FILE COPY 'Y DOCUMENT OF INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Not For Public Use Repor No. P-1325a-HO REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN AND CREDIT TO THE REPUBLIC OF HONDURAS FOR AN EDUCATION PROJECT December, 7, 1973 Latin American and the Caribbean Regional Office This report was prepared for official use only by the Bank Group. It may not be published, quoted or cited without Bank Group authorization. The Bank Group does not accept responsibility for the accuracy or completeness of the report. Currency Unit Hondurps Lempiras (L) US$ 1.00 = L 2.00 L 1 us$ °.5° L 1,000 u US$ 500.00 L 1,000,000 = US$ 500,Ooo Fiscal Year = January 1 to December 31 INTITNATIONAL BANK ..:-1 ';,0'.pport the priorities of thle Government's Lrzuer 5t parl by givinr -;c.:ea-d em-ohasis to investment ir tre social coinmodity -rodlc:-m s,--ctors while continl;ing to lend for o'hysical ;- structure, --where there are still substantial deficiencies to oe overcome. As the agricultural sector remains the decisive element in the coi-r tryj's econoaaic and social development we intend to expand our activities rn the sector. The objectives of lending for agriculture will be to assist in d:iversifyving the economy, (ieveloping con-petitive exports in high-vplue rodrlcts, and sutpporting the Government's efforts in agrarian reform and marpol:er training. The livestock sector will be further supported by an IDA credit appro.-v euy the Executive Lirectors in October 1973. Also, the iBRD/FAO Cooperative Program has begun assisting the Government in the preparation of tle oroposed first phase of the Comayagua Valley integrated rural develooment project. In furtherance of our objectives in the agricultural sector, the pro- posed project includes an agricultuiral education component. In transport, we hope to continue to assist the Government to complete the highway links between the main regions of the country, but would in the future place greater emphasis on assistance in the construction of a netwo-o 'he technical schools to prepare them for employment. A placement service recently established by the Govennment in the Ministry of Labor will, in cooperation with INFOP, help trainees from the above centers find suitable employment. 28. Incorporated in the Tegucigalpa Vocational Training Center would be an Industrial Training Development Center to help plan and implement the above program and to assist enterprises to identify their training needs and undertake in-plant programs. 29. The expansion of the agricultural secondary school at Catacamas would help increase agricultural productivity by meeting the requirements for agricultural technicians. The capacity of the agricultural school would be increased from 100 to 240 student places with an annual output of about 70 technicians. The school would be completely reorganized under the Direc- torate of Agricultural Development in the Ministry of Natural Resources, and the curriculum would be revised to include a greater share of practical courses. A management board chaired by the Minister of Natural Resources and repre- senting institutions in the agriculture and education sectors would set policy and oversee the school reorganization and activities. Tne reorgani- zation of the school, to be carried out in consultation with the Bank/IDA, would commence not later than December 31, 1974, aid would be finished by the time of the completion of the expansion of the school. - 9 - 30. The three new agricultural training centers - one each at Catacanmas, La Lujosa and La Esperanza - would offer courses to farmers and homemakers with emphasis on improved farming methods, organization of cooperatives, home management and community leadership. The centers would also train extension workers and youths in rural development activities. It is estimated that with an overall capacity of 150 places a total of about 2,000 persons would be trained each year. The centers, which would be also under the control of the Ministry of Natural Resources, would be experimental in nature and would be evaluated during project implementation with a view to nationwide expansion. 31. The project would include 23.5 man/years of technical assistance and 46 man/years of fellowships. The technical specialists, to be employed under terms and canditions satisfactory to the Bank and IDA, would assist the Government in the administrative reform of education (2 man/years); ir. implementing the reorganization of primary teacher training and upgrading the teacher trainers (6 man/years); implementing the national vocational training scheme (8.5 man/years); carrying out the development program. of the, agricultural secondary school (6 man/years); and reinforcing the project unit (1 man/year). In addition, UNDP will finance 7 man/years of specialist services for the improvement of the secondary teacher training program. Under the fellowship program, local counterparts would be -trained abroad in various disciplines related to the project. 32. To assure that quantity and quality improvements are met in the most efficient manner, the Government would periodically review the relation- ship between new students and in-service trainees to be acditted to the primary and secondary teacher training programs. The Government would also establish in all project institutions a system to trace student dropout, graduation and subsequent employment. This systematic follow-up would permit an assessment of the success of the project in attaining its objectives. Costs and Financing 33. The total cost of the project is estimated a1; US$8.7 million, of which US$5.o million, or 58 percent, represents foreign exchange costs. Construction costs make up 48 percent of the total cost; furniture and equipment, 20 percent; technical assistance, 11 percent; and physical and price contingencies, 21 percent. The proposed Bank loan and IDA credit totalling US$6.0 million would finance about 69 percent of total project costs, US$5.0 million of foreign exchange and US$1.0 million equivalent of local costs. Local currency financing is justified in Honduras on the grounds that, in spite of its efforts to mobilize local resources for development, the Government must still rely upon external financing in excess of the foreign exchange component of individual projects to carry forward an effective development program. The balance of the project costs, equivalent to US$2.7 million, would be financed by the Government. 'While the implementation of the education development program as a whole will be dependent on the adoption of new fiscal measures (paragraph 21). the execution of the proposed project would be needed and is feasible even in the absence of sudh measures. Ihe teachers 'trained under the project should be fully utilized even if enrollment rat-.os memained at current levels rather than being increased in accordance with the plan. The Government has agreed to make adequate annual budget provisions for the construction and subsequent operation of the project and should have the financial capacity to do so even in the abpence o. new fiscal measures. Project Ehtity 34. The Government will establish a project unit within the Technical Secretariat of the Consejo Superior de Planificacion Economica (CONSUPLAN) to be responsible for overall administration of the project and to coordinate activities within the Government and provide liaison with the Bank/IDA. The unit would have a full-time director, appointed in consultation with the Bank/!DA, who would report to the Executive Secretary of CONSUPLAN but would be empowered to make all day-to-day decisions relating to the operation of the unit. The unit would also have a full-time architect or engineer experienced in school con struction, an accountant and a procurement officer, all appointed in consultation with the Bank/IDA. The Ministries of Education and Natural Resources and INFOP each would appoint a project liaison officer who would, in cooperation with the project unit, be responsible for organizing within their institutions technical work required in project imple,nentation. The Government would enter into a contractual arrangement with INFOP, satis- factory to the Bank/IDA, providing for the latter's participation in the project; the execution of such a contract would be a condition of disbursement of the loan and credit for INFOP activities. The establishment of the project unit and the appointment of the project director and architect (or engineer) would be conditions of effectiveness of the proposed loan and credit; all others mentioned above would be appointed within three months from the date of effectiveness of the loan and credit agreements. Procurement and Disbursement 35. Furniture and equipment would be procured on the basis of inter- national competitive bidding in accordance with the Bank/IDA procurement guicelines, the exception being contracts costing less than US$5,000, which would be procured in accordance with Honduras' normal procurement procedures and which in the aggregate would not exceed the equivalent of US$170,000. Contracts for civil works wouli also be awarded on the basis of international competitive bidding. However, because of their small size and dispersed location, constracts for the twelve rural primary application schools are not likely to attract foreign companies. Therefore, since there would be little, if any, advantage derived from international advertising, these contracts would be advertised locally only. Architectural and engineering design work not done by the Kinistry of Education's own design group would be contracted to consulting firms under terms and conditions satisfactory to the Bank/IDA. For purposes of bid comparisons and contract awarding and at the request of the Government, Honduran manufacturers of furniture and equipment 'would be granted a preference of 15 percent-of the c.i.f. price or tne currently applicable import duty, whichever is lower. - 11 - 36. For furniture and equipment the loan and credit would be dis- bursed against 100 percent of foreign expenditures of imported goods or 100 percent of the ex-factory cost of domestically manufactured goods. Disbursements would also be made against 100 percent of foreign expenditures for specialistst services, 100 percent of total expenditures for fellowships, and 52 percent of total expenditures for civil works and architectural and engineering design work. The disbursement schedule is indicated in Annex III. PART V - LEGAL INSTRUNENTS AND AUTHORITY 37. The draft Loan Agreement and the draft Development Credit Agreement between the Republic of Honduras and, respectively, the Bank and the Association; the Report and Recommendation of the Committees provided for in Article III, Section 4 (iii) of the Articles of Agreement of the Bank and in Article V, Section l(d) of the Articles of Agreement of the Association, respectively; and the text cf two resolutions respectively approvingthe proposed loan and the proposed development credit are beirg distributed to the EEmcutive Directors separately. Both the draft :oan Agreemeat and draft Development Credit Agreement conform to the normal pattern of loans and credits for education projects, and the effectiveness of one is conditionod on the effectiveness of the other. 38. I am satisfied that the proposed loan and development credit woiild comply with the Articles of Agreem3nt of the Bank and the Association. PART VI - R.ECONENDATION 39. T recormnrnd that the Execlative Directors approve the proposed loan and development credit. Robert S. McNlamara Presi dent Attachments December 7, 1973 Annex I Page 1 of 7 ODUNTRY DITTA - HONWRAS AREA POPMlATION DIISITY 115,200 km2 2.7 million (mid-1972) 23.3 per km2 Rate of Growth: 3.2% (from 1961 to 1972) POPUJLATION ARACTERISTICS (1965-70) HIALTH (1970) Crude Birth Rate (per 1,000) 49.0 Population per physician 3,707 Crude Death Rate (oer 1,10)) 17.1 Population per hospital bed 582 Infant Kortality (per 1,000 live births) 34.0 INCaKE MSTRIMTION DISTRIBUTION OF IAND CWNERSHI P % of national incoae, lowest quintile .. % owned by top 1Ct of owners highest quintile .. % owned by smallest 1C% of owners AOCSS TO PIPED I&TIR ACCESS TO LECTRICITY (1971) % of population 35 % of population 16 NUTlTIOP (1960-63) EDUCATION (1972) Calorie intake as % of requirements 90.4 Adult literacy rate % 42 Per capita protein intake 53.6 Primary school enrollment % d1 GNP P1R CAPITA in 1971:Y/ US $290 GROSS NATIONAL PRODUCT IN 1972 ANNUAL RATE OF GROWTH (%, constant prices) US $ iln. % 1961-66 1966-72 1972 GNP At Narket Prices 780.8 100.0 4.1 4.7 1.9 Gross Dmoeatic Investment 127.9 16.4 9.4 5.5 0.1 Gross National Saving * 125.6 16.1 -0.2 o.8 18.5 Current Account Balance - 2.3 0.3 Exports of Goods, NFS 230.6 29.5 11.5 10.1 6.2 Imports of Goods, NFS 220.9 28.3 14.3 11.7 -2.0 OUTPUT, LABOR FORCE AND PRODWUCIVITY IN 1972 Value Added Labor Force V. A. Per W&brker US_$ Mln. % Mln. % US $ % Agriculture 235 36.2 0.540 65.1 435 55.6 Industry 147 22.6 0.099 11.9 1,485 189.7 Services 268 41.2 .1 23.0 1 403 179.2 Total/Average 100.0 0.830 100.0 703 100.0 GOVER184EW FINANCE Gsneral Government Central Government (Lemp. Mln.) % of GDP (Lemp. Mln.) % of GDP 1972 1972 1970-1972 1972 1972 1970-72 Current Receipts 222 13.9 13.9 192 12.0 12.2 Current Expenditure 20 12.9 12.5 182 11.4 11.1 Current Surplus 15 0.9 1.3 10 0.6 1.1 Capital Expenditures 55 3.4 4.9 45 3.0 4.4 External Assistance (net) 24 1.5 2.3 23 1.4 2.1 / The Per Capita GNP estimate is at 1970 market prices, calculated by the same conversion technique as the 1973 World Atlas. All other conversions to dollars in this table are at the average exchange rate prevailing during the period covered. v Total labor force; unamployed are allocated to sector of their normal occupation. * The Annual Growth Rates are calculated on the basis of Gross National Savings as Gross National Product minus Consuption. not available not applicable AINEX I Page 2 of 7 COUNTPRY DATA - HONDURAS km0NEY, CPEDIT AND PRICES 1965 1970 1971 1972 (ME Llion Leap. outstanding end of period) Money and Quasi Money 167 335 373 431 Bank Credit to Public Sector 18 54 70 80 Bank Credit to Private Sector 135 347 369 414 (Percentages or Index Numbers) Money and Quasi Money as % of GDP -L6.4 23.5 24.7 27.0 General Price Index (1966 = 100) * 99.1 108.5 110.7 1L4.7 Annual percentage changes in: General Price Index 3.0 2.0 3.6 Bank credit to Public Sector . 134.9 30.5 14.1 Bank credit to Private Sector . 16.3 6.3 12.0 BALANCE OF PAYMENTS MERCHANDISE EXPORTS (AVERAGE 1970-72) 1970 1971 1972 US $ Mln. % MTillions US $) Exports of Goods, NFS 196 216 231 Bananas 86 44.3 Imports of Goods, NFS 244 220 221 Coffee 26 13.4 Resource! Gap (deficit = 7F -)7 -10 Lumber 20 10.3 Beef 13 6.7 Interest Payments (net) - 3 ) ) All other commodities49 25.3 Workers' Remittances . ) - 23 ) - 19 Total 19T 100.0 Other Factor Payments (net) - 20 ) ) Net Transfers 7 7 7 EXTERNAL DEBT, DECMBER 31, 1972 Balance on Current Account -64 - 20 - 2 US $ Mln. Direct Foreign Investment 8 7 1 Net MLT Borrowing 34 19 15 Public Debt, incl. Disbursements 35 20 18 guaranteed 119 Amortization 1 1 3 Non-guaranteed Private Debt Subtotal by 17 Total outstanding & disbura. Capital Grants - - - nFBT SERVICE RATIO FOR 1 Other Capital (net) / 2 9 4 T972J Other items n.e.i. 6 - 9 - 6 Increase in Reserves (+) -17 67 12 Public Debt, incl. guar'nd. 3.4 Non-guaranteed private debt Gross Reserves (end year) 24 27 40 Total outstanding & disburs. Net Reserves (end year) 9 15 27 RATE OF EXCHANGE IBRD/IDA LENDING, Dec. 31, 1972 (Mln. US $): Through - 1971 IBRD IDA US $ 1.00 = Lempiras 2.00 Outstanding & Disbursed 34.1 22.2 Lempiras 1.00 = US $ 0.50 Undisbursed 24.2 2.6 Outstanding incl. Undisbursed 24.8 Since - 1971 US $ 1.00 = Lempiras 2.00 Lempiras 1.00 = US $ 0.50 * Consumer Price Index. R Ratio of Debt Service to Exports of Goods and Non-Factor Services. j Net medium and long-term capital to private non-monetary sector and to the banking system. j Debt repayable in foreign currency disbursed. not available not applicable A.NNEX I Page 3 of 7 EXCERPTS FROM PRESIDENT'S REPORT DATED SEPTEMER 25, 1973, ON A PROPOSED CREDIT TO THE REPUBLIC OF HONDURAS FOR A SECOND LIVESTOCK DEVELOPMENT PROJECT (REPORT NO. P-1293a-HO)* PART I - THE ECONOMY Recent Developments and Prospects 2. A report entitled "Basic Report on the Economy of Honduras" (CA-19a) was distributed to the Executive Directors in June 1972 (R72-19O). The main recarnmendations of this report stress the importance of policies to diversify the econamy, especially through Government action to encourage forestry, the necessity of negotiating a reasonable basis for renewed ful'l participation of Honduras in the Central American Common Market (CACM), and the desirability of increasing tax revenues. A mission to update econornic information visited Honduras in August 1973. Its findings are reflected in this summary; an Updating Economic Report is scheduled for distrib-ution to the Executive Directors late this year. *A country data sheet is attcched as Annex I. 3. Honduras has a small open economy, heavily dependent on the export of bananas, although a modest degree of diversification has taken place in the last decade through the development of new export products such as meat, simple manufactures, cotton and tobacco. Its limited resources consist mainly of the fertile coastal plain in the north, a few fertile valleys in the east, and extensive but largely unexploited natural pine forests. Known mineral deposits are not extensive; they include silver, lead and zinc, which have been exploited on a small scale for decades, and low-grade iron ore. Although the average population-to-land ratio is favorable, population has traditionally concentrated in the mountainous west, the poorest agricultural area of the country, and on the north coastal plain. In the future, as population pressure increases in these areas, heavy investment in physical infrastructure will be necessary to facilitate the movement of population to less heavily settled areas further to the east. This process has already started as the road network was improved and expanded in recent years. 4. With per capita income of about US$290 in 1971,-/ Honduras is the poorest country in Central America. Real GDP rose at an average annual rate of 4.7 percent during 1965-72, but much of this expansion took place during the first three years of this period, as a consequence of substantial invest- ment and large increases in output and export of bananas. From 1969 through 1972 economic growth has been quite low, real per capita income growing at a yearly rate of 1.2 percent. Inflation has been limited: the consumer price index rose at a rate of 2.1 percent per year from 1965 to 1972. Several factors contributed to the slow growth of the economy during the last few years, including severe hurricane damage to banana and other crops in 1969, I/ Calculated according to World Bank Atlas methodology. * Distributed under covering memorandum IDA/R73-103 of September 26, 1973. - Distribution has been delayed to permit a review of the findings with the Government; the report is now expected to be distributed in February 1974. ANNFVX I Page 4 of 7 coiinciding -aitth the armed conflict between Honduras and El Salvador and the consequent reduction in private investment and the withdrawal by Honduras from the free trade arrangements of the Central American Common Market (CACY), a move which adversely affected a number of export industries. Wide-spread drought in 1972, and storms and floods in the banana plantations in 1973 have resulted in a large loss in agricultural production. By mid- 1973, however, there were signs that the economy was pulling out of this period of relative stagnation. Export prices were improving and the Government's budgetary position was stronger. Following the severe deterioration in the balance-of-payments in 1969-70, the net international reserves' position improved during 1971-72, a move which will probably be continued in 1973. The rate of inflation in 1973 will, hiowever, be above the historical rate and may be of the order of 5 percent, both because of the production problems in the agric-ultural sector and because of higher import prices. 5. The CACM was an important element in the growth of the Honduran economy during the 1960's. The CACM absorbed Honduran exports of staples which have no ready market elsewhere, and it provided the additional markets necessary for the establishment of factories making textiles, clothing, chemiicals and metal products. The Honduran authorities felt, however, that the benefits of integration, etspecially in terms of industrial investment, were unequally distributed among the member countries. The other CACM members recognize the basis for the Honduran comnplaints, and during the past two years have sought solutions to the problem. As an interim solution to basic Cormon Market problems, Honduras has nego-tiated bilateral trade agree- ments with all its CACM partners except El Salvador. In the meantime, the Common Market Secretariat (SIECA) has prepared a study which proposes solu- tions to existing problems, and makes recommendations geared to the formation of a Central American Economic Community. The report has been well received by the CACM member governments, including Honduras. Once a political settle- ment is reached between Honduras and El Salvador -- which the two governments have indicated they expect to reach in early 1971 -- there should be more rapid progress toward integration objectives. 6. During most of the 1960's the Governmrent sharply increased its investment in development projects. Among the major achievements in this period were the establishment of a basic transport network connecting the main population centers, the expansion of electric power and telecommuni- cations services, and the doubling of primary school enrollment. Until 196QW there were no financial difficulties in carrying forward these schemes, mainly because of the fast growth of government revenues based on the intro- duction of a general sales tax and higher income tax rates in 1964, and larger tax payments by the banana companies. After 19669, however, the public sector experienced a sharp deterioration in its finances, initially because of defense and other emergency expenditures connected with the 1969 conflict with El Salvador, andl later because the normal growth of government current expenditures outstripped the current revenues, Public sector savings declined from an average of 2.7 percent of GDP in 1966-68 to 1.6 percent of GDP in 1969-71. In spite of this, the public sector maintained an impressive investment effort with the average investment ratio rising from 3.6 to 6.2 percent of GDP over the same period. A large increase in net foreign financing did not cover the overall public sector deficit, and the Central Bank was required to finance the gap, equivalent to about 1.3 percent ANIN E X I T of 7 of GDP in 1969-71. In 1972 the Central Goverrment was able to improve its financial position, but this was in large part the result of a 20 percent drop in investment expenditures. In the first half of 1973, the Government's financial position continued to improve, but this year it uras the result of an increase in current revenues and tight control over current expenditures. Investment expenditures, although not being further reduced, continued at relatively low levels in the first half of 1973. This low level in both 1972 and early 1973 results from the small number of new project starts in the preceeding years. One of the Governmentts major concerns at present is building up a new pipeline of sound development projects responsive to the country's development objectives. 7. The military Government that took power in December 1972 announced its intention to pursue progressive development policies, and to tackle the country's fundamental economic and social problems. The new Government's development plan -- mainly a definition of objectives and policies rather than specific projects -- is expected to be ready in December 1973. Pending its completion, the new Government has been working closely with international agencies in an effort to revise and accelerate the execution of a tentative investment program prepared last year. The program provides for continued investments in physical infrastructure, especially power and transport, and a substantial increase of investment in the social sectors, particularly education and water supply and in directly productive sectors, giving special emphasis to agricultural diversification. The forestry sector offers the best opportunity for the medium-term diversification of production w,ith good export potential. Since the first of the year, the Government has taken a numnber of important actions, among them the enactment of agrarian reform measures designed to resolve emergency land tenure problems while a long-term agrarian plan is designed, the formation of the long-awaited skilled labor training center and steps towards the development of fDrest-based industries. The new Government has indicated that it intends to introduce any necessary tax measures when the financing needs of the revised development and public investment plans are fully established. 8. Over the next five years or so, the economy is expected to recover from its recent stagnation. Banana exports, which still constitute slightly more than 40 percent of Honduras' total exports, will grow only moderately, but this is expected to be more than offset by rapidly rising exports of coffee, meat, timber and cotton. Total export growth may be of the order of 8 percent per year, thus strengthening Honduras' balance-of-payments and contributing to a faster rate of growth of GDP. The more intensive development effort expected in the public sector, along with the renewed private sector expansion (stimulated by Government activities, favorable export markets and the expected re-establishment of regional integration arrangements) will add to both import demand and development financing requirements. Thus in the medium-term the favorable prospects also mean an increased need for external assistance. External Assistance 9. The external lending agencies have strongly supported public invest- ment in Honduras. Outstanding external public debt, including undisbursed, amounted to US$252.4 million as of December 1972. Of this total, more than 32 percent is repayable in local currency, and the ratio of debt ser-v-ice ANNEX I Page 6 of 7 payable in foreign exchange to export earnings is very low - 3.4 percent. Excluding the large proportion of the extenial debt repayable in local currency, the Bank's share of external debt - including undisbursed - is 34.3 percent and the IDA's share if 14.6 percent. During 1972, the per- centage of Bank Group debt service in total debt service renavablp in foreign currency was about 50 percent. 10. Apart from the Bank Group, external financing is provided by USAID, the Inter-American Development Bank (IDB) and the Central American Bank for Economic Integration (CABEI). USAID has been active in education, health, feeder road construction, water suipply and agriculture; it was also instru- mental in the formation of a private industrial finance company. IDB has been involved in housing, education, water and sewerage, and highways. It also supports agricultural and industrial projects by means of general credit lines to the government-owned development bank. CABEI is financing projects with a regional impact, primarily in transport, industry and telecommunica- tions. Past lending of these agencies is summarized below. COMMITMENTS BY MAJOR OFFICIAL LENDING AGENCIES (Net of cancellations, as at June 30, 1973) (US$ millions) IBRD IDA AID IDB CABEI Lending 1950-65 25.9 11.9 26.7 27.2 18.3 Lending 1966-72 63.3 12.1 26.6 62.5 77.5 Transport 38.0 - - Li.6 32.9 Power 25.3 9.5 - - 7.2 Telecommunications - - - - 4.4 Education - - 9.0 7.6 - Health - - 2.6 - - Housing - - - 12.5 9.7 Agriculture - 2.6 13.0 28.6 0.1 Industry - - 1.5 2.2 19.8 Other - - 0.5 - 3.4 Total 89.2 24.0 53.3 89.7 95.8 AITNEX T Page 7 of 7 IDB and CABEI are expected to continue financing projects in the sectors which they have financed in the past, although CABEI will focus increasingly on tourism. USAID, on the other hand, may concentrate its future lending in agriculture, depending on the results of an ongoing sector survey which it is financing. 11. Since-its poverty, meager resource endowment and balance-of-payments performance have made it difficult for Honduras -- one of the least developed countries in Latin America -- to borrow substantial amounts on convenvional terms, external agencies have extended financial assistance on Lairly soft terms so that debt service, while it has risen significantly in the last few years, is still low. Honduras does have some margin for borrowing on con- ventional terms; assuming that the average terms of external borrowing were to remain more or less the same as in the past, the debt service ratio would rise to about 6.5 percent by the! end of the decade, which is manageable for the Honduran econcmy. *However, in view of Honduras' poverty, it is desirable to maintain reasonably soft average terms of assistance in the future in order to limit the burden of debt service upon both the budget and the balance- of-payments;.further IDA credits are accordingly being planned. ANNEX II Page 1 of 4 THE STATUS OF BANK GROUP OPERATIONS IN HONDURAS A. STATEMIENT OF BANK LOANS AND IDA CREDITS (as of October 31, 1973) Loan or US$ Yri-lion Credit Amount (less cancellation) Nlumber Year Borro'jer Purpose Bank IhA IUndisbursed Eleven loans and credits fully disbursed 38.0 21.4 495 1967 Honduras Roads 8.6 - - / 179 1970 Honduras Livestock development - 2.6 0.7 692 1970 Honduras Generation and transmission 5.5 - 3.9 767 1971 Empresa Nacional Portuaria Ports 6.0 - 5.8 8241 1972 Empresa Nacional de Energia Elec- Generation and trica transmission 12.3 - 7.8 896 1973 Honduras Roads 18.8 - 18.8 434 1973 Honduras Second Livestock - 6.6 6.6 Development Total 30.6 43.6 of which has been repaid 13.7 0.2 Total now outstanding 75.5 30.4 Amount sold 2.6 of which has been repaid 2.5 0.1 Total now held by Bank and IDA 75.4 30.4 Total undisbursed 36.3 7.3 43.6 A balance of $5,876 has been cancelled. 2/ Prior to exchange adjustments. ANNEX II. Page 2 of' 4 B. STATEIMNT OF FC JNVESTIENTS (as of October 31, 1973) Year Obligor Type of Amount in US$ million _______ Business Loan Equity Total 1964/66 Empresa de Curtidos Centroamericana S.A. (ECCASA) Tannery 0.30 o.08 0.38 1969/70 Compania Pino Celulosa de Centroamerica Pulp and (COPINO) Paper - o.08 0.08 Total gross commitments 0.30 0.16 o.46 less cancellations, terminations, repayments and sales 0.28 0.09 0.37 Total commitments now held by IFC 0.02 0.07 0.,09 Total undisbursed ANINIX II Page 3 of 4 C. PROJECTS IN EXECUTION 2 Ln. No. 495 Wxestern Highway Paving Project: US$8.6 million Loan of May 26, 1967 Closing Date: September 28, 1973. The project has been completed and final disburst3ment applications are being processed. A balance of $5,900 has been cancelled. CR. No. 179 Livestock Development Project: US$2.6 million Credit of K.arc-h 2 1970A Closing Date: December 31, 1975. The credit has been fully committed and disbursements are now prc-W ceeding on schedule. Ln. No. 692 Fourth Power Project: US$5.5 million Loan and US$5.5 million Cr. NCo. 201 Credit, both of June 24, 1970; Closing Date: June 30, 197T.4 Engineering studies carried out after the signing of the Loan/Credit suggested, partly because of the proposed interconnection with Nicaragua, 2 number of changes in tZie design of the project which made necessary amending the origirnal project description. These changes have delayed bid preparation for and constiruction of the project's transmission and sub-transmisslon components by about six months. Hlowever, disbursements may still be completed on schedule by June 30, 1974. Ln. No. 767 Second Port Project: US$6.0 million Loan of June 25, 1971; Closing Date: June 30, 1975 The project provides for tne expansion of Puerto Cortes in the north of Honduras, and the construction of the new port of Henecan in the South. After loan signing, the Honduran Congress, partly for political reasons associated with the border issue with El Salvador, expressed reservations about the construction of a port at Henecan. However, the Government that took office in December 1972 and the Port Authority decided to proceed with the construction of Henecan. As a result of these delays, and in spite of reasonable progress in the construction work for the expansion of Puerto Cortes, execution of the project as a whole is about 18 months behind schedule. 2/ These notes are designed to inform the Executive Directors regarding the progress of projects in execution, and in particular to report any problems which are being encountered, and the action being taken to remedy them. They should be read in this sense, and with the understanding that they do not purport to present a balanced evaluation of strengths and weaknesses in project execution. ANNEX I T Page 4 of 4 ,n. io4 84 rifth-t Power U 2ject° US$12.3 mll-on Loan of June 28, 1972; Closing Date: -un 30 1976 In addition to the installation of diesel generating equipnent, this project provides for the Honduran portion of the interconnection betwaeen the power systemns of Honduras and Nicaragua. Installation of the diesel units is proceeding on schedule. Iriitial delays in the negotiations with the Nicaraguan utility comrpany and :major local customers may cause a slippage in the conrmletion of thn transmission co.ponents of the project; but full dis- bursements are still expected by the closing date of June 30, 1976$ _n. No. 896 Sixth Highway Project: US$18.8 miLlion Loan of May 30, 1973; Closing Date: June 30, 1977. This loan became effective on August 27, 1973. Preparation of bidding documents for the construction of the Tegucigalpa-Talanga road are well advanced and tenders should be invited shortly. ANNEX III Page 1 of 3 HONDURAS - EDUCATION PROJECT LOAN, CREDIT AND PROJECT SUMMARY BORROWER: Republic of Honduras. AMOUNT: Loan: US$3.0 million Credit: US$3.0 million TERMS: Loan: 30 years, including 10 years of grace; interest at 7-1/A% per annum. Credit: Standard. PROJECT DESCRIPTION: The project consists of: (1) Construction, furniture and equipment for: (a) Primary teacher training (i) two new and extension of two exdsting regional teacher train- ing schools; (ii) twelve new rural application primary schools (b) Secondary teacher training (i) one new teacher training college (ii) one application secondary school. (c) Vocational training (i) two vocational training centers. (ii) one industrial training develop- ment center. (d) Agricultural education and training (i) three new agricultural training centers (ii) expansion of the existing agricultural secondary school (2) Technical assistance covering 23.5 man- years of specialists' services and 46 man- years of fellowships for Honduran staff. ANNEX III Page 2 of 3 ESTIMATED COST?. (US$ millions' LOGAL FOREIGN TOTAL Purniture and equipment 0.22 1.50 1.72 Civil works, professional services 2.57 1.62 4.19 Technical Assistance and Fellowships 0.C7 0.90 0.97 Contingencies 0.81 0.97 1.78 TOTAL 3.67 4.99 8.66 (%) (42.4) (57.6) (100.0) FINANCING PLAN: (-JS$ millions) LOCAL BANK/IDA TOTAL Furniture and equipment 0.02 1.70 1.72 Civil Works 2.02 2.17 4.19 Technical Assistance 0.07 0.90 0.97 Unallocated 0.55 1.23 1.78 TOTAL 2.66 6.00 8.66 (%) (30.7) (69.3) (100.0) ESTIMATED DISBURSEMENTS: (Loan and Credit combined) US$ Thousands by Fiscal Year 19Th -fl975 1976 1977 1978 Cum. Total 20 430 1,590 2,790 1,170 6.000 PROCUREMENT ARRANGEMENTS: Furniture and equlpment contracts estimated to cost the equivalent of us$5,000 or more will be subject to international competitive bidding in accordance with the Bank/IDA procurement guidelines. For purposes of bid comparison and contract awarding goods manufactured in Honduras would be granted a preference of 15 percent of the c.i.f. bid price or the currently applicable import duty, whichever is lower. ANNEX III Page 3 of 3 PROCUREMENT ARRANGEMENTS: Contracts for civil works would also be (continued) awarded on the basis of international competitive bidding, except for the twelve rural primary application schools. Because of their small size and dLspersed location, contracts for the latter are not likely to attract foreign companies and would be advertized locally only. Architectural and engineering design work not done by the Ministry of Education's architectural unit would be contracted to consulting firms under terms and conditions satisfactory to the Bank and IDA. APPRAISAL REPORT: Report No. 196a-HO dated December 7, 1973. 89 W N" RU'E 85 nC,> ELRRARETA GUANAGA JANAICA ISLAND ISIANG F C A A I d A E A N ROATAN ISLAND SEA SfA fJURAS f UTILA ISLAND AGRLSJRAT GI/SF Of HONDVUAS EL L: NICARAGUA PUERTO ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~PANAMA OCITO~~~~~~~~~~~~~~~~~~~~~~~~PET El LAM LAC I DA-i .t' ID.E M A 1 R' @/ e ) 0< W,t, wAR./;IARA COPAN ~ ~ ~ CTIRITA~~~~ UIONL 01ANC[TOD ~~R* '\ SEA ROSA ~ -' 4 AILIRERTAS ELCP LANI V GA AAP GUATEMALAZACALF CIT TlAEJ/g l mAC AT -,JTREA SA _>/ LI< SA _- RA_ C CO S COROLLIN L F N ; F, , A G N I, U aA DP RC'E \,c EURVAx I\ ' JI UM C A AA '+ IRs 23.AO RCA TO( 4 [NP IB A H DUAS+ ' A \tt SAN SAlVADOR " .\ UAillAZ C TO D PE /S uRLG O A 0 S ANAA V _ 0 S *t ) , 211tRC~~~~~~ALAL --t4 2G5NTA MARIA __JFIRST EDUCATION PROJECT N OS 9~~~~~~OAULI I I!' < > < A POTRAILLOS R TA TAZREELO PRIMARYTRACHERTRAININGSCHOO.S '- w ~~ ~~ ~~ ~ ~ ~ ~ ~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SE zu N i i LPRA5 f: PLCONARYTACP TRAINING COLLEGE YORO DULCE NOMBRE~~~~~~~~~~~~~~~~~* VCAINA RANNGCNTR . DECOIAYCULMI-,-X A fSANA>ONl '- G ; AGRICULTLRALSECONDARYSCHOOL ,E , L PAR A L0 VAtAl A D L A N S N HS X 5 C | REE LIST OF SCHOGLS IN REPOREL T S O E O A -` SAN~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~IIIIATSTRH OS INARANJITO NICOLA~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~IRnn, EAUPU ~~.P,-EL)IO HE ISRAND~~~~~~~~~~~~~L MUERTTQ\SN FAIC5C < R EtitA N D 01ro D~ ~~~~Er/Tr °D ;2 EL DMARIA0 25= |ratnt1rndie PA C I RUO O CEA N F OA'S(CA E 3 S 11EOVNTEltS 69' 88' f 7 ._--,=tRz _ 8# _ ES' 84~~~H' NOVEMBER 1973