Document of The World Bank FILE COPY FOR OFFICIAL USE ONLY Report No. P-2799-KO REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE AGRICULTURE AND FISHERY DEVELOPMENT CORPORATION WITH THE GUARANTEE OF THE REPUBLIC OF KOREA FOR THE SECOND AGRICULTURAL PRODUCTS PROCESSING PROJECT April 30, 1980 This document has a restricted distribution nd may be used by recipients only in the performance of their ofIcial duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS Won (W) 1.00 US$0.00172 W 580 = US$1.00 W 1 million US$1,724 W 1 billion US$1.724 million WEIGHTS AND MEASURES 1 meter (m) 3.28 feet 1 square meter (m2) 10.76 square feet 1 hectare (ha) = 2.47 acres 1 ton = 1,000 kilogram = 2,205 pounds ABBREVIATIONS AFDC - Agriculture and Fishery Development Corporation MAF - Ministry of Agriculture and Fisheries PD - Project Department of AFDC NACF - National Agricultural Cooperative Federation NFFC - National Federation of Fisheries Cooperatives KDB - Korea Development Bank KDFC - Korea Development Finance Corporation SMIB - Small and Medium Industry Bank FISCAL YEAR January 1 - December 31 FOR OFFICIAL USE ONLY KOREA SECOND AGRICULTURAL PRODUCTS PROCESSING PROJECT Loan and Project Summary Borrower: Agriculture and Fishery Development Corporation (AFDC). Guarantor: Republic of Korea Beneficiaries: AFDC and private sector enterprises engaged in agroprocessing. Amount: $50 million equivalent. Terms: 16 years, including three years of grace, with interest at 8.25% p.a. Relending Terms: $49.5 million will be relent to agro-processing enterprises, with repayment periods to be determined by their individual cash flow estimates, and interest at not less than 12% p.a. Sub- borrowers will bear the foreign exchange risk. AFDC will expend the remaining $0.5 million for technical assistance and training to strengthen its Project Department. Project Description: The proposed project would support investments in Korea's agro-processing subsector. Enterprises engaged in freezing and cold storage, canning, drying, pickling and other preservation of fruits, vegetables, meat- and fisheries products, oil seed extraction, processing of grain based foods, raw silk spinning, and production of fruit juice based beverages, dairy products, and animal feeds would be the main subborrowers. The proposed project will benefit the farmers through widening their market oportunities, provide increased supplies, better quality and larger variety of processed foods throughout the year to consumers and assist in dampening the supply and price fluctuations of farm produce, reduce the wastage of such produce through spoilage and create about 5,000 additional jobs. It will also contribute to the institutional strengthen- ing of AVDC. There are no special risks associated with the project. This document has a restricted distribution and may be used by recipients only in the performance of their omcial duties. Its contents may not otherwise be disclosed without World Bank authorization. - ii - Project Cost: Local Foreign Total ---- ($ million) ----- Freezing and cold storage facilities 9.4 12.1 21.5 Other processing facilities 14.8 22.1 36.9 Technical assistance - 0.5 0.5 Subtotal 24.2 34.7 58.9 Contingencies Physical 2.4 3.4 5.8 Price 7.2 11.8 19.0 Total 33.8 50.0 83.8 Financing Plan: Local Foreign Total …---- ($ million)… IBRD _ 50.0 50.0 AFDC (Government loan) 13.0 - 13.0 Subborrowers 21.0 - 21.0 Total 34.0 50.0 84.0 Estimated Disburse- ments from IBRD Loan: IBRD FY 1981 1982 1983 1984 ------ ($ million) ---------- Annual 7.0 16.0 17.0 10.0 Cumulative 7.0 23.0 40.0 50.0 Rate of Return: 21% (weighted average economic return of 10 typical subprojects). Staff Appraisal Report: No. 2849-KO, dated April 18, 1980. REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE AGRICULTURE AND FISHERY DEVELOPMENT CORPORATION WITH THE GUARANTEE OF THE REPUBLIC OF KOREA FOR THE SECOND AGRICULTURAL PRODUCTS PROCESSING PROJECT 1. I submit the following report and recommendation on a proposed loan to the Agriculture and Fishery Development Corporation with the Guarantee of the Republic of Korea for the equivalent of $50.0 million to help finance the foreign exchange cost of a second agricultural products processing project. The loan would have a term of 16 years, including three years of grace, with interest at 8.25% per annum. $49.5 million of the loan would be relent to agro-processing enterprises, with repayment periods to be determined by their individual cash flows, with an interest rate of at least 12% per annum. The Agriculture and Fishery Development Corporation (AFDC) will expend the remaining $0.5 million to strengthen its Project Department. PART I - THE ECONOMY /1 2. The latest Economic Report entitled "Korea: Rapid Growth and Search for New Perspectives" was distributed under cover of SecM79-390, dated May 24, 1979. The Country Data Sheets are attached as Annex 1. Recent Developments 3. During 1977 and 1978, the growth of GNP in real terms outstripped the target of 9.5% p.a. postulated in the Fourth Five Year Plan (1977-81). As a result of a rapid increase in domestic demand, the rate of increase of real GNP accelerated from 10.3% in 1977 to 11.6% in 1978. For the first time in many years, the increase in domestic demand for manufactured goods exceeded the increase in manufactured exports. This increase in domestic demand, fueled by substantial increases in private construction and equipment investment, resulted in capacity shortages for some essential items, and a speculative investment mood. For the first time, a shortage of certain types of skilled labor became a matter of greater concern than unemployment, which declined substantially during 1978. For the third year in a row, there was a substantial increase in real wages in the manu- facturing sector, which was in excess of the increase in labor productivity. There was also an increase in the rate of inflation; during 1978, the wholesale prices increased by about 12% as compared to 9% in 1977, and consumer prices increased by about 14%, compared to a 10% increase in 1977. /1 This section is identical to the corresponding one in the President's Report on the Seventh Railway Project (No. P-2769-KO, dated April 9, 1980), which was distributed under cover of R80-81, dated April 10, 1980. - 2 - 4. Exports continued to grow according to the Fourth Plan targets, but after increasing by 43% in 1976 and 26% in 1977, the real growth of goods and services slowed to 18% in 1978. On the other hand, as a result of a substantial increase in the demand for imported capital goods, total imports increased more rapidly than exports, resulting in a sizeable trade deficit. However, overseas construction activity continued to expand rapidly during 1978, increasing from $3.5 billion in 1977 to $8.1 billion in 1978. Although the receipts from these contracts resulted in a substantial surplus in the invisible account, a current account deficit of about $1 billion emerged as compared with the surplus of about $12 million in 1977. However, in view of the need to promote allocative efficiency and to counter domestic inflationary pressures, the Government initiated in 1978 a far-reaching program of import liberalization. Korea's access to inter- national capital markets improved considerably enabling the repayment, ahead of schedule, of large amounts of short-term loans incurred on hard terms during 1974/75 when the economy faced the twin shocks of rapidly rising prices of its major imports, particularly petroleum and foodgrains, as well as the international recession. Major Trends and Economic Policy for 1979 5. Economic policy for 1979 was formulated on the premise that infla- tion and rapid increases in wages were weakening the international competi- tiveness of Korean exports which could jeopardize sustained rapid economic growth. Hence, the major emphasis was on stabilization. The stabilization program has four major components. First, the tight monetary and fiscal policy designed to reduce excess liquidity in the economy. Secondly, measures designed to correct structural imbalances caused by inflation. These include the adjustment of investment priorities in favor of the industries producing necessities for domestic consumption, the encouragement of non-grain produc- tion in agriculture, investment to modernize the marketing and distribution network, and greater investment in public transportation. Thirdly, measures specifically designed to create greater competition in the economy, including the deregulation of prices on a large number of commodities, the removal of barriers to entry of new firms in some industries, and accelerated import liberalization. In addition, a set of measures designed to assist the poorest segments of the population who had been hardest hit by price increases were introduced which include the expansion of public work programs, the exemption from the payment of tuition by children of low-income families and some direct cash payments. Although the effects on the economy of this last set of measures are not anti-inflationary, the Government considered them necessary for reasons of equity. 6. While the stabilization program has had considerable success in containing domestically generated inflation, it has been overwhelmed by the increase in import prices, particularly of oil. During the first eight months of 1979, wholesale food prices increased by 6% and wholesale consumer goods prices by 9%, but the price of raw materials, which are mainly imported, increased by 34% and the price of capital goods by 12%. The Government has boldly combined its stabilization efforts with a reduction of price controls and removed most of the suppressed inflation which had been built up. Most government-administered prices were increased to realistic levels, including transport rates, coal prices, petroleum product prices and those of a range of industrial products. Consequently, wholesale prices are expected to increase by around 25% and consumer prices by about 22% in 1979, which would be more than double the targeted figures. 7. As was to be expected, the Government's stabilization policies have had some impact on output and employment. But exogenous factors such as a weakening of the world economy and an increase in protectionism in the developed countries have exacerbated the problems resulting from a weakening of Korea's export competitiveness. While the momentum of economic growth in 1978 continued into 1979, a substantial increase in inventories in the early part of the year was a symptom of the impending slackening of economic growth. Furthermore, there has been a deterioration in Korea's terms of trade in the current year due to higher import prices. However, the pragmatic and effective measures the Government has taken appear to be paying off. The upsurge in imports seems to be decelerating, resulting in no small measure from the Government's energy conservation measures which are proving to be effective. Exports, on the other hand, are proving to be rather more buoyant in the latter part of the year and it is expected that export value will be close to the target of $15.5 billion. As a result of the substantial increase in the value of imports, it is expected that the trade deficit would be of the order of $4 billion. However, as a result of a surplus of about $1 billion in invisible trade, the current account deficit would be about $3 billion, representing about 6% of GNP. The financing of this should be manageable. Longer-Term Prospects 8. There appears to be a consensus that Korea should continue to pursue the high growth path, that greater stress should be placed on social develop- ment and that there was a need to effect greater financial liberalization and to free the private sector from the reins of Government control. The mainte- nance of a high growth rate is essential if Korea is to achieve the objectives of greater equity, of ensuring that the fruits of rapid development are available to the mass of the people. However, at the new threshold at which the Korean economy has arrived, there is a need to redirect efforts towards reconciling growth with equity. In order to achieve a better rural/urban balance, the Government has reiterated its support of the rural development programs, the generation of off-farm employment opportunities and of programs to improve agricultural productivity. For interpersonal equity, more resources would have to be devoted to the educational sector with increased emphasis on improving the lower income group's access to the system. As indicated earlier, to help the poor, the Government has moved to strengthen programs focussed directly on the target groups and away from the former reliance on general subsidies, whose effects tend to be relatively diffused. 9. Since the early sixties, Korea's pace of urbanization has been one of the highest among the developing countries. In the early phases of its growth process, Korea economized on social and urban development expenditures, - 4 - particularly in transportation and housing. With the rapid growth of household incomes and the concentration of population in the major urban centers, the demand for urban services is rising rapidly. The Government is, therefore oiving greater emphasis to programs for providing increasing housing, particularly for the low-income groups, and for dealing with the problems of urban transportation. The Bank hopes to play a role in support of these programs. 10. A further dimension to the problem of harmonizing growth with reasonable price stability and equity is the need to review the whole nexus of policies connected with credit, the interest rate structure, subsidies, resource mobilization, capital market development and financial liberaliza- tion. These aspects were reviewed by the financial sector mission which visited Korea in November 1979. The missions' draft report is expected to be discussed with the Korean authorities in May 1980 as the next step in the Bank's dialogue with the country on financial sector policy and institutional evolution. 11. Although the assassination of President Park could be construed as the end of an era, the demonstrated dynamism and resilience of the Korean economy, the diligence of its labor force, the efficiency of its economic managers and entrepreneurs, and the massive investment in the last two years, all combine to suggest that Korea will be able to tackle its emerging problems and sustain its rapid growth in the eighties notwithstanding the change in leadership. The rapidly increasing and skilled labor force, the potential to raise productivity by adopting new and advanced technology and the shift of labor from traditional sectors where productivity is low to the modern sectors where productivity is high provide the sources of growth in the eighties. Furthermore, although the international economic environment is somewhat unfavorable, Korea continues to exploit the opportunities to expand trade and other forms of economic activities wherever these could be found and is seeking to complement its external activities by undertaking improvements in housing, mass transportation, education and health services, which some Korean economists refer to as "the second engine of growth." External Capital Requirements 12. Despite the strong possibility that the growth rate of GNP will be slower than was originally forecast for 1979 and 1980, the external capital requirements during the period will be markedly higher than originally expected. Amortization requirements are estimated to be about $1.5 billion in 1979 and $1.7 billion in 1980. Allowing for the augmentation of its foreign exchange reserves (about $1 billion annually), the gross requirements of external capital will be about $5.5 billion in 1979 and $5.7 billion in 1980, assuming that current account deficits of about $3 billion will be incurred in each of the years. Taking into account committed but undisbursed medium and long-term loans, new commitments of about $5-6 billion would be required in each of the years. - 5 - 13. While Korea is extending its use of commercial financing from the traditional suppliers and private bank credits to Euro-dollar syndicated loans and bond issues in the Euro-bond and Asian bond market and is expected to derive an increasing proportion of its total requirements from such sources, the magnitude of these external capital requirements is such that it will have to continue to rely on considerable capital inflows from official sources, including Eximbanks. It should, however, be emphasized that the higher anticipated levels of external capital inflow (relative to the Fourth Plan targets) are a consequence of its higher investment rates rather than a shortfall in the domestic savings rate. Thus, about 90% of Korea's invest- ment will continue to be financed from domestic savings. The ratio of foreign savings to GNP is expected to decline in the eighties, following the restructuring and readjustment planned for the next three years. Servicing of the debt should not pose difficulties given the present debt service ratio and the continuing emphasis on export growth, provided that the proportion of external debt incurred on shorter term and at high interest rates is not excessive. The projected ratio of debt service payments to total export earnings is expected to remain in the range of 12-15% up to the mid-eighties, and to decline steadily thereafter. 14. On January 12, 1980, the Government announced the following measures: the devaluation of the Won from 485 to 580 Won to the US$, an upward adjustment of the one year time deposit interest rate from 18.6% to 24% and of the prime interest rate from 18.5% to 24.5%. An evaluation of the impact of these measures on Korea's current and prospective economic situation will be included in the forthcoming report of an economic mission which visited Korea in February/March 1980. PART II - BANK GROUP OPERATIONS 15. As of February 29, 1980, Korea had received 49 Bank Loans (including one Third Window Loan) and 8 IDA Credits, totalling $2,771.2 million in loans and $106.8 million in credits (taking into account cancellations and the refinacing of one IDA Credit in a subsequent Bank Loan). As of that date, $826.6 million of the total Bank lending remained undisbursed on effective Loans and Credits, mostly from commitments in the past two years. Annex II contains a summary statement of Bank Loans, IDA Credits, and IFC Investments as of that date and notes on the execution of ongoing projects. As indicated in the notes, progress on project implementation is generally satisfactory. 16. In recent years, the thrust of the Bank Group's lending operations in Korea has been directed towards assisting the Government's efforts: (a) to secure the external resources required to supplement domestic savings in sustaining a high GNP growth rate by following a policy of rapid export- oriented industrialization; (b) to avoid the emergence of infrastructure bottlenecks; and (c) to complement industrial development with agricultural and rural development schemes aimed at bringing about a better dispersal of the fruits of growth through raising incomes and improving the quality of life in the rural areas. -6- 17. A substantial part of Bank financing has been directed towards the vital industrial sector through lending to Korea's three major development banks. The Korea Development Finance Corporation has received $320.0 million, the Korea Development Bank $252.5 million and the Small ancl M'_'dium Industry Bank $145 million in Bank loans for relending to private industry. The primary beneficiaries of these loans have not been the development banks, but the industrial enterprises, ranging from large ventures to small ones, which have been provided with financing through the financial intermediaries. This has resulted not only in the overall development of the industrial sector, but has also contributed to the achievement of institutional improvements and of the Government's objective of decentralizing industry. The loan of $80 million for a Heavy Machinery Project was intended to assist in achieving the structural shift to more skill-intensive industries, which is necessary to ensure the long-term viability of Korea's export strategy. A recently approved loan of $29 million by the Bank would stimulate and support the development of technological capabilities in the Korean electronics industry. 18. As Korea's economy continued to grow and the pace of industriali- zation has quickened, there has had to be a parallel expansion of transport facilities. The Bank Group, through its association with the Government's efforts to modernize and expand the transport sector dating back to 1962, has played an important role in these developments. In addition to the recently approved loan of $94 million for the seventh railway project, some $340 mil- lion had been provided for six railway projects designed to increase the railroad's capacity and improve its operations; four loans totalling $334.5 million have been made for highway construction and paving of high priority sections of the national network and for a countrywide maintenance organization; and two loans amounting to $147 million have been provided for the expansion of port facilities at Busan, the premier port, and Mugho, primarily for improving coal handling facilities. 19. Korea's paucity of natural resources and dependence on the manufac- turing segment of its economy have resulted in the adoption of a strategy based on maximizing the advantages of a skilled and hardworking labor force. The Bank Group has been involved in helping to meet the requirements for appropriately trained workers and certain categories of skilled manpower through its lending for four education projects, which have pursued the broad objectives of technical manpower development either through the expansion of relevant subsectors or through specific quality improvements. Together, these projects have catered to a wide range of manpower training needs within agriculture, fisheries, industry and services. 20. Korea's record of achievement in modernizing its agricultural sector, although less spectacular than the gains made in the industrial sphere, is nevertheless commendable. The past fifteen years have seen agri- cultural output grow at about 4% per annum, which has resulted in the country's becoming near self-sufficient in its staple food, rice, and made possible a steady and perceptible improvement in the living standards of the 40% of Korea's population who live in the countryside and rely primarily on agrarian pursuits for their livelihood. The Bank has lent $325.5 million for the improvement of irrigation facilities, land and seed development and the - 7 - provision of agricultural credit to farmers and processors of agricultural products. In addition, $155 million has been provided for two rural infra- structure projects in support of the Government's rural development program, initiated in 1971, to improve the quality of life and the standdrd of living in the rural areas. Recently a $125 million loan was provided by the Bank to help meet the growing demand for municipal, industrial and irrigation water in the Han Basin southeast of the capital city, Seoul; reduce flood damage; and generate electricity to augment and provide peaking capacity for Korea's power system. 21. The Bank's first essay into the field of regional development in Korea, through the project approved in January 1975 (Loan 1070-KO), has proved successful. The project was designed to support the Government's policy by financing high priority investments in the poor, primarily agricultural, southwest region. A loan of $65 million for a second project for the devel- opment of the region was approved by the Executive Directors on September 11, 1979, and declared effective on February 15, 1980. 22. Excluding one project that was cancelled subsequently, IFC had, by February 29, 1980, entered into 27 commitments, totalling $67.9 million (net of participations and cancellations). Korea's industrial development programs have required large capital expenditures in the private sector, a situation which has enabled a substantially enhanced IFC presence in the past few years. 23. A primary objective of the Bank's future lending to Korea is to provide assistance in sustaining the growth momentum and in addressing the emerging issues which the Korean economy is facing. The maturity of many of the Korean institutions suggests that it would be appropriate to adopt a sector lending approach in some areas. The basic issue is whether Korea can deepen and diversify its industrial structure to the extent necessary to ensure the attainment of its export targets. Lending to industry will be diversified by the provision of the proposed loan to the Citizens National Bank in support of the small enterprises as well as a loan for a second machinery project, which will provide financial and technical assistance to small- and medium-scale machinery industries. It will also be necessary to introduce RD&E programs which are better adapted to the technological needs of industrial development. In addition to the loan for the Electronics Technology Project which was approved on March 22, 1979, a loan for the technological development of technology-intensive industries is envisaged in the lending program. 24. Korea's industrialization program, which calls for entering into more complex fields of manufacturing than hitherto, will require increasingly high levels of technical competence on the part of its labor force. The recently approved loan for higher technical education will contribute to the modernization and improvement of the system of higher technical education so as to increase its flexibility and responsiveness to the changing requirements of the economy. - 8 - 25. Another strand in the lending strategy is increased support of the Government's efforts to spread the fruits of growtli even more equitably by the diversification and expansion of the output of the agricultural sector and through nationwide development programs. In addition to the proposed project, projects are envisaged for land/water resource development, for agricultural credit and marketing, for low-income housing, and for the further development of rural infrastructure and facilities in selected provincial areas, which would enhance incomes and quality of life in the lesser developed regions of the country and would have a significant impact on the problem of migration to the major metropolitan areas. 26. The further development of the industrial and agricultural sectors and the anticipated growth of exports will require concurrent infrastructural development. Although the transport sector will be given less emphasis than in the past, the investments required are large and, thus, there is consider- able support for this sector in the proposed lending program. Greater emphasis will be given to urban transportation, in view of the emerging problems of urban congestion, particularly in the main metropolitan areas. 27. The share of the Ban,' r_- up in Korea's total external debt disbursed and outstanding at the end of 1979 was about 13%, and its share of debt ser- vice was of the order of 5% at that time. These ratios are expected to be around 8% and 6%, respectively, by the mid-eighties. PART III - PROJECT BACKGROUND The Agriculture Sector 28. The rapid growtlh of Korea's industrial sector over the last two decades has tended to obscure the creditable growth and contribution of the agriculture sector to the economy. However, the agriculture sector has performed its traditional roles of providing employment (including labor for industry) and food to domestic consumers. Between 1970 and 1978, growth in value-added in the sector averaged 4.0% in real terms which is significantly higher than the comparable rates in most countries, although, as a result of the much faster growth of the nonagricultural sectors, its share of GNP declined from 30% to 19%. Exports of agricultural products, including fisheries, increased substantially from $111.3 million in 1970 to $988.9 million in 1977. Agricultural employment increased from 4.9 million or 50% of total employment in 1970 to a peak of 5.6 million (45% of total employ- ment) in 1976. Since that year, there has been a gradual decline and, by 1978, 5.1 million people were employed in the sector (38% of total employ- ment). Although the shares of the agriculture sector in GNP and employment are projected to decline in the future, its capacity for absorbing excess labor during periods of cyclical recession is likely to remain an important cushioning factor in maintaining employment at a high level. 29. About 22%, or 2.2 million ha, of Korea's total land area of some 9.9 million ha is cultivated. Another two-thirds is classified as forest land, most of which being mountainous is not suitable for cultivation. Additional .. i that can be brought into cultivation is consequently quite limited. Rice and barley are the major crops accounting for some two-thirds of the total cropped area. Pulses (mainly soybeans), potatoes, vegetables, mulberry, fruits, tobacco, and ginseng are the other important crops and, together with miscellaneous cereals, viz, maize, wheat and millet, account for most of the remaining cropped area. 30. There are some 2.2 million farm households in Korea. The average farm size is about 0.9 ha, and nearly two-thirds of the farm households have less than I ha of cropland. Only about 5% are landless. This struct- ure is largely due to the Farmland Reform Law of 1950, which imposed a ceiling of 3 ha of cultivated land per household. 31. As a result of the use of new varieties, improved and expanded irrigation and the success of land consolidation programs, heavy use of fertilizers and the Government's price support policies, rice production increased from 3.9 million tons in 1970 to a peak of 6 million tons in 1977, an average annual growth rate of over 6%. The annual production of barley fluctuated between 1.4 million tons and 1.8 million tons without showing any discernable trend. However, as a result of the increased availability of rice and rising consumer incomes, consumption of barley (a less desirable staple) has been declining in recent years despite subsidies which permit low prices to consumers. Although substantial increases in the production of rice and barley, the basic food staples, have been achieved, Government policy regarding these crops remains unchanged, namely, to promote their planting through the provision of price support and input subsidies. 32. Production of feedgrains (mainly maize) has remained insignificant in relation to the rapidly growing demand by livestock producers. Wheat production has likewise been negligible due to the limited availability of arable land, poor yields, and high production costs. The country will accordingly continue to depend on imports of these grains for virtually all of its requirements. 33. A significant part of the gains in total agricultural value-added has been due to the diversification and expansion of production into higher value crops, mainly fruits and vegetables, and into livestock products. Thus, between 1970 and 1977, the annual increases in the production of fruits, vegetables, livestock, and fisheries averaged about 8%, 3%, 10% and 15%, respectively. Increasing consumer preference for these foods over the basic staples (rice and barley) resulting from rapidly rising per capita incomes has played a major role in determining the shifts in agricultural production. This preference, which is expected to continue, is reflected in the projected increase in the share of the higher value foods in total food expenditures from 45% in 1978 to about 57% in 1986. - 10 - 34. Since 1968, the Government has been implementing a two-tier price policy which supplements farmers' incomes through purchases of a significant part of their foodgrains and other essential produce at higher than the prevailing market prices. Consumers are also subsidized through the sale of these products by the Government at lower than the purchase and prevailing wholesale prices. This policy, which has served the intended purpose of expanding the production of these crops and transferring incomes to farmers, contributed significantly towards raising farm incomes to such an extent that the average farm household income had achieved parity with that of the urban households. However, since 1978 the average urban household income has once again exceeded that of the average farm household, and indications are that, unless additional income sources can be provided for the farm households, this trend will become more pronounced. 35. Important developments affecting the agriculture sector in recent years which need to be addressed include (a) a declining proportion of younger male workers in the farm labor force, (b) rapid increases in rural wages, (c) paucity of nonfarm employment opportunities in the rural areas, (d) increasing shortage of labor, especially during the planting and harvcsting seasons, (e) widening of incomes between farm and nonfarm house- holds, and (f) changes in the level and pattern of consumer demand away from foodgrains to high income elastic commodities, such as livestock products, fruits and vegetables. These developments underscore the need for a reorientation of financing agriculture aimed at, inter alia, accelerating the pace of farm mechanization, increasing the output and productivity of agricultural production, mainly the diversification and expansion of higher value foods, and development of improved facilities for the processing, storage and marketing of agricultural products. 36. In an effort to increase the domestic production of higher value crops, the Government under its current Fourth Five-Year Development Plan (1977-81) has designated special areas in a number of provinces for the production of fruits and vegetables with credit assistance to producers for this purpose, including the development of upland irrigation systems. Livestock output is also being fostered by subsidized feeds and credit to farmers. Additional efforts include improving various infrastructures such as power, transportation and communication in the special agricultural areas, and measures to upgrade the quality and standardization, inspection and processing of the products through the provision of technical assistance and credit. 37. The Bank's lending for the agriculture sector, including rural development, has been aimed at assisting the Government to achieve its development objectives for the sector. The Bank has financed 13 projects totalling $480.5 million for this purpose, of which $188 million was made available for three irrigation projects (Loan 600-KO, Loan 795-KO/Credit 283-KO, and Loan 1364-KO), $30.5 million for two agricultural credit projects (Credit 335-KO and Loan 1328-K0), $22 million for two dairy development projects (Credit 234-KO and Loan 1193-KO), $7 million for a seeds project (Loan 942-KO), $65 million for two area development projects (Loans 1319-K0 - 11 - and 1503-KO), $13 million for a project (Loan 994-KO) to integrate the on-farm production of export-oriented crops with improved processing facilities, and $155 million for two rural infrastructure projects (Loans 1216-KO/1218T-KO and 1530-KO). 38. These projects formed part of high priority Government development programs to expand and improve the productivity of agriculture, principally rice and other foodgrains, diversify production in favor of higher value crops, increase the supply and quality of processed agricultural products to meet rapidly rising consumer demand, increase exports from the agriculture sector, raise farmer incomes significantly, and increase the provision of rural infrastructure and amenities to improve the quality of life and standard of living in the rural areas. The Agro-Processing Subsector 39. The agro-processing subsector in Korea comprises essentially the freezing, cold storage and processing of agricultural products, including livestock and fish. Its basic role is to carry out these activities efficiently and to provide adequate processed agricultural products to meet the domestic consumption and export demand. 40. Between 1970-76, the relative importance of the subsector increased from an estimated 5.5% of total value-added for the economy to 6.5%, or an average annual rate of about 13%. Employment in the subsector increased from 152,000 to 219,000. Production of the main processed foods (foodgrain, fruits, vegetables, livestock and fisheries products) and animal feed, which is the principal nonfood item in support of livestock production, increased at annual rates averaging about 8% and 18%, respectively. Exports of processed foods increased from $123 million to $813 million. About 28% of total agri- cultural production was processed in 1976 compared with 20% in 1970. The expansion of agro-processing has been due mainly to increasing domestic con- sumption of processed foods resulting from rapidly rising consumer incomes (about 8% annually in real terms) and changes in the pattern of consumer demand. Since the late 1960s, the Government has been increasing its emphasis on the development of the agro-processing subsector mainly to increase incomes and employment in the rural areas, expand the supply and quality of processed foods to consumers, and increase exports of processed products. In this connection, it established AFDC in 1967 to promote, develop and finance agro-processing facilities. AFDC secured a Bank loan in 1975 (994-KO) to increase the flow of investment funds to the subsector. 41. During 1970-76, consumption of processed fruits, vegetables and livestock products increased by an average annual rate of about 18%, fisheries products 12%, and animal feeds 18%. The substantial increase in consumption is expected to continue at least through the 1980s in view of the continuing increase in incomes and the fact that an increasing proportion of the popula- tion will be urban with a greater preference for processed foods. There is accordingly a significant potential and need to continue expanding the pro- duction of these foods and other processed products. - 12 - 42. Based on the capital output ratios of existing plants, the costs of installing the additional capacity to meet the projected demand for the various processed products (mainly chilled, canned, and dried fruits and vegetables, frozen, dried and canned meat and fish, dairy and other processed livestock products, and animal feeds) have been estimated at some $375 million in current prices for the three year period 1980/81-1982/83. The additional capacity required would comprise mainly freezing and cold storage, canning, drying and other preservation, foodgrain, dairy and animal feed processing, and raw silk spinning. AFDC is expected to provide a significant share of the financing for this purpose. The Agriculture and Fishery Development Corporation (AFDC) 43. Established as a legal entity in December 1967 to assist and pro- mote the development of the agro-processing subsector in Korea, AFDC's major functions as provided by its Articles of Incorporation are to: (a) finance loans and equity investments for the development of industries engaged in the processing and marketing of agricultural, forestry, livestock and fisheries products; (b) provide technical and managerial assistance, training and information for such industries; (c) own and operate agro-processing facilities; (d) encourage domestic and foreign investments in the subsector; (e) undertake and promote the application of advanced technology and research activities; (f) develop domestic and export markets for agro-processed products and undertake export agent functions; (g) improve the institutional framework for the development of the subsector and provide effective vertical and horizontal integration of primary production, secondary processing and marketing and distribution; and (h) other related activities specifically requested by the Government. In August 1978, the Government entrusted AFDC with the operation of its Agricultural Products Price Stabilization Program (APPSP) the purpose of which is to stabilize the domestic prices of certain basic agricultural commodities designated by the Government. AFDC has an authorized capital of W 10 billion to be funded by the Government which had subscribed W 8.6 billion in several tranches by 1972. The remaining W 1.4 billion is expected to be paid in during 1980. 44. Since it began operations in 1968, AFDC has disbursed about W 66 billion ($114 million) to the agro-processing subsector, of which loans accounted for 89%, and equity investments the remaining 11%. Government funds in the form of loans to AFDC and subscription to its capital, and foreign financing, mainly the Bank loan under the first project (Loan 994-KO), provided the resources for these activities. AFDC has assisted in meeting the financing needs of 71 agro-processing enterprises and 583 farmers to increase the production of export-oriented crops. In addition, AFDC established and operated five agro-processing facilities mainly as pilot operations and to demonstrate the use of improved technology. It has also established facilities to carry out research on agro-processing as part of its provision of technical extension support to private processors. - 13 - 45. AFDC's efforts in the initial years of its operations (1968-72) were geared towards: (a) encouraging investors to establish agro-processing enterprises -.Lrough the provision of financial assistance; (b) establishing modern processing facilities of its own; and (c) developing export markets. Equity participation, which was the main thrust of AFDC's operations, was considered essential to stimulate private investments in agro-processing, since as a newly developing field of investment it was considered riskier than other alternative industrial investment opportunities. In financing equity participation the expectation was that AFDC would be able to recycle its funds into other investments by selling its holdings in these companies once they turned profitable. While AFDC's efforts in fostering the development of the agro-processing subsector through establishment of these firms were commend- able, the subsequent performance of these firms was far from satisfactory, reflecting largely AFDC's lack of experience. To reduce its exposure and erosion of its equity funds, AFDC sold its holdings in these companies to private investors, except for its investments in two wholly-owned subsidiaries and four other firms. However, this did not result in any recycling of either its equity or loan funds as originally planned because, in order to sell its holdings, AFDC had to convert most of them into long-term loans. Thus, with the bulk of its financial resources tied up in the sold-out companies and because of limited availability of new funds, the level of AFDC's financial assistance, especially term loans, declined significantly in the following years until 1976 when AFDC resumed long-term lending on a significant scale with funds provided under the first project. 46. During the period of reduced financing operations, AFDC's focus of operations shifted to managing and operating its own processing plants. In addition, it took over the management of one of its two subsidiaries to improve its operations. These two activities accordingly became the mainstream of AFDC's work. However, during the period of direct involvement in the operation of its processing plants and subsidiaries, AFDC began to perceive that these activities were diverting its attention and resources from its main developmental role which is to assist private processors establish, modernize and expand their operations mainly through the provision of development financing, technical guidance and market support. 47. Accordingly, measures were initiated by AFDC in 1976 to enable its operations to be focused on the provision of development financing to private processors. First, AFDC ceased its involvement in the day-to-day operations of its subsidiary by providing the latter with separate management. Secondly, it commenced the sale of its processing plants, all of which were sold by early 1978. Thirdly, additional loan funds were obtained from the Government and the Bank under the first project which, together with the sale proceeds of its plants, enabled AFDC to significantly expand its lending to the private sector for the development of agro-processing facilities. Concurrent with this expansion, the quality of lending has improved significantly due mainly to the adoption of appropriate appraisal and other lending procedures insti- tuted under the first project and the accumulated expertise and experience gained from its financing and operation of agro-processing facilities. In 1978, AFDC also discontinued lending to farmers to concentrate solely on - 14 - lending for agro-processing. Although AFDC continues to have two wholly-owned subsidiaries, its involvement is limited to overall policy matters. It also intends to minimize its equity investments in the future. Further, while entrusted with the operation of the Government's Agricultural Products Price Stabilization Program, AFDC regards the agro-processing operations as its main function. 48. The first project, now nearing completion, formed part of the Government's program for the development of the agro-processing subsector. It provides long-term funds to AFDC for: (a) onlending to subborrowers in the private sector to develop and modernize: (i) on-farm production of asparagus, mushroom, and oak mushroom (shiitake); and (ii) canneries, drying plants, and freezing/cold storage facilities for the processing of these crops as well as other vegetables and fruits comprising mainly strawberry, spinach, chestnut, and peach; and (b) technical assistance required by AFDC to implement the project effectively and to improve its accounting and financial management systems. Total project costs were estimated at $20.0 million, of which the Bank financed $13.0 million (65%) equivalent to the foreign exchange costs, AFDC $3.2 million (16%), and subborrowers $3.8 million (19%). The four-year project became effective in March 1975 and funds were fully committed by the end of July 1979. 49. Two significant changes took place during project implementation. First, the project scope was widened in September 1977 to enable AFDC to finance a broader range of agro-processing facilities than was envisaged during appraisal. Implementation of the project had been delayed because of slow progress in lending for the facilities originally covered by the project, which was aggravated by the depressed state of foreign markets for processed foods during 1975. Under the revised project scope, AFDC could finance facilities for the processing (essentially canning) and cold storage of fish, meat, fruits, and vegetables, fruit juice extraction and concentration, and vegetable preservation, including pickling and drying, for which there was substantial loan demand. Following the inclusion of these facilities in the project, the subloan amounts approved increased significantly and project implementation has been progressing satisfactorily. In all, AFDC provided 44 subloans for a wide spectrum of processing facilities for modernization, expansion and new construction. 50. Secondly, AFDC discontinued lending to farmers in 1978, as it became increasingly clear that its organizational structure and operations, set up for the purpose of promoting agro-industries, were not suited for effective - 15 - lending to farmers./1 For on-farm development, AFDC provided 583 subloans for expanding the production area of mushrooms, asparagus and oak mushroom by about 25 ha, 59 ha, and 35,600 cu m, respectively. 51. It is still too early to fully evaluate the projec. L benefits and impact. However, AFDC's appraisals of the individual subloans indicate financial rates of return ranging from about 18% to 63%. The project also has had significant institution-building effects on AFDC, particularly with regard to the quality of appraisal and strengthening of the accounting and financial management systems. PART IV - THE PROJECT 52. A report entitled "Second Agricultural Products Processing Project (No. 2849-KO, dated April 18, 1980) is being distributed separately. Supple- mentary project data are provided in Annex III. Negotiations were held in Washington from April 7 to 11, 1980, with a Korean delegation including Mr. S.Y. Wei, Economic Counsellor at the Embassy of the Republic of Korea and Mr. B.H. Chin, President of AFDC. 53. The project would be a continuation and expansion of the develop- ment program for agro-processing financed under the first project (Loan 994-KO). It would provide medium- and long-term loans to the private sector through AFDC for investments in agro-processing facilities, and funds for technical assistance to AFDC. The project would support a three-year lending program which would be part of a high priority Government effort to increase incomes and employment in the rural areas by augmenting the value-added, expand production and exports from the agriculture sector, and increase the supply and quality of processed foods. Detailed Features 54. The project would support investments in the entire agro-processing subsector. Its scope and size are based on a recent study by consultants, which projected the investment needs of the subsector during the period 1980- 1985, the loan demand for such investments indicated by potential subborrowers to AFDC, and the lending program proposed by AFDC taking into account its loan processing capacity. During the three-year project period, 1980/81 - 1982/83, the subsector's investment needs are estimated to be about $375 million, of which the project would finance about 22%. Projected lending by financial intermediaries other than AFDC indicates that they plan to finance about a third of the investment needs, with the remaining 45% expected to be financed by other private sources, mainly the processors themselves. A1 These activities have been, and are being, financed efficiently by the National Agricultural Cooperative Federation (NACF). The Bank has successfuly financed two agricultural credit operations for on-farm development through NACF, of which the first has been completed and the second is nearing completion. - 16 - 55. A wide variety of agro-processing enterprises are expected to apply for financing under the project. These would include freezing and cold storage, canning, drying, pickling and other preservation of fruits, vegetables, meat, and fisheries products, oil seed extraction, grain based foods (e.g. noodles), fruit juice based beverages, dairy processing, animal feeds mainly for pigs and poultry, and raw silk spinning. The project would finance improvements to existing facilities and the construction and equipping of new facilities through an estimated 110-120 subloans. 56. The project would also provide technical assistance ($0.5 million) mainly for the strengthening of AFDC's Project Department so that it can implement the project effectively and provide the necessary extension and market support to processors. These funds would be used for the overseas training of the Project Department's staff, to obtain short-term foreign expertise to assist the Department in resolving specific agro-processing problems, and for market studies and the introduction and implementation of new or improved technology (e.g. purchase of equipment to test new processing techniques). Approximately 30 man-months of short-term foreign expertise would be required at a total cost of about $300,000. The average man-month cost of the experts (individuals' fees, international travel, and local allowances), whose assignments would range from a few weeks to several months, is expected to be about $9,500. The total estimated cost also includes provision for the cost of vehicles, local travel and other minor items. The training abroad of the Project Department's technical staff would consist mainly of short-term visits to processing plants outside Korea for on-the-job training. Costs and Financing Arrangements 57. The total cost of the project is estimated at W 48,600 million ($83.8 million equivalent) of which about 60%, or W 28,980 million ($50 mil- lion equivalent), would be in foreign exchange. All cost estimates are based on October 1979 prices. The processing subprojects include a 10% physical contingency. In addition, a price contingency of 29% has been added to the subprojects and technical assistance component. The contin- gency is based on the expected price increases as follows: (a) 9% in 1980 and 8% during 1981-84 for local costs, and (b) 10.5% in 1980, 9% in 1981, 8% in 1982, and 7% in 1983-84 for foreign costs. Of the total project cost, subborrowers would finance $21 million (25%), AFDC $13 million (15%), and the Bank $50 million (60%) which is equivalent to the estimated foreign exchange expenditure. Implementation 58. The Project Unit (PU) established by AFDC to supervise and monitor the implementation of the first project (Loan 994-KO), including the appraisal of individual subloans or subprojects, would continue this function under the proposed project. The PU's implementation of the first project has been satisfactory. However, for effective implementation of the proposed project - 17 - it would be necessary to strengthen the PU in view of the need to provide adequate technical, extension and market support to processors, and also since the project is substantially larger and a wide range of processing facilities is to be fii.,nced. 59. Under the proposed project, the PU would be expanded and upgraded to that of a Project Department (PD) which would be headed by a Manager. The PD would have three divisions - Appraisal, Technical Assistance, and Credit Administration - with a total staff of 30 comprising 26 suitably qualified professionals and four support staff. 60. AFDC is in the process of upgrading and expanding the present Project Unit to that of a Project Department as proposed above, and has indicated that only suitably qualified staff would be appointed to the various positions. The establishment of the PD along lines acceptable to the Bank would be a condition of loan effectiveness (Section 7.01 of the draft Loan Agreement). Procurement 61. AFDC's procurement procedures and arrangements are considered satisfactory. AFDC generally requires borrowers to procure goods and equipment through local competitive bidding or prudent shopping using the three-bid method, depending on the type of items and the amounts involved. Purchase off-the-shelf is permitted where appropriate, normally for small items. Bids are evaluated jointly by the borrower and AFDC, and the final award of the contract is subject to the latter's approval. AFDC usually helps its borrowers in bid preparation and invitations for bidding; it also supervises the opening of bids. There are many local suppliers of agro-processing equipment, as well as competent civil works contractors. Foreign equipment suppliers are likewise adequately represented, mainly through local agencies. Both suppliers of foreign and local equipment provide technical assistance for the proper installation and operation of their equipment, and competition among them is keen. Under the first project, procurement by borrowers has been economical and efficient. An estimated two thirds of the equipment procured is of foreign origin. 62. In view of the above, use of AFDC's procurement procedures and arrangements would be appropriate for the proposed project. It is expected that the project's procurement would be through local competitive bidding, the three-bid method of prudent shopping, and purchase off-the-shelf, which would be allowed only in the case of improvements to existing processing facilities requiring minor equipment items. For the construction and equipping of large processing facilities where the design of the building would need to closely fit the layout of the equipment for efficient operations, AFDC may require the use of turnkey contracts. AFDC would ensure that all the procurement documents would be available for review by the Bank's supervision missions. - 18 - Disbursement 63. Project subloans would cover a three-year commitment period com- mencing in the latter part of 1980. Since the last set of agro-processing facilities financed is expected to be completed towards the end of 1983, project funds would be fully disbursed by mid-1984. Withdrawal of the loan proceeds would be on the basis of 79% of subloans made by AFDC, and 100% of foreign expenditures for technical assistance and overseas training. Reimbursement applications under the subloans would be supported by a statement of expenditures accompanied by a list of subloans made. The actual supporting documentation would be kept by AFDC and made available to Bank staff during supervision missions. Disbursements for technical assistance would be fully documented (bills or invoices and evidence of payment where applicable). Contract documents for foreign experts and training programs for AFDC's staff would be submitted to the Bank for approval. Subloan Terms and Conditions 64. AFDC would be able to use the project funds on a completely flexible basis for various types of agro-processing enterprises, subject only to the lending limits indicated in paras. 65 and 66 below. This would enable AFDC to respond promptly and effectively to changes in demand as they may occur. 65. Under the first project, individual subloan amounts in excess of $200,000 required the Bank's prior approval. In view of the experience gained by AFDC in its appraisal of subloans above the free limit which has proved to be satisfactory, it is proposed that the free limit be raised to $500,000 for the proposed project. All subloans above the free limit (about 40), which would include an economic rate of return analysis, would be sent to the Bank for its review and approval (para. 2 of Schedule 5 to the draft Loan Agreement). 66. The maximum size of a subloan will not exceed $2 million since this amount and the subborrower's contribution would be sufficient to cover the investment cost of most processing facilities (para. 2(e) of Schedule 5 to the draft Loan Agreement). The ceiling on subloans would also enable a wider distribution of project funds. To avoid a significant concentration of large subloans and help finance the investment needs of medium and small processors, lending to large processors would not exceed 40% of the total project funds (para. 2(h) of Schedule 5 to the draft Loan Agreement). In accordance with the Government's definition, processors with more than W 500 million total assets or employment exceeding 300 are considered large. As under the first project, subborrowers would bear the foreign exchange risk. 67. The lending rate to subborrowers will be at least 12% per annum (para. 1 of Schedule 5 to the draft Loan Agreement). The actual rate would be determined by the weighted average cost of AFDC's borrowings from the Bank and the Government plus a 3% interest spread required by AFDC to cover its administrative costs. While the interest rate on the Bank loan would be 8.25% per annum, the interest on the Government loan to cover AFDC's share of the - 19 - total project cost would be determined from time to time by the Government in consultation with the Bank. In determining the interest rate on the Govern- ment loan, account would be taken of the need to (a) provide a 3% interest spread to AFDC over the cost of its total project funds, and (b) ensure that the lending rate to subborrowers remains competitive with those charged by the other Government-sponsored financial institutions for similar types of loans. The Government's loan of $13 million to AFDC would be for a period of 11 years, including 3 years of grace, and would be provided as and when required by AFDC (Section 2.03 of the draft Guarantee Agreement and a Letter Supple- mental thereto). 68. Except as the Bank shall otherwise agree, subsidiaries and affilia- ted companies of AFDC would not be eligible to borrow under the project (Section 3.06 of the draft Loan Agreement). This is mainly to avoid any possible conflict of interest, and also because direct Government funding of these companies through AFDC has been, and would continue to be, available to meet their investment requirements. 69. The repayment periods of the subborrowers will be determined by AFDC's cash flow estimates of their subloans. For typical subprojects, their cash flow estimates indicate an average repayment period of about 12 years, including 3 years of grace. Based on these estimates and given that the project funds would be disbursed over 4 years, the cash flow estimated for the project as a whole indicates that AFDC would require a repayment period of 16 years, including 3 years of grace. Benefits and Justification 70. The major benefits expected from the proposed project would include: (a) reduction in wastage of farm produce from spoilage and loss, especially of perishables, through the provision of additional processing capacity, including freezing and cold storage, and improved efficiency of processing; (b) increased supplies, better quality and larger variety of processed foods and other agricultural products throughout the year which would help meet the growing domestic consumption and export demand for such products, improve the national diet, and assist in dampening the significant supply and price fluctuations of farm produce, especially fruits, vegetables and other perishables, during the off season periods. The supply of processed products at generally lower costs would be an additional benefit to consumers; (c) raising significantly the productivity of labor involved in processing which has become increasingly essential in view of the rapidly increasing costs and tightening supply of labor. The increase in labor productivity is expected to range from about 16% for canning to 32% for the processing of animal feeds which are based on a comparison of the estimated per worker output of - 20 - existing plants using a lower level technology and those with more advanced technologies; (d) creation of about 5,000 jobs in processing at an estimated cost of about $17,000 per job, temporary employment for workers constructing the processing facilities, and indirectly, additional employment for farmers (particularly some off-season employment), as well as other workers engaged in selling the processed products produced. The benefit to farmers would come from increased demand for farm produce through the widening of their market opportun- ities, which in turn would result in higher prices and increased production, employment and incomes; and (e) increased value-added, total employment, export earnings and import substitution for the economy. In addition, the project would strengthen the institutional capability of AFDC, especially with regard to its provision of financial and technical assistance for the proper development of agro-processing, including the establishment of closer links with medium- and small-size processors, many of whom have limited technical know-how and access to medium- and long-term credit. Rough estimates indicate that the anticipated project facilities at full development would freeze, cold store and process a wide variety of agricultural, livestock and fishery products valued at some W 282 billion ($486 million) annually at present prices. 71. Specific subprojects to be financed under the project have not yet been identified. However, the indicative overall financial rate of return (FRR) for the types and number likely to be financed is estimated at about 24%, which is based on typical models (plants) for each of the subprojects. The FRR for the models ranged from 21% to 37%, and their economic rates of return (ERR) from 16% to 27%, with an overall ERR of about 21%. Risks 72. The project is not expected to incur any significant risk. Output from the project would account for only a minor proportion of projected demand which, moreover, would mainly be for the domestic market which is assured. Only raw silk which has been subject to uncertain and adverse changes in foreign demand in the recent past would incur some risks, although this would be insignificant since its share in project investments is expected to be small and domestic consumption of this commodity has been increasing significantly in recent years. As the technological improvements envisaged under the project are already being used by the more efficiently operated plants, the required technical know-how is accordingly readily available and the risks in this regard would likewise be minimal. - 21 - PART V - LEGAL INSTRUMENTS AND AUTHORITY 73. The draft Loan Agreement between the Bank and the Agriculture and Fishery Development Corporation, the draft Guarantee Agreement between the Republic of Korea and the Bank, and the report of the Committee provided for in Article III, Section 4(iii) of the Articles of Agreement of the Bank are being distributed to the Executive Directors separately. Special condi- tions of the loan are listed in Section III of Annex III. The establishment of AFDC's Project Department along lines acceptable to the Bank is an addi- tional condition precedent to the effectiveness of the proposed loan (Section 7.01 of the draft Loan Agreement). 74. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank. PART VI - RECOMMENDATION 75. I recommend that the Executive Directors approve the proposed loan. Robert S. McNamara President by Ernest Stern Attachment April 30, 1980 -22- Annex I Page 1 of 5 EMU un,ufmc or - SOCIAL 7IDlCATOS DATA SHEET LAND AMA (TIOSAND M.U yam 0 DOF 1) CUI OP_T 1TNr) L)AP 0 AGRICULTURAL 22.6 0SST 3.5CM m(UAIC 7lCOIS ICOMS 1960 lb 1970 Lb ISTINATE l 30G01 L GROUP /d G1DUr / GNP PER CAPITA (US3) 120.0 300.0 820.0 450.6 926.1 1746.5 ENERGY CONSUMPTION P1H CAPITA (KILOGRANS OF COAL EQUIVAL1NT) 258.0 815.0 1020.0 371.1 73^.' 1646.7 POPULATION AND VITAL STATISTICS POPULATION, MID-YTR (MILLIONS) 24.7 31.4 36.0 URBAN POPULATION (PEICENT OP TOTAL) 27.9 41.2 49.0 27.6 69.0 51.2 POPULATION PROJECTIONS POPULATION IN YEAR 2000 (MILLIONS) 49.0 STATIONART POPULATION (MILLIONS) 64.0 YEAR STATIONARY POPULATION IS RlACHED 2065 POPULATION DENSITY PUE SQ. KFI. 251.0 319.0 365.0 154.8 44.6 28.2 PER SQ. DR. AGRICULTURAL LAND 1154.0 1371.0 1593.0 566.7 140.7 100.5 POPULATION AGE STRUCTURE (PERCENT) 0-14 YRS. 42.9 41.0 37.0 41.3 41.3 35.4 15-64 YRS. 53.8 55.7 60.0 54.9 55.3 56.3 65 YRS. AND ABOVE 3.3 3.3 3.0 3.3 3.5 5.1 POPULATION GROWTH RATE (PERCENT) TOTAL 1.9 2.4 2.0 2.4 2.4 1.7 URBAN 5.9 6.4 5.4 4.3 4.5 3.0 CRUDE BIRTH RATE (PER THOUSAND) 41.0 30.0 24.0 30.2 31.1 27.5 CRUDE DEATH RATE (PER THOUSAND) 13.0 10.0 8.0 8.3 9.2 9.1 GROSS REPRODUCTION RATE 3.1/f 2.6 1.4 2.1 2.2 1.8 FAMILY PLANNING ACCEPTORS, ANNUAL (THOUSANDS) .. 672.0 686.0 USERS (PERCENT OF MARRIED WOMEN) .. 42.0 43.9 34.1 34.7 FOO) AND NUTRITION INDEX OF FOOD PRODUCTION PER CAPITA (1969-71-100) 80.8 99.0 117.0 106.2 104.4 102.0 PER CAPITA SUPPLY OF CALORIES (PERCENT OF REQUIREKENTS) 85.0 114.0 112.0 104.1 105.0 120.8 PROTEINS (GRAMS PER DAY) 53.0 65.0 75.7 57.4 64.4 80.9 OF WHICH ANIMAL AND PULSE 13.0/ 19.0 16.3 16.9 23.5 31.3 CHILD (AGES 1-4) MORTALITY RATE 13.0 8.0 5.0 4.8 8.6 5.1 HEALTH LIFE EXPECTANCY AT BIRTH (YEARS) 54.0 59.0 63.0 61.1 60.2 65.6 INFANT MORTALITY RATE (PER THOUSAND) 62.0 43.0 37.0 46.6 46.7 45.5 ACCESS TO SAFE WATER (PERCENT OF POPULATION) TOTAL .. 58.0 62.0 21.9 60.8 69.4 URBAN .. 84.0 80.0 46.2 75.7 85.1 RURAL .. 38.0 36.0 12.8 40.0 43.0 ACCESS TO EXCRETA DISPOSAL (PERCENT OF POPULATION) TOTAL .. 25.0 61.0 28.4 46.0 70.1 URBAN .. 59.0 68.0 65.0 46.0 88.3 RURAL .. .. 50.0 14.7 22.5 33.2 POPULATION PER PHYSICIAN 3000.0 2110.0 1677.0 3790.5 2262.4 1343.2 POPULATION PER NURSING PERSON 3220.01h 2170.0/h 517.0 1107.4 1195.4 765.0 POPULATION PER HOSPITAL BED TOTAL 2510.0 1900.0 1430.0 613.3 453.4 197.6 URBAN .. .. 340.0 203.6 253.1 260.2 RURAL .. .. .. 1110.3 2732.4 1055.0 ADMISSIONS PER HOSPITAL BED .. 14.9 .. 23.9 22.1 17.3 HOUSING AVERAGE SIZE OF HOUSEHOLD TOCAL 5.6 5.3 5.1 5.2 5.3 4.7 URBAN 5.4 5.0 4.9 .. 5.2 4.4 RURAL 5.6 5.5 5.3 .. 5.4 5.1 AVERAGE NUMBRER OF PERSONS PER ROOM TOTAL 2.5 2.3 .. .. 1.9 1.1 URBAN 2.8 2.7 .. .. 1.6 1.2 RURAL 2.4 2.2 .. .. 2.5 1.2 ACCESS TO ELECTRICITY (PERCENT OF DWELLINGS) TOTAL 28.0 49.9 .. .. 50.0 66.0 URBAN 67.3 92.4 .. .. 71.7 85.1 RURAL 12.0 29.9 64.9 .. 17.3 -23- Annex I Page 2 of 5 KOREA REPUBLIC OF - SOCIAL INDICATORS DATA SHEET KOREA REPUBLIC OF REFERENCE GROUPS (ADJUSTED AVERAGES KOREA REUBLIC OF- HOST RECENT ESTIMATE ) - SAM4E SAME NEXT HIGHER MOST RECENT GEOGRAPHIC INCOME INCOME 1960 /b 1970 lb ESTIMATE /b REGION /c GROUP /d GROUP /e EDUCATION ADJUSTED ENROLLMENT RATIOS PRIMARY: TOTAL 94.0 105.0 109.0 97.9 102.5 101.7 MALE 99.0 106.0 109.0 98.7 108.6 110.0 FEMALE 89.0 105.0 109.0 97.4 97.1 92.8 SECONDARY: TOTAL 27.0 43.0 63.0 42.2 33.5 51.2 MALE 38.0 52.0 71.0 46.7 38.4 56.4 FEMALE 14.0 34.0 54.0 40.9 30.7 43.7 VOCATIONAL ENROL. (% OF SECONDARY) 14.0 16.0 16.0 12.5 11.5 18.3 PUPIL-TEACHER RATIO PRIMARY 58.0 57.0 49.0 32.5 35.8 27.1 SECONDARY 34.0 37.0 38.0 25.8 22.9 25.3 ADULT LITERACY RATE (PERCENT) 70.6 78.0 91.0 84.1 64.0 86.1 CONSUMPTION PASSENGER CARS PER THOUSAND POPULATION 0.4 2.0 2.7 6.1 13.5 53.4 RADIO RECEIVERS PER THOUSAND POPULATION 32.0 126.0 144.0 84.4 122.7 225.9 TV RECEIVERS PER THOUSAND POPULATION 0.3 13.0 48.0 22.4 38.3 102.6 NEWSPAPER ("DAILY GENERAL INTEREST") CIRCULATION PER THOUSAND POPULATION 69.0 138.0 173.0 24.2 40.0 78.5 CINEMA ANNUAL ATTENDANCE PER CAPITA 4.0 5.0 2.2 3.6 3.7 3.6 LABOR FORCE TOTAL LABOR FORCE (THOUSANDS) 7500.0 10200.0 13061.0 FEMALE (PERCENT) 25.8 32.7 32.8 36.7 25.0 24.5 AGRICULTURE (PERCENT) 66.4 51.0 44.6 54.6 43.5 28.9 INDUSTRY (PERCENT) 9.3 20.1 33.0 16.3 21.5 30.6 PARTICIPATION RATE (PERCENT) TOTAL 33.4 35.0 36.6 40.7 33.5 33.8 MALE 49.5 46.8 48.8 49.9 48.0 51.3 FEMALE 17.2 23.0 24.2 31.0 16.8 16.3 ECONOMIC DEPENDENCY RATIO 1.5 1.4 1.1 1.1 1.4 1.3 INCOME DISTRIBUTION PERCENT OF PRIVATE INCOME RECEIVED BY HIGHEST 5 PERCENT OF HOUSEHOLDS 15.1/i 17.1 16.1 14.9 20.8 HIGHEST 20 PERCENT OF HOUSEHOLDS 42.3/i 44.5 45.3 46.8 52.1 57.6 LOWEST 20 PERCENT OF HOUSEHOLDS 5.77i 7.1 5.7 6.2 3.9 3.4 LOWEST 40 PERCENT OF HOUSEHOLDS 19.oT0 17.7 16.9 16.8 12.6 11.0 POVERTY TARGET GROUPS ESTIMATED ABSOLUTE POVERTY INCOME LEVEL (USS PER CAPITA) URBAN .. .. 220.0 193.1 270.0 RURAL .. .. .. 128.7 183.3 ESTIMATED RELATIVE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN .. .. 194.0 136.8 282.5 550.0 RURAL .. .. .. 96.8 248.9 403.4 ESTIMATED POPULATION BELOW ABSOLUTE POVERTY INCOME LEVEL (PERCENT) URBAN .. .. 9.0 32.0 20.5 RURAL .. .. .. 52.5 35.3 Not available Not applicable. NOTES /a The adjusted group averages for each indicator are population-weighted geometric means, excluding the extreme values of the indicator and the most populated country in each group. Coverage of countries among the indicators depends on availability of data and is not uniform. /b Unless otherwise noted, data for 1960 refer to any year between 1959 and 1961; for 1970, between 1969 and 1971; and for Most Recent Estimate, between 1974 and 1977. /c East Asia 6 Pacific; /d Intermediate Middle Income ($551-1135 per capita, 1976); /e Upper Middle Income ($1136-$2500 per capita, 1976); /f 1950-55; /L 1962; /h Registered, not all practising in the country; Li 1965. May, 1979 -24- Annex I -24- ~~~~~~~Page 3 of 5 DEFINITIONS OF SOCIAL INDICATORS Ti: he adjusted group averages for each indicator are pnpulation-weighted geometrir means, excluding the extreme values of the indicator and the most populated contry In each group. Coverage of countries sinong the indicators depends on availability of data and in not uniform. Dae to lack of data, group uverage- for Capital SUrpluS Oil Exporters and indicators of access to water and excrete disposal, housing, income distributien and poverty are nimple popolation-weighted geometric -eass without the eaclasion of emtre=s values. LAND AREA (thousuod sq. kt) Population per hospital bed - total. urban, and rural - Population itotl., Total - Total surface area comprising land area and inland waters. arban, and rural) divided by their respective somber of hospital beds Agricultural - Mont recent estimate of agricultural area used temperarily available in public and private general and epeoialized hospital and re- or pecnaoently for crops, pastures, market and kitchen gardens or to habilitation centers. Hospitals are establishments per=anently staffed by 110 falluw. at least one physician. Establishments previding principally custodial care are not included. Rural hspitals, however, include health and medi- GNP PR CAPITA (ISO) - GNP per cupita estimates at current markce price-, cal centers not permasentlp staffed by physicias (but by a medical as calcoluted by name conversion method as World Bank Atlas (1975-77 basis); sistant, nurse, midwife, stc.) which offer in-patient a-c-emodstion and 1960, 1970, aud 1977 data. provide a limited range of medical facilities. Admissions per hospital hid - Total nu=her of admissions to or discharges ENERGY CONSUMPTION PER CAPITA - Annual cuosomption of COmmercial energy Prom hospitals divided by the nabher of beds. (coal and lignite, petroleum, natural gas and hydra-, nuclear and geo- thermal electricity) in kilograms of coal equival nt per capita. HOUSINE Averagm sia of household (persons pen household) - total, arhan, and rural- POPULATION AND VITAL STATIISTICS A household consists of a group of individusal who share living quarter. Totul population, mid-pear (millions) - As of July 1; if not available, and their main meals. A boarder or lodger may or apy not be i_cluded in average of two end-pear estimates: 1961, 1970, and 1977 data. the household for statistical purposes. Statistical definitions of house- Orban population (percent of total) - Rstio of urban to total popula- hold vary. rion; different definitions of arban areas may affect c-mpacability Averace number of persons per roo= - total, urban, and rural - Average nun- of datu among countries, ber of persons per room in all, urban, and rural occupied conventional Population density dwellings, respectively. Dwellings exclude non-permanent structures and Per nq. km. - Mid-year populatiun per square kilometer (100 hectures) unoccupied parts. Of total area. Acness to electricity (percent of dwellings) - total, urban, and rural - Per nq. hr. agrIculture land - Computed as sbov for agricultural land Conventional dwellings with elertricity in liming quarters as percentage only. of total, urban, and rural dwellings respectively. Population age tructure (percent) - Children (0-14 years), working-age (15-64 years), and retired (65 years and over) as percentages of mid- EDUCATION year population. Ad1usted enrollment ratios Population growth rare (perce.t) - total, and urban - Compound annual Primary school - total, and female - Total and female enrollment of all ages growth raten of total and urban mid-year populations for 1950-60, at the pritary level an percentages of respectively primary ochool-age 1960-70, and 1970-75. populations; normally includes children aged 6-II years but adjusted for Crude birth rate (per thousand) - Annual line births per thousand of different lengthn of primary education; for countries with universal edu- mid-year population; ren-year arithetic averages ending in 1960 and cation enrollment nay ascend 100 percent sinco so=e pupils are belo or 1970 and fits-year average ending in 1975 for must recent esti=ate. above the offictal school age. Crude death rate (pet thousand) - Annual deaths per thousand of mid- Secondary school - total, and female - Computed as above; secondary educa- year populatio; ten-poe arithmetic aver- ges ending is 1960 and 1970 tion requires at least four years of approved primary instruotion; pro- .and fie-year average ending in 1975 for mast recent estimate. vides general vocational, or teacher training instructions for pupils Irons reprod-ction rate - Average number of daughters a woman will bear usually of 12 to 17 years of age; correspondenoe courses are generally in her -ormal repruductiv- period if she experienoes present age- excluded. specific fertility rates; us ally five-year averages ending in 1960, Vocational enrollment (Percent of necondarv) - Vocational institutions in- 1970, and 1975. clde technical, industrial, or other programs which operate independently Punilo planning - accepoorn, annual (thousands) - Annual ankber of or as departments of secondary institutinon. acceptors of birth-control devices under auspices of national family Pupil-teacher ratio - primary, and secondary - Total stud-ent enrolled in plasnitif progran. primary and secondary levels divided by mashers of teachers in the corre- Pamily planniag - users (Percent of tarried women) - Percentage of spending levels. married women of child-bearing age (15-44 years) who use birth-control Adutt literacy rate (percent) - Literate adults (able to read and write) as dovices to all manited women in same age group. a percentage of total adult population aged 15 years and over. FOOD AND NUTRITION CONSUMPTION Index of food production pen capita (1970-100) - Indox nu=er of per Passenger earn (per thousand populattin) - Pa..enger earn comprise =ocor caru capita annual production of all food commodities. seating less than eight persons; esoludes ambulances, hearsex and ilitary Per capita supply of calories (percent of require.en.t) - Competed from vehicles. rnergy oquivalent of net food _appliex available in country per capits Radio receivers (per thousand eupulatien) - All types of receivers for radio per day. Available supplies comprise domestic production, i=portn less broadcusts to general public per thousand of population; excludes unlicensed -opocts, and chaoges in stock. Net supplies occlude animal feed, needs, rcnnivers in countrinn and in years vhen registration of radio sets oat in qua-tities uted in food processing, and losses in distribution. Re- effect; data for recent years may not be comparable niece most countries quirerents. ern estimated by FAO bhsed on physiological needs for nor- abo'ished licensing. vol activity and health considering en-irconentul temperature, body TV receivers (per thousand population) - TV receivers for broadoast to generi weights, age and es. distriurions of population., and II.owing 10 per- public per thousand population; excludes unlicensed TV receivers in coun- coot for wacte at household level, tries and in years when regitratlon of TV sets wax in effect. Per capita supply of protein (grams per day) - Protein costent of per Newspaper cirulation (pet thousand population) - Shews the average circulo- capita net supply of food per day. Net -apply of food in defined as tion of "daily general interest .swspaper", defined as a periodical publi- obove. Require=ents for all countries established by ROTA provide for cation devoted primarily to recording general news. It is consideced to a minimum allowance of 60 grams of total protein per day and 20 grain be daily" if it uppears at least four ti.ass ueek. Of animal and pulse protein, of which 10 gras should be animal protein. Cinema annual attendance per capita Per year - Sased ox the number of tickets Thbes standards are lower then those of 75 grams of total protein and sold daring the year, including adnisaions to drive-in ci.emas and mobile 23 grams of animal protein as an average fur the world, proposed by alits. PAT in the Third World Pood Survey. Pot capita prorein supply from animal and polse - Protein supply of food EMPLOYMENT derived from animals and pulses in grams pen day. Total labor force (thousands) - Etono=ically active persons including arned Child (ages 1-I) mortality rate (per thousand) - Annual deaths per thous- forces snd unemployed but axcluding housewives, students etcD.Defini- and in age group 1-4 ypars, to children in this age group. tiuns in various countrieo are not comparable. Pe=ale (percent) - Female laker force as percentage of total labor force. HEALTl Agriculture (percent) - Labor force in farming, forestry, hunting and fishing Life e-P-ctancy at birth (yeans) - Average number of years of life an percentage of total labor force. remaining at birO; sually five-year averages ending in 1960, 1970, Industry (percent) - Labor force in =ning, construction, manufacturing and and 1975. electricity, water and gas as percentage of total labor fence. tnfant -orcality rate (per thousand) - Annual deaths of infants under Participation rate (percent) - total, male, and female - Total, male, and axe yoar of age per thousand live birhts. fenale labor force an percentages of their respective populations. Access to safe mater (percent of population) - total, urban, and rural - These are ILO's adjusted pard cipation rates reflecting age-sen Nu=ber of people (total, orban, and rural) with reasonable acoess to strucrure of the population, and long tine trend. safe water supply (includes treated surface waters or ustreated but fcono=ic dependenc_ ratio - Ratio of population under 15 and 65 and ov-r to uncontaminated water such ao that from pr,tected boreholes, springs, the labor force in ago group of 15-64 years. and sunitary wells) an percentages of their respective populations. In an urban area a public fountain or standpost located not more INCOME DISTRIBUTION thou 200 meters from a house may be considered as being within tea- Percentage of private income (both in cash and kind) received by richest 5 vocable access of that house. To rural areas reasonable access tueld percent, richest 20 percent, poorest 20 percent, and poorest 40 percent imply that the housewife or members of the household do not have to of households. upend a disproportionate part of the day in fetching the family's outer needs. POVERTY TARGET GROUPS Access ,_ to -cra disposal fpercent of culariun) - total. urban, and tstimaned absolute poverty income level (0U5 per capits) - urban and rural - coral - Number of people (total, urban, and rural) nerved by exceta Absolute poverty income lel1 is that income level below hitch a =iin=al disposal on p.r.entages of their respective populations. ixcreta nutritionally adequate diet plus essential non-food -equirements is not disposal may inc_ude the collection and disposal, with on without affordabl. .r....ent, of ha=an eacrera and waste-water by water-borne systems Estimated relative poverty income level (IUS per capIta) - urban and rural - cc the use of pit privies and similar installations. Relative poverty inn.oe level is that income level less than one-third Population per Physician - Population divided by number of pr-cticing psr capita personal income of the county. physicia-n qualified from a xedical school at university level. Estimated popuiation below poverrt income level (percent) - hrban and rural - Population per nursing Person - Population divided by somber of pr f population (urban and renal) win are either "absolute poor" or practicing male and female graduate nurses, practical nurses, and 'relative poor" whichever is greater. ausistant totsno. Econonic c and Soial Data Diepaioi Ecnmc nlsi rn Prjetons Department -25- ANNEX I Page 4 of ECONOMIC DSVELOPItENT DATA SHEET Actual le Projected Growth rates (Z) 1965 1970 1972 1973 1974 1975 1976 1977 1978 1979 1980 1965-75 1978 1978-80 A. National Accounts (Million US$ at 1975 prices) 1. GDP 6,939.3 11,760.4 13,852.7 16,127.4 17,542.2 19,089.2 21,947.8 25,769.0 28,688.0 31,324.0 33,938.0 10.7 11.3 8.7 2. Gains from TOT 140.4 665.3 1,122.9 1,486.4 348.7 - 1,160.5 1,511.0 1,685.0 1,350.0 1,337.0 - - - 3. Gross domestic income 7,079.7 12,425.7 14,975.6 17,613.7 17,890.9 19,089.2 23,108.4 27,280.0 30,373.0 32,674.0 35,275.0 10.4 11.3 7.7 4. Imports (goods and NFS) 984.3 4,228.6 5,273.4 7,154.3 7,373.4 7,464.0 9,680.0 11,723.0 15,138.0 16,077.0 16,636.0 22.5 29.1 4.9 5. Emports volume 388.3 1,843.8 3,111.5 5,001.9 4,887.9 5,678.6 8,129.6 10,210.0 11,994.0 12,294.0 12,827.0 30.7 17.5 3.4 6. Exports (adjusted for TOT) 528.7 2,509.1 4,234.3 6,488.3 5,236.6 5,678.6 9,290.1 11,721.0 13,978.0 13,644.0 14,164.0 26.1 19.2 0.6 7. Resource gap (adjusted for TOT) 455.6 1,719.5 1,039.0 666.0 2,136.8 1,785.4 389.9 2.0 1,160.0 2,433.0 2,472.0 - - - 8. Total consmption 6,873.1 10,771.0 12,686.9 13,617.4 14,525.2 15,381.1 16,538.4 19,187.0 21,299.0 23,006.0 24,616.0 8.3 11.0 7.5 9. Investment 917.1 3,276.1 3,105.5 4,275.9 5,070.2 5,120.6 5,874.4 7,975.0 10,841.0 11,900.0 12,852.0 18.8 35.9 8.8 10. Domestic savings (adjusted for TOT) 206.6 1,654.8 2,288.7 3,996.3 3,365.7 3,708.1 6,569.9 8,093.0 9,373.0 9,668.0 10,659.0 33.6 15.8 7.4 11. GDP at current US$ 2,996.5 8,303.4 9,835.8 12,393.1 16,780.1 19,089.2 25,369.5 35,375.0 47,582.0 60,488.0 72,633.0 20.7 34.5 23.9 B. Sector Output (Share of GDP at 1975 prices) 1. Agriculture, forestry and fisheries 46.3 32.8 29.3 26.1 25.3 24.9 23.6 22.2 19.1 19.6 19.1 - - - 2. Mining and manufacturing 13.9 20.5 23.4 26.2 28.2 29.2 31.8 30.6 32.9 31.9 32.0 - - - 3. Other 39.8 46.7 47.4 47.8 46.5 45.9 44.5 47.2 48.0 48.5 48.9 - - - C. Prices 11975=100) 1. Eiport price index Ia 57.7 67.4 67.3 85.2 107.9 100.0 111.7 120.7 132.9 154.1 167.7 - - - 2. Import price index /a 46.3 46.2 46.8 62.5 97.2 100.0 98.0 105.2 114.0 138.8 151.9 - - - 3. Terms of trade index 124.6 145.9 143.8 136.3 111.0 100.0 114.0 114.8 116.5 111.0 110.4 - - - 4. GOP deflator 43.2 70.6 71.0 76.8 95.7 100.0 115.6 137.3 165.9 193.1 214.0 - - - 5. Average exchange rate 266.2 310.4 394.0 398.5 406.0 484.0 484.0 484.0 484.0 484.0 484.0 - - - D. Selected Indicators 1965-75 1977-80 E. Act.al 1. ICOR 2.39 3.75 1960 1970 1975 1977 1978 2. Import elasticity 2.10 1.08 1. Labor force (million) 8.9 10.2 12.3 13.4 13.9 3. Average domestic 2. Unemployment (Z of E.1) 7.9 4.9 4.1 3.8 3.2 savings rate 0.15 0.31 3. Employmsent (million) 8.2 9.7 11.8 12.9 13.5 4. Marginal domestic (Z shares) 100.0 100.0 100.0 100.0 100.0 savings rate 0.29 0.25 3.1 Agriculture, forestry, 5. Imports/GDP 0.36 0.49 fisheries 58.6 50.5 45.9 41.8 38.4 6. Investment/GDP 0.25 0.36 3.2 Mining and manufacturing 10.4 14.3 19.1 22.4 28.5 7. Resource gap/GDY 0.11 0.05 3.3 Other 31.0 35.2 35.0 35.8 33.1 F. Public Finance /b 1972 1973 1974 1975 1976 1977/d (Z of GDP) 1. Current revenue 17.8 16.9 18.3 20.3 22.9 22.7 1.1 Tam revenue 13.5 13.2 15.0 16.8 18.9 18.9 2. Current expenditure 14.2 11.6 12.4 14.4 14.3 15.7 2.1 Defense expenditures 4.5 3.7 4.4 4.8 5.7 6.3 3. Government saving 3.5 5.3 5.0 5.8 8.5 7.0 4. Capital expenditure /c 11.3 8.7 8.0 8.3 12.7 10.5 /a Data for 1965-76 refer to merchandise trade only, 1977-80 data include merchandise and nonfactor services. /b Refers to the Government Sector, comprising Central Government (including government enterprises), Local Government and Special Accounts. /c Refers to total capital expenditures, less repayment of debts. Id Budget estimates. /e Data for 1977 and 1978 are based on revised National Accounts (BOK, August 1979); details of the revised historical series for 1965-76 were not available at this time. November 29, 1979 -26- ANNEX 0 Page 5 of 5 BALANCE OF PAYMENTS AND EXTERNAL ASSISTANCE ($ million at current prices) 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 A. S-umary of Balosce of Payments 1. Exports (inc.. SFS) 998 1,221 1,478 2,075 3,962 5,125 5.679 9111 12,328 15,940 18 942 21,512 2. Imports (icl. NFS) 1,880 2,064 2,490 2,577 4.368 7,209 7,464 9 493 12 329 17 264 22,321 25 ,267 3. Resource balaoce -882 -843 -1,012 -502 -406 -2,084 -1,785 -382 -1 -1,324 -3,379 -3,755 4. Nct factor service income (I)N i t interest payments 2 -29 -91 -138 -166 -229 -399 -411 -479 -702 -790 -997 of whjch interest so pnb.ic KLT loans -47 -68 -89 -120 -150 -201 -290 -345 -437 -653 -1,065 -1,374 (2) Diret i_ves.teens i_nnom -6 -8 - -2 1 -8 -5 -37 -63 -80 -65 -46 13) Workers' remittaneos (net) la - - - - - 14) Othec factor service i-nuoe (set) 91 77 84 101 72 74 76 167 332 549 787 916 5. Correct transfers (net) 246 180 171 170 190 224 226 349 223 472 500 600 6. Balance on currnt aneaunt -549 -623 -848 -371 -309 -2,023 -1.887 -314 12 -1.085 -2,947 -3,282 7. Private diocet incestesnt 16 65 43 74 137 104 53 76 104 101 110 125 8. Official capitol grasts 150 131 84 87 61 64 - - - Poblic M & LT Loaos 9. Disbursemensi 660 414 625 735 757 1,155 1,687 1,701 2,212 3,919 4,9b5 3,275 10. Amortization 109 205 215 289 334 391 368 494 720 I,142 1,501 1,700 11. Net oisbocseos-ts 551 209 410 446 423 764 1,319 1,207 1,492 2,777 3,465 3,575 Other M 4 LT Loans 12. Diososemets 17 78 33 49 71 174 85 115 46 - - - 13. Amortization 3 8 10 10 15 23 28 105 71 97 75 72 14. Net disibrsoenots 14 70 23 39 56 151 57 10 -25 -97 -75 -72 lS. Use of IMF cesoarcos /b - -10 -8 -10 - 132 130 97 -25 -2 - - 16. Short-terr capital trassactions 57 122 135 -19 82 -45 680 357 21 -1,171 400 500 17. Capital transactions SEI/ -78 71 112 -87 -110 868 141 -14 -233 108 70 154 18. Change no reserves (- = i-cease) /d -161 -35 49 -159 -340 -15 -493 -1,419 -, 346 -631 -1,023 -1,000 19. Focoigo eonhasge reserves /n (ess of perioa) 549 584 535 694 1,034 1,049 1,542 2,961 4,307 4,938 5,961 6,961 B. Grsnt and Loss Commitmens 1. Official goont 150 131 84 87 61 64 - - - - 2. Total poblic M 4 LT lose 753 475 689 813 1,073 1,972 1,304 3,613 3,304 5,014 (11 IBR0 65 40 85 73 150 85 382.5 372 335 659 (2)IDA 15 15 7 26 20 - - - - - 131 Other sultilatoral /f 25 20 81 68 46 89 101.5 114 135 5D (4) Gotesnsts /R 102 161 255 479 383 477 360 917 406 1,190 Of whicd , nra pl--ndecnms (51 Supp liars 374 134 248 94 223 486 232 689 1,144 1,027 (6) Financial institutions 144 104 13 73 240 737 193 1,448 1,216 1,966 (7) Boond - - - - - 19 - 60 68 122 (8) Public loans NEI Ih 28 1 - - 11 79 34 - - 3. Other M & LT Iosns /i 100 26 67 74 213 120 138 97 16 Debt ass Debt Services Public debt osuttandiug & disbnrsed aesd of period) 2,691 3,199 3,982 5,277 6,659 8,472 11,992 Insteroston public debt 120 150 201 290 389 437 653 Repayments on public aseb 289 334 391 368 504 217 1,142 Totol pobli otI sertc- e 409 484 392 658 893 1,104 1,795 tIher debt servEce (nct) 23 33 54 60 103 125 140 Totol ebt _ service (set) 432 517 646 718 996 1,279 1,935 8urden on Eoosrt Ear-ings (%) Public uebtsorvice 19.7 12.2 11.6 11.6 9.8 9.2 11.3 Total ones sorvice 22.8 13.1 12.6 12.6 10.9 10.2 12.1 TDS + Direct oIost. IEc. 20.7 13.1 12.4 12.6 11.3 10.7 12.6 Averase Teois on Poblic Debt Iniorest as Z prior year DO6D 5.3 5.6 6.3 7.6 8.2 7.3 7.7 Amortioation as 2 prior year D204 12.9 12.4 12.2 9.2 10.9 11.9 13.5 IBRD debt outstandiog & disbsed 94.7 139.8 223.8 403.5 659.0 835.1 1,123.2 fORD aa 0 public asit 6ID 3.5 4.4 5.6 7.7 9.9 9.9 9.4 IBRD as % public debt service 1.7 2.5 3.3 4.9 5.7 6.7 6.4 IDA debt outstanding 4 disobrsed 47.1 58.5 78.3 92.7 102.4 111.1 114.4 EDA as I public debt 00D 1.8 1.8 2.0 1.8 1.5 1.3 1.0 IDA as 2 public delb servlie 0.1 0.1 0.1 0.1 0.1 0.1 0.1 cstereal Debt (Disb-rsed O5IY) Outstanding Drcember 31, 1978 AAo.unt 1. IBRD 1,123.2 9.4 2. Bank Group /1 1,237.5 10.3 3. Other multilaseral 400.9 3.3 4....ernment 3,353.9 28.0 of which centrally planne economics - - 5. Suppliers 3,711.5 31.0 6. Finalal iinstirtions 3,021.4 25.2 7. Bonds 266.2 2.2 8. Other public debt .e.i. - 9. Total psblic debt 11,991.6 100.0 10. Otheo 8MT debt 461.2 II. Total public asd other MLT debt (disburnea) 12,452.8 12. Total pablic ana othec MLT debt (isol. ansisb-rsed) 19,080.7 C. Memoran-du It-es 1. Grant rlemrnt of total commitments 25.2 25.8 30.5 37.2 25.2 27.7 10.6 11.1 8.0 7.4 2. Average interest (l) 5.1 5.1 5.2 4.8 6.1 8.0 7.9 8.0 8.2 8.8 3. Average maturity pIears) 14.1 17.9 19.0 23.6 18.3 11.6 13.0 13.0 11.4 14.4 /aIsclosec is oshoc faostor service income. /b Net of "aravings' ana cepupluess ny purchase (IPS). Is Includes borroeilgs by the banking system. /I Exc-udes net sue of IMF resouroes vhich are sho.n separately. /e International Reserves" 'IS). /f ADB. /g Includes bilateral 0DA, Eilmbanks, official eporst -cdits, isnding US CCC Credits. /h Other gurated privi_e loans. /i Priiase las. /1I E Cludes IFt. Nove-ber 29, 1979 -27- ANNEX II Page 1 of 14 pages KOREA THE STATUS OF BANK GROUP OPERATIONS IN THE REPUBLIC OF KOREA A. Statement of Bank Loans and IDA Credits (as of February 29, 1980) Loan or Amount ($ million) Credit Calendar (less cancellations) Number Year Borrower Purpose Bank TW IDA Undisbursed Eighteen Loans and eight credits fully disbursed 698.2 40.0 106.8 906 1973 Republic of Korea Education II 23.0 1.1 917 1973 Republic of Korea Ports I 80.0 1.4 953 1974 Republic of Korea Tourism 25.0 0.5 994 1974 AFDC Agriculture 13.0 0.3 1070 1975 Republic of Korea Secondary Cities-Gwangju 15.0 2.7 1096 1975 Republic of Korea Education III 22.5 4.7 1101 1975 Republic of Korea Railways V 100.0 1.9 1193 1976 Republic of Korea Second Integrated Dairy Dev. 15.0 0.4 1203 1976 Republic of Korea Highways III 90.0 2.4 1319 1976 ADC Irrigation 29.0 24.7 1328 1976 Republic of Korea Agricultural Credit 20.0 0.1 1338 1976 KDB II Dev. Finance Co. 82.5 3.1 1364 1977 ADC Irrigation 95.0 74.1 1401 1977 Republic of Korea Ports II 67.0 62.4 1461 1977 KDFC VI Dev. Finance Co. 70.0 2.2 1466 1977 Republic of Korea Heavy Mfachinery 80.0 24.1 1474 1977 Republic of Korea Vocational Training 23.0 16.0 1503 1978 ADC - Ogseo Stage I Agriculture/Irrigation 36.0 35.9 1507 1978 SMIB II Dev. Finance Co. 55.0 2.0 1530 1978 Republic of Korea Rural Infrastructue II 95.0 59.1 1542 1978 Republic of Korea Railway VI 120.0 31.2 1574 1978 KDB III Dev. Finance Co. 110.0 42.4 1635 1978 KDFC VII Dev. Finance Co. 100.0 29.5 1640 1978 Republic of Korea Highways IV 143.0 135.7 1666 1979 Republic of Korea Chungju Multipurpose 125.0 119.9 1676 1979 Republic of Korea Electronics Technology 29.0 27.6 1749 1979 SMIB III Dev. Finance Co. 60.0 56.2 1758 1979 Republic of Korea Second Gwangju Regional 65.0 65.0 1774 /a 1979 Republic of Korea Population I 30.0 30.0 1778 /a 1979 Korea Electric Co. Power 115.0 115.0 1800 /b 1980 Republic of Korea Education V - Sector Loan 100.0 100.0 Total 2,731.2 40.0 106.8 1,071.6 of which has been repaid 118.5 - 1.8 Total now outstanding 2,612.7 40.0 105.0 Amount sold 8.8 of which has been repaid 4.9 3.9 - - Total now held by Bank and IDA (prior to exchange adjustment) 2,608.8 40.0 105.3 Total undisbursed 1,071.6 - 1,071.6 /a Effective Mtarch 21, 1980. /b Effective April 7, 1980. ANNEX II -28- Page 2 of 14 pages B. Statement of IFC Investments (as of February 29. 1980) Fiscal Amount ($ million) Year Obligor Types of Business Loan Equity Total 1968 KDFC Development Financing - 0.7 0.7 1969 Honam Silk Co. Textiles 1.4 0.3 1.7 1970 Atlas Paper Pulp and paper 4.5 0.5 5.0/a 1971 Korea Investment Finance Corp. Capital Market Development - 0.6 0.6 1974 KDFC Development Financing - 0.4 0.4 1974 Korea Investment Finance Corp. Capital Market Development - 0.3 0.3 1975 Gold Star & Co., Ltd. Electronic Products 16.0 1.3 17.3 1975 Korea Securities Fincance Corp. Capital Market Development 5.0 0.6 5.6 1975 Tong Yang Nylon Company, Ltd. Synthetic Fibers 6.9 2.1 9.0 1975 Hae Un Dae Develop- ment Company, Ltd. Tourism 2.8 0.7 3.5 1976 Korea Investment Finance Crop. Capital Market Development - 0.4 0.4 1976 Chungju Paper Mfg. Co. Paper 5.0 0.5 5.5 1976 Korea Zinc. Co., Ltd. Zinc 15.0 4.0 19.0 1976 KDFC Development Financing 17.8 - 17.8 1976 Gold Star & Co., Ltd. Electronic Products 10.0 0.4 10.4 1977 Gold Star & Co., Ltd. Electronic Products - 0.2 0.2 1977 KDFC Development Financing - 0.3 0.3 1977 Korea Securities Finance Corp. Capital Market - 0.5 0.5 1977 Korea Development Leasing Corp. Capital Market 15.0 0.4 15.4 1978 KDFC Development Financing - 1.1 1.1 1979 Gold Star & Co., Ltd. Electronic Products - 1.7 1.7 1979 KIFC Capital Market - 0.6 0.6 1979 Korea Development Leasing Corp. - 0.2 0.2 1979 Gold Star & Co., Ltd. Electronic Products - 1.5 1.5 1980 Gold Star & Co., Ltd. Electronic Products - 1.8 1.8 1980 Korea Investment Finance Corp. Capital Market - 0.6 0.6 1980 Korea Securities - 0.8 0.8 Finance Corp. Total gross commitment 99.4 22.5 121.9 less cancelations, terminations, repayment and sales 51.7 2.3 54.0 Total commitments now held by IFC 47.7 20.2 67.9 TOTAL undisbursed - 0.8 0.8 /a Cancelled at the request of the Company. -29- ANNEX II Page 3 of 14 pages PROJECTS IN EXECUTION /1 Agricultural Sector Loan No. 994 Integrated Agricultural Products Processing Project; $13.0 Million Loan of June 7, 1974; Effective Date: March 19, 1975; Closing Date: June 30, 1980 This project provides long-term funds to the Agriculture and Fisheries Development Corporation (AFDC) for onlending to subborrowers in the private sector for the purpose of integrating on-farm production of fruits and vegetables with modern, hygienic processing facilities, using land that was idle or underutilized. The vegetables and fruits involved are mainly asparagus, shiitake (oak mushroom), spinach, mushroom, strawberry and peach. Implementation of the project was delayed by about 18 months owing to lack of loan demand for some of the processing facilities included in the project. However, the project is now progressing satisfactorily since September 1977 when the Bank approved AFDC's proposal to widen the project's scope to meet changed investor demand. Under the revised scope, AFDC will finance processing and cold storage of fish, meat, fruits and vegetables, and also fruit juice extraction and concentration and vegetable drying, for which the loan demand is strong. Subloan applications and approvals have increased significantly, and AFDC expects to disburse all the project funds before the Closing Date. Disbursements as of February 29, 1980 were over 97% of the loan. Loan No. 1193 Second Integrated Dairy Development Project; $15.0 Million Loan of June 4, 1976; Effective Date: November 11, 1976; Closing Date: December 31, 1982 The project consists of further development of 400 existing dairy farms which participated in the first project; the development of 450 new dairy farms; expansion of existing dairy processing facilities, construction of a new processing plant; and tecnnical assistance for both farm development and processing. The effective date was delayed for nearly a year but the implementation has progressed rapidly and the project may be completed ahead of schedule. The project will benefit 41% more farmers and supply 8% more cows than was originally estimated. Technical support to the farmers has been strengthened but more has to be done to improve pasture quality and establish a feed regime which would ensure the development of a /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 sense, and with the under- standing that they do not purport to present a balanced evaluation of strengths and weaknesses in project execution. -30- ANNEX II Page 4 of 14 pages low-cost dairy industry in Korea. The expansion of processing facilities is progressing steadily and it is anticipated that the actual capacity then will be significantly above the original estimate. KDBC's financial condition improved during the last two years. The general prospects are for a gradually improving trend. As of February 29, 1980, disbursements were over 97% of the loan amount. Loan No. 1319 Miho Watershed Area Development Project: $29.0 Million Loan of August 5, 1976; Effective Date: October 21, 1976; Closing Date: December 31, 1982 This project, located in the central region of Korea, is being financed under the first Bank loan for area development in Korea. A project office has been established, and construction work is progressing on the first of five major civil works contracts. A second contract was awarded in July 1979. Altogether, the five contracts will involve construction of 8 large and 19 small dams, 284 km of main and secondary canals and land development for irrigating 12,700 ha. The project, which will require five years to complete, also involves construction of 80 km of river channel improvement and 150 km of village access roads, as well as feasibility studies for a second stage project in the Miho Watershed. The project is currently two years behind schedule due to major shortfalls in local budget allocations. As of February 29, 1980, disbursements were over 14% of the loan amount. Loan No. 1328 Second Agricultural Credit Project; $20.0 Million Loan of October 12, 1976; Effective Date: March 10, 1977; Closing Date: June 30, 1981 The project is a continuation and expansion of the agricultural program financed under the First Agricultural Credit Project (Credit 335-KO). It provides funds to the National Agricultural Cooperative Federation (NACF) for medium- and long-term loans to farmers, through selected Gun (county) cooperatives of NACF, for investments in apple orchard development, silkworm rearing houses, sprinkler irrigation for orchards, greenhouses for vegetable production, and on-farm fruit storage. The loan became effective on March 10, 1977 and lending to subborrowers commenced in the following month. Project implementation continues to progress satisfactorily and total lending is on schedule. As of February 29, 1980, the loan amount was almost completely disbrused. Loan No. 1364 Yong San Gang Irrigation Project Stage II; $95.0 Million Loan of February 11, 1977: Effective Date: April 22, 1977; Closing Date: December 31, 1984 The project will provide irrigation and land development on 20,700 ha in the lower reaches of the Yong San River. Project works include an estuary dam, sea dike, pumping stations, irrigation canals, reclamation of -31- ANNEX II Page 5 of 14 pages 5,500 ha of tidal lands, conversion of 3,250 ha of uplands for irrigation of paddy, land consolidation of 3,200 ha, and irrigation of 1,050 ha of up- lands. Construction of the access roads and a portion of t^ estuary dam has been completed. The main contract for estuary dam construction was awarded in December 1977, in line with the appraisal schedule and construction is progressing well; however, the irrigation subprojects are behind schedule due to shortfalls in local budget allocation. As of February 29, 1979 disbursements were about 22% of the loan amount. Loan No. 1503 Ogseo Area Development project - Stage I; $36.0 Million Loan of January 4, 1978; Effective Date: March 29, 1978: Closing Date: June 30, 1983 The project will benefit some 23,000 farm families by providing new irrigation on 7,100 ha, improved irrigation and drainage on 3,700 ha and a more assured water supply on an additional 1,500 ha. Project work consists of nine pumping stations, 190 km of main and secondary canals and land development including 5,800 ha of land consolidation, 2,500 ha of improved drainage (of which 1,500 ha would also be consolidated), 2,200 ha of tertiary irrigation and conversion of 1,800 ha of upland and forest to paddy land. Construction will be carried out under seven civil works contracts and three were awarded, about 12 months behind schedule due to shortfalls in local budget allocations. Loan No. 1530 Rural Infrastructure Project II; $95.0 Million Loan of March 13, 1978; Effective Date: June 8, 1978; Closing Date: June 30, 1983 The project includes about 43 minor irrigation, 8,300 river training and 7,400 water supply subprojects as well as a rural telephone program. The 1978 program for river training, water supply and rural telephones was completed on schedule and the 1979 program progressed well. Design work on the minor irrigation component is proceeding satisfactorily and contracts have been awarded for 16 subprojects. The total area of the irrigation subprojects has been finalized at 9,235 ha. As of February 29, 1980, disbursements were over 37% of the loan amount. Loan No. 1666 Chungju Multipurpose Project; $125.0 Milion Loan of March 29, 1979; Effective Date: July 11, 1979; Closing Date: June 30, 1985 The project would help meet the growing demand for municipal, industrial and irrigating water in the Han Basin for about 20 years following its completion in 1984, and would substantially reduce flood damage, generate an average of 770 million kilowatt hours annually and provide 460 MW of peaking capacity for Korea's power system. The principal features of the project are a 90 m high concrete dam across the South Han River, a power plant containing four 115 MW generating units, and associated -32- ANNEX II Page 6 of 14 pages transmission facilities; a reregulating dam about 20 km downstream of the main dam; relocation of about 100 km of roads and 10 km of railway, protective works in the reservoir area including the raising of an existing embankment of a cement plant and other miscellaneous works; implementation of a resettlement program for some 9,300 families affected by the project; and consulting services. As of February 29, 1980, disbursements were about 4% of the total loan amount. Industrial Sector Loan No. 1338 Second Korea Development Bank Project; $82.5 Million Loan, of which $7.5 Million for the Korea Industrial Leasing Company, of December 23, 1976; Effective Date: March 21, 1977; Closing Date: December 31, 1980 The project provides $75.0 million to be used by IDB to make sub- loans to finance direct imports for industrial subprojects during the period 1977-78; the remainder of the loan, $7.5 million, was relent by KDB to its wholly-owned subsidiary, the Korea Industrial Leasing Corporation (KILC). to acquire machinery, equipment, facilities and other property to be leased to investment enterprises. Commitment of funds is progressing as expected; as of February 29, 1980, disbursements were over 96% of the total loan amount. Loan No. 1461 Sixth Korea Development Finance Corporation Project; $70.0 Million Loan of June 30, 1977; Effective Date: September 15. 1977; Closing Date: December 31, 1981 The loan was made to help cover the foreign exchange requirements of industrial subprojects to be financed by KDFC subloans in 1977-78. KDFC's performance has been very satisafctory. As of February 29, 1980, disbursements were over 96% of the total loan amount. Loan No. 1466 Heavy Machinery Project; $80.0 Million Loan of June 30, 1977; Effective Date: December 1, 1977; Closing Date: December 31, 1980 Project cost has increased to $396 million as compared with the appraisal estimate of $255 million. This is due to increases in scope to enhance the project's ability to manufacture nuclear power plant; the devaluation of the US dollar, and domestic inflation. The market prospects for the project have been affected by licensing of other power plant manufacturers in Korea. In order to deal with this problem and to strengthien the financial viability of the project, the Government intends to transfer responsibility for the project to another company. Details of the transfer are being worked out between the parties involved and will be submitted to the Bank for review. As of February 29, 1980, disbursements were nearly 70% of the loan amount. ANNEX II -33- Page 7 of 14 pages Loan No. 1507 Second Medium Industry Bank Project; $55.0 Million Loan of January 4, 1978; Effective Date: March 10, 1978; Closing Date: December 31. 1982 The project provides $55.0 million to be used by MIB to help cover the foreign exchange requirements of industrial subprojects. A portion of the loan - $20.0 million - was earmarked to assist small-scale, labor- intensive subprojects creating employment at a gross capital cost per job not greater than $6,000 or enterprises whose fixed assets are not greater than $250,000. As of February 29, 1980, disbursements were over 96% of the loan amount. Loan No. 1574 Third Korea Development Bank Project: $110 Million Loan of June 21. 1978; Effective Date: September 14, 1978: Closing Date: December 31, 1982 The loan would be used to help cover the foreign exchange require- ments of subprojects to be financed by KDB; apart from direct imports, the loan would be utilized by KDB to finance the foreign exchange component of domestically produced capital goods. An amount of up to $10.0 million of the proceeds of the proposed loan would be made available to KDB's subsidiary, the Korea Industrial Leasing Corporation Ltd. (KILC), by way of subloans in order to finance small- and medium-sized leasing projects. Overall progress is satisfactory. As of February 29, 1980, disbursements were over 61% of the loan amount. Loan No. 1635 Seventh Korea Development Finance Corporation Project; $100.0 Million Loan of December 7, 1978; Effective Date: February 6, 1979; Closing Date: June 30, 1983 The loan was made to cover the foreign exchange requirements of subprojects to be financed by KDFC over the years 1979 and 1980. In order to support relatively labor-intensive enterprises, a component of $20 mil- lion was earmarked for financing specifically: (a) enterprises with fixed assets not exceeding $750,000; or (b) projects generating employment at a fixed investment cost per job not greater than $12,500. Also, in order to finance small- and medium-sized leasing projects, an amount of up to $10.0 million of the proceeds of the proposed loan will be made available to the Korea Development Leasing Corporation (KDLC), a leasing company affiliated to KDFC, by way of subloans. As of February 29, 1980, over 70% of the loan had been disbursed. Loan No. 1676 Electronics Technology Project; $29.0 Million Loan of March 29, 1979; Effective Date: June 28, 1979; Closing Date: December 31, 1983 After initial delays in finalizing specifications and bidding documents for engineering, support and research equipment, the project ANNEX II _34_ Page 8 of 14 pages is progressing satisfactorily. Bids have been received and are being evaluated for a major proportion of the equipment. The training program is also tnder way. As of February 29, 1980 about 5% of one loan had been disbursed. Loan No. 1749 Third Small and Medium Industry Bank Project; $60 Million Loan of July 23, 1979; Effective Date: September 26, 1979, Closing Date: December 31, 1983 Apart from direct imports, the proceeds of the loan would be utilized by SMIB to finance the foreign exchange component of domestically produced capital goods. To ensure that a reasonable proportion of the loan is directed towards small, labor-intensive projects, an amount of $25 mil- lion of the proceeds of the loan will be earmarked to finance: (a) enter- prises with fixed assets not exceeding $300,000; or (b) projects generating employment at a fixed investment cost per job not greater than $8,500. The loan would assist SMIB in its efforts to support the Government's policy of increasing the regional dispersal of employment opportunities and of deep- ening the industrial structure, and also to continue SMIB support of projects which would complement large-scale manufacturing enterprises. As of February 29, 1980, over 6% of the loan had been disbursed. Population Sector Loan No. 1774 Population Proiect;$30 Million Loan of December 27, 1979; Effective Date: March 21, 1980; Closing Date: June 30, 1984 The project will assist the Government to reduce fertility over the next five years, and simultaneously reduce infant and maternal mortality, particularly in rural areas. The project has been designed to reach out into communities with primary care services, particularly maternal and child health and family planning. The major components are: (a) improving the delivery of health and family planning services by strengthening and expanding the delivery network; (b) increasing demand for services by strengthening and expanding information, education and communication activities in health and family planning; and (c) improving the program's evaluation and administra- tion capacities. The principal beneficiaries will be mothers and children, primarily in rural areas, who do not have access to services. It is esti- mated that about 10 million people would be provided primary health care services under the project, thus lowering fertility, mortality and morbidity. Education Sector Loan No. 906 Second Education Project; $23.0 Million Loan and Credit No. 394 $20.0 Million Credit of June 13, 1973; Effective Date: September 10, 1973; Closing Date: December 31, 1979 The project includes assistance for re-equipping 85 educational institutions at secondary and university levels. The Loan/Credit funds are ANNEX II -35- Page 9 of 14 pages mainly used to finance equipment. The Government is financing related works. Project execution remains about two years behind schedule due to initial delays and some project changes. The project is now making satis- factory progress. All the equipment has been contracted, and about 95% delivered; furniture procurement has been completed; civil works were all completed by the end of December 1978; and the fellowship program is well underway. As of February 29, 1980, disbursements were completed under the Credit and reached over 95% of the total loan amount. Loan No. 1096 Third Education Project; $22.5 Million Loan of March 31, 1975; Effective Date: June 6, 1975; Closing Date: June 30, 1981 The project includes assistance for extension and equipping of nine institutions (technical, agricultural and fisheries) under the Ministry of Education (MOE) and seven vocational training institutes (VTIs) under the Administrator of Labor Affairs (ALA). Project implementation is satisfactory. Physical facilities and the technical assistance program have been completed. Training operations have commenced in five VTIs. However, equipment procure- ment under the MOE component is delayed by almost one year because of a temporary shortage of counterpart funds. Only about 75% of equipment has been awarded and 60% delivered. Delays of equipment procurement under MOE required a postponement of the Closing Date by one year. Estimated total project cost now is expected to be below, but close to, the appraisal esti- mate. As of February 29, 1980, disbursements were about 79% of the total loan amount. Loan No. 1474 Vocational Training Project; $23.0 Million Loan of July 22, 1977; Effective Date: October 25, 1977; Closing Date: June 30, 1982 The project includes the establishment of eight new Vocational Training Institutes (VTIs), equipment for a National Central Vocational Training Institute (NCVTI) and technical assistance, part of vhich is to be provided by UNDP and Germany. The implementation schedule is about six months behind original schedule. Civil works contracts have been awarded for six of the eight VTIs and are virtually completed for two VTIs. The completed two VTIs started classes in September 1979. The seventh and eighth VTI will be contracted early 1980. About 60% of equipment has been awarded and about 20% delivered. Five out of ten experts are in post and the fellowship program has been completed. Disbursements have improved significantly in 1979 and amount to US$6.8 million or about 1.05% of the appraisal estimate. As of December 31, 1979, disbursement was about 30% of the total loan. Since management performance, particularly reporting to the Bank, was recently unsatisfactory, the Bank urged the Project Director to improve content of quarterly progress reports and speed up submission to the Bank of information regarding contracting of civil works and equipment. As of February 29, 1980, disbursements were over 30% of the loan amount. -36- ANNEX II Page 10 of 14 pages Loan No. 1800 Higher Technical Education; $100.0 Million Loan of February 21, 1980; Effective Date: April 7, 1980; Closing Date: June 30, 1984 The aim of the sector program is to improve the quality and content of higher technical education in Korea, so that it can contribute effectively to the country's technological needs in the eighties. The sector program is to be financed under the loan, covers three aspects of higher education, viz. engineering education, management education and tech- nical training. The program will create a flexible system of supplying technical skills, remove the principal constraints on quarterly improvement and reduce the investment gap in private higher technical education. The overall program, of which a part would be financed under the proposed loan, would comprise about 10 national programs for organizing, curricula and staff development, and about 55 subprojects for development of physical facilities. Tourism Sector Loan No. 953 Kyonglu Tourism Project; $25.0 Million Loan of January 4, 1974; Effective Date: May 6, 1974; Closing Date: December 31, 1979 The project forms part of the first phase of the planned develop- ment of the Bomun Lake resort near Kyongju. It provides for a multipurpose dam; an irrigation system for about 1,200 ha; improvement and expansion of the water supply and sewerage and solid waste disposal systems for the city of Kyongju and the resort area; installation of electrical supply and telecom- munication facilities for the resort area; the construction and/or realign- ment of about 57 m of roads, infrastructure, including storm water drainage, environmental sanitation, community facilities, and a golf course; and a school for training hotel personnel. The first two hotels with 600 rooms were completed and opened for operation on April 1, 1978. Negotiations with other private investors are under way for a third hotel and also for apart- ments and restaurants in the Bomun resort area. The total amount of the loan was expected to be disbursed by the Closing Date. Regional Development Loan No. 1070 Secondary Cities Regional Project; $15.0 Million Loan of January 15, 1975; Effective Date: August 18, 1975; Closing Date: September 30, 1980 Implementation of the Secondary Cities Regional Project is pro- ceeding satisfactorily. Three housing sites, two access roads, a city market fishery harbor infrastructure and building complex and associated electrical works have been completed. Installation of refrigeration and ice handling equipment at the fishery complex has experienced some delays; the fishery complex is now expected to be fully operational by 37 ATNEX II Page 11 of 14 pages 1Iarch 1980. Construction of houses at all three sites has been completed and the sites are fully occupied. After the initial delays, mainly in fulfilling conditions of effectiveness and establishing the Gwangju Regional Development Unit, the project has moved extreiely well. As of February 29, 1980, disbursement was about 82% of the loan amount. Loan No. 1758 Second Gwangju Regional Project; $65.0 Million Loan of September 27, 1979; Effective Date: February 15, 1980; Closing Date: June 30, 1984 Implementation of the Second Gwangju Regional Project has started. The physical works have been divided into 15 subprojects. Civil work contracts for three subprojects (lIogpo Water Supply, Shrimp Storage Faci- lity and Gwangju Industrial Estate Access Road) are planned to be awarded this year. Detailed designs, contract documents and prequalification of contractors have been completed for these three subprojects. Consultants are expected to complete detailed designs and contract documents for other subprojects by mid-1980. A detailed implementation plan for the aquaculture program is being prepared. Preparation of Terms of Reference for various studies under Technical Assistance Program are underway. Although some problems are being experienced in arranging counterpart funds and some minor design delays have occurred, project implementation is going satisfactorily. Transportation Sector Loan No. 917 Ports Project; $80.0 Mlillion Loan of June 27. 1973; Effective Date: September 18, 1973; Closing Date: June 30, 1980 Civil works and provision of equipment financed under the First Port Project are completed. Final estimated cost is $143 million including $101 million foreign exchange. The excess foreign exchange requirement over the $80 million provided by the Bank loan is being provided by a Saudi Fund for Development loan of $35 million to the Korean Governnent; this loan was based upon the revised foreign exchange requirements of $115 million arrived at following the first large increase in the price of petroleum products. The balance of the latter loan will be spent on additional civil works. Loan No. 1101 Fifth Railway Project; $100.0 Million Loan of April 10, 1975; Effective Date: July 15, 1975; Closing Date: June 30, 1980 The project will help the Korean Nlational Railraod (KNR) continue as a major carrier of freight and passengers by providing for: the upgrading, modernization and expansion of track, rolling stock, motive power, and other equipment; the improvement of the efficiency of operation; and the strengthen- ing of its financial position. The main components of the project are: an ANNEX II -38- Page 12 of 14 pages increase in station and line capacity and improvements in signaling; acquisi- tion of rolling stock, diesel and electric locomotives, spare parts and repair facilities; track renewal and improvement; bridge strengthening; completion of electrification of 71 km of industrial lines; and other miscellaneous items. All contracts to be financed from the loan have been awarded and most of the equipment delivered. Over 98% of the loan proceeds had been disbursed by February 29, 1980. Loan No. 1203 Third Highway Project; $90.0 Million Loan of February 20, 1976; Effective Date: Mlay 17, 1976; Closing Date: December 31, 1981 The loan provides funds to help finance: (a) the construction, chiefly on new alignments, including paving, of about 195 km of four national highways, including supervision of the work by consultants; (b) paving and improvement, chiefly on present alignments, of nine national highways totaling about 600 km, including supervision of the work by consultants; and (c) feasibility studies by consultants of about 1,200 km of national and provincial roads, to be followed by detailed engineering. All contracts for construction and paving were completed by June 1979. Feasi- bility studies by consultants started in January 1978, and are now proceeding satisfactorily. As of February 29, 1980, disbursements were about 97% of the total loan. The Saudi Fund for Development is providing a loan of $35 million to assist in financing the project. Loan No. 1401 Second Ports Project; $67.0 Mlillion Loan of April 28, 1977; Effective Date: July 27, 1977;_ Closing Date: December 31, 1982 The project consists of: (a) a 700 m extension of container berths being financed under the First Ports Project and a 335,000 sq m expansion of the container stacking area provided under that project with ancilliary works; rehabilitation of piers 3 and 4, the central wharf, and lighter wharf No. 5; (b) procurement of container cranes, mobile container handling equipment, and tugboats; (c) Engineering Consultant Services and (d) Technical Assistance and Training. Contracts for the extension of container berths and for rehabilitation of pier No. 4 and lighter warf No. 5 were let in July and December 1979 respectively, following delay in appointing the consultants for final engineering. Estimated costs have increased to $170 million ($67 foreign exchange) compared with the appraisal estimate of $112 ($70 foreign exchange). KMPA expects to introduce commer- cial accounting from January 1, 1983. Traffic and specially containerized general cargo traffic continues to increase at Busan. ANNEX II -39- Page 13 of 14 pages Loan No. 1542 Sixth Railway Project; $120.0 Million Loan of April 10, 1978; Effective Date: August 3, 1978; Closing Date: June 30, 1982 The project would provide KNR with the capacity required to meet forecast traffic, and reduce operating and maintenance costs. It includes continued double tracking and electrification of lines, extension of yards and terminals, continued installation of centralized traffic control, track and rail renewal, separation of road and rail at crossings, installation of a permanent way workshop, procurement of diesel locomotives, passenger cars and freight cars, provision of a new passenger car workshop, installation of additional telecommunication and power facilities and provision of tech- nical assistance to KNR. The loan will also finance transport sector studies. Contracts for about 98% of the equipment to be financed under the loan have been awarded and most of the equipment is under delivery. The feasibility of major investments for 1980 and 1981 has been carried out and the transport sector studies are under way. As of February 29, 1980, disbursements were about 74% of the total loan. Loan No. 1640 Fourth Highway Project; $143.0 Mlillion Loan of December 7, 1978; Effective Date: March 14, 1979; Closing Date: December 31, 1982 The project consists of: (a) construction and improvement, including paving and supervision by consultants, of 36 sections of national roads totaling about 950 km; (b) construction and improvement, including paving and supervision by consultants, of 10 sections of provincial roads totaling about 280 km; (c) procurement of additional road maintenance equipment for maintaining national roads; (d) a study by consultants of the institutions involved in the planning, design, maintenance, construction, administration and financing of provincial and county (gun) roads, and the preparation of a program for improving the organization and functions of such institutions, upgrading provincial and gun road maintenance and the future development of the gun road system, to be followed by detailed engineering of about 2,000 km of gun roads; and (e) provision of fellowships for training staff of the Ministry of Construction. Construction of one road was started in April 1979, and bids on the remaining roads are scheduled for August 1979. A contract for the study was signed, and work started, in September 1979. However, due to budgetary constraints, the work is pro- ceeding slower than originally scheduled. As of February 29, 1980, disbursements were about 5% of the total loan. Power Sector Loan No. 1778 Gojeong Power Project, $115 Million Loan of December 27, 1979; Effective Date: March 21, 1980 Closing Date: December 31, 1984 The project constitutes the next logical step in KECO's power development program to meet the load growth up to 1986. The project would -40- ANITEX II Page 14 of 14 pages provide for the installation of two 500 11J coal/oil-fired units and associated auxiliary equipment; coal handling and storage facilities, fuel oil tanks, ash system and storage area, a fuel unloading dock for ships up to 100,000 DWT displacement; a pumping station and a 17 km steel pipe to transport fresh water to the station; and a 160 km double circuit, 345 KV transmission line between the power station and Seoul, and related terminal substations and management consulting services. The project will enable KECO to meet part of the increased demand of the interconnected system from 1984, and it is expected that it will help to improve KECO's planning, organization, finances, and the structure of electricity rates. An important benefit is the intro- duction of advanced technology to Korea, through the participation of local manufacturers in association with foreign companies, in the manufacture of some of the main equipment. -41- ANNEX III KOREA SECOND AGRICULTURAL PRODUCTS PROCESSING PROJECT Supplementary Project Data Sheet Section I - Timetable of Key Events (a) Agency which Prepared the Project: AFDC (b) Date of the First Bank Mission to Consider the Project: June 14, 1979 (c) Departure of Appraisal Mission: September 14, 1979 (d) Negotiations Completed: April 11, 1980 (e) Planned Date of Effectiveness: August 29, 1980 Section II - Special Bank Implementation Action None. Section III - Special Conditions (a) The upgrading and expansion of the present Project Unit (PU) to a Project Department (PD) along lines acceptable to the Bank would be a condition of effectiveness (para. 60). (b) All subloans above the free limit of $500,000 would be sent to the Bank for its review and approval (para. 65). (c) The maximum size of a subloan would not exceed $2 million, although the Bank may consider financing larger subloans in a few exceptional cases (para. 66). (d) Lending to large processors would not exceed 40% of the total project funds (para. 66). (e) The lending rate to subborrowers will be at least 12% p.a. (para. 67). (f) The Government s loan of $13 million to AFDC would be for a period of 11 years, including 3 years of grace, and would be provided as and when reauired bv AFDC (para. 67). (g) Except as the Bank shall otherwise agree, subsidiaries and affiliated companies of AFDC would not be eligible to borrow under the project (para. 68). I1BRD12351RI 127_ 128' 12P s X 1Xs ~N - R T H 0R A r 30 CHINA . ''/§