FILE COPY ~~~~~~Document of FILE COP - - wThe World Bank FOR OFFICIAL USE ONLY , t,LU bJ 0 Report No. P-2106-ES n . . REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN AND CREDIT TO THE REPUBLIC OF EL SALVADOR FOR A SECOND URBAN DEVELOPMENT PROJECT June 2, 1977 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS US$1 =¢2.50 Colones (¢) =US$o.40 SDR 1 =02.714 FISCAL YEARS FSDVM - April 1-March 31 IVU - July 1-June 30 FEDECCREDITO - June 1-May 31 ABBREVIATIONS AID U. S. Agency for International Development (Agencia Internacional de Desarrollo) CABEI Central American Bank for Economic Integration (Banco Centroamericano de Integracion Economica) CACM Central American Common Market (Mercado Comun Centroamericano) FEDECCREDITO Federation of Credit Unions (Federacion de Cajas de Credito) FNV National Housing Bank (Financiera Nacional de la Vivienda) FOCCO Bureau of Community Development and Cooperation (Direccion General de Fomento y Cooperacion Comunal) FSDVM Salvadorean Foundation for Low Income Development and Housing (Fundacion Salvadorena de Desarrollo y Vivienda Minima) FSV Social Housing Fund (Fondo Social para la Vivienda) IDB Inter-American Development Bank (Banco Interamericano de Desarrollo) IVU Urban Housing Institute (Instituto de Vivienda Urbana) UNDP United Nations Development Programme (Programa de Naciones Unidas para el Desarrollo) FOR OFFICIAL USE ONLY EL SALVADOR SECOND URBAN DEVELOPMENT PROJECT LOAN, CREDIT AND PROJECT SUMMARY BORROWER: The Republic of El Salvador AMOUNT: US$12.7 million equivalent TERMS: (a) The Bank loan of US$6.7 million equivalent would be for a term of 20 years, including 4.5 years of grace with interest at 8.2 percent per annum. (b) The IDA Credit of US$6.0 million equivalent would be on standard IDA terms. RELENDING TERMS: US$5.9 million of the Bank loan would be relent by the Government to Fundacion Salvadorena de Desarrollo y Vivienda Minima (FSDVM), Federacion de Cajas de Credito (FEDECCREDITO), and Instituto de Vivienda Urbana (IVU) at the Bank's interest rate and term (except that FSDVM would receive one additional year of grace). The IDA credit would be relent by the Government to the three agencies at 2 percent interest, with a 30-year term including 6 years of grace to FSDVM, and a 20-year term including 5 years of grace to FEDECCREDITO and IVU. The Government would bear the foreign exchange risk related to the credit and the loan. FSDVM's mortgage and construction loan terms to households would be 6.4 percent annual interest over 20 years. IVU's loan terms to households would be 6.4 percent interest per annum over 20 years. FEDECCREDITO's terms to borrowers would be 15 percent interest per annum and repayment periods up to 2 years for working capital, 5 years for equipment and 12 years for construction loans. PROJECT DESCRIPTION: The project consists of: A. Serviced Sites Approximately 8,000 serviced lots provided by FSDVM; about 70 percent of the units would be located in San Salvador and the remainder in secondary cities or smaller towns. All plots would be provided with water, storm drainage, This document hs a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. - ii - sewerage, streets, paved footpaths, and optional electricity. A range of service levels extending from a plot with basic infrastruc- ture to a plot with completed dwelling would be made available. The project would provide for the development of about 400 sites for small industrial or commercial as well as residential use. Community facilities including multipurpose community centers, public markets, sports fields, health clinics and schools would be provided at the project sites; B. Pilot Squatter Upgrading A pilot scheme to be executed by IVU which would involve the improvement of living conditions for about 800 households living in a squatter settle- ment, through provision of secure tenure, basic infrastructure, community facilities, and credit for dwelling improvements; C. Small Informal Credit Credit and technical assistance designed to reach proprietors of small enterprises living within marginal communities. Loans would be provided by FEDECCREDITO for working capital, equipment and workshop construction or improvement. A com- plementary program of training and technical assistance would be made available to participants in the program; and D. Training and Technical Assistance Technical assistance and training to each of three executing agencies to facilitate the execution of the project and to deal with specific problems which might arise during its implementation and to evaluate project results. ESTIMATED COST: (US$ Millions) Local Foreign Total CATEGORIES Serviced Sites Land 2.8 - 2.8 Infrastructure (a) on-site 2.4 1.6 4.0 (b) off-site 1.0 0.7 1.7 Core Units (contractor components, mutual-help materials, water meter/connection) 4.2 1.4 5.6 Construction Loans 0.9 0.2 1.1 Administration 2.1 0.1 2.2 Community Facilities 2.0 0.9 2.9 Pilot Squatter Upgrading 0.3 0.1 0.4 Small Informal Credit 3.3 0.2 3.5 Training and Technical Assistance 0.2 0.1 0.3 Total Project Cost 19.2 5.3 24.5 - iv - FINANCING PLAN: (US$ Millions) Private Bank FEDEC- Power CATEGORIES Group FSDVI Govt. CREDITO Companies Total Serviced Sites Land - - 2.8 - - 2.8 Community facilities - - 2.9 - - 2.9 On-site infrastructure, off-site infrastructure and core units 9.7 - 1.0 - 0.7 11.4 Construction loans 0.4 0.6 - - - 1.0 Administration 0.8 0.6 0.8 - - 2.2 Pilot Squatter Upgrading 0.2 - 0.2 - - 0.4 Small Informal Credit 1.4 - - 2.1 - 3.5 Technical Assistance/ Training 0.2 0.1 - - - 0.3 12.7 1.3 7.7 2.1 0.7 24.5 ESTIMATED DISBURSEMENTS: (US$ Millions) FY1978 FY1979 FY1980 FY1981 Annual 2.4 3.8 4.2 2.3 Cumulative 2.4 6.2 10.4 12.7 TECHNICAL ASSISTANCE: The project would include about 145 man-months of studies and technical assistance of which about 90 percent would be provided by local personnel. -v - RATE OF RETURN: The economic rate of return for the serviced site com- ponent, which represents 84 percent of the total project cost, is estimated at 18 percent. APPRAISAL REPORT: Report No. 1401a-ES, dated April 4, 1977. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN AND CREDIT TO THE REPUBLIC OF EL SALVADOR FOR A SECOND URBAN DEVELOPMENT PROJECT 1. I submit the following report and recommendation on a proposed loan for the equivalent of US$6.7 million and on a proposed development credit for the equivalent of US$6.0 million to the Republic of El Salvador to help finance a Second Urban Development Project. The loan would have a term of 20 years, including 4.5 years of grace, with interest at 8.2 percent per annum. The development credit would be on standard IDA terms. The Government would on- lend US$5.9 million of the loan and the entire credit to the three executing agencies, Fundacion Salvadorena de Desarrollo y Vivienda Minima (FSDVM), Instituto de Vivienda Urbana (IVU) and the Federacion de Cajas de Credito (FEDECCREDITO). The loan and credit would be relent to the executing agencies on the terms and conditions described below (see paragraph 43). PART I - THE ECONOMY 2. A report entitled "Economic Memorandum on El Salvador" (1313-ES) was distributed to the Executive Directors on January 24, 1977. The main findings of this report are summarized below. Economic Growth and Prospects 3. El Salvador has the smallest land area of the five countries in the Central American Common Market (CACM) area, but with nearly 4 million inhab- itants, it has the highest population density (187 per km ). It is also one of the five poorest countries in the Western Hemisphere, with estimated per capita income of US$450 in 1975. Population has grown at a very fast pace. Between 1961 and 1971, the growth rate was 3.5 percent per annum, a result both of rapid natural growth (3.1 percent per annum) and of repatriation of Salvadoreans living in Honduras. The Government is carrying out a family planning program with the United Nations' support, and it is expected that by the end of the decade, the program will cover 15-20 percent of the fertile female population. 4. While the Salvadorean economy still depends heavily on agriculture, which contributes 25 percent of GDP, the quickly growing industrial sector now accounts for 22 percent of GDP. Agriculture, however, continues to employ nearly 60 percent of the labor force, compared with only 15 percent employed by industry. - 2 - 5. The small size and limited natural resources of El Salvador make it highly dependent on foreign trade. Following the 1969 conflict with Honduras, all exports to that country, which accounted for over 10 percent of the country's merchandise exports, were suspended. Moreover, the closing of the border with Honduras resulted in a considerable increase in transport costs of goods traded with other Central American countries. By 1972, El Salvador had regained its market share in the CACM, offsetting the loss of the Honduran market by increasing its exports to Guatemala. In the following years, however, the world recession adversely affected El Salvador's manu- facturing exports to both the Organization for Economic Co-operation and Development (OECD) and CACM countries. However, increased world prices for the principal export commodities -- coffee and cotton -- and the sub- stantial increase in export volume helped to soften the effect of the decline in manufacturing exports. 6. During the first half of the 1970's, El Salvador's GDP grew in real terms at an average rate of over 5 percent per year -- about 2 percent on a per capita basis. Growth during the period compared favorably with the 4.5 percent annual growth of the second half of the 1960's, although it fell con- siderably behind the 7 percent annual growth of the first-half of the 1960's, when the development of the CACM gave impetus to industrial production. 7. The ongoing Government program of agricultural development which gives emphasis to the promotion of basic grains, through the provision of credit, technical assistance and support prices, has already had a strong positive impact on production. This program is expected to continue in the future and, partly as a result, the agricultural sector is expected to grow at about 4.5 percent per year during the next five years. With an expected recovery of the world economy, and with Government export-promotion policies described below (paragraph 10), exports of manufactures are expected to grow by 8-9 percent annually in the coming years as compared with only 6 percent during 1970-75. This should have a strong impact on the growth of the manu- facturing sector. On the whole, the overall GDP is expected to continue to grow in real terms at about 5-6 percent annually in the remainder of the decade. This growth could become even higher if the on-going discussions between the Governments of Honduras and El Salvador result in a normaliza- tion of relations between the two countries. Should this happen, it would facilitate a full restoration of the CACM arrangements which were partially disrupted by Honduras' withdrawal in 1970. The Public Sector and Development Policy 8. The role of the Government in the economy traditionally has been supportive rather than a leading one. Public revenues and expenditures have been maintained at relatively low levels and, consequently, the growth of public services such as health, education and agricultural extension has been slow. In the three year period (1973-75) which coincided with the first years of implementation of the 1973-77 Development Plan, some progress was achieved in this area. Thus, the share of Central Government revenues in GDP increased -3- from an average 11.1 percent in 1970-*72 to 12.2 percent in 1973-75, while the share of public savings and investment in GDP increased from :3.3 to 4.4 percent and from 3.2 to 5.2 percent, respectively. The improvement in revenue performance has been mainly the result of better tax administration which, e.g., helped to quintuple the number of individual taxpayers within a three-year period. The tax structure has remained virtually unchanged and its modification could provide additional sources of income. 9. The present Salvadorean Government has given increased attention to the rural sector, intended to be the first stage of a broader long-term plan of "national transformation" designed to attack the serious unemployment problem. Effective unemployment (including underemployment) in El Salvador is estimated to be at least 30 percent of the labor force. By embarking upon a program to change the production structure of the agricultural sector, the Government could bring about an increase in rural incomes and a reduction of seasonal unemployment. This, in turn, might lead to a slowdown of migration to urban centers, improvement in nutritional standards, and the creation of an expanded domestic market for industrial products. As a first step in its rural development plan, the Government in May 1975 secured passage in the Congress of El Salvador's first comprehensive land reform law. This law provides a framework for the Government to expropriate land with deferred payments, and to finance land development and its distribution to small holders. Government efforts to go forward with a major land reform project in 1976, however, were unsuccessful because of strong resistance from larger farmers. A new administration is to take office in July 1977, but it is too early to tell whether it will renew efforts to initiate implementation of the agrarian reform law. 10. The Salvadorean authorities recognize that with El Salvador's limited arable land and high population density, the development of the rural sector must be supplemented by strong efforts to expand industrial production, if the economy is to grow at a satisfactory rate and to provide employment for the expanding work force. It is at the same time faced with both a small domestic market and uncertain prospects for full restoration of the Common Market. Under the circumstances, the Government has embarked upon a broad program for the promotion of industrial exports to countries outside the CACM area. In this endeavor, an Export Development Law which offers generous incentives to export industry was passed in 1974. Furthermore, the Government is carrying out a project for the establishment of free zones for the produc- tion of industrial goods exclusively for export. The development of the first of these free zones, located in the outskirts of San Salvador, is well advanced, with a few plants already in operation. The existence of a strong and growing entrepreneurial class should contribute to the success of the export-promotion program. The expected growth of industry and the moderni- zation of the-rural sector will require considerable investment in supporting economic and social infrastructure in fields such as power, communications, water supply,-education and housing. - 4- Balance of Payments and External Debt 11. El Salvador's exports in the first half of the 1970's were much more diversified than a decade earlier. In 1960, nearly 85 percent of export earnings were derived from traditional agricultural products (coffee and cotton); almost two-thirds came from coffee alone. By 1975 these figures had dropped to about 50 percent and 35 percent respectively, while the contribution of manufactured products had increased from 13 percent to about 30 percent of export earnings. 12. From 1967 to 1973, El Salvador had a positive trade balance; this, however, disappeared in 1974 when the full impact of increased petroleum prices pushed imports up steeply (imports grew by almost 50 percent, while export proceeds increased by less than 30 percent). The situation improved during 1975 when restrictive policies helped stem the flow of imports, while export earnings increased considerably mainly as a result of an expansion of cotton exports. The balance of payments deficit on current account was esti- mated at US$90.0 million (5.8 percent of GDP) in 1975, a significant improve- ment over the deficit of US$138.0 million (8.8 percent of GDP) of 1974. In 1976, notwithstanding a disastrous 1975/76 coffee crop, the sharp increase in coffee prices and a drawdown of coffee stocks are estimated to have resulted in doubling the earnings from coffee exports as compared with 1975. Thus, although imports have grown substantially, the deficit on current account for 1976 is estimated at only US$30.0 million (1.4 percent of GDP). 13. The prevailing high coffee prices, while subject to fluctuation, are expected to be maintained in the next two to three years, and manufactur- ing exports and tourism receipts are expected to grow more rapidly than in the recent past. However, high prices for crude oil and oil-based products (fertilizers and others) will continue to be a serious burden on the country's foreign exchange earnings -- the share of petroleum, oil and lubricants alone in imports increased from 2.2 percent in 1970 to 10 percent in 1975, and in the longer term the real price of coffee is also expected to decline again. Moreover, the heavy borrowing on commercial terms which was required to cover the recent balance of payments deficits implies increased debt service pay- ments during the next few years. As of the end of 1976, the country's external public debt outstanding and disbursed repayable in foreign currency amounted to US$272.0 million, or 12.7 percent of GDP. External Assistance 14. In terms of external assistance provided by agencies other than the Bank, the Inter-American Development Bank (IDB) has been an increasingly important lender to El Salvador for such sectors as housing, water and sewer- age, and agricultural credit. While IDB lending was largely repayable in local currency through 1972, the bulk of its loans in recent years are repay- able in foreign currency. The Central American Bank for Economic Integration (CABEI) has focused on industry and infrastructure projects with a regional impact, while the U.S. Agency for International Development (AID) worked in the fields of health, basic education, housing and industry. The activities of the major lenders during the 1970-76 period are summarized in the following table: EXTERNAL ASSISTANCE TO EL SALVADOR (In Millions of US Dollars during 1950-1976) IBRD IDA AID IDB CABEI Total 152.9 19.6 60.7 177.0 110.4 of which repayable in local currency - - 1.2 93.4 n.a. Cumulative Lending 1950-65 50.2 8.0 27.1 32.5 7.9 Cumulative Lending 1966-75 102.7 11.6 33.6 144.5 102.5 Transport 2.8 - - 12.0 66.1 Power and Telecommunications 75.8 5.6 - 38.1 3.3 Education 21.6 - 10.1 2.0 0.5 Health - - 2.7 - - Housing 2.5 6.0 3.0 19.3 7.7 Agriculture - - 10.5 26.5 1.2 Industry - - 4.8 - 17.6 Water and Sewerage - - - 45.0 - Others - - 2.5 1.6 6.1 15. The balance of payments and growth projections discussed above call for an acceleration in El Salvador's total borrowing from major multilateral and bilateral lenders. While El Salvador has traditionally maintained a low debt-service ratio (less than 5 percent in 1976), the vulnerability of the economy to developments in external markets because of the concentration of exports and the strong dependence of its industrial sector on imported inputs limits the country's capacity to borrow abroad on conventional terms. In view of these circumstances, the uncertain long-term prospects for El Salvador's major exports, widespread poverty, low per capita GNP (US$450 in 1975) and the serious imbalance between natural resources and population, it would be desirable for El Salvador to obtain part of the external financing required for its development program on soft terms. Also, under these circumstances, if domestic savings--which, at over 15 percent are relatively high for a country of this income level--are to be complemented by a reasonable proportion of external capital at the same time as social projects with a low foreign expenditure component are undertaken, a certain amount of local expenditure financing by external lenders is called for. - 6 - PART II - BANK GROUP OPERATIONS 16. El Salvador has to date received fifteen Bank loans and three IDA credits totalling US$172.5 million. The last operation involving a combined Third Window loan for US$9 million and Bank loan for US$30 million for a power project was signed on July 28, 1976. Annex II contains a summary state- ment of Bank loans, IDA credits and IFC investments as of April 30, 1977, and notes on the execution of ongoing projects. 17. At the end of 1976, the Bank Group held 25 percent of the US$272.0 million external public debt outstanding and disbursed repayable in foreign currency. This share is likely to remain substantially the same over the remainder of the decade. The Bank Group share of total public debt service in 1975 was 8.4 percent, and, because of the relatively softer terms provided by the other major external lending agencies, is projected to reach about 17 percent by 1980. 18. In the past, the Bank Group has assisted El Salvador in the develop- ment of its infrastructure through projects in highways, power and telecom- munications. Together with IDB and CABEI, the Bank assisted the development of El Salvador's arterial highway system. A close relationship has evolved between the Bank and El Salvador's public power agency, CEL, since its estab- lishment, enabling the Bank to contribute significantly to the institution building efforts of CEL's management. Similarly, the Bank's efforts to strengthen the institutional capacity of the national telecommunications agency (ANTEL) have facilitated the rapid expansion of that agency's oper- ations. 19. In recent years, the Bank Group has been increasingly active in the social sectors in El Salvador, and two of the three most recent loans have been for education and serviced sites. Projects currently under consideration for future loans include vocational education, squatter upgrading, and urban sanitation. In addition, the Bank Group would help in meeting the growing resource requirements in power and communications and in strengthening the institutions operating in these sectors. The expansion and improvement of power and telecommunication services are vital for industrial development. The possibility of Bank assistance to agriculture and rural development is being examined in the light of a joint IBRD, IDB and AID agricultural and rural survey of the five Central American countries. 20. IFC has made two investments in El Salvador. The first, a US$140,000 loan made in 1959 to Industrias Textiles, S.A., has been fully repaid. The second, a US$233,000 equity investment and a US$600,000 loan to Hoteles de Centro America, S.A., in 1969, was for a hotel project that was completed in 1972. IFC is exploring possibilities of additional investments that would encourage private enterprise in El Salvador. - 7 - PART III - THE URBAN SECTOR Major Urban Problems 21. Nearly 40 percent of the population of El Salvador lives in urban areas. The capital city -- San Salvador -- has more than 670,000 inhabitants or about 17 percent of the total population. Another 12 percent lives in the four largest secondary cities: Santa Ana (165,800), San Miguel (127,200), Sonsonate (101,900) and Usulutan (95,100). 22. From 1960 to 1970, public and private housing production in towns and cities averaged only 2,600 units per year, during which time 10,000 new households were formed annually in urban areas. In 1971, preliminary national census figures estimated the urban housing stock at about 270,000 units, nearly two-thirds of which were in the five largest cities. Homes needing improvement or replacement were estimated at 147,000, representing about 55 percent of the existing stock. About two-thirds of these units, or 98,000, were occupied by households earning less than the equivalent of US$100 per month. Although most homes (90 percent) had electricity, 60 percent lacked individual water supply and sewerage. The use of low quality materials and poor construction methods have contributed to the rapid physical deterioration of the housing stock. 23. Approximately three-quarters of the population of metropolitan San Salvador resides in squatter settlements ("tugurios") typically located in public rights-of-way, in unauthorized subdivisions on privately owned land, or in tenements ("mesones"). Growth rates in these areas exceed those of the city as a whole and may reach 15-20 percent in certain locations. Most unauthorized sub-divisions are without services because owners are unable to obtain the necessary development permits required for electrical, water, and sewerage connections. 24. Small informal business activities have created employment at essentially subsistence levels for almost one-half of the total urban labor force. Most businesses are owner-operated, and about a third provide jobs to one or two employees. Bottlenecks to expansion of these small enterprises include very low incomes within the consumer population, limited educational and technical skills and restricted access to credit. The latter, in partic- ular, has restricted the small entrepreneur's ability to build up stocks when inputs are abundant and cheap, and may result in a halt in production when input prices rise. As a result, profit margins are thin. Government and Private Housing Programs 25. The oldest public institution operating in the housing market is the Instituto de Vivienda Urbana (IVU), an agency established in 1950 to provide dwelling units for low and middle income households. Until the mid-1960's, IVU, with meager resources, carried out limited programs, building relatively high standard houses. In the mid-1960's, international support from IDB enabled IVU to expand its operations significantly. Although costs per unit were lowered, dwellings were still beyond the reach of the lower urban income groups. A recent administrative restructuring and change in management is expected to result in improved and expanded executing capacity for the agency. IVU's 1978-82 plan provides for 25,000 new and rehabilitated units in urban areas of El Salvador, nearly 60 percent of which are targeted for families with monthly incomes below the equivalent of US$100. IVU, the executing agency of the pilot squatter upgrading component of the proposed project, had previous experience with squatter upgrading under a project carried out between 1972 and 1974, through which squatter areas containing 370 families in San Salvador were provided with water, sewerage, sanitary units, streets, footpaths and secure tenure. 26. To provide adequate housing facilities for industrial and commercial workers, the Government established in 1973 the Fondo Social para la Vivienda (FSV). All registered industrial and commercial employees are by law members of the system. FSV is funded through a 5.5 percent payroll tax on wages and salaries of employees included in the social security system augmented by - Government contributions. 27. The only private organization actively involved in low-cost housing is the Fundacion Salvadorena de Desarrollo y Vivienda Minima (FSDVM), the executing agency of the serviced site component of the proposed project. The FSDVM is a private, non-profit entity created in 1970 for the purpose of improving the living conditions of the lowest-income population, especially those in squatter settlements. The FSDVM has been successful in achieving this objective through self-help serviced site projects and related programs primarily implemented under the first loan from the Bank. To date, FSDVM has planned, designed and constructed over 4,000 serviced sites in seven cities throughout El Salvador, and has become the major producer of low-income housing. 28. FSDVM's activities are geared towards integral community development. In this context, it has worked in close collaboration with the Direccion General de Fomento y Cooperacion Comunal (FOCCO), the Government community development agency. FOCCO carries out projects for which the Government supplies physical inputs and the community supplies free labor. Although FOCCO has in the past carried out community development projects in both rural and urban areas, it is expected that FOCCO's involvement in urban development will decrease and that IVU's role will correspondingly increase. Urban Development and Planning 29. Aside from the work carried out under the first urban development project by the FSDVM, investments presently underway or planned by public agencies and Government departments for the San Salvador metropolitan area are thus far proceeding in a largely uncoordinated fashion and without refer- ence to the urban development plan for the city completed by the Government - 9 - in 1968 with assistance from AID. An urban study was initiated on September 13, 1976, with the United Nations Development Programme (UNDP) financing and the Bank as the executing agency. The study will prepare recommendations and legis- lative guidelines to facilitate: (i) land acquisition for public development purposes; (ii) adoption of tax measures to curb land speculation; (iii) urban planning and implementation of such plans; and (iv) strengthening of institu- tions financing and executing housing programs. Small Industry Development 30. The Federacion de Cajas de Credito (FEDECCREDITO) is an autonomous state enterprise established in 1943 for the purpose of assisting small enter- prises through loans and technical assistance. It will be the executing agency for the small business credit component of the proposed project. As a national association of credit unions, it consists of 39 individual cooperative societies located throughout El Salvador, embracing a total membership of about 48,600 individuals. FEDECCREDITO operates various programs, including rural credit and commercial credit. The latter includes a special program, "Credito Popular," in urban areas which provides financial assistance primarily to stall owners in public markets. The "Credito Popular" scheme is perhaps the only formal financing program in El Salvador designed to provide credit for the poorest segment of the industrial sector. The First Serviced Site Project 31. The first Serviced Site Project financed by the Bank in El Salvador was designed to address the severe shortage of low-cost shelter. The project's objectives were: (a) to demonstrate the suitability of the serviced site approach as a practical alternative to conventional, fully contractor- built housing; (b) to provide 7,000 low-cost units affordable to families earning the equivalent of US$40-US$120 per month; and (c) to significantly expand the production capacity of FSDVM, thus demonstrating the potential role of the private sector in low-cost shelter development. Although only two years have elapsed since inception of the project, nearly 3,000 units have been built at costs which have permitted their sale at prices within the reach of families with incomes of the target group. Total unit development costs for each site, including price escalation allowances, have been within 6 percent of the anticipated cost. The FSDVM's annual production capacity has expanded from about 200 units in the early 1970's to 1,500 units at present. 32. Adjustments in FSDVM's approach have been made over this period as experience was gained. Response to mutual-help (on-site construction work by - 10 - teams of project participants under FSDVM's supervision) proved strong and additional work has been shifted from contractors to mutual help. The com- bination of tasks executed through the more closely supervised mutual-help stage, as opposed to the more independent self-help phase, was also revised with consequent changes in the composition of materials required for the self-help (individual owner) completion of dwellings. In addition, unit designs have undergone gradual adaptation as families' needs were better understood. 33. The two major problems encountered under the first project involved land acquisition and water supply in San Salvador. The former was primarily due to the unwillingness of one individual to sell, and the latter due to severe water shortages throughout the city, exacerbated by delays in construc- tion of new water supply schemes. The water shortage led to a slower dwelling occupancy rate than had been originally scheduled and generally in a slowdown in monthly payments by beneficiaries to FSDVM. Although arrearages thus became a problem in San Salvador, the collection record in other FSDVM sites has been excellent. 34. The water supply problem has now been satisfactorily resolved through a temporary valve adjustment which diverted sufficient water from the city's main supply to meet the first project's needs. The first phase of a major water supply scheme for the city of San Salvador, the Zona Norte Project, is scheduled for completion in mid-1979. When fully implemented, the Zona Norte Project is expected to satisfy all of the water supply needs of the city. 35. The land acquisition problem encountered in the San Salvador area during the execution of the first project has been largely resolved; purchase options or bills of sale have been obtained by FSDVM for 33 ha. of land in the San Salvador metropolitan area, which will be sufficient to complete the first project's needs. In view of the past land acquisition problems en- countered in San Salvador, assurances were obtained from the Government during negotiations that, if necessary, the Government would acquire the 60 ha. needed to meet the second project's needs in the San Salvador area by the end of 1977. Land acquisition would be through IVU and prices charged to FSDVM would cover only the Government's acquisition cost and an annual interest of 5 percent on the outstanding balance. PART IV - THE PROJECT 36. A report entitled "El Salvador, Second Urban Development Project," No. 1401a-ES dated April 4, 1977, is being distributed separately. Project preparation, coordinated with the Ministry of Planning, was completed between December 1975 and August 1976 by the Fundacion Salvadorena de Desarrollo y Vivienda Minima (FSDVM), the Federacion de Cajas de Credito (FEDECCREDITO) and several government agencies, assisted by Bank missions in February and June of - 11 - 1976. The project was appraised in August and September 1976. Negotia- tions were held in Washington from March 8 to March 11, 1977. The principal representative for the Government was Mr. Roberto Chico Duarte, Minister of Planning. 37. The project would be national in scope, covering San Salvador and several smaller cities where growth has been most rapid and shelter needs are the greatest. The objective would be to provide access to land, credit and technical skills for the lowest income families. While designed with a view to its replicability throughout the country, the project itself would make an important contribution to relieving the severe shortage of low-cost urban shelter. Nearly 80 percent of the units would be affordable to families earning the equivalent of US$90 or less monthly, and thus within about the lower one-third of the urban income distribution curve. A further objective of the project would be to encourage the provision of adequate community facilities and effective community development programs as an integral part of low-cost housing. Through the establishment of the lines of business credit and training in production and managerial skills for small-scale informal businesses, and through labor intensive construction methods, efforts would be made to increase income and employment opportunities. The project would contribute towards achieving a better balance of urban land ownership and income distribution in El Salvador. Summary Description 38. The proposed project would include: (a) approximately 8,000 serviced lots provided by FSDVM; about 70 percent of the units would be located in San Salvador where demand is greatest and the remainder in secondary cities or smaller towns. All plots would be provided with water, storm drainage, sewerage, streets, paved footpaths, and optional electricity. A range of service levels extending from a plot with basic infrastructure to a plot with expanded core dwelling would be made available. The project would provide for the development of about 400 sites for small industrial or commercial, as well as residential use. Community facilities including multipurpose community centers, public markets, sports fields, health clinics and schools would be provided at the project sites; (b) a pilot upgrading scheme to. be executed by IVU which would involve the improvement of living conditions for about 800 households living in a "tugurio" settlement, through provision of secure tenure, basic infrastructure, community facilities, and credit for dwelling improvements; (c) credit and technical assistance designed to reach proprietors of small enterprises living within marginal communities and - 12 - currently operating outside the banking system. Loans would be provided by FEDECCREDITO for working capital, equipment and workshop construction or improvement. A complementary program of training and technical assistance administered by FEDECCREDITO would be made available to participants in the program; and (d) technical assistance and training to each of the three executing agencies to facilitate the execution of the project, to deal with specific problems which might arise during its implementation, and to evaluate its results. Costs and Financing 39. The total cost of the project is estimated at the equivalent of US$24.5 million, including land and contingencies, but excluding the value of mutual and self-help labor. Of the total, 21 percent, or the equivalent of US$5.2 million, is estimated to represent foreign exchange costs. 40. The serviced site component represents 84 percent of total costs, the small informal business credit program 14 percent, the pilot upgrading scheme 1 percent, and training and technical assistance 1 percent. 41. The US$12.7 million of Bank and IDA funds would finance 52 percent of project costs and would cover the foreign exchange costs of US$5.2 million and local costs of the equivalent of US$7.5 million. Local currency financing is justified for the reasons stated in paragraph 15 above. 42. The remainder of the financing for the project would be provided by local sources as follows: LOCAL FINANCING SOURCES % of US$ Million Project Cost Government 7.7 31 FSDVM 1.3 5 FEDECCREDITO 2.1 9 Private Power Companies 0.7 3 Total 11.8 48 43. The equivalent of US$5.9 million of the proposed US$6.7 million Bank loan would be relent by the Government to FSDVM (US$5.1 million), FEDECCREDITO (US$0.7 million), and IVU (US$0.1 million) on the same terms as the Bank loan (except that FSDVM would receive 5.5 years of grace). The remaining US$0.8 million of the Bank loan would be used for the construction of off-site infra- structure and for technical assistance to the three executing agencies. The - 13 - IDA credit of the equivalent of US$6.0 million would be relent by the Govern- ment at 2 percent interest with a 30-year term including 6 years of grace to FSDVM (US$5.2 million), and a 20-year term including 5 years of grace to FEDECCREDITO (US$0.7 million) and IVU (US$0.1 million). The Government would bear the foreign exchange risk. Detailed Features of Components A. Serviced Site Component 44. Distribution of Sites and Site Selection Methodology: Sites were selected on the basis of proximity to employment and off-site infrastructure, topographic characteristics, surface and subsurface soil conditions, road access, and feasibility of acquisition. With the exception of plots for service Level D, described below, plot sizes would range between 60 and 80 square meters. 45. Service Levels: The range of service levels under the proposed second project would be wider than that of the first project. Four basic levels would be offered: Service Level A (representing 15 percent of the units) would provide for inter alia any one of the following options: (i) a plot with just the basic infrastructure connections; (ii) a one-room rental unit with communal sanitary facilities; or (iii) a plot with centrally located but individual sanitary facilities. Service Level B (representing 60 percent of the units) would provide for either of the following options: (i) a plot with an individual sanitary core; or (ii) a basic dwelling room with centrally located but individual sanitary facilities. Service Level C (representing 21 percent of the units) would provide for either of the following options: (i) a plot with an expanded core dwelling and individual sanitary unit; or (ii) a condominium apartment unit with individual sanitary core. Service Level D (representing 4 percent of the units) would provide a 107 square meter plot with a completed expanded dwelling and sanitary core. 1/ 46. Vertical expansion of the dwellings would be possible at the self- help stage to achieve greater density in areas such as San Salvador where 1/ Service Level D, to be built in limited quantity, is intended to intro- duce into each settlement some families of somewhat higher per capita income and social mobility. - 14 - land is scarce and costly. In order to encourage continuing evaluation and improvement of unit designs, FSDVM would build several models, representing the various service levels' designs in each site. A market survey would precede site development to determine customer preferences among the various unit types. 47. Community Facilities: The availability of community facilities in areas adjacent to project sites was examined before including additional facilities in the project. Based on this examination, 7 markets, 16 multi- purpose community centers, 12 schools and 3 health clinics would be provided by the project. 48. Off-Site Infrastructure: Off-site infrastructure essential to site development would be provided, including construction and improvement of major access roads, water distribution mains, sewerage, storm drainage and electri- city. 49. Water supply in San Salvador will be augmented through the Zona Norte water supply scheme being constructed with financial assistance from IDB. The proposed project provides for a water well contingency plan (to be implemented in the event slippages were to occur in the Zona Norte scheme) which would supply sufficient water to project sites in San Salvador to allow occupancy on schedule. 50. Cost of Units: The average sale price for the units would be the equivalent of US$1,300, compared with US$1,800 (based on 1977 prices) under the first project. Lowered costs are the result of a planned increase in mutual help, reduced lot sizes, and a more efficient infrastructure and core unit design. Development costs per unit for the four service levels would range from US$800 to US$2,800. Sale prices would be adjusted to reflect the locational advantages of lots with commercial potential; units at the highest service level (Level D) would be sold at a profit, and the profits derived from these units and from the sale of lots with commercial potential would be applied to lowering the sale price of service Level A in order to benefit the poorest income groups. These adjustments would result in sales prices per unit which would range from US$580 to US$3,240. 51. Project Beneficiaries and Terms of Participation: The Social Depart- ment of FSDVM would screen and evaluate applications. Selection criteria would include: (a) residency in squatter settlements or poor housing condi- tions for two or more years; (b) a per capita monthly income of not more than US$20 rising to not more than US$28 from mid-1978 onward; and (c) intention to live on the assigned lot. (Candidates for the highest service level, Level D, would be exempt from (a) and (b).) In addition to the sales price of the site, the family would be required to contribute mutual-help labor valued at 10 percent of such sales price or to make an equivalent cash downpayment. FSDVM has had considerable success in organizing project participants into "mutual help" construction teams of 15-30 persons who carry out trench-digging, pipe-laying and construction of core units. The teams are trained by an FSDVM - 15 - technical foreman and a social worker. This phase is also important in devel- oping community identity, organization and a sense of shared responsibility. Occupancy follows the mutual-help stage and families proceed to complete their dwelling with the aid of construction loans. 52. FSDVM would construct, stock and manage on-site warehouses. House- holds would be able to withdraw construction loans for Levels A and B of up to US$260 equivalent in tranches as needed. Technical advice would accompany the loan. Simple, illustrated construction manuals and model homes would help families visualize possible improvements. Guidance would also be given on the use and maintenance of the facilities built. 53. FSDVM's proposed terms of financing would result in an interest rate to households of 6.4 percent for both mortgages and construction loans. This interest rate would allow about a 1 percent spread over FSDVM's average cost of funds. Repayment would be in 20 years. While the 6.4 percent interest rate is low in relation to the recent rate of inflation in El Salvador (17, 19, and about 8 percent for 1974, 1975 and 1976, respectively), it is considered acceptable as the historical rate of inflation (1965 through 1973) is less than 2 percent per year and the Government has traditionally followed mone- tary and fiscal policies oriented towards price stability. 54. Total monthly mortgage payments by participant households would range between about US$5 and US$14 equivalent for 96 percent of the units. For the remaining 4 percent of the units, representing those planned for service Level D, the monthly mortgage payment would be about US$28. Charges for all utilities (except electricity which is optional) would total about US$1.50 per month. Assuming that such families can afford only 15 percent of their monthly incomes for housing and utility payments, the serviced site component of the project would reach families with incomes as low as US$43 equivalent per month, representing about the tenth percentile of the urban income distribution curve. Participants would be exempt from property taxes, since home values would fall below the threshold above which taxes are levied. 55. Implementation: The executing agency for the serviced site compo- nent would be FSDVM which would be responsible for, inter alia, lot design, engineering, construction supervision, and the administration of construction loans. Community facilities would be the responsibility of various Government agencies. Schools and health clinics would be constructed by the Ministry of Education and the Ministry of Health, respectively. FOCCO would be responsible for multipurpose community centers, markets and sports fields. The FSDVM would be responsible for the construction of trunk water and sewerage which would be subsequently turned over to the national water authority. Construc- tion of access roads and storm drains would be the responsibility of the Ministry of Public Works. Street lighting and individual electrical connec- tions would be built by private power companies. 56. Project execution would take about three-and-one-half years. Land acquisition would take place during 1977 for San Salvador. Occupancy and self- help completion of the units would begin in mid-1978, continuing through 1980. - 16 - 57. To facilitate the execution of the first project, the Ministry of Planning established a Coordinating Committee, composed of its own senior officials and representatives from various Government agencies and the execut- ing agencies involved in the project. The Committee would also coordinate the activities of the entities involved in the second project. Quarterly progress reports would be prepared by the executing agencies and made available to the Committee and to the Bank. 58. The FSDVM is a small, well-managed organization with competent tech- nical staff. Membership is by voluntary subscription and is drawn from a wide spectrum of society including entrepreneurs, workers and residents of squatter settlements. The twelve-member Board of Directors, composed of prominent Salvadoreans from a broad range of economic activities, is elected by the membership to serve for two years. 59. Present FSDVM staff totals about 100; however, in order to execute the serviced site component of the project, FSDVM would expand its staff by about 25 percent. FSDVM would also enlarge its central office to accommodate the additional staff required. FSDVM is a well-managed agency, and with the technical assistance provided under the project, execution can be expected to proceed smoothly. B. Pilot Squatter Upgrading Component 60. Description: The proposed pilot squatter upgrading component would provide practical feedback on proposed tenure arrangements, mutual-help response, organization, staffing and other program features for the future national upgrading program for squatter settlements currently being formulated under the on-going UNDP-financed Urban Study (paragraph 29). 61. The proposed settlement to be upgraded (called the "22nd of April") is located on municipal land near one of San Salvador's major access roads and industrial zones. Job opportunities are available in the vicinity. Mini- mal water service is currently provided, but residents must walk a considerable distance to the two communal taps. Although tost of the dwellings are located on steep slopes, vegetation growth has helped stabilize the area from erosion during seasonal rains. The existing residents' organization, which would be legally constituted as a Community Association, would facilitate local con- sultations with the residents regarding all aspects of the upgrading scheme. 62. The proposed scheme would provide basic infrastructure, community facilities, secure land tenure, and construction loans for dwelling improve- ments. Land would be purchased from the Municipality by the Community Association and resold to individual households. The proposed scheme would provide residents of the community with a legally binding and transferable title to land and dwelling. - 17 - 63. Development Costs and Recovery: Development costs of the pilot scheme would total about US$375,000, including land, infrastructure, commun- ity facilities, construction loans and administration. Excluding the optional construction loan (and the community facilities which would be provided by the Government), the average development cost per family would be about US$300 equivalent. Full costs of upgrading (including land, infrastructure, construction loans, administration and interest during development) would be recovered from residents through loans which would have terms of 6.4 percent interest and 20 years amortization, with no grace period. Together with charges for materials loans, this would result in total monthly charges, including utilities, ranging between US$3 and US$4. Servicing standards would be simpler than in serviced site areas, in view of the communities' lower average household income levels. The costs of work undertaken would be affordable by about 85 percent of the community, assuming that such families can afford only 10 percent of their monthly income for housing and utility payments. On this basis, the upgrading scheme would reach families with incomes as low as US$30 equivalent per month. This income level represents about the sixth percentile on the urban income distribution curve. 64. Implementation: The Instituto de Vivienda Urbana (IVU) would imple- ment the pilot squatter upgrading component. A special project unit would be created within IVU with specific responsibilities for detailed design and implementation of upgrading. IVU would discuss technical, legal, administrative and financial issues with the local residents and would develop a preliminary plan in close consultation with the community. Thus, the ultimate composition of the upgrading scheme will reflect very closely the communities' priorities. IVU would require a high degree of concensus as to the features of the upgrad- ing plan prior to its implementation. The community, through the Community Association, would be responsible for maintaining certain facilities and collecting monthly payments. Most important, the Community Association would purchase land, register individual property rights and resolve any tenure disputes which might arise from time to time. The pilot upgrading scheme would be initiated in 1977 and completed within 15 months. C. Small Informal Business Credit Program 65. Description: The small business component is designed to reach informal urban enterprises operating outside the conventional banking frame- work, and would offer both credit and optional technical assistance. Other agencies such as the Fondo de Financiamiento y Garantia para la Pequena Empresa (FIGAPE) and the Instituto Salvadoreno de Fomento Cooperativo (INSAFOCCOP) provide technical and financial assistance only to established firms and do not reach the very small informal enterprises to be helped through the proposed program. 66. Costs and Terms: A revolving line of credit totalling the equiva- lent of US$3.0 million would be made available for loans up to the amount of US$2,400, for three purposes: (a) working capital, (b) the purchase of tools and equipment, and (c) the construction, extension or repair of workshops. - 18 - A loan ceiling of US$4,800 would apply to cooperatives. Any enterprise located within an FSDVM site or a marginal community would be eligible for credit. Small firms located elsewhere with fixed assets below US$2,000 (US$4,000 for cooperatives) could also apply. A simple feasibility study will be undertaken for loan requests exceeding US$600. 67. The repayment period would be up to 2 years for working capital, 5 years for equipment, and 12 years for construction loans. A maximum grace period of 6 months would be offered for working capital loans and 12 months for the remaining two categories. Annual interest would be 15 percent on all loans. (An application fee of 1.5 percent would be charged to first time borrowers.) The rate includes an 8.4 percent spread over the estimated cost of borrowing by FEDECCREDITO, which is justified by the cost of adminis- tering a large number of very small loans and by the cost of the training and technical assistance program to be provided. Collateral would generally be available for credit covering workshops and tools. Working capital loans would be secured through co-signing or group guarantees. 68. Following the first 12 months of operations or when sufficient loans have been approved, a review would be made by the Government, FEDECCREDITO and the Bank of the pricing structure and operating procedures. (The pricing structure for the proposed scheme would result in significantly lower cost to borrowers than under FEDECCREDITO's existing "Credito Popular" scheme.) A report would be prepared which would include recommended adjustments. FEDECCREDITO's adoption of suitable pricing adjustments (if any) would be required before loan commitments could continue. 69. Training: Training and technical assistance would be offered to participants in the lending program. While such training and technical assistance, in general, would not be a requisite to obtaining credit, FEDECCREDITO would reserve the right to require technical assistance in particular cases. Informal businesses wishing to participate in the training program need not be borrowers to qualify. Training would be offered at community centers or schools within each community, in business skills such as management, basic accounting, inventory control, purchasing and marketing. A special effort would be made to help organize marketing for groups of individual entrepreneurs, both to capture larger contracts, which individual enterprises would be unable to fulfill by themselves, and to gain entry into new markets. 70. Implementation: FEDECCREDITO would implement the small informal business credit component of the proposed project. A new Urban Credit Depart- ment would be established. After the review of the pricing structure and operating procedures is completed, the urban credit operations would be decentralized to local credit unions, but the Department would still continue to serve San Salvador directly. - 19 - D. Training and Technical Assistance 71. Assistance would be provided to each of the three executing agencies to improve the execution of the project, to deal with specific problems which might arise during its implementation, to execute specialized studies and for evaluation of project results. 72. The project would provide a total of about 145 man-months of studies and technical assistance of which about 90 percent would be carried out by local personnel. Estimated costs for consulting services are US$880 and US$5,000 per man-month for local and foreign personnel, respectively. 73. Parallel to the Bank-assisted project, a health education program would be offered by the Ministry of Health at clinics built under the serviced site component of the project. In addition, instruction on basic nutrition, preparation and proper storage of foodstuffs, which is being carried out by FOCCO under the first Bank project, would be continued. Procurement 74. International competitive bidding in accordance with Bank guidelines would be required for goods and services which are estimated to total the equivalent of US$10.7 million. This would include major civil works, building materials, equipment, and school furniture. Manufacturers located within the Central American Common Market (CACM) would be eligible for a preferential margin in international competitive bidding equal to 15 percent of the c.i.f. price of manufactured items or 50 percent of the tariff payable by non-CAGM manufacturers, whichever is lower. 75. Contracts for civil works, building materials and equipment which fall below the equivalent of US$120,000 could be procured through local pro- cedures satisfactory to the Bank, up to the aggregate amount of US$6.9 million. Disbursement 76. A revolving fund of US$300,000 was established under the first loan to facilitate prompt payment to small local contractors and suppliers with limited working capital who have won all contracts to date. The facility has ensured steady progress on civil works and has helped lower contract costs by eliminating the need for interim borrowing by contractors. Procedures and operations of the fund were inspected in October 1976 by the Bank and adjust- ments were made to ensure conformity with guidelines that have been agreed with the Bank. A similar revolving fund would be created under the serviced site component of the proposed project. 77. Disbursements would take place over a four-year period, with the proceeds of the Bank loan and IDA credit covering 100 percent of expenditures for civil works (exclusive of expenditures on land, community facilities, - 20 - access roads, storm drains and security lighting which would be wholly fi- nanced by the Government and private power companies) and 41 percent of construction loans and administration costs for the serviced site component. The loan and credit would also cover 70 percent of expenditures on the pilot upgrading scheme (exclusive of land), 47 percent of expenditures under the informal small business credit program (exclusive of administration and tech- nical assistance to small enterprises), and 53 percent of expenditures on the overall technical assistance and training component of the project. 78. Because of the urgency of initiating work on the pilot upgrading and serviced site components, an amount of US$300,000 would be disbursed retro- actively for design, administration and minor civil works expenditures incurred after January 1, 1977, by FSDVM and IVU. Project Benefits and Risks 79. Serviced Site and Pilot Squatter Upgrading Components: The economic rate of return of the serviced site component of the project which represents 84 percent of the project is estimated at 18 percent, taking into consideration only direct benefits (based on imputed rental values for plots and dwellings) and costs of the shelter to be provided. It has been estimated that about 6,450 man-years of employment would be generated during implementation of the serviced site and pilot upgrading components of the project. In addition, the serviced site component would have an income redistribution effect by providing low-cost shelter to low-income households who are currently paying excessive prices for dwellings. 80. The two major problems encountered under the first project, land acquisition and water supply, have been satisfactorily resolved. While the proposed project has been designed to minimize the risk of recurrence, the possibility nevertheless exists that implementation could be delayed by problems arising from land acquisition and water supply. 81. Small Informal Business Credit Program: The availability of credit and technical assistance to small informal businesses could be expected to result in increased family incomes, due to reduced borrowing costs and in- creased sales. The small business scheme would be highly labor intensive, and it is estimated that about 4,800 jobs would be created through the implementa- tion of this component, at an average cost of US$735 per job. The proposed review of operating procedures and pricing structure after about one year (discussed in paragraph 68 above) should help reduce the risks arising from the experimental features of this program. PART V - LEGAL INSTRUMENTS AND AUTHORITY 82. The draft Loan Agreement and the draft Development Credit Agreement between the Republic of El Salvador, and respectively, the Bank and the Association; the draft Project Agreement between the Bank and the Association - 21 - and the Fundacion Salvadorena de Desarrollo y Vivienda Minima (FSDVM); the Report of the Committee provided for in Article III, Section 4(iii) of the Articles of Agreement of the Bank and Article V, Section I(d) of the Articles of Agreement of the Association; and the text of two draft resolutions approv- ing the proposed loan and the proposed development credit are being distributed to the Executive Directors separately. 83. Special conditions of the proposed loan and development credit are listed in Section III of Annex III. A special condition of effectiveness would be the execution of a subsidiary loan agreement between the Government and FSDVM. Special conditions of disbursement would be: (a) for the pilot upgrading component, execution of a subsidiary loan agreement between the Government and the Instituto de Vivienda Urbana (IVU), creation of a project unit in IVU, and appointment of the unit chief and key staff members; and (b) for the informal small business credit component, execution of a subsidiary loan agreement between the Government and the Federacion de Cajas de Credito (FEDECCREDITO), creation of a new department in FEDECCREDITO and appointment of the department head and key staff members. 84. I am satisfied that the proposed loan and development credit would comply with the Articles of Agreement of the Bank and the Association. PART VI - RECOMMENDATION 85. I recommend that the Executive Directors approve the proposed loan and development credit. Robert S. McNamara President Attachments June 2, 1977 t - LE IA EL SALVAORA - SOCIAL II"TORS DATA SnET LANe AREA ITTOU KNZI- --------------- EL SALVAOR REFEReNCE CCUNTRIES 11970) TOTAL 21.' MOST RECENT AGRIC. 13.2 1960 1970 ESTiPATE GUATEMALA PANAMA COSTA RICA GNP PER CAPITA (USRI 180.0 300.0 450.0 390.0 730.0 560.0 POPULATIDN AND VITAL STATISTICS _______________________________ POPULATION (MID-YR. MILLION) 2.4 3.4 4.0 4.9 1.' 1.7 POPULATION DENSITY PER SQUARE KM. 114.0 160.0 187.0 45.0 19.0 34.0 P6R SQ. KM. AGRICULtURAL LANO 201.0 . 270.01. 85.0 106.0 VITAL STATISTICS CRUDE BIRTH RATE I/THOU, AV) 46.5 46.1 42.2 45.0 39.8 41.1 CRUDE DEATH RATE I/THOU,AV) 20.1 14.3 11.1 16.8 8.7 8.3 INFANT MORTALITY RATE I/T10U) 76.0 66.6 59.0 67.1 41.0 62.0 LIFE EXPECTANCY AT BIRTH (VASI 58.5 .. 65.01 51.1 64.9 66.8 GROSS REPROCUCTION RATE .. .. .. 3.1 2.8 3.4 POPULATION GROwTH RATE tIY TOTAL 2.7 3.5 3.1 2.5 3.1 3.3 URBAN 3.3 3.7 3.4 /b 2.21Ž 4.3 5.2 / URBAN POPULATION It OF TOTALI 38.5 39.0 39.4 33.8 47.6 36.5 AGE STRUCTURE (PERCENTI 0 TO 14 YEARS 44.8 47.5 46.1 1 45.0 43.0 47.4 15 TO 68 YEARS 52.0 49.4 50.'4 A 52.0 53.0 49.3 65 YEARS AND OVER 3.2 3.1 3.5 / 3.0 4.0 3.3 AGE DEPENDENCY RATIO 0.9 1.0 1.0 0.9 0.9 1.0 ECONOMIC OEPENOENCY RATIO 1.7 .. 1.6c .. 1.5 1.6 /b FAMILY PLANNING ACCEPTORS ICUMULATIVE, THCU) .. .. 70.0 41.3 165.0 USERS It OF MARRIED WOMENI .. .. 8.6 . E PPLOYMENT TOTAL LAOR FORCE ITHOUSAND) 810.0 .. 1130.0 .. 500.0 / 540.0 LABCR FORCE IN AGRICULTURE 121 60.0 .. 55.0 . 38.0 46.3 / UNEMPLOYED It OF LABOR FORCE) 5.0 .. 10.0 .. 7.0 5.1 IFCCOE DISTRIBUTION 2 nF PRIVATE INCOME REC*D BY- HIGHEST 5S OF HOUSEHOLDS .. .. 36.0/e - 22.21b HIGHEST 202 OF HOUSEHOLDS .. .. 67.0 7- . o3 LCWEST 202 OF HOUSEHOLCS .. .. 2.0i ..l LOWEST 402 Of HOUSEHOLDS .- .- 7.5-a 13 8 DISTRIBUTION OF LAND OWNERSHIP 2 OWNED BY TOP 10 OF OWNERS 80.5 .. 78.0 5 .. '.5.0 X OWNtED BY SMALLEST 102 OWNERS 0.3 .. 0.4 . 1LO0 HEALTH AND NUTRITION PDPULATION PER PHYSICIAN 4630.0 L5- 3920.0 3:50.0/ .. 1550.0 1620.0 POPULATION PER NURSING PERSON 140oo0.f/# 930.Q0 860. 0 6490.0 1210.0 160.0 POPULATION PER HOSPITAL BED 410.0/1 500.0 490.0Ž 4'30.0 320.0 250.0 PER CAPITA SUPPLY OF - CALORIES t3 OF REQUIREMENTS) 82.0 87.0 *- 97.0 109.0 110.0 PROTEIN IGRAMS PER DY.) 43.0 .. 59.0 61.0 63.0 -OF WHICH ANNIMAL AND PULSE .. 10.0 .. 19.0 31.0 35.0 DEATH RATE I/THOU) AGES 1-4 17.5 11.1 7.11 24.4 7.5 4.6 EDUCATION ADJUSTED ENROLLMENT RATIO PRINAAY SCHOOL 79.0 78.0 59.0 105.0 106.0 SECONDARtY SCHOOL 11.0 23.0 13.j 10 41.0 28.0 YEARS OF SCHDOLING PROVIDEO (FIRST AND SECOND LEVEL) 11.0 12.0 12.0 12.0 12.0 11.0 VOCAT IONAL ENROLLNENT IS OF SECONDARY) 30.0 31.0 . 0f 150 32.0 10.0 ADULT LITERACY RATE tSI 51.0 /d 60.0 63.0 o .. 8LO /c HOUSItG PERSONS PER ROOM IURBAN) .. .. 3.6 .. 1.8 1.1 OCCUPIED DWELLINGS WITHOUT PIPED WATER (SI *- 84.0 74.0 .. 74.0 d ACCESS TO ELECTRICITY I2 OF ALL DWELLINGS) .. .. 34.0 .. 52.0 RURAL DWELLINGS CONNECTED TO ELECTRICITY IYI .. .. 7.0 .- 16.0 CONSUMPTION RADIO RECEIVERS IPER THOU POP) e9.0 85.0 .. 115.0 157.0 71.0 PASSENGER CARS IPER THOU POP) 8.0 10.0 10.0 9.0 32.0 23.0 ELECTRICITY (KWMHYR PER CAPI SS.0 190.0 254.0 153.0 585.0 594.0 NtEWSPRINT (ROIYR PER CAP) 1.9 3.7 3.4 1.6 4.0 6.4 SEE ItTE 6NO OEf INll---- - -R-------E SEE NOTES AND DEFINITIONS ON RvEVESE QMYl1df A pages lola..:,th;r,t.. -ot.d, data for 190 r.f.r to -ny yesr b.tvasa 1959 ansd 1961, far 1970 between 19168 mud 1970 sod f-r Host leRnt letieste between 19 7 3Sn 175. C-st R1,:h.6..I,., *s.tda 0o3ctv onr or l-iodrbecause both .... tri. esar Small. oP.. --oot. d I I t ont agniwoltts*& roo sd bot ha.::': ltrd eato,hp ,lhohe sta Aetorsia c.untriss, yet th. Par tap-ir-too. ,i (&dSto Nice is subeLeetitllY thor th- r Ihnth., of &I..Saios!d- Cost. Ri.h.abes xy good mtot of mcostoic grovth hbii. -. ossuh hotler Una. everage,degree of '*70 Li!llotoosit .tftt*... MIST KiCENTI 1.:.! MAIL: /. 1971; /b 1970.74; LI Ratio of popuistion .0.d, 15 and 65 end 0oor to octal labor foftoi A. Pero... ag. of wonst Ln fertle ags Sroop; ti5o S..l5o1d-, iStcoS tWlpp45ftel aL i972i LBRD n.to etimate1 /hi Goosrodnmt *sti..L.t /i i-1.odlrg ttaditiofAmdi bsh attenidants. /otI,kLAI, 9170 I.. 1'*4t-4 1/; (b ic-lodio .o..rtfg schools.. VcNofvs: 1970 (a Io-iudt,,g -otd.ntm -oktio In Canal Zot,et lb Icom. reciptent; J, L0 years end 00.; Id In.Ld,- -ty. ,USTA f;,A: 1970 I. 1463-70; lb Ratio of Ppoplstion onder 15 end 65 mud o..sr to tot1taleb., force.I L. 1967. RS J.oaaoy 27. 1977 Lend Ar.. (thou h1) ousipornrricsro Population div1dsd by umeber ot protrIi- Tot.l Total .urf... or.. rusp,litis land ares mand IoIs.d -terem..io lendaegrds mmrs:, "troica" or 'c.rrtfisd" -os..N Attic. M- o r ....t marinatre of -g -ta s- uased tsporarily or poest- MWaud einiiary perselo with training or stcp.risnc. nstIy for crop., past-re., market A. kitchen gardoes or to Its falow. " !:lRtgptp bed - Popuiatisn divided by nibesr of hospital a,. a n pt c aDprivet. general and specislisad hospital "lP Per .pslta (fil) CWGP par capita estimates at totrrift earbat prices. and rehabilitation camt5ro excludes nursin ha.w sd establishment. catculated by na ,oonv.r ion method as World lack Atlas (1975-75 basis); for tutcodial and preventivu cars. 19460, 1970 and 1975 data.'Prcmt pnwo .01 of poir S ) Comuted foam enegysquveeniofnecfod app ia avalabl in scatry par mujj.j.~ d "it lt imsiattc capita pair d4yi awalable aupplta. coriam domstic prodrsction, P.I Lcal - ~*. Aof July first! If not avsiiabl., ngPacca 1a9s -mparts, end chanS6to St-Rokg act su0plies...eold. S-,.$ge of two ed-ymer ScLattec.: 1 960, 1970 sod 1975 date. matua feed, seeda. qunctitle Suend to foad prncessing d losses. to diatribution; requironute worm estinted by PAO braad on phys- sisgicel needs for normal activity sod heelth conetderiog eovron- population derreicy - a outbe-Hd-year population per squaen bli- mentale to"recure body sejght. ege and sa" distttibuttio of pop.. mgetr 7100 hocteres)of rural area. Lation, end elloving 101 for waste at hoosehod lieml. PoftI.tt!o.rdanafto- par seatae -. of anrir. lend - Computed a.stcov, for Pa qiesml fyys fr~ me D , 1 - protein content of P., spriroIt rl adonlty. capite1 neLupyo oo a a: t supply of food to defined a above, requiregmets for all cosotrtle establiebed by UR0A EconmIc vital stattfticm leaearch Servicee provido for a eLinin allossoc of 60 Sera of total Crude birth rate Per thousand. avarsis - Annual live births par thoussand protein per day, end 20 arage of animal and pulse protein, of which 10 of eld-psar population; ten-year arithmetlc everegaa ending ix 1940 "Ad Serm shold be eimael protmts. these tstanards ore tomr than those 1970. en fioe-ymr vererge eeding in 1975 for awt recet sscimota. of 73 Sera of total protein and 23 Serm of nmbal protein so wever- Crods death rate set "ho::uacnd.9 Ur e- Anaoal deaths par thouesend of mid- age for the world, proposed by FAA in the Third World FOod OurVa. yes, popula:tion ten.yar an tic everagas andlng in 1960 cod 1970 and -IN IamitR sol,fo enqan d eml - Protein supply of food floe-year sorcgesueding In 1975 for most recont aetinete. deie rmiiseadple in PM per day. Irtfaot mortalIty, rt fi thop; Anuldah o net ider peyear 0,gth .jgjg.tJol aajg.J4 on=,; death per thoaand in egs group 1-4. o goprthouaodliv Lirh. Ampearl tinats" " to ib[ldren is iila age group; sugaented as an mod,coetor of xal- Lifte gxeca t, birth (vre) - Average numbe. of years of life, remain- utriton. tgtbrt; oua"lly five-year &voragea ending in 1960, 1970 and 1975 for dsoacoping countries. Gr9as rssroduction rae e Average number of ILve daughters a woman will reh!t o o 11t v schpol - turolCamt of all ages as beer In her norma raprod.otive period if che exporiaoces proamet aeg- percentageo5a mey cotag popuistiom; includes children eged apacific fertility rates; usually five-year cveragax ending in 1960, 6-li year. bat adjusted for different lengths of prUmint education; 1970 sad 1915 for dm,*loping ourortisa. for xo,itries with universal aduetion, enrollment mey excesed IOO0L Popolt io xroth fee (~ - tCq -Compound annual grooth rats. of mid- simm sam pupil. ar. blobor a,hbm. the official school .$._ year populationfo 1930-01,9190- ,0 and 1970-73. Adl t4 enspllanL[,t ratio - 2ron!a- ,chool Comuted ee ebove; sacond- Populatin arooc rece f5-ur~o- Cosputed like growth rtst of itotl ex doein rmurm t est four yearn of epprwvud primry Inatruc- population; differmot definitioew of urban eraae way effect soWere- tiom; provides genera, ooetismai or teether training Iarrutcetios fow bility of deta among countries. pupilsato 12 to 17 years of age; correspondence coures erm generally Urba 500 lat CIL7 ot to; .1) - Ratio of urban to total Populction; mld. different dfiitima o rben areas cay affect comparability of date 1aug.gb~1 jg1gJl...iJyJ1-Total years of amon coundtrie. sselo;te0rlv1,o;inlmcoto may beperticlly Agg...5nttre(o Rcen - hlrn(-14 years), working age (15-64 yomre), or xmpiotely excluded. andrated(63yeas ad over) as percceteges of mid-ear population. .PMP h,fBiin f_ji..gamd&ry,) - vocetlatmel Institutions Include A& 9Sq r5J Ratio of population under 15 and 65 end over to telia,ontrialorohe r progres whsioh oprate tndepondcoctly thoeoa. iSf ogh 64. or as dparamnts of secoodery imetitutions. 997041 d! . f".P - .atio of population under 15 and 65 and ower Adh1-n r,4 - Litera.te edlte (able to read cad write) Am to thailbI orn.iiigegroup of 15-64 vears. Doerctageo tot. I dult population aged 15 yeare and mors. socaptors of birth control lawicos under euaploss of etioa fmily Planning Program since, inception. Yz*ij.uL _!4g fg - .Avrage numnber of persons par room in occupied Family olsomina - er 7 faqp wmn - percentages of maried oe ntiona wlln.i urban areas; dwellins exclude non-parnmant woan of child-bxearing ageo 7$-U years) who us. birth-control devices structures sod unoccupiad ports. toal arid wni aaggroup. 0ccsidde" liewxithout plned water I - Occupied conventionel dw*II- inge inu- an ruralI oreAm sithoutcl itds or autaide pipod woe,e ENPI-Vmo.t ~~~~~~~~~~~~~~~~facilities en perceocas. of all occupied demllings. Total labor forts (thoueendl - tccaonically active Duteoson, Inoluding Acest;lcri t Cof I11 dwalincs) - Conventional duellindga .itb arosad foaces. end aomMloysd but excluding houaawivea, atudents, etc..: wecI icy in iin quarters es psrcet of total dwesllings In urban definIttiona in various countries stea sot nonprarbie. and rural etme. Labor forceinarc rst7 - Agriculturel labor force (in farming, lut:~ oncc oelectriocity Ml - CamPut*4 as above for rural hoeer . -,,in e g as p-artsnt.e of totot labor force. 1MiJ..lId..LJLA~LHSI -bUneployed mren usualy defined as pareson who are ablansd willing to tens a job, oortof a job on gi"en dmy, remained out of a job, mad asskixg work for a specified minimu N 0 w vr(pr thy ) - All types of re-caiwre for radio broad- period no t xc`ading one weak; "sY not be coparabl. betweom countries canto to goersl p.blit par thoueand of population; axcudas tsr- due to different defLnitina of unemploydcand snort of data, e.g., licaneed receivers in countries end la yeers wham registration of emP,oyment otffico atacIstcics .-samI. s-veys - yuemlyetrdio sets woe L. affect; data for roent Tests may not he camp .rabl. insuranc. ance neoot corartria cbolixh.d licanaing. Pmsasnprtsr co f,ee thou copol - Passenger cars conpriss motor cr sea...t- jocg i:yrIbut14_- Percentage of private, income (both in cash ond Lng le thn eigt pesn.; r eseudoosabulances, hesres mand k,i)dr oed ricest 5%.* richest 201, pemmres 10, mand poormat military vshicles. 4.01 of households. il n" consutmption of industrial1* cante- cial7,public end prlvta sloctric ity in kllowstt hours par capita; Dletribution of loand onwertoi - Pmroxotogxs of land ound by westch- generally based on production date, without .1awlocant for losses in last 101 and p-oore 1 1 o mlad owner. grids but allowing for tIp-ar and emports of electricity. Nweormnt (killer per cap) - Par cmpire mousua csumptIon tn kioWamste l1i2in ~rt4op estimated from domstic production plus not imPorte of nsvePrint. IN"11" .:t,,tII - Population divdedby orab:r of pccctioing Phy. LtaL... elifillr mdcL shlat univsrcty level. ANNEX I EL SALVADOR Page 3 of a ECONOMIC DEVELOPMENT DATA (In million of US dollars) Average Annual Actual Pro ection Growth Rate As percentago of GDY 1970 1973 1975 I980 1970-75 1975-80 79 1975 190 NATIONAL ACCOUNTS Amounts in 1967-69 prices and exchange rate Gross domestic product 977.8 1,127.0 1,261.3 1,653.4 5.2 5.6 97.5 98.2 95.8 Gains from the term of trade 25.1 32.7 22.7 73.1 - - 2.5 1.8 4.2 Gross domestic inccme 1,002.9 1,159.7 1,284.0 1,726.5 5.1 6.1 100.0 100.0 100.0 Lœports 243.7 341.9 370.0 509.5 8.7 6.6 24.3 28.8 29.5 Exports (import capacity) 246.8 309.4 321.6 455.7 5.4 7.2 24.6 25.0 26.4 Resource gap -3.1 32.5 48.4 53.8 - - - 0.3 3.8 3.1 Consumption 863.0 1,012.8 1,081.1 1,430.6 4.6 5.3 86.1 84.2 82.9 Investment 136.8 179.4 251.3 349.7 12.9 6.8 13.6 19.6 20.2 Domestic savings 139.9 146.9 202.9 295.9 7.0 7.8 13.9 15.8 17.1 National savings 145.1 147.3 201.9 294.8 6.8 7.9 14.5 15.7 17.1 MERCHANDISE TRADE Annual data at current prices As percent of total Imports Capital goods 37.8 71.0 118.9 242.0 25.8 15.3 17.6 19.8 21.5 Petroleum, oil, lubricants 4.8 21.4 59.8 102.2 65.6 11.3 2.2 10.0 9.1 Other intermediates 100.5 180.2 294.1 552.5 24.0 13.4 47.0 48.9 49.1 Consumption goods 71.1 101.3 127.8 227.7 12.4 12.3 33.2 21.3 20.3 Total merchandise imports (cif) 214.2 373.9 600.6 1,124.4 22.9 13.4 100.0 100.0 100.0 Exports Primary products 181.6 245.0 371.8 665.7 15.4 12.3 70.9 69.7 64.9 Manufactured goods 74.6 115.6 161.8 359.9 16.7 17.3 29.1 30.3 35.1 Total merchandise exports (fob) 256.2 360.6 533.6 1,025.6 15.6 14.0 100.0 100.0 100.0 1967-69 - 100 Merchandise trade indices Export price index 117.1 146.9 200.4 310.1 11.3 9.1 - - - LIport price, index 104.2 129.7 184.7 253.6 12.1 6.5 Terms of trade index 112.4 113.3 108.5 122.3 - - Export volume index 97.3 118.4 128.5 159.6 5.7 4.4 - - - VALUE ADDED BY SECTOR Annual data at 1967-69 prices Agriculture 265.0 284.0 321.6 400.1 4.0 4.5 27.1 25.5 24.2 Industry 216.1 257.0 291.4 393.5 6.2 6.2 22.1 23.1 23.8 Services 496.7 586.0 648.3 859.8 5.5 5.8 50.8 51.4 52.0 Total 977.8 1,127.0 1,261.3 1,653.4 5.2 5.6 100.0 100.0 100.0 PUBLIC FINANCE Annual data at 1967-69 prices As percent of GDP (Central Government) Current receipts 107.6 136.4 155.1 233.1 7.6 8.5 11.0 12.3 14.1 Curetntrxpqenditures 92.9 110.5 123.6 173.6 5.9 7.0 .5 9.8 10.8 Budgetary savings .7 7 31.5 5 16.5 13.6 2.5 15 Other public sector 16.6 24.8 18.9 39.7 2.6 16.2 1.7 1.5 2.4 Public sector fixed investment 23.5 48.5 76.9 124.0 26.8 10.0 2.4 6.1 7.5 DETAIL ON PUBLIC FIXED INVESTMENT 1967-69 prices SELECTED INDICATCRS 1265-73 1973-75 1975-80 1Z:1-75 Tof total ICOR 3.11 2.93 3.67 Social sector 77.12. Import elasticity 1.08 1.03 1.08 Agriculture 19.5 7.3 Aver. Nat. Sav. rate 0.13 0.14 0.17 Power 73.0 27.3 Marginal Nat. Sav.rate 0.10 0.47 0.18 Transport and telecommuiications 59.4 22.2 Other 38.5 44 70;L fixed investment 267. lo.o LABOR FORCE AND OUTPUT PER W(RKER Labor Force Value added per worker ( 1967-69 prices ) In thousands % of total 9l-7In o average 5961-71 196 9 1961 1971 ,Grovth rate 1961 1971 i961 191 Growth rate Agriculture 4.2 =-.I 052 --2 90 . 2 '2771 .8 7*2 Manufacturing and construction 137.2 176.9 17.0 15.6 2.6 823 1,311 113.5 145.3 4.8 Services 183.7 332.6 22.8 29.7 6.1 1 534 1,552 211.6 172.1 0.1 T=OtarlT gT Ft I219 90- lo n5 eW T lo EL SALVADOk2 ANNEX I BALANCE OF PATIENRS, EXTERNAL ASSISTANCE AND DEBT Page b of 4 (In million of US dollars at current prices Actual Prolectad 1970 1973 1975 1960 1985 SlUOAhY BAlANCE OF PAYDENTS Exports (including NIS) 257.0 401.2 594.2 1,168.5 2,030.4 I. uprIs (inolud BiFS _ Resource balance -H) 1 -69. Interest (net) -2.2 -3.6 -15.0 -17.3 -66.3 Direct investment income -6.6 -9.5 -11.4 -26.2 -50.0 Workers remittance - - Current transfers (ntl 14.3 13.6 27.4 40.0 66.4 Balance on current account c -41. -t - 4 Private direct investment 3.7 8.3 11.5 30.0 53.8 Public metium and long-term loans Disbursements 9.3 26.4 81.5 139.3 455.5 -Repayments -5.9 -16.7 -47.5 -24.0 -50.9 Net disbursements fl 3¶b7 II!1 4W Gapt.al transactions n.e.i. -0.8 3.4 94.2 Change in reserves (-increase) -15.0 20.2 -48.1 -3.8 -46.4 Actual LCa COPIXmENTS 1/ DEBT AND DEBT SERVICE lY7 19( 1775 Pedium and long-term loans Public debt outs. & disb. 87.7 313.3 182.9 IHRD - 27.3 - (end of year) IDA - - _ Interest on public debt 3.5 4.5 7.4 IDB - 6.6 35.6 Repayment on public debt 5.9 16.7 47.5 ZABEI 4.6 12.0 15.0 Total public debt service 9.4 21.2 54,? Governments 6.7 6.5 19.2 Suppliers - - - Burden on exports (S) Private banks 1.1 o.8 b7.0 Bondc_ - - _ Public debt service 3.7 5.3 '.2 Loans n.e.i. - - DS S investment increase 6.2 7.7 11.2 Total medium and long-term loans lfl 7 11 EXTERNAL PUBLIC DEBT Preliminary Estimate of Debt Outstanding as of Dec. 31,1976 IntAas g prior year iO & D 4.1 4.1 4.1 Disbursed only Percent Amort.a8 % prior year DO & D 6.8 15.3 26.1 IB, D I,2.9 g T IDA 18.1 6.7 I8RD debt outs. & disb. 2h.8 23.8 41.0 IDB 13.1 4.8 IBRD as % of public debt outs. 28.3 21.0 22.4 CAREE 30.4 11.2 IBRD as % of public debt serv. 37.9 19.4 7.8 Governments 96.2 35.3 Private banks 64.7 23.8 IDA debt outs. & disb. 8.0 15.8 16.6 Bonds 0.5 0.2 IDA as % public debt outst. 9.1 13.9 9.1 Total public debt 277 100.0 IDA as % public debt service o.6 1.1 0.5 1 Exclude loans repayable in local currency, 2/ In 1975 the debt service ratio was unusuaIly high as a consequence of prepayment of oommercial l wsna contracted in 1974. ANNEX II Page 1 of 3 STATUS OF BANK GROUP OPERATIONS IN EL SALVADOR A. STATEMENT OF BANK LOANS AND IDA CREDITS (as of April 30, 1977) Loan or US$ million Credit Amount (less cancellations) Number Year Borrower Purpose Bank IDA Undisbursed Eleven fully disbursed loans and credits 57.6 13.6 - 811 1972 ANTEL Communications 9.5 - 2.0 889 1973 COMISION DEL RIO LEMPA Power 27.3 - 3.3 1007 1974 Government Education 17.0 - 14.4 517 1974 Government Sites and Services - 6.0 3.1 1050 1974 Government Sites and Services 2.5 - 2.5 1288 1976 COMISION DEL RIO LEMPA Power 30.0 - 29.9 1289T 1976 Government Power 9.0 - 9.0 152.9 19.6 64.2 Of which has been repaid 40.0 0.5 Total now outstanding 112.9 19.1 - Amount sold 4.1 of which has been repaid 3.9 0.2 - - Total now held by Bank and IDA 112.7 19.1 64.2 Total undisbursed - - 64.2 B. STATEMENT OF IFC INVESTMENTS (as of April 30, 1977) Amount in $ million Year Obligor Loan Equity Total 1959 Industrias Textiles S.A. 0.14 0.14 1969 Hoteles de Centro America, S.A. 0.60 0.33 0.93 Total 0.74 0.33 1.07 less sold, cancelled or repaid 0.36 0.10 0.46 Now held 0.38 0.23 0.61 ANNEX II Page 2 of 3 C. PROJECTS IN EXECUTION I/ Ln. 811 Second Telecommunications Project; US$9.5 Million Loan of April 7, 1972; Effective Date: August 31, 1972; Closing Date: December 31, 1977. Contracts for all Bank-financed goods have been signed; goods are being received at installation sites. Some of the project works have already been completed and equipment has been brought into use. Due to initial delays in procurement, a slippage of about 18 months in the project's original completion date (December 31, 1975) is anticipated. Ln. 889 Sixth Power Project; US$27.3 Million Loan of April 27, 1973; Effective Date: September 10, 1973; Closing Date: April 30, 1978. The project is expected to be completed on schedule (June 1977), except for the effluent discharge canal to the Pacific, which is about two years behind schedule. Project costs are now estimated at US$125.9 million, 28.9 percent above the appraisal estimate, as a result of world wide inflation and additional costs for construction of the geothermal effluent discharge canal arising mainly from the poor performance of local con- struction contractors. CEL is borrowing $10.3 million from the Venezuelan Investment Fund (FIV) to help it meet the cost overruns of the first geothermal unit and the Cerron Grande Project. Pending completion of the discharge canal to the Pacific, output from the 30 MW geothermal plant at Ahuachapan has been restricted so as not to exceed agreed upon limits of boron and arsenic in the waters of the Paz River. Ln. 1007 Second Education Project; US$17 Million Loan of June 14, 1974; Effective Date: October 11, 1974; Closing Date: December 31, 1978. After initial delays in implementation due mainly to poor programming and planning, the project is now showing progress in all aspects. About half of all project build- ings are either completed or under construction; civil works 1/ These notes are designed to inform the Executive Directors regarding the progress of projects in execution, and in particular to report any problems which are being encountered, and the action being taken to remedy them. They should be read in this context, and with the under- standing that they do not purport to present a balanced evaluation of strengths and weaknesses in project execution. ANNEX II Page 3 of 3 bids are being reviewed for another one-sixth of the project buildings, with the remainder in the planning stage. Bids for supply of furniture and equipment for the first three of eight phases of the project were evaluated and awarded in December 1976. It is expected that the project will be completed with about a two-year delay by December 1980. Ln. 1050 Sites and Services Project; US$6.0 Million Credit and US$2.5 Cr. 517 Million Loan of November 4, 1974; Effective Date: February 3, 1975; Closing Dates: March 31, 1981 (Credit) and May 31, 1981 (Loan). The status of this project is discussed in paragraphs 31-35 of this Report. Ln. 1288 Seventh Power Project; US$30.0 Million Loan and US$9.0 Million 1289T Third Window Loan of July 28, 1976; Effective Date: October 28, 1976; Closing Date: December 31, 1980. Project implementation is on schedule. Contract award recom- mendation for the first contract (substation transformers) as well as prequalification documents for suppliers of the turbo- generator were approved by the Bank in January 1977. CEL's planning department was recently organized with full staffing of the department expected by mid-1978. CEL's asset revalua- tion study was completed in December 1976, on schedule, and is presently under review in the Bank. Terms of reference for the required tariff study have recently been reviewed by the Bank; completion of the tariff study is expected by December 31, 1977. The geothermal studies are proceeding on schedule, and a report on the Berlin geothermal field is expected to be com- pleted by November 30, 1977. ANNEX III Page 1 of 3 EL SALVADOR SECOND URBAN DEVELOPMENT PROJECT SUPPLEMENTARY PROJECT DATA SHEET Section I: Timetable and Key Events (a) Project Preparation (i) Identification February 1976 (ii) Preparation April 1976 (b) Project Preparation Agencies (i) Fundacion Salvadorena de Desarrollo y Vivienda Minima (FSDVM) (ii) Federacion de Cajas de Credito (FEDECCREDITO) (iii) Direccion General de Fomento y Cooperacion Comunal (FOCCO) (iv) Instituto de Vivienda Urbana (IVU) (c) Preappraisal Mission Departure June 6, 1976 (d) Appraisal Mission Departure August 29, 1976 (e) Completion of Negotiations March 11, 1977 (f) Loan Effectiveness Planned September 30,1977 Section II: Special Bank Implementation Action Special Bank activity in implementing this project is: Monitoring, with FSDVM, the progress being made in the con- struction of the Zona Norte water supply scheme (paragraph 49). ANNEX III Page 2 of 3 Section III: Special Conditions 1. The Bank has obtained assurances from the Government that: (a) FSDVM's first and second project sites in San Salvador will receive preference by the water authority (ANDA) in the supply of water to be delivered under the Zona Norte water supply scheme or other programs (paragraph 34); (b) The water contingency plan is to be initiated by FSDVM at the end of 1977, if progress in the development of the Zona Norte water supply scheme or other supply schemes is such that water will not be available to meet the needs of FSDVM sites in San Salvador (the costs of the water contingency plan are to be charged to and recovered by ANDA) (paragraph 49); and (c) Educational facilities included in the project will be made available for purposes of adult training when not in use by the regular school program; teachers for grades one through six will attend in-service training courses provided under the Bank's Second Education Project (paragraph 47); and (d) The Government will, if necessary, acquire not less than 60 ha. of land in the San Salvador metropolitan area by December 31, 1977 (paragraph 35). 2. The Bank has obtained assurances from FSDVM that: The borrowing terms for households will be 6.4 percent interest for both mortgages and construction loans with up to 20 years for repayment (paragraph 53). 3. The Bank has obtained assurances from IVU that: The borrowing terms to households will be 6.4 percent interest and 20 years for repayment (paragraph 63). 4. The Bank has obtained assurances from FEDECCREDITO that: (a) the borrowing terms under the small informal business credit program will be 15 percent annual interest with a repayment period of up to 2 years for working capital, 5 years for equipment, and 12 years for construction loans; a maximum grace period of 6 months is to be offered for working capital loans and 12 months for the other two categories of loans (paragraph 67); and ANNEX III Page 3 of 3 (b) By May 30, 1978, a report will be furnished to the Bank cover- ing the performance of the small informal business credit program (paragraph 68). 5. Conditions of Effectiveness will be that: The subsidiary agreement between the Government and FSDVM has been duly executed (paragraph 83). 6. Conditions of Disbursement will be that: (a) The subsidiary agreements between the Government and IVU and the Government and FEDECCREDITO have been duly executed (paragraph 83); (b) A project unit has been created in IVU and the unit chief and key staff members have been appointed (paragraphs 64 and 83); and (c) A new department has been created in FEDECCREDITO, and the department head and key staff members have been appointed (paragraphs 70 and 83). F'~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~' V~~ ~ ~~j U L w1-6@ [1ltl! 2G EL SALVADO-J AC A PA N,-' ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ PAII Mai roads { } u l p 0FAtj~~~~~~~~~~~~~~~~~~~~~~~~~CA Poved .....r n b Roiiroads ~ ~ ~ ~ ~ T-h. P.oi - - Inter na tional boundarzi es 0 10 20 30 40 50 3 K I EO M E T E RCS >- 0 J~~~~~~~~~~~~~~~~J A H A C AP A N, I I&~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 0 lo 20 30 MILES ir 90'00' 89'45' 89-30' e9' 15 09'00' 88-u' tn30' 881S se nno 57 )5' ) _ 1. _ I I _ I I t I~~~~~~~tU I I N