countri.The refen group are (1) tdi mm country group or the subject country and (2) a country group with momehas hiher averee income theitm he coutirygroupofo sh wbj country (cmp for 'Hash IncomeOil Exporter" group where 'Middle Income North Afric aind Middk East' isachaen bcause ofstmarermoclo.cultural ainitil). In the remrnce gup data die avae ar popusstion weighted arithmetic meana ror each indicator and shown anly when majorityorbotmetoetein ita goup bs dats for thdt indacitor. Since d coava of countuiec among she indicato de rmpends on the swailabafity ordta nnd i not uniformncautden muti beeuircid in reflingt sveg. oroneindicuasrto mnosher These averages re only ueful in campenng th value of nemndicatuora s same amongthe country and rence group.

AREA (thouand cq.km.) Crude Math Rae (per the md)-Number of live births in the yearreast-Total surface area comprising lend area and inland waters; per thousand of mid-year population; 1960, 1970, and 1983 data.1960. 1970 and 1933 data. Crpud Deth Rate (per thiasaad)-Number of deaths in the yearguekabd -Estimate of agricultural area used temporarily or per thousand of mid-year population; 1960. 1970. and 1983 dat.

permanently for crops. pastures, market and kitchen prdens or to Grs Repredwex Rate-Average number of daughters a womanlie fallow. 1960, 1970 and 1982 data. will bear in her normal reproductive period if she experiences

present age-specific fertility races; usually five-year averages endingGNP PER CAPITA (USS)-NP per capita estimates at current in 1960. 1970, and 1983.market prices, calculated by same conversion method as World Fatally Plasmhu-Accepters, Anwl (tahoiamaas)-Annual num-Bank Atlas (1981-83 basis): 1983 data. berofacceptorsofbirth-controldevicesunderauspicesofnational

ENERGY CONSUMPTION PER CAPITA-Annual apparent family planning program.consumption of commercial primary energy (coal and lignite. Fasr4y Pnag-.-se (pereet Ofmrkd e)-The prcen-petroleum, natural gas and hydrn-, nuclear and geothermal elec- tage of married women of child-bearing age who are practicing ortricity) in kilograms of oil equivalent per capita; 1960. 1970. and whos. husbands are practicing any form of contraception. Women1982 data. ofchild-bearing age are generally women aged 1549. although for

some countries contraceptive usage is measured for other agePOPULATION AND VITAL STATSTICS groups.

Ftaf PepxuWh. Mid- Year (atas i-As of July 1: 1960 1970. FOOD AND NUTRITIONand 1983 data.

-rh.m Pbpuhaiea (percent of°salj-Ratio of urban to total Inde of od Prdwiam Per Cap(19697J -100N Index of perUJrbi Poe ;"fian (p tcew of tordl)- Ratio or urban to total capita annual production of all food commodities. Productionpopulation; different definitions of ua yn areas may affect compar- excludes animal feed and seed for agriculture. Food commoditiesability of data among countiries; 1960. 1970. and 1983 data. include primary commodities (e.g. suprcane instead of sugar)hpuALac fta gs which are edible and contain nutrients (e.g. coffee and tea arePopsation in year 2000-The projection of population for 2000 excluded); they comprise cereals, root crops, pulses. oil seeds.made for each economy eparately. Starting with infonnation on vegetables, fruits, nuts. suprcane and sugar beess, livestock, andtotal population by age and sex, fertility rates. mortality rates, and livestock products. Aggregte production of each country is basedinternational migmtion in the base year 1980. these parameters on national average producer price weights; 1961-65, 1970. andwere projected at five-year intervals on the basis of generalized 1982 data.assumptions until the population became stationary. Per Capita Suppy ofCalores perrceit efreqare_ss -Com-put-Siasioery populartei-s one in which age- and nx-specific mor- ed from caloric equivalent of net food supplies available in countrytality rates have not changed over a long period, while age-specific per capita per day. Available supplies comprise domestic produc-fertility rates have simultaneously remained at replacement lvel tion. imports less exports, and changes in stock. Net supplies(net reproduction rate - 1). In such a population, the birth rate is exclude animal feed. seeds for use in agniculture. quantities used inconstant and equal to the death rate, the age structure is also food processing, and losses in distribution. Requirements wereconstant. and the growth rate is zero. The :tationary population estimated by FAO based on physiological needs for normal activitysiz was estimated on the basis of the projected characteristics of and health considering environmental temperature. body weights.the population in the year 2000. and the rate of decline of fertility age and sex distribution of population. and allowing 10 percent forrate to replacement level, waste at household level; 1961. 1970 and 1982 data.Population Momenutm-ls the tendency ror population growth to Per Capita Supply of Protein (rmos per Ay)-Protein content ofcontinue beyond the time that replacement-level fertility has been per capita net supply of food per day. Net supply of food is definedachieved; that is, even after the net reproduction rate has reached as above. Requirements for all countries established by USDAunity. The momentum of a population in the year t is measured as provide for minimum allowances of 60 grams of total protein pera ratio of the ultirnate stationary population to the population in day and 20 grams of animal and pulse protein. of which 10 gramsthe year 1, given the assumption that fertility remains at replace- should be aninal protein. These standards.are lower than those ofnment level from year s onward. 1985 data. 75 grams of total protein and 23 grams of animal protein as an

- Dei*j average for the world. proposed by FAO in the Third World FoodPer sqkkm.-Mid-year population per square kilometer (100 hec- Supply; 1961. 1970 and 1982 data.tares) of total area; 1960. 1970, and 1983 data. Per Capita Protein Supply Ir A dnimal d Pule-Protein supplyPer sq.kn. agricultural land-Computed as abovc for agricultural of food derived from animals and pulses in grams per day; 1961-65.land only. 1960, 1970. and 1982 data. 1970 and 1977 data.

ftp.fai.a Age Strucwe (percet)-Children (0-14 years). work- Child(ages 1-4) Dearh Rate (per:thusad)-Numberofdeathsofing age (15-64 years). and retired (65 years and over) as percentage children aged 1-4 years per thousand children in the samc ageof mid-year population; 1960. 1970. and 1983 data. group in a given year. For most developing countries data derived

Aeplaie. Growthb Rate (percent)-a-tal-Annual growth rates of from life tables; 1960. 1970 and 1983 data.tol- t mid-year population for 1950-60. 1960-70. and 1970-83. HEALTH

Pop.l.ow Groewh Rate (percen)l-war --Annual growth rates Life Expectancy at Bith (years)-Ntumber of years a ncwbornof urban population for 1950-60. 1960-70. and 1970-83 data. infant would live if prevailing patterns of mortality for all people

- 29- ANNEX IPage 4 of 7

at the time of of its birth were to stay the sme throughout ib life; PupIl-teacher Ratio - primary. and secondary-Total students en-1960. 1970 and 1983 data. rolled in primary and scondary levels divided by numben oflho Marshy Rot (per th_msd)-Number of infants who die teachers in the corresponding levels.before reching one year of ag per thousand live births in a givenyew, 1960, 1970 and 1983 data. CONSUMPTIONAcessrto S* Wa (pl of O*l ihtt-,4 ark d Peaaer Cas (per theoaad pepulAdoJ-Pausenger cars com-u.S-Number of peope (toal, urbn, and rural) with resonable prise motor cars sating ls than eight persons excludes ambul-access to safe water supply (ncludes trated surface water or ances, hearses and military vehicks.untreated but uncontaminated water such as that from protected s Recers (per theusud poepubdu-AI types of r ceiverbomebols, spring and sanitary wells) as percentages of their respec- for radio broadcasts to general public per thousand or population;tive popultions In an urban aea a public rountain or standpost excludes un-licensed receivers in countries and in yeas when

cad not more than 200 meters from a house may be cnsidered registration or radio sets was in effect, data for recent years mayas being withir. resonable acss of that houe. In rural areas not be comprable since mo countries abolished liomingreaonable acce would imply that the housewife or members of thehousehold do not have to spend a disproportionate part of the day TV Recimvrs (per thoussdlp_pilatou)-TV receivrs for broadcastin fetching the familys water needs. to general public per thousand population; exdudes unlicnsed TVAcce/ to Esower DopJ_ (ptreew of P&_"atim)--oretl, urbaw. reevers in countries and in years when reistration of TV sets wasAccsssoEznt Duprl pecet f svuluim)-atl,uraA in elecct.ad nruu-Number of people (total, urban, and rural) served by ifexcreta disposal as percentages of tbeir respective populations. ier Cclado (per houm papepisbu )--Shows the aver-Excreta disposal may include the collection and disposal, with or age circulation of 'daily general interest newspaper,' defined as awithout treatment, of human excreta and waste-water by water- periodical publication devoted primarily to recording general news.borne systems or the use of pit privies and similar installatioits. It is considered to be -daily- if it appears at least four times a week.Rupaion per Physioa-pnpulation divided by number of prac- Claerw A _ral Attend_ne per Cpta per Yea-Based on thetising physicians quallfied from a medical school at university leve. number of tickets sold during the year. including admissions toPopueion per Nuing Pose-Population divided by number of drive-in cinemas and mobile units.practicing malc and female graduate nurses, assistant nurses.pracical nurses and nursing auxiliaries. LABOR FORCE

Popuuiw.pe asps Be-total, whav, and ruals-Population cudnarefoesndnmpydbtexuighuewvs-7- -jiVn pgr 1 M spk tuul B| Totpuatinl Lao Foc (thEcod)-nomically active persons. in-(totaL urban, and rural) divided by their respective number Of studing aetne. forces and unlpionyed but excluding houwtinesihospital beds available in public and private, general and specaed students. tcu.. covenng population of a19 0ges. Definitions inhospitak and rehabilitation centers. Hospitals are establishments various wuntrics am not compambk; 1960,1970 and 1983 dau.permanently staffed by at loast one physician. Establishments prov- Fniae (pereentl-Female labor force as percentage of total laboriting principally custodial care are not included. Rural hospitals, force.however, include health and medical centers not permanently staffed Agricule (peant-Labor rorce in farming, forestry, huntingby a physician (but by a medical assistant. nurse. midwife, etc.) and fishing as percentage of total labor force; 1960. 1970 and 1980which offer in-patient accommodation and provide a limited range data.of medical faclities. lndustry (perceutI-Labor force in mining. construction. manu-Admisios per Hospital hd-Total number of admissions to or facturing and electricity, water and gas as percentage of total labordischarg from hospitals divided by the number of beds. force; 1960. 1970 and 1980 data.

Partciaton Rate (psc tew elorw mwl, andfs -leParticipationHOUSING or activity rates are computed as total, male. and female labor forceAvg S;w of Hosetad (persons per A-houh)-->tetal, whan, as percentages of total, male and female population or all agessdrmrnl-A household consists of a group of individuals who share respectively; 1960. 1970. and 1983 data. These are based on ILO'sliving quarters and their main meals. A boarder or lodger may or participation rates reflecting age-sex stru-ture of the population, andmay not be included in the household for statistical purposes. long time trend. A few estimates are from national sourcesAer NaMer of Pr per Ree-total, ar, ad rural- Ecmonoic Depndency Rato-Ratio or population under 15. andAvrage number of persons per room in all urban. and rural 65 and over, to the working age populatiorn (those aged 15-64).occupied conventional dwellings. respectively. Dwellings excludenon-permanent structures and unoccupied parts. INCOME DISTRIBUTIONPecente of Duelings wit Eectriciy-6tt4 urbane , ad rural- Perentage of Totaf Disposabk lure (hoth i cas ad kind)-Conventional dwellings with electricity in living quarters as percen- Accruing to percentile groups of households ranked by total house-tage of total, urban. and rural dwellings respectively. hold income.

EDUCATION POVERTY TARGET GROUPSAdsted Ewrioent Ratos The following estimates are very approximate measures of povertyPfunary scwool - total, male and femal-ross total. rna and levels, and should be interpreted with considerable caution.female enroilent of all ags at the primary kvel as percentages of Estiaed Absolute Porty Income Level (US3 per capitay-urhurespective primary school-age populations. While many countries and rural-Absolute poverty income kvel is that income klvelconsider primary school a to be 6-11 years, others do not. The below which a minimal nutritionally adequate diet plus essentialdifferences in country practices in the ages and duration of chool non-food requirements is not affordable.are rflected in the ratios given. For some countries with universal Estwated Rclve Poert Income Levl (5 per capiran)-araneducation. gross enroDlment may exceed 100 percent since some and rural-Rural relative poverty income level is one-third ofpupils are below or above the country's standard primary-school average per capita personal income of the country. Urban klvel isage. derived from the rural level with adjustment for higher cost ofSecondary sdcool - towl, nmak and fenmak-Computed as above; living in urban areas.secondary education requires at least four years of approved pri- Estimated Populion Bdeow Absole Poerty Iome Levd (per-nary instruction provides general, vocational. or teacher training cenlt-uran and rural- Percent of population (urban and rural

instructions for pupils usually of 12 to 17 years of age; correspond- who are -absolute poor.-ence courses are genrally excluded.Vocationa Enroineni (percent of secondary)-Vocational institu- Comparative Analysis and Dain Divisiontions include technical, industrial. or other programs which operate Economic Analysis and Projections Departmentindependendy or as departments of secondary institutions. June 1985

- 30 -

AM I

ELArn - inaiic IMxcam

PPIbpibon: 129.7 iILlon (mi*l993)

GNP For CapiLt: IEI,I9M0 (1963)

Ms 4Uiicn M Ia Qul r aith (At ZOAMW PVL

Indicator (984) A c t u a Projet*ed

1975 19E0 3981 1962 1983 1984Ld 19851/ 19Y6 1WS7 1988 199 1990

Cn. Dattc PZ,hct/U 12 3DD 5.6 7.2 -1.6 0.9 -3.2 4.5 8.3 6.2 7.0 7.0 7.0 7.0Agricalum 24,238 2.7 6.2 6.4 -2.5 2.2 4.3 8.8 2.0 4.5 4.5 4.5 4.5ItLry 62,7M2 5.3 7.9 -5.2 0.8 -b.8 5.9 9.0 8.0 8.5 8.5 85 8.5Seviet 103.865 10.3 7.3 -0.1 1.7 1.5 3.0 7.8 6.0 6.5 6.5 6.5 6.5

Gamumption 165.571 8.4 3.5 0.2 3.3 -2.0 0.6 8.3 4.7 5.2 6.5 6.3 6.1GM" iiwtu lJb 34.817 -7.0 12.1 -15.9 -4.2 -17.5 1.0 12.2 M.9 1Z.3 12.0 11.8 :1.6Exprts of CMFS 29,399 12.4 27 20.9 -.4 13.b 24.9 -3.2 -1.0 5.4 3.4 2.3 5.3lqortA of M24S 17,865 -9.6 1.8 -13.4 -5.2 -17.2 -6.5 -3.2 21.0 1.5 10.7 8.3 9.7

c!m %tial S rw 23,818 -6.4 11.6 -16.6 -10.6 -3.4 22.6 11.7 26.3 15.0 11.3 11.1 12.6

Prim

CD PhfLsor (1970-100) 305 2.955 5.544 11.480 28.241 90.541Edmhwe RAte (erne.crSAES) 8.1 527 93.1 179.5 577.0 1,646.9

Uumw of CDP at 3- Iu Priam (2) hmmq. fld Incrase (C)(AL Omue Priam) (At 0a c 18X 6 lila.)

1975 19E0 194td Ig90e 197540 198045 198540

Grow DOlic Peluci IO.0 1W.O IOD.0 10.0 6.5 0.8 6.8Agplikau.- 9.2 11.0 11.5 10.1 9.5 2.2 4.1trdtr 31.3 28.8 29.B 32.1 4.6 -0.3 8.4Service 43.6 44.8 48.7 47A 7.8 1.3 8.4

*aamopsin 76.6 81.3 78.0 74.3 7.7 -I.8 5.8oCm .nveatr.Jb 27.3 21.1 17.0 24.0 2.8 4.2 13.7Exports 0N15 7.5 L8 12.5 10.4 6.4 14.5 3.2bwpta QNS 11.4 11.2 7.4 8.7 -1.3 -I.8 9.3

G Nattoaml Sinp 22.1 16.1 17.1 23.0 -1.6 -45 14.3

Am of Z of GOP(At Owret 0n ro Pce.)

Pabic Fin (Clntod tEt) 1970 1975 1979 1980W1 1161/' 1982V

Owxeo Revem, 16.6 19.8 21.8 20.1 18.9 21.2Ogrrt Exisiditue 14.4 15.8 17.6 19.8 20.2 25.4Sirplus (+) or Deficit (-) 2.2 4.0 3.2 0.3 -1.4 -4.2Capital E Nqmsxie 2.6 3.8 3.7 4.1 3.5 3.4Fizmacng (bt) 0.4 -0.2 0.5 3.9 4.9 7.6

OtDer iubtator. 1975-00 190-85 1985-90

0W1 Crwth RBae (Z) 7.0 0.5 7.3OFW Per CaptA MAth Rate (2) 3.0 -1.9 5.0Fwr Qxml tim Cnkath Rate (CZ) 6.5 - -IMI 3.3 20.7 3.0lrag-Iz Sav1ze Race 0.0 0.5 0.4lqp-rt Elsicty -402 -2.4 1.4

/a At fuat prim; c1a e I at f cimr d wmu t add due to exUIc Ef rAt Irditci rm d ubldla.7b 1975-0 erlrm wre for ga. lnemt.t; eintea for a_vm*=c yar we for fLI %dit, dl I in stodr IochmJed In zauumption.T Projece yt a m tw pri.7id P ,elimzry.Te Estlnce.7F 198042 indcude t,er eip ctar effected dxotVa rw %woerazy bx%t .d mIcer n trmm fA. * 'eU m true.,. tn de fSiral ucerpla.

Nld 21. 1986

- 31 -

r_ #i of 7

EAUL - DInL WA

IMS iUUm a AMiN IatsLh PSate - (EL eaUt 1970 prlowk/4Oui Pdrim

Indicator (1964) ActuaI Praj nct.d

1975 19D 1I 1962 1913 1936 19E5/e 1966 1987 1143 193Y 1990

Exue,l Tm_

l t be 1zoit. 27.005 23.9 21.2 9.9 -3. L 27.5 24.1 2.6 -1.0 5.4 3.4 2.1 S.3primryPt 10,357 30.7 20.4 46.t -10.1 14.3 3.8 24.5 -3.4 0.2 3j 3.h IbHendd!tui1b 16,66W 0.0 22.5 40.6 7.4 43.5 2b.3 15.5 0.7 3.6 3.2 1.5 6.b

1 _dind. I4arta 13,916 -15.0 1.4 -9.4 -20.3 -15.9 -2.2 -4.8 22.0 1.5 10.7 Yt.1 9.7riawd 4 tbwr 0O0b 1,53' 6.2 13.2 -54.6 -1.2 48.1 -2.0 3.0 109.0 -43.4 h.2 7.7 6.7ILVOISM 6.386 -3.6 -9.8 -5.0 -2.h -10.6 -13.7 -18.7 -2.1 11.3 1.6 2.H 9.9didnty md qipm t 2.151 9.8 0.4 -6.9 -32.2 -13.0 8.4 1H.S 3.3 1Y.4 15.6 14.2 11.h

3Lur 3.351 -30.6 -2.2 3.8 -20.3 -20.3 20.9 9.0 23.0 10.9 10.1 9.4 8.6

Prim

bqmo Priid 69 147 12J 114 97 100 97 105 103 116 127 1391bOI PriIn. 71 125 13I 152 143 100 99 94 98 I OS 112 120II of TieIu 125 118 93 75 h 8 100 96 112 Ila III 113 116

CkitIn Of 1 _rdiM Ttde (2) Avrm Anml Incres CZ)(at aMt Prim) (St COtMIt. 1970 prim)/d

1975 19E0 1965 1990 1975{0 1960-65 19t5-90

bjq, 100.0 IO0O 100.0 100.0 5.8 11.0 3.2Prli_xyvJ 62.7 44.a 41.2 41.2 11 8.6 3.6

ffai duib 37.3 55.2 58.8 56.8 16.2 /a 23.2 3.0

IqorU 100.0 IOD.0 100.0 100.0 -1.4 -2.7 10.4fbzI td Omunr Gint 9.8 11.1 12.0 10.8 17.5 - 4.5 7.966toln 25.4 44.4 42.1 34.5 4.3 -7.3 6.4.hdgiuy -d B3dp- 26.5 15.4 19.2 28.3 -7.5 -3.4 18.2O(11, 33.3 29.1 26.7 26.4 -1.9 -3.1 9.9

sham of T With Sam of trad with hre of trade with LIUluutrIa Caztrlm CX) Dwqdzg Cowrl. (Z) Dwqiot Coatrii (C)

Dir ion T ale 1975 1960 1983 1975 1900 1963 1975 19110 1963

Ert 70.2 57.3 51.7 L.5 2.5 23.9 2.8 10.1 11.8Tqat. 67.3 41.8 37.1 8.7 15.8 1.7 21.1 41.1 41.6

/a For the parlod 1931-1990, Prqimay Pwaigzx tncluzah -ptam.1 gath plum iwo or.W For ptho d 1975-19E0. u irde otlw gooth.Ic PrdLtmry.7d Pt'jecat Ipu ud eota an at 1964 prL .

llrh 21. 1986

- 32 -

041.11901 Or IAVHtIt. *XflhN-4. AL l A!pI'IM 1 P11111

(U09 111 Niil.d at CurreIL 7133..)

I'ogitnlenu 129.1 "I111.,. (eti41991321P Ma CaPItL 111111.1191) 1492111

1913 39110 19111 1912~~~;; 1911 39114 39 14 ION91 19111 t9Pi 39119 Iw

Pet Depart. of Gna ar end ruc -m*. liiI -12,144 -11.142 -14,29l -6,2S0 141 0699 3.793 -7011 1.011 -1.441 -023i

Report. of 519O4. 11,020 '0.112 23.291 2.1,111 21,1199 21,001 21.039 21.292 39.39 11.098 10,932 92,913Impert at ileod. 12.210 22.911 22.1419 19.191 11.929 11.919 31.3119 11.119 10.191 19,010 22.0116 23,299

9.1 Fa4tor l..aae -i.Psn -9,923 -9.uhl -1 1.9311 -10,111 -10,999 -1 1,61 -11.1111 -II ,2111 -£1,aoo -12.111u1 -12,111(09 dittCo, L orest papaeo,o (2.1m 13 (9.1111 (711093 (9,12o3 41473 (.141 (91.11) (4.2116) (9.013l (9,229) (9,399) 19.111)-m 1141. debt)

INot Non-Poct.r Serc.-1,429 -1,1211 -2,1101 -1,1119 '2.2417 -1 .141) -1,119 -2.129 -2,6111 -1.119 -4,2906 -1.I13

9.1 ?ra...nf.ra II 373. ION1 -30 1111 322 ISO1 0 0 a O 0

Correot Acc,eot ftaIa,c -9.011 -32,438 -13,014 -14.71) -4..I,2 WI -149 -1,1111 -2011 -3.011 -1.941 -071

DireCt Private I.-.eLo.L 1192 1. 121 1.11 "I 991 994 .07 1611 19 1119 1,1111 1 .242 1.929

Ml.T? tnan I £9.t 4,81111 9,491 11.93 7,699 1.232 9.2112 119 1.9811 2.924 1.409 9,0011 1.019ir.a 03Ooo..t 10.9112) (11. 111) (191.(1) 114.9111) (10,9w1) [&.091 10,911 411 3.2 211 1,21 1,0AmortIaotie. (2,11%2) I4,w1)2i (5. 191) (7,454) (1,179). .1,41 9,212l 32,601 11,102 1-1,412 34.000 34,021

Lr~Ia ...... Abroad M9.) -1911 -21 -923 -194 3 22 911 mm0 - 1.40r -3,1149 -2,011I -2,110 -2.600

Mlbr CaPitaL1 (ioCl.dtogerora..l eotonl..,.I -IL 1,402 1,19 2,200 -1.991 -3,0112 -1,1109 319 -991 0M11 -3411 -400

Cheogo I. Rea.r... C' Intlcat..I=cra.e I 2"1 1.109 -1149 4.311 24 -2,027 41 '.12 -145 '4)9 -992 -. 1,24

I.aer..attaoal Oaaervan Ia 1,219 4,~~~~~~~6932 2,19 1,21.:0 1,1 1,944f 11,411 31.202 31,139) 14,114 111.111 10.111

(f $9320 geld) It 1.141 9131 41 202 .a ie .. va .. '.. 0a

..ar.. a. 11-,tha of lap-rLo (asPI) 1.1 M.1 1.2I 1.9 2.1 11. 2 11.9 7.9 2.9 4.9 0.11 1.9

toar,.Al CapIta1 and 0D91

Graso IlIbroa,eaata ,1 2 1.113 39,041 34..9111 30.9n2 19,091 30,013 14.112 39,220 32.12.2 f1.1211 I 11,600

Ran-Caacanta'ia Loans 0.130 11,294 160,01 14.81101 10.1199 I3.0911 10,031 b0,32 14,220 17.t22 311.211 32.600OfFIlc1s F.09It Cradita 1'i 9362 1151% 142 3,099 1,302 L,210) 1.200 1,31£ 1.2911 1.2110 1,4*1tako 'St, 141 1m9 911 1,204 3,294b 290 1.4119 3.1. 1,111.9 1,910 L,1131.Ig.Or IL Ib.tiL.itra 119 lIng 190 I31 237 209 219 217 2511 11 171 421Priate 4.313.) 30.111 14,142 3111.02 11,179 32 11,28 8112 11.111 31.010 I3,t29 14.922 13.221

Debt DotLteading and Otobior-d 21.441 10,499 04,0235 21.014 79.191, 86151,1 118,037 93.099 94.921 911.291 302.1) 101,991BPblitcIIobltclr Guaranteed 33,949 19,1194 44,91133 99.3 1 39.0911 09,117 116,912 13,099 94.921 99.293 302.119 10O,999PrIvate KoeC--iben.a 9.192, 34.001 39,792 21,132 21.112 19,2211 00 1. . . .8.

O iooodDebt. 1.19i 31.n21 32,041 34.122 21.912 11.227 131.04 34.911 15.452 33S1114 31.1)0 13,150

31100 dIabar-enLte greabltoo -eeot 3.5 1.2 2.4 4.2. 11.3 4.9 2.4 9.0 10.2 20.2 10.2 10.1

39B10 t9ID/tatl1 Dub0 4. 1.2 3.' , 4. 4. 4.1 1. 9.2 7. 91.:2 1.[MD0 Debt dovc/s .b at Senice 2.1 2.1 . 3 2.1 4.' 1.0 4. 4.0 4.7 1.2' 9. :.'

Dbot ServIce

TetL1 e.-Ica Ptmay.et Lb I,921) 1.1341 31.111 39t.921 II,206 20,919 11,023 23 .410 22.133 22.122 21.659 23,320tatereanle 3.~~~~~~~~~1491 9.-121 2.0111 9.143 7.012 9,.41 1,111 11.240 9,011 9,229 9,19 9.130

Pay-vt. ae 2 Enparta (0311) 19.9 34.1 011.0 71.2, 40.0/f 72.1 09.2 71.3 1 0.0 o1.S 39.3 33.7

Av-Ra. ILoteeL mete en Or.Goariated Lean. (22 L.0. t. 1.3. (2.2 11.4 11.9 9.t 9.4 9.2 9.2 9.2 9.0

Offitcia 90 9.3 33.9 30.9 10.1 .. ie .. '.. va .. 0.Private Surce 11. 31.4 10.1 31.1 11.s .. sc .. '.e ,a .. v

Average Ilatrity of 9..

Guranteed Lea. freer.) /.c 9.0 'a.? 9.2 10.9 9.1 9.0 30.1. 33.9 11.9 12.3 31.1 II.)Offictal 311.4 II.?1 12.4 31.7 12.9 oa a. ,a oa. .a oa...Prinet. Saur 4.9 0.9 .9. tO.2 9.4 '.. va ie ., va .. va

4. 2 of 0iebt fOtetondiagM.-rh L9113

Maturitt Stroctur .3 PublI Deb t 0.tatedtncMaturIltee due .ttblo S Yearn 94.Materttten doe .dthl. 30 y-.. 91.

Intern"t StruCture of Debt, Oat.t.ndtngnteroaLt do LkI tdt ion. Itrat poar n

I. Dome net inClude gold art dollar -aoaL- .. dutet7;h lateroat ad aor*tmmteei. an edt. ad tang teen debt.rZ teottc Debt only for t975.

7; 1Latereet so -la- an toor-ter debt.77 IZIdea ealy aartLleettI.n eCt.alty Paid.1.4.. - MatL avalable. March 21, 39114

- 33 -

ANNEX IIPage 1 of 3

THE STATUS OF BANK GROUP OPERATIONS IN BRAZIL

A. SUMMARY STTEMENT OF LOANS(As of March 31, 1986)

Amount less Undis-Loan # Year Borrower Purpose Cancellations bursed

(US$ Milllons)

Seventy nine loans fully disbursed 3,672.7

1317 1976 Brazil Agro-Industry 83.0 24.61452 1977 Brazil Education 32.0 .91488 1977 Brazil Rural Development 11.0 1.11537 1978 Brazil Rural Development 24.0 11.61538 1978 ELETROBRAS Power 127.4 8.11568 1978 Brazil Agric. Extension 100.0 .21589 1978 Brazil Rural Development 37.0 11.01656 1979 Banco Nacional da Habitacao Water and Sewerage 100.0 .11714 1979 Brazil Rural Development 26.0 14.61720 1979 Brazil Urban Development 70.0 18.51721 1979 COPEL Power 109.0 22.31728 1979 Brazil Rural Development 31.4 6.81729 1979 Brazil Irrigation 28.0 3.11730-5 1979 Brazil Roads 107.9 3.91822-5 1980 Brazil/BNDE Pollution Control 34.0 22.21823 1980 Banco Nacional da Habitacao Water Supply 130.0 .11839 1980 Brazil Urban Transport 159.0 26.91850 1980 Banco Nacional da Habitacao Water Supply 139.0 13.51867 1980 Brazil Education 32.0 14.21877 1980 State of Minas Gerais Rural Development 63.0 45.51895 1980 ELETROSUL Power 100.5 56.21924 1981 Brazil Rural Development 56.0 12.41939 1981 ELETROBLAS Power 54.0 39.21965 1981 EBTIJ Urban Transport 90.0 46.01970 1981 Banco Nacional da Habitacao Water Supply 180.0 69.51989 1981 Brazil Alcohol Development 250.0 20.32015 1981 Brazil Agriculture 29.0 13.32016 1981 Brazil Agriculture 60.0 4.92060 1982 Brazil Agriculture 67.0 25.62061 1982 Brazil Health 13.0 4.52062 1982 Brazil Highways 240.0 60.82116 1982 Brazil Agriculture 26.4 11.12138 1982 ELETROBRAS Power 182.7 141.52163 1982 Brazil Agriculture 26.4 16.22170 1982 Brazil Urban Development 123.9 99.22177 1982 Brazil Rural Development 42.7 27.02193 1982 Brazil Urban Development 8.9 3.12196 1982 CVRD Iron Ore 304.5 69.3

- 34 -

ANNEX IIPage 2 of 3

A. SUMMARY STATEMENT OF LOANS (Continued)(As of March 31, 1986)

Amount less Undis-Loan # Year Borrower Purpose Cancellations bursed

(US$ Millions)

2224 1982 Brazil Feeder Roads 154.0 102.62249 1983 Banco Nacional da Habitacao Water Supply 302.3 134.82268 1983 Brazil Agro-Industries 400.0 358.52269 1983 Brazil Rural Development 67.8 57.72343 1983 Brazil Urban Development 52.7 40.12347 1983 Brazil Export Development 352.0 .72348 1083 Brazil Agriculture 303.0 .52353 1983 Brazil Agriculture 65.2 57.51729-1 1983 Brazil Agriculture 7.7 7.72060-1 1983 Brazil Agriculture 22.8 22.72364 1983 Eletrobras Power 250.6 223.02365 1983 Eletrobras Power 222.8 103.32366 1983 Brazil Education 20.0 13.62412 1984 Brazil Education 40.0 33.02446 1984 Brazil Federal Highways 210.0 165.52447 1984 State of Sao Paulo Health 55.5 49.42448 1984 Brazil Health Studies 2.0 2.02488 1985 Brazil Development Banking 300.0 249.32489 1985 Brazil Education 72.0 64.52523 1985 Brazil Rural Development 61.3 58.02524/1 1985 Brazil Rural Development 61.4 61.42532T 1985 Brazil Rural WS&S Pilot 16.3 16.32563 1985 Brazil Railways 200.0 184.82564 1985 Eletrobras Power Transmission 400.0 388.82565 1985 Eletrobras Power Distribution 312.0 301.02593/1 1985 Brazil Land Tenure 100.0 100.026237 1985 State of Santa Catarina Urban Development 24.5 24.526547 1985 Brazil Urban Reconstruction 100.0 100.0

Total 11,147.10/2Of which has been repaid to the Bank 2,169.37Total now outstanding 8,977.73

Amount sold 45.8Of which has been repaid 45.8 0.0

Total now held by Bank 8,977.73

Total undisbursed 3,890.5

/1 Not yet effective./2 No IDA credits have been made to Brazil.TJ Not yet signed.

Note: The status of the projects listed in Part A is described in a separate reporton all Bank/IDA financed projects in execution, which is updated twice yearlyand circulated to the Executive Directors on April 30 and October 31.

- 35 -AMOU 11

Iw 3 ot 3

SurDW OF IC nwNseuS (amtf Marh 31, 1296)

Flood _ nat in M55 dlii.n

Ye O b I L g o r Type of Dbin 1f Eqfdty Ttal

195 Sim.t do k1i Cla. de Elctriidole Electrical Epqtnt 2.00 - 2.00

1959 Olhtraft, 5. A. rauim a Pad ltp ad Pqer 1.21) - 1.20

195. D. L R. P i atilomtdlrs, SA. Ahaemtiw "at 0.45 - 0.45

1959 Willyw-Oarlard da Ormil, S. A. - ttmtriA ea tueio ttor V h Alt 2.45 - 2.45

1959 ObqatL Hlnera de MOm Factlmd, S. A. Cont 1.20 - 1.20

1959 Ohdpicn Ceulan, S. A. tilp 4.00 - 4.0D

196W19681972 Ae VILLe. S. A. Steel 8L0 1.93 9.93

19621969 P4p1 a t1lul2e Ctarnen., S. A. Rlp Ut Paer 3.78 5.71 9.49

196J/1972 Ultmfrti'l. S. A. - tItutri a GdCo de FettilasteA Fertuiluer 8.22 3.03 11.25

1969 Petre.dmlea IdA. S. A. fetrudueikAlm 5.50 2.88 8.31

1970 Pollntefina, S. A. bdutril e rcio Ptrmdcmicals 5.50 2.88 8.38

1971 Odreno, S. A. Iutria e (hurtco Ntrodurmcalm 4.60 1.44 6.04

1971 Nio Cande - Mnpf" de Cdulunse do Ia tp 4.90 - 4.90

n7nizsL9zu txSa de sco N1Iorud de Hli Cant 169.14 6.70 175.84

197374M778/1/3/8& 0ptda Sliugis ad ODab - lSlA Steel 76.97 15.27 92.24

1973 Cqaptal kts Dewinpmnt Rind - FMCAP Opcdtc Maket evelnjuet 5.00 - sno

1973Y1978U1983 1 de D lwwnlsa de 1one Hlnerlst - MWPN, S. A. Nlckel Htnidq ad Refinidg 85.00 8.74 93.74

1974 7nbutrtm ViLlla, S. A. Elever aUd bdesLritl Epmnt 6.00 - 6.00

1974 Fabrics de Tl&do Tsqme. S. A. Tetis 31.00 - 31.0t0

197Y1979 C_apr Cwbhom trt a Ltd. CAbn Blck 6.18 1.19 7.317

1975 Odt.o. tcds e, S. A. Petrodrmicel 10.00 - 10OD

1976 Snlna 7nltria - lTil do teite, S. A. TbitlIs 6.45 I.00 7.45

1976/1911 Taemn S. A. - Taitil eAdinin do Ironte TestIs 16.20 - 16.20

1977 33 S. A. Putns HAmlgtse Ira and Alusma Cotings 20.00 - 20.00

1977 HMnereo Rio do Ibrte S. A. MIitn 15.00 - 15.001978 O51t Sdemzra S. A. Iron U Sted h38 3.00 11.31

1979 iwm do 1a1m Ncms e Vdnzloe, S. A. Motr Videls 60.00 5.27 65.21

198) trIng dD toleea S. A. - Mil_ bMAy-ude CannEs 2.00 - 2.00

19H0 D0de do Prm S/A - Ikim - ArzU, tnhutrd

e Gonmlo de OIa%0ms Pa]s 3.50 1.00 4.50

191D Vilarm Irustris de Bame S. A. - VISS Yr. ed Sted 5.0O - 5.00

198D PFM - Q_at.a thatitd de ftlprqtl1s Omals ard PetroduedcAl. 15.00 2.00 17.00

198D C4stlarts Cancte S. A. Oumteal od Pecynuicat - 0.25 0.25

BID Setae Ads Qmdwca Ifiesn S/A Fertztim 35.00 6.00 41.00

19WD Pbial ecraquimLca Ounicsie ad Petrdcnlcale 43.0 5.00 48.00

1981 hupe Money Ud Capital Muwatt - 1.50 1.50

19SI Muddrudta iva de A_epwduria - WUIAoE odal Ut Fad Procmtqr! 5.50 3o 8.50

1981 futo Ondeles Utd Peatcrodals 46.00 4.0 50.00

19B2 CLmo tEOen o Case tt id btnxin Huterials 40.00 S5O 45.00

1982 Jlamugl S. A. Mong Cquital mat 30600 0.45 30.45

1983 COs aqnane de Partlcipes (anC) Yaney Caqtal MHar - .01 .01

1963 Ala.s FOrrifi Foal d Food Proagq 1300 - 1100

1983 omMa ODm do 1Ma (AMEPA) P 0U 6. 10 - 6 10

1983 PDA - Pqd de li s am LA t S PquerFnuct 60.00 5.17 6x.17

1983 Socom/SA. Foold d Food ftomsPu 3.0 2.50 5.50

1983 COIc Clat am Omutnutioc materials 35.00 - 35.00

19E6 Hlltidr Protto. Omicale Ud Fetrodinicals 100 5.00 8CO0

196e CStt Aiooqpdmis Macial Cheelcsls ad Fetranodmicels 22.W0 4.01 24.W

1985 QAdcs de Bds Omktds Ut Petrodslculs 3.20 1.80 5.00

Thcl Cnm xbnea 935.42 105.72 1,041.14

Les Cau 1lltm, Tedntia, RaPep and Sels 679.95 30.7a 710.73

otal. Gadtbs Nel Held by 1IF 255.47 74.94 330.41

octal IkUtlaburnd 64.- 14.82 79.26

April 18, M6

- 36 -

ANNEX IIIPage 1 of 2

BRAZIL

UPPER AND MIDDLE SAO FRANCISCO IRRIGATION PROJECT

Supplementary Project Data Sheet

Section I: Timetable of Key Events

(a) Time taken to prepare the project: 3 years

(b) Agency which prepared the project: CODEVASF and Federal andState Government Agencieswith Bank and FAO assistance

(c) First presentation to the Bank : 1983

id) Appraisal mission departure : July 1985

Ce) Negotiations : March 1986

(f) Estimated Loan Effectiveness : September 19J6

Section II: Special Bank Implementation Action

None.

Section III: Special Conditions

1. Loan Conditions

(a) credit for (i) on-farm investments and (ii) acquisition ofimproved land would be granted in accordance Wlth terms agreedwith the Bank (paras. 62, 63 and 65);

(b) CODEVASF would enter into agreements, satisfactory to the Bank,for the overall management of project construction (para. 53) andfor the execution of certain projects sub-components under thejurisdiction of other government agencies (paras. 54, 56, and 59);

- 37 - ANNEX IIIPage 2 of 2

(c) CODEVASF would organize and train the farmers to assumeresponsibility for the operation and maintenance of tertiary andquaternary canals (para. 57); and

(d) the Government and CODEVASF would maintain adequate cost recoverypolicies through water tariffs (para. 64).

2. Condition of Signing

The amendment to the loan agreement for Loan No. 2348-BR would besigned prior to, or simultaneously with, the documents for theloan proposed in this report (para. 63).

3. Special Conditions of Effectiveness

(a) effectiveness of the FAO Project Document (para. 52(f));

(b) institutional strengthening measures (para. 54);

(c) the agreements referred to in para. III. l(b) of this Annex shallhave been entered into; and

(d) Decree 90.991 shall have been modified to bring it in linewith the terms applicable to investment credit (para. 65).

4. Special Condition of Disbursement

(a) Bank approval of the economic justification of investments in eachof the five irrigation rehabilitation schemes other than SaoDesiderio and Estreito, prior to disbursement of any loan proceedsallocated to finance construction of any such rehabilitationscheme (para. 55).

(b) CODEVASF would organize irrigation beneficiaries into users'groups (para. 57).

A 4. / IrM;

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