World Bank Document

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FOR OFFICIAL USE ONLY Public Disclosure Authorized

Report No.P-1789-EC

REPORT AND RECOMMENDATION

OF THE

Public Disclosure Authorized PRESIDENT OF THE

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

TO THE

EXECUTIVE DIRECTORS

ON A

PROPOSED LOAN

TO THE Public Disclosure Authorized REPUBLIC OF ECUADOR

FOR A

TECHNICAL ASSISTANCE PROJECT

(AGRICULTURE AND RURAL DEVELOPMENT)

March 18, 1976 Public Disclosure Authorized

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

Currency Unit = Sucre (SI.) S/. 1.00 = usto.oA USt1.00 = SI. 25.00 S/. 1 million = US4hO,000

GOVERUMEN0T OF ECUADOR FISCAL YEAR

January 1 to December 31 FOR OFFICAL USE ONLY INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC OF ECUADOR FOR A TECHNICAL ASSISTANCE PROJECT

I. I submit the following report and recommendation on a proposed technical assistance loan to the Republic of Ecuador for the equivalent of MU$4.0 million toihe4p finance planning, pre-investment and project preparation in agriculture and rural development. The loan would have a term of 15 years, including 4 years of grace, with interest at 8-1/2 percent per annum.

PART I - THE ECONOMY

2. A report entitled "Ecuador: Economic Memorandum" (No. 1033-EC) was distributed to the Executive Directors on February 26, 1976. Annex I summarizes the main economic and social indicators.

3. With the firimt shipments of crude oil from the Oriente Region in 1972, Ecuador became a net exporter of oil. This provided the country with additional resources %lich at least temporarily removed the savings and foreign exchange constiraints that had severely impeded Ecuador's growth in the past. Oil income irose from $38 million in 1972 to over $420 million in 1974. However, during the last year it has become clear that the country's oil wealth is smaller ithan previously estimated. One year ago, it was estimated that the country had total -- proven and probable -- oil reserves equivalent to 5.7 billLon barrels. Current estimates are of only 2.5 billion barrels, owing to a substantial decline in the calculation of probable ex- ploitable reserves. Moreover, it is now expected that the production levels projected last year for 1976 will not be achieved until the early 1980s. These revised estimates, together with a better knowledge of the difficulties to be encountered in the expioitation of Ecuador's untapped oil fields, and with the transitory problems faced by the country's oil exports in 1974-75, indicate that Ecuador is not likely to accumulate substantial amounts of foreign exchange reserves in the foreseeable future.

4. There has been a sharp decline in petroleum output since mid-1974 because of marketing difficulties for Ecuadorian crude in export markets and a protracted disagreement between the Governmtent and the foreign concession- aires over the taxatiorn of oil exports. The total offtake of oil dropped from an average of 232,000 b/d during January-June 1974 to 123,000 b/d during the second half of 1974, and became irregular in 1975, owing to two breaks in the trans-Andean pipeline. For 1975, the average production is estimated at about 165,000 b/d. There has also been a virtual standstill in exploration during the past two years and the level of proven recoverable reserves, estimated at 1.5 billicn barrels, has remained unchanged.

This document has a resuiived distribution and may be ud by rec4iplm o.nly in the performance of their ofllcial duties. Its contents may not otherwise be disclosed without World bank authorization. - 2 -

5. The disappointing performance of the petroleum sector had not been expected by the Government. Counting on rising petroleum income, the Govern- ment had adopted policies designed to stimulate further growth. It increased public expenditures -- including subsidies of essential consumption goods; offered more generous credit programs for agricultural and industrial investment; and lifted most quantitative import restrictions. In 1974, import duties were cut by an average of 34 percent. Moreover, imports of agricultural inputs and of essential foodstuffs were fully exempted from duties.

6. The response of the economy to these policies, and to the prevailing very. optimistic economic climate was, in general, strong. Gross investment grew by 22 percent in real terms in 1973 and growth of GDP at market prices reached a rate of about 15 percent, far above historical levels (5.5 percent from 1965 to 1970). Continuing rapid growth in industry, construction, trade and Government services made it possible to achieve an overall GDP growth rate of approximately 8 percent in 1974. This was obtained in spite of the significant decline in the oil sector product, and of the virtual stagnation of agricultural production -- which was hampered, until early that year, by the insufficiency of credit availabilities and by the inadequate price policies followed up to then by the Government.

7. The rapid economic expansion was accompanied by inflationary pressures. The cost of living index for low and medium-income families in Quito, which had risen by about 8 percent per annum during 1971 and 1972, increased by 13 percent during 1973 and by over 23 percent during 1974. While the inflationary pressure was largely generated by the rapid rise of public expenditure, the strong expansion of credit to the private sector also con- tributed to the increasing money supply. Domestic supply could not respond in full to the growth in demand, which led to higher imports of wheat, oils and fats, and other products. In construction materials, domestic production did not keep pace with increases in demand. In manufacturing, the process of import substitution of finished goods accelerated, leading to rapidly rising imports of equipment, raw materials and semi-finished products. As a result, total imports of goods and non-factor services rose from about $440 million in 1972 to $515 million in 1973 and over $1.0 billion in 1974. This import growth in part also reflects a rise in import prices of 17 percent in 1973 and 28 percent in 1974. Exports -- also including non-factor services -- expanded from $365 million in 1972 to about $1.1 billion in 1974. Of the increase, about 75 percent was accounted for by petroleum.

8. Despite the growth of imports, Ecuador's balance of payments showed, until mid-1974, a marked improvement. In 1973, Ecuador achieved the first surplus in its resource balance since the early 1950s, and net foreign exchange reserves rose from $128 million at the end of 1972 to $371 million by the end of June 1974. However, these favorable trends could not be main- tained after mid-1974. As oil exports declined and total imports continued to rise substantially, Ecuador's reserve position began to deteriorate rapidly. By August 15, 1975, the country's net foreign exchange reserves had fallen to $181 million, equivalent to less than two month's imports. 9. Until 1974, increasing oil revenues brought about a substantial improvement of the Government's financial position. For the Central Govern- ment 1/ -- which received about 54 percent and 57 percent of total oil revenues in 1973 and 1974 respectively -- these revenues led to a strong increase in current savings and to an expansion of capital expenditure substantially above the growth of current expenditure. With current savings rising to about $68 million in 1973 and $298 million in 1974, the overall cash position of the Central Government turned from a small deficit in 1973 to a $62 million surplus in 1974, despite a more than threefold increase in capital expenditure in 1974. FONADE, established in late 1973 in an effort to ear- mark part of the additional oil revenues for the financing of public investment projects over and above budgetary allocations, disbursed about $93 million in 1974. Most of these disbursements helped finance the construction of the Esmeraldas refinery, and the credit programs of the National Development Bank and other financial institutions. As a result of the decline of oil revenues, current savings decreased by an estimated 20 percent in 1975 despite an improved performance of non-oil taxes. These developments led to a temporary financing gap in the Central Government operations and to the decision to contain the growth of Government expenditure in 1976.

10. A number of recent measures have contained the deterioration of the balance of payments, and foreign exchange reserves are estimated to have totalled about $245 million by the end of 1975. The measures included a reduction of the tax-paid cost of petroleum exports by the equivalent of about US$0.43 per barrel; the concession of higher allowances to oil companies for their production cost; and the introduction of import restrictions in August and September 1975. Oil production has recovered, mainly as a result of the cut-back in the income tax rate in oil exports; and is estimated to have reached over 210,000 b/d towards the end of 1975.

11. On October 2, the Government announced new financial objectives for 1976: to achieve additional increases in foreign exchange reserves and a more balanced budgetary position, which would make it unnecessary for the Government to borrow further from the domestic banking system or from foreign commercial banks durinUg 1976. The Government hopes to reduce the annual rate of inflation from some 15 percent in 1975 to about 10 percent in 1976. Fur- ther negotiations withi the oil companies are expected to open the way to increased exploration and development efforts.

12. Ecuador's oLl production is now expected to increase gradually and to reach about 270,000 b/d by 1979-80. An expansion beyond this level appears feasible, provided that a vigorous exploration and development program can be brought un:derway in the near future. Increasing export earnings from petroleum, coffee, sugar and manufactured goods, combined with a net inflow of foreign capital in the order of $265 million a year during 1976-80 -- needed largely to Einance new gas and oil-related ventures -- should make

1/ Including the Naitional Development Fund (FONADE) and the National Participation Fund. -4-

a substantial improvement of the overall balance of payments situation possible after 1976, and permit a moderate increase in foreign exchange reserves. The extent to vhich Ecuador's balance of payments situation will actually improve depends largely on the success of immediate stabilization policies, the development of oil production, the behavior of oil prices, and the mobili- zation of foreign capital.

13. Although the oil sector will continue to be the major source of foreign exchange in the medium term, there are considerable uncertainties with respect to the possible production profile of this sector in the longer run. Most of the oil likely to be produced until the early 1980s has already been found. Unless exploration efforts are substantially stepped up and new oil fields are discovered, production could decline soon afterwards. To make the most efficient use of oil revenues, the Government therefore intends to begin to diversify the production base of the economy by developing agricultural and industrial activities in which the country has a potential comparative advan- tage. Exports other than oil need to be developed - for example, natural gas, and agricultural and forest resources. An appropriate use of the financial resources provided by oil will also make it possible to alleviate the country's most pressing social needs. However, Ecuador continues to be one of the poorest countries in Latin America, with an estimated per capita income of $450 in 1974, and a large proportion of the population living at subsistence levels. Oil has only shifted Ecuador from the upper strata of the poorest countries to the lower brackets of the middle income developing countries.

14. The Government several years ago designed an ambitious development strategy. It is reflected in the 1973-77 Plan Integral de Transformacion y Desarrollo and focuses on (a) promoting the diversification of the economy by fostering agricultural and industrial development; (b) alleviating poverty in the countryside through rural development programs; (c) upgrading social services; (d) expanding infrastructure; and (e) improving the absorptive capacity by overcoming major bottlenecks to development, notably the shortage of qualified manpower and the administrative weakness of the public sector.

15. To pursue these broad objectives, efforts have been made to improve the investment capacity of the public sector. In 1973, a preinvestment fund (FONAPRE) was set up to finance prefeasibility and feasibility studies. Inven- tories of projects and project ideas were compiled in the entire public sector. Also the Government has been able to increase public investment rapidly. How- ever, progress has been slow in sectoral planning - particularly in setting investment priorities in some major sectors - and in the coordination of investments by region. The proposed project would help overcome these short- comings in the agricultural sector.

16. Ecuador's development needs, as well as persistent structural and institutional weaknesses, call for continued external assistance. Although the country's creditworthiness has improved greatly, it would not be sound policy for Ecuador to rely on the private capital market as the sole source of external finance. Nieither the amounts nor the terms available to Ecuador in the market would malke this advisable. Rather, a mixture of commercial and official financing will best suit Ecuador's needs during the next few years.

17. Ecuador is creditworthy for further lending at Bank terms. The external public debt outstanding on December 31, 1974 was estimated at US$530 million, of which US$297 million was disbursed. Service on outstanding public debt is relatively moderate -- about $85 million in 1975, equivalent to about 8.0 percent of the exports of goods and non-factor services. The debt service ratio is projected to fall to approximately 4 percent in 1979-80. The Bank/IDA share in outstanding and disbursed public debt as of December 31, 1974 was about 19.7 percent; it is expected to rise.

PART II - BANK GROUP OPERATIONS IN ECUADOR

18. Starting wit] the first loan in 1954, the Bank and IDA have made twelve loans and six credits to Ecuador totalling US$150.0 million, net of cancellations. At the end of January 1976, the Bank and IDA held about US$115 million, includ:Lng about US$45.2 million not yet disbursed. IFC has made five loan and investment commitments in Ecuador, two in a large textile company and three in a development finance company, amounting to US$4.3 million of which, as of January 31, 1976, US$2.7 million had been sold, terminated or cancelled. In addition, IFC is considering a loan to help finance the expansion of sugar production in the Guayaquil area and a plywood mill near Esmeraldas. Execution of Bank Group financed projects has, on the whole, been satisfactory, even though it has not been free of difficulties often caused by the insufficiency of the country's managerial and technical resources -- a constraint that still is a major obstacle for Ecuador's economic and social development. Annex II contains a summary statement of Bank loans, IDA credits and IFC investments as of January 31, 1976, and notes on the execution of ongoing projects.

19, Bank and IDA lending were originally concentrated in transportation and power, where there were substantial deficiencies to be overcome. These two sectors still account, respectively, for about 25 percent and 10 percent of total past lending. Most of the lending for transportation was to improve the road network of the country, although one loan was made to help finance a new port in Guayaquil (FY59). Lending for power has been concentrated in improving generation and distribution facilities in Quito. The first livestock development loan'(FY67) marked the beginning of a diversification of lending; since then, the Bank and IDA have made four more loans and credits for agriculture and fisheries, two loans to support industrial development through two development finance companies, two loans for education and one loan for water supply. Bank/IDA assistance for the commodity producing and social sectors account now for about 55 percent of total lending. - 6 -

20. External development financing has also been provided by IDB and AID and, to a lesser extent, by other bilateral sources. External financing by sector and by source through 1974 is summarized below:

(US$ millions, Figures Net of Cancellations) IBRD IDA IDB AID

Lending 1954-64 54.0 8.0 35.3 67.7

Lending 1965-74 59.5 28.9 232.6 42.0 Transport 18.0 Power 6.8 67.7 3,6 Education 5,1 4.1 5.3 Health and Sanitation 23.2 49.3 2.8 Agriculture and Fisheries 8.3 17.0 53.7 10.8 Industry 28.0 21.2 8.0 Urban Development 14.4 Other 4.2 11.5

113.5 36.9 267.9 109.7

IDB is the largest single lender, having extended most of its loans to Ecuador from the Fund for Special Operations, which has normally carried a 2 percent interest rate, a ten-year grace period, and repayment terms of up to forty years. It is likely that IDB will remain the major development lender in the immediate future, although the terms will be less concessionary than in the past. AID loans generally have had amortization and grace periods similar to those of IDB, with interest at 2-3 percent. Education, health and other socially oriented activities, as well as agricultural development, have been receiving increasing attention from the external lending agencies in recent years. IDB, AID and the Bank Group have coordinated their efforts in these fields to assure the most effective use of all available resources.

21. Bank lending is aimed at supporting the Government priorities outlined in Part I above. This objective will be met by emphasizing projects that will help strengthen the institutional framework for development policy -- particularly concerning project planning, preparation and implementation -- in agriculture and rural development, transportation and other high priority activities. The highway project, and the Second Port of Guayaquil project, which are being processed for your consideration, will complete an important stage of the Bank's involvement in Ecuador's transport sector. These two projects are designed to help the Government establish the administrative mechanisms and technical procedures required for designing and imple- menting appropriate policies and investment projects in the sector during future years, while assisting also in the overcoming of some major trans- ?ortation bottlenecks. 22. Beyond those two transportation projects, the current Bank program is heavily concentrated on agricultural and rural development. The Bank can undertake a major institution-building effort in these fields, which should yield tangible benefits for Ecuador. Agriculture is, at the same time, the most import.nt and the most neglected sector of the the Ecuadorian economy. Its potential is far from being adequately realized and its low productivity is a main cause of the extreme poverty in which most of the Ecuadorian population still lives. The current Bank program includes a substantial support for Lntegrated rural development projects and important assistance for the development of the country's agricultural potential. All projects programmed for this sector include sizable technical assistance components as a major part of the overall institution-building effort referred to above. This is reflected particularly in the project that I now submit for your consideration to aid Ecuador in the preparation of agricultural and rural development projects. Other projects in this sector which I expect to present to you during the next two years include one for agricultural credit and two rural development projects. Moreover, most of the other projects currently under consideration -- for instance, rural roads, rural electrification and agro-industries - are also related to the major objectives referred to above for agricultural and rural development.

PART III - AGRICULTURE AND RURAL DEVELOPMENT

23. Agriculture is the most important sector of the Ecuadorian economy in terms of output and employment, and second only to oil as a source of foreign exchange earnings. It has a large growth potential, but it is also the sector with the most serious institutional and social problems, and the one with the poorest performance in recent years. The Government's 1968 Agricultural Census showed that one-third of farm holdings were less than 1 ha, and that three of every four farms were smaller than 5 ha, yet these 75% of all farm holdings comprised only 10% of total agricultural acreage. The results of the 1974 census, currently being analyzed, are not expected to show any major change. Partly as a consequence of this situation, and also, of the very low productivity levels which prevail in most of this sector, an estimated 1.5 million, the poorer half of the rural population, had per capita incomes in 1974 of less than the amount estimated to be needed for basic nutritional requirements. Three-fourths of the rural population earned less than one-third of the national average annual per capita income. By contrast, the 1968 census indicated that the wealthiest 10Z of the economically active rural population received about 60% of agricultural income. This situation has been aggravated by the virtual stagnation that has prevailed in agriculture during recent years. Food production per capita showed barely any increase in the early 1970s and then slipped in 1973. The overall rate of agricultural growth was only 0.7% per year from 1972 to 1974. Real per capita GDP in agriculture diminished from 1969 to 1973 at an average yearly rate of 2.4%. Since growth in other sectors was quite strong at the same time, this trend has increased the difference between rural and urban income levels, and has also widened the gap between the demand and supply of agricultural and livestock products. This resulted in serious food shortages, significant inflationary pressures and a soaring food import bill. 24. Ecuador's agricultural potential is large enough to permit a rapid reversal of these disappointing trends. The country has a favorable endowment of the resources needed for a varied and far greater output. There are size- able amounts of uncultivated land, some in almost completely unexploited zones, that could be developed for agriculture and livestock. Some events of the past decade - the remarkably fast transfer of banana production from the Gros Michel to the Cavendish variety; the return of rice to the array of traditional exports; and the record cocoa and sugar yields in 1974 - all suggest a promising capability for achieving greater agricultural output. This potential, however, will not be easily realized. Over 40 percent of the unexploited arable land and grassland of Ecuador is in the eastern Amazon area of the Oriente which has soil and other resource problems and is largely isolated and uninhabited. Another one-third of potential additional agricultural land is in the Andean highlands where erosion and population pressures have constrained growth possibilities. The remaining third of the potential agricultural land is in the coastal zone which suffers from flooding and insufficient drainage in the areas with the best soils. Furthermore, agricultural production in Ecuador has risen more in the past through the extension of the cultivated area than by the adoption of improved techniques. The agricultural sector has operated largely without the support of extension services; of credit, storage and marketing facilities; and of improved seeds and other inputs. Technological progress in Ecuador's agriculture -- particularly in small farms -- has, therefore, been very slow. As a consequence, average national yields are lower than those in adjoining countries.

25. The present Government has reacted positively to these problems in its recent actions, reflecting its appreciation of the importance of the future of agriculture. Since the beginning of 1974, the Government has raised producer prices, increased the flow of credit, reduced import duties on agricultural inputs, and reduced sales taxes on those intermediate and capital goods used in farming to offset their rising costs. Producer support prices were raised for rice, meat, milk, sugar, wheat and oil seeds to counter the deterioration of farmers' terms of trade. The Banco Nacional de Fomento -- which is receiving a large share of the country's oil revenues -- increased credit to the agriculture sector from $23 million in 1972 to $45 million in 1973 and $105 million (US$ equivalents) in 1974. Moreover, a Seeds Corporation was formed in 1974 to promote the production of certified seed, an activity which will be assisted by the Bank loan proposed this year for this purpose. Agri- cultural policy continued to improve during 1975. In January of that year, the Minister of Agriculture announced an ambitious mechanization program and plans to expand storage facilities while the Monetary Board made loans to agriculture more profitable for the commercial banks than those to industry and to the commercial sector. The Government also announced during the year its intention to allocate to agriculture and rural development a higher share of total public expenditure. At the same time, it has requested Bank technical and financial support for several projects in these fields.

26. On the whole, these policies point in the right direction and are already achieving some success, although they still need substantial re- inforcement. Overall agricultural production in 1974 was impaired by massive - 9 -

increases in the import prices of machinery, fertilizer, and other agricultural inputs. The prevailing poor weather, and some uncertainty among land- owners following the approval of the October 1973 agrarian reform law, also have made it difficult to achieve substantial progress toward solving the main pending problems of the sector. Despite these negative factors, however, the previous inadequate production trends have been partly reversed. During 1974, there was an increase in wheat production for the first time since 1969 (up 13 percent). At the same time, production of rice rose by 17 percent, of cocoa by 50 percent, and of cotton by 65 percent. The preliminary data available for 1975 indicate that agricultural output for domestic consumption has increased significantly with some crops, such as cotton, corn and rice provid- ing surpluses for export:. Moreover, the new emphasis placed by the Government on rural development has already made possible some progress toward improved coordination of policies affecting the rural population. At the same time, the Government has alreaidy started the preparation of several integrated rural development projects.

27. In an attempt to expand and improve these initiatives, the Govern- ment requested the Bank in late 1974 to apply its worldwide experience in rural development to Ecuador's rural poverty problem and to concentrate its future lending substantially on rural development and the expansion of agricultural output. In March 1975, a Bank mission assessed Ecuador's situation and outlined a series of measures needed to initiate a more adequate rural development program. Thbe suggestions included basic organizational changes to improve the Government'sE planning and control of rural development activities; policy areas in which complementary actions were required; promising project possibilities in the Andean highlands and in the coastal regions; and the areas in which technical assistance is needed. The Ecuadorian officials have indicated substantial agreement with these recommendations, and have requested the Bank to provide the technical assistance for these purposes which is included in this project.

PART IV - THE PROJECT

28. The project is based on a Government request in August 1975 for Bank technical assistance in its rural development efforts and on the findings of a Bank appraisal mission to Ecuador in October 1975. Negotiations were held in Washington in February 1976. The Ecuadorian delegation was led by Mr. Manuel Zalisto, Executive Manager of the National Pre-Investment Fund (FONAPRE) and included representatives of the Ministry of Agriculture and Livestock as well as of the Commission of Studies for Development of the Guayas Basin (CEDEGE) and the Institute of Hydraulic Resources (INERHI).

General Description

29. The proposed project would support a three-year program of assistance to the Government in plainning activities aimed at benefitting the rural poor and increasing agricultural production. A clearer definition of the Govern- ment's rural development policy and more substantial programs are needed, - 10 - together with strengthened Government agencies and coordination of their activities. These and similar problems partly reflect the limited technical capabilities of the various national and regional agencies and, even more, the fact that Ecuador's new commitment to rural development has exceeded its supply of specialized personnel. The Government has recognized these problems and has been actively exploring ways in which to increase the level of technical assistance for these purposes. The proposed project is designed to support the Government's efforts. It would provide technical assistance to supplement and make more effective use of the limited trained manpower and the financial resources presently available and committed to rural development. 1/ Improving the local capability to plan and program rural development activities will inevitably take some time and involve considerable training. Accordingly, it is also proposed that some technical assistance be provided that would generate new project proposals in a shorter time frame than would otherwise be possible. Projects are expected to emerge from this assistance that would benefit farmers at low income levels in two backward areas of the country and that would, at the same time, make a substantial contribution to the pressing need for increased food production. Further, the proposed studies leading to a long-range water-control plan in the Guayas Basin would serve to eliminate a fundamental natural obstacle that now impedes agricultural and rural development activities in an extensive and fertile area.

30. The proposed project would include:

(a) Establishment and training of a planning and project preparation group within the Planning Board (JUNAPLA), designed to provide national leadership in policy analysis and direction of all Govern- ment activity related to rural development;

(b) Preparation of one or two rural and agricultural development projects in the Lower Guayas Basin, and carrying out studies contributing to a long-range water-control and agricultural development plan for that Basin;

(c) Preparation of two rural development projects in the mountainous highlands of the Andes in the province of Tungurahua; and

(d) Preinvestment studies of rural development possibilities in the Esmeraldas river basin.

31. The proposed project would lay the basis for an enlarged Bank role in Ecuador's rural development efforts during the next few years. The technical assistance provided under the proposed arrangements is expected to help complete the preparation of several projects for which Bank financing is envisaged.

1/ In these respects, the proposed technical assistance illustrates the ''rural preparation" type of projects envisaged for situations in which improved planning capabilities are principally required (ref. Report No. 588 entitled "Rural Development and Bank Policies", December 2, 1974, para. 3.40). Subprojects

Rural Development Planning Group

32. Rural development planning has begun in Ecuador but suffers from several deficiencies. These include the lack of: a national plan that would establish Ecuador's objectives and programs for rural development; a sufficient number of adequately prepared projects; and a high-level national institution charged with addressing the problems of rural poverty. Neither is there an organization which is capable of preparing the projects designed to attack these problems. An Office of Rural Development of the Ministry of Agriculture was founded in 1973. This unit has taken the initiative to define a preliminary rural development strategy statement and a project list. In the main, however, the list represents primarily ideas about possible projects, few of which are being or could be prepared by the Office's present staff. The Office does not have the planning authority over the different ministries and regional and independent agencies to provide the leadership and guidance they require for their participation in rural development.

33. An effective planning system therefore is needed which can serve to exert national policy direction and to give impetus to the preparation of rural development projects. The Government of Ecuador has recognized this requirement and is taking steps to assign to the JUNAPLA the responsibility for overall rural development planning. JUNAPLA has long been charged with overall direction of public sector planning in Ecuador, marked by its formulation of the national Plan Integral de Transformacion y Desarrollo. Its principal work up to recently also has involved both macroeconomic and sectoral analysis, the framework for regional planning and its participation in the coordination of foreign assistance. JUNAPLA's role has been strengthened by the additional responsibility for overseeing annual investment budget decisions. Furthermore, its affiliate, the National Pre-Investment Fund (FONAPRE), has made an effective start, in its relatively brief existence towards giving the Government a significarit project preparation capability. JUNAPLA is well situated accordingly for its projected assignment for rural development planning, while the Office of Rural Development would be primarily responsible for conducting certain studies and project implementation. JUNAPLA's staff will need considerable strengthening for this purpose in terms of both additional personnel and their training.

34. To accomplish the above functions, JUNAPLA has agreed to establish within its organization a rural development planning unit which is considered necessary in view of its increased responsibilities in this field. The unit would be in charge of the national rural development program. It would be responsible for: formuilating a national policy for rural development; coordinating actions of diverse Government entities; controlling the allocation of resources in this field; developing criteria for project planning and coordination of foreign assistance. It would play a major role in identifying and formulating high-priority projects. At the outset, the functioning of this unit would be handicapped by the limited number of skilled Ecuadorians - 12 -

with rural development expertise. Accordingly, the first subproject of the proposed loan would help to launch this unit by the provision of internationally recruited specialists who would be employed to assist the local staff over a three-year period. The team, including a rural development specialist with experience under conditions similar to those in Ecuador, would be appointed with the approval of the Bank (ref. Section 3.02 of the draft Loan Agreement). It is a condition of effectiveness of the proposed Loan that the rural development specialist had been contracted and his counterpart appointed by the Government (ref. Section 5.01(a) of the draft Loan Agreement).

35. The work of the specialists provided under the subproject would fall into two categories. The general rural development specialist would concentrate on the overall planning and organizational aspects. He would assist JUNAPLA in formulating a national policy in this sector and a plan for its implementation. He would assess JUNAPLA's methodology and procedures to determine what changes may be needed to adapt them to the complexities of integrated rural development. He would also examine and recommend whatever revisions appear necessary in the Government's machinery for controlling the allocations of resources for rural development; and for analyzing the impact of proposed decisions on target populations and on agricultural development. This specialist would help to design such new organizational arrangements as may be required to facilitate the conduct of rural development activities. The other team members (supplemented by others who may be financed by the UNDP) would concentrate on identifying the principal opportunities for investments in rural development and on guiding the detailed preparation of projects in this field. They would assist in drafting terms of reference for the selected socio-economic and technical studies necessary for the formulation of the individual project possibilities. They would be expected moreover to help evaluate proposals by consultants, negotiate contracts and supervise the studies during their execution. In view of the broad range of specialist competence which is likely to be required, the subproject would include provisions for additional internationally recruited short-term consultants for advice in particular areas. Support services for the team of specialists including necessary vehicles and office equipment would also be provided. Furthermore, in order to enable the Government to develop an adequate corps of skilled personnel, the subproject would involve the development of an in-service training program in rural development. This would be supplemented by the provision of funds for 88 man-months of training in Ecuador and abroad in project preparation and evaluation techniques. These would be made available to suitably qualified candidates from JUNAPLA and other key development-related national and regional agencies.

Lower Guayas Basin

36. The Guayas basin covers 3.5 million ha or approximately half the coastal region of Ecuador. It is situated just south of the equator between a low coastal mountain range and the high Andes. Its climate is hot and humid, with average monthly temperatures ranging between 23' and 27' C and an average annual rainfall of 1,500 mm or higher. The Guayas basin had 2.3 million people in 1971, about one-third of the national population. In the period 1971-73, the population of the basin has grown at 5.4 percent per annum (5.2 - 13 - percent in the city of Guayaquil) in comparision with the overall 3.4 percent growth rate for the country, thus indicating the extent of migration into not only the metropolitan center but even more so to the rural areas. This partly reflects the increased Government-directed investment in the coastal lowlands since agricultural production demands have begun to outstrip the productive capacity of the central highlands. The lowlands have favorable conditions for substantial agricultural production similar to such areas as the river deltas of the Mekong, Ganges, Irrawaddy and Mississippi. But, although the physical endowment has attracted people from the highlands, the rural population in the Guayas basin suffers under adverse economic and social conditions. Health services and schooling are deficient. Unemployment is estimated at 15 percent with much higher under-employment, and land ownership is very unequal (72 percent of farmers with less than 10 ha each own 4 percent of the land while 59 percent of the total farm land is owned by 1.1 percent of the farmers who have more than 500 ha each).

37. The Lower Guayas Basin covers about 1.5 million ha, including the ecologically similar area extending to the Naranjal river. It has excellent soils but suffers from poor drainage and serious annual floods. According to recent estimates, at least 200,000 ha in this Basin are flooded every year because of river overflow and insufficient drainage of rainfall. The flooding and poor drainage cause large-scale crop losses (mainly rice), serious damage to roads and buildings, and poor sanitary conditions, especially in villages and small towns. Moreover, haphazard construction of roads and dikes, in the absence of any plan, is progressively worsening the situation.

38. For some time now, Ecuadorian planners and agricultural advisors have concentrated their attention on the potential of the coastal area for irrigation, with only secondary emphasis on its flood-control and drainage requirements. This concentration results from a tradition of irrigation, largely rudimentary, practiced for centuries in the comparatively dry Sierra. The lack of emphasis on flood control and drainage in the Lower Guayas Basin is due moreover to lack of a comprehensive long-range plan. This deficiency has been caused in large part by absence of adequate basic data such as aerial photography and topographic maps. These data are crucial for planning efforts particularly in the cenl:er and eastern sections of the basin where flood control has to be carried out through a system of dikes, floodways, drainage canals and river channel. improvements since sites for storage reservoirs are lacking. Such works, if properly planned and phased, would contribute to a very significant increase of the agricultural production of this fertile region (preliminary estilmates range between 5 and 10 times) and to improving the living conditions of the rural poor. They are moreover considerably less costly per hectare than conventional irrigation projects.

39. The subproject: would provide funds for the following:

(a) identification and preparation of one or two agricultural and rural development projects, covering an area of about 100,000 ha each, as the first phase of an overall development plan for the zone; and - 14 -

(b) studies of the Lower Guayas Basin to contribute to a plan for agricultural development and water control.

40. The subproject would provide for the services of internationally recruited specialists, the purchase of equipment and the training of local professionals. The work would be divided into three phases. In the first phase, the presently available information would be analyzed during a 2-3 month period by a team of high-level consultants and Ecuadorian counterparts; the team would also draft terms of reference for studies to be carried out during the second and third phases. The team would include specialists in mapping, flood control, drainage and irrigation, tropical crops, especially rice; and soils and land classification. In the second phase, estimated to require about one year, a firm would carry out the required aerial photography, mapping and ground surveys. The third phase would include two components: (a) preparation of one or two agricultural and rural development projects, each 100,000 ha in extent, oriented to increase agricultural production and to improve the living conditions of the rural poor. (Given the unequal land distribution in the area and the awareness of the Government of the resulting problems, the studies would include an analysis of the present situation and of measures to ameliorate the land ownership pattern.); and (b) investigations of the water and soils resources of the total area leading to a long-range "framework plan" 1/ for water control and agricultural development, (the investigations would include development of a mathematical model to assist in evaluating alternative flood control and drainage solutions).

41. The subproject would provide for the services of internationally recruited specialists, training of counterparts, mapping and equipment. The consultants would, during a three-year period, include specialists in the fields of flood control, drainage, irrigation, agriculture and rural development, soil and land classification, agricultural economics and mapping (160 man-months approximately). They would work with CEDEGE, which is responsible for most of this zone and has experience in related studies, and with the Instituto Ecuatoriano de Recursos Hidraulicos (INERHI), the national agency responsible for developing water resources (which is executing the Milagro irrigation project financed by IDA Credit 425). To supervise the work of the aforementioned specialists, for which they have suitable experience, the two agencies would provide about 300 man-months of services of Ecuadorian professionals, including professionals experienced in hydrology, soils investigations, topographic surveys, and socio-economic surveys. The subproject would also provide the funds for producing topographic maps of the area including the necessary aerial photography and the survey of cross sections of the major river channels. The subproject furthermore would include survey equipment and vehicles to facilitate the field investigations, as well as provisions for training counterparts to the foreign specialists. A total of 40 man-months is foreseen for specialized training both in Ecuador and abroad.

1/ A framework plan may be described as a study of physical and human resources and socio-economic conditions considering a variety of objectives for a region, giving a first approximation of the region's potential and of a long-range development plan. - 15 -

Tungurahua Province

42. Tungurahua Province is in the center of the Ecuadorian high Andes about 140 km south of Quito. It covers an area of 320,000 ha at altitudes ranging from 2,400 to 3,600 m and has a population of 270,000, two-thirds of whom live in rural areas. Characteristic of this, as well as other mountainous provinces of Ecuador, are steep slopes, deeply eroded side valleys, fertile but narrow main valleysi, low levels of rainfall in the interandean valleys (about 500 mm annually) and a climate with hardly any seasonal changes. These areas have been overpopulated historically. They have a much worse man/land ratio than the coastal regions. Landholdings in the Andes are on the average one-third the size of t:hose on the coast; in some areas, small holdings con- sist of less than 1 ha., The rural population density in the highlands averages 3 persons per ha of cultivated land, but reached 8 persons in Tungurahua Pro- vince in 1974. Althouph some emigration has taken place, substantial un- and underemployment persist: and many farmers are forced to work part of the year in other regions of the country. Social services, such as schooling, health services and potable water supply are deficient or non-existent, especially at higher altitudes.

43. The Government recognizes these problems and is likewise well awarp that the limitations of- the resource base are paralleled by social constraints. Many thousand families., a substantial portion of the economically active people in agriculture, are boxnd to their subsistence plots by cultural heritage and limited possibilities of participation in colonization schemes. Nevertheless, there are significant opportunities for increasing the productive capacities of these small-sized farm owners and for expanding the output of high-value crops, livestock and forestry. The Government is cognizant of the need to make greater progress :Ln the highlands if it is to make any inroads in alleviating the conditions of rural poverty and, as its initial major rural development effort in the Sierra, the Government has chosen Tungurahua Province, where several possible rural development projects have been identified.

44. The subproject would involve studies of two adjacent areas, Huachi- Pelileo and Quero. These particular areas have been selected because they typify the problems of the mountain zone and would thus serve as an example for the development of other areas of the Province, and because the Government has already made a substantial beginning in preparing rural development projects there. In October 1975, the Government established a special inter- ministerial task-force for this purpose, consisting of representatives of the Ministry of Agriculture and Livestock (MAG), JUNAPLA and INERHI as well as participants from the Provincial Council of Tungurahua. The proposed Huachi- Pelileo Project covers an area of some 11,000 ha, a part of which is currently partially irrigated, located between 2,500 m and 2,900 m altitude, where some 2,300 families derive t:heir main source of living from agricultural activities. It is estimated that about 96 percent of the existing 1,300 farms are not larger than 5 ha each and the balance composed of farms not larger than 35 ha each. Of the total project area, about 8,000 ha are considered arable. Flat lands predominate over steep terrain; natural drainage is good and soils are of adequate agricultural characteristics. Most of the area is utilized for production of annual crops and forage, a small percentage for fruit trees. - 16 -

The main annual crops are potatoes, corn, wheat and vegetables. Factors limit- ing production are insufficient water during the growing season, low quality seeds and plant varieties, inadequate credit and technical assistance, limited use of fertilizer and inadequate marketing. While irrigation is essential to achieve substantially higher levels of production and productivity in cereals, potatoes, fruits, vegetables and forage crops, there is also a need for agricultural services and social infrastructure in the project area. In addition to updating previous studies of the Huachi-Pelileo project, the subproject would include an examination of agricultural extension and credit, storage and marketing facilities, applied agricultural research, potable water, health services and primary schools.

45. The second project covers the Quero canton of 18,370 ha which has a population of 13,200 persons at altitudes ranging from 2,900 to 3,600 m. There are 3,132 farms in the project area currently cropping some 4,800 ha and with 4,677 ha in pastures. The main crops are potatoes, onions and maize with smaller areas in broad beans, barley and garlic. The project proposal focuses on raising agricultural production through better inputs -- primarily fertilizer, pesticides and improved seeds -- and improving the living standards of the smaller farmers with less than 14 ha (98 percent of the farms occupying 42 percent of the farming area); for 87 percent of the target group in the project area, per capita income is now below $240 per annum. The project also would include a health program (potable water, health services and latrines), roads and community centers. The proposed project, according to MAG's estimates, would triple the value of farm production and double the level of farm employment.

46. The subproject would emphasize the provision of technical services to bring the two rural development projects to the feasibility stage level. The subproject would provide for 30 man-months of foreign consultant services including specialists in agriculture, agricultural economics, agricultural extension, irrigation, groundwater, geology, and soil and land classification. Ecuadorian-counterpart professionals, to the extent of 75 man-months, would be primarily furnished by INERHI which has considerable experience in working with foreign consultants. These counterparts would include specialists in agriculture, economics, sociology, education, civil engineering, hydrology and rural works engineering. The subproject would provide as well for associated equipment and for the necessary geological investigations. Further, the subproject would include a pre-investment study of the possibility of developing a small industrial estate in the provincial capital of Ambato, which would increase employment opportunities near the area of the proposed rural development projects.

Esmeraldas Basin

47. The Esmeraldas River Basin, the second most extensive on the Pacific Coast, includes both the Pichincha and Esmeraldas Provinces. The latter has 1.5 million ha of the total basin area of 2.1 million ha; its population has approximately doubled between 1955 and 1974 to some 203,000 persons (65 percent rural). Despite this substantial immigration, the population density is still relatively low; large parts of the province are still - 17 -

in the public domain and covered by virgin, humid-tropical forest. Precipi- tation ranges from 1,000 mm annually on the coast up to 3,500 mm inland at the foot of the Andes. Soils are shallow and frequently difficult to manage but are suitable for major crops (bananas, lemons, mangoes, oil palm and cotton) and pastures.

48. Since the mid-1960's, the economy of the lower basin area has suffered from a decline in banana production. Owing to a change in consumer preferences, the effects of the Panama disease and a shift to the Cavendish variety, the center of Ecuador's banana industry has moved to the south. In Esmeraldas and Pichinclha Provinces about 80% of the arable area is now cultivated, while there are 740,000 ha of pastures and 2,000,000 ha of forests. The provision of economic and social infrastructure and social services to the zone has not kept pace with the rapid population growth. Illiteracy in the rural areas is higher than the national average, and health services are poor by national standards. Owing to these factors and the physical potential of the basin, the Government attaches considerable priority to activities designed to improve conditions therein.

49. Over the past three years, the Organization of American States (OAS) has conducted studies Df the land and water resources in the Esmeraldas basin and their development potential. The studies which are of pre-feasibility level, will be available by mid-1976 and will provide the background for the activities to be carried out under this subproject.

50. The subproject would provide the personnel and associated equipment needed to prepare 2 or 3 agriculture and/or rural development projects. During a first phase lasting about 3 months, a team of specialists from the Bank/FAO Cooperative Program 1/ would review the OAS findings and prepare terms of reference for the feasibility studies for 2 or 3 projects, which studies would be carried out during the second phase of the subproject. One of these projects would very likely be located in the Zona Cuadrangular, located in the center of the Esmeraldas basiin. With a total of 180,000 ha of which 110,000 ha are considered arable, the Zona Cuadrangular would be devoted to African oil-palm, rubber and improved pasture. Most of the project area is now uninhabited and the main infrastructure investment required is for feeder roads. In the portion of the area that is al:ready settled by "colonos", there is also need for social-infrastructure investment. A second promising project possibility is for a combined plantation-mill operation to produce banana meal, as proposed by a recent sector study. A third project possibility would be one based on various opportunities fEor small-scale industrial activities in the basin. For these 3 project-preparation efforts under the subproject, the Bank loan would finance 44 man-months of services from consultants as well as the necessary equipment and logistical support. Some 60 man-months of Ecuadorian counterparts in these same fields would be provided by related agencies.

1/ These services would be financed by the IBRD/FAO Cooperative Program budget. - 18 -

Execution

51. The overall responsibility for the execution of the proposed project would be assigned to JUNAPLA. JUNAPLA would designate a full-time coordinator who would oversee all of the aforementioned activities, assisted by the leader of the team of internationally recruited specialists. The appointment of the project coordinator and his assumption of his duties comprise a condition of effectiveness (ref. Section 5.01(c) of the draft Loan Agreement). His functions are envisaged as (a) monitoring and reviewing the operations of the subproject teams; (b) ensuring the adequacy of their logistical and administrative support; (c) maintaining adequate liaison between the teams, the Government agencies involved, and the Bank for the project's operations; and (d) ex- pediting arrangements for consultant contracts. In this capacity, the coordinator would seek to ensure that Ecuadorian personnel in sufficient numbers and skills are assigned to the subproject teams. It will be necessary also for JUNAPLA to supervise the selection, preparation and implementation of the studies, and to ensure that suitable arrangements are made to implement projects emerging from them.

52. For the execution of each subproject, a Government agency would be designated in consultation with the Bank. CEDEGE in cooperation with INERHI, as indicated in para 41, would be responsible for the Lower Guayas Basin subproject. (The inter-ministerial task force referred to in para 44 would continue its work on the two Tungurahua Province studies.) The Esmeraldas Basin subproject involves various agencies and therefore needs a coordinating unit. JUNAPLA would establish such a unit composed of representatives of the participating agencies. Teams of Ecuadorian specialists from each one of the designated agencies led by team leaders would be assisted by internationally recruited consultants. The appointment of the Government team leaders for each subproject would be a condition of disbursement for the funds provided by the proposed loan for the respective studies (ref. Schedule 1, para 3b of the draft Loan Agreement). The Government teams responsible for the various subprojects will prepare terms of reference for such studies, prequalify consulting firms, select the consultants for the studies, and enter into contracts with them -- all subject to approval of the Bank. Entering into such contracts would be a condition of disbursement for the funds provided (ref. Schedule 1, para. 3(c) of the draft Loan Agreement).

33. In carrying out that work, the Government teams would obtain substantial support from FONAPRE, the Government's principal arm for financing and overseeing preinvestment studies. Although it is an autonomous public entity, FONAPRE is affiliated with JUNAPLA with which it works quite closely. The President of JUNAPLA presides over the Fund's board of directors and has to approve all its decisions. FONAPRE was established in December 1973 to encourage the steady flow of well prepared investment projects in an ex- peditious and orderly manner, and has done so. Its latest report indicates that FONAPRE has already approved 41 preinvestment studies in a range of productive and infrastructure fields, and is now examining 12 additional - 19 - proposals. FONAPRE a:Lso has been administering a technical assistance fund provided by the IADB. FONAPRE has a small staff which is supplemented by JUNAPLA's functional specialists. Its professionals are well supervised and their capacity to develop and review projects is growing. On the basis of this potential, FONAPRE will assist JUNAPLA to discharge its overall responsibilities for the project by making important contributions regarding the studies at several stages. FONAPRE keeps a register of consultants and would advise the subproject team leaders on their selection and approval. It would review the details on the estimated cost and terms of reference for the studies, and the 'List of prequalified consulting firms. Apart from advising JUNAPLA on these matters, FONAPRE would also prepare the contracts for all consulting services as part of the package for each study to be approved by JUNAPLA. Finally, although the bulk of detailed supervision of the consultants' work will be borne by each subproject team, FONAPRE would assist in the supervision of ongoing studies through its review of consultant reports.

Costs and Financing

54. The overall cost of the project is estimated at US$5.6 million equivalent, including a foreign exchange component of US$4 million. Its composition is reflected in Table 1 which follows. The proposed Bank loan would finance the foreign exchange cost with the Government financing the remainder. Up to now, external financing of preinvestment studies in Ecuador has been provided to a considerable extent by the UNDP. However, that program is now fully committed for the remainder of its present 5-year authority (1972-76), and cannot meet all of the priority requests of the Government. However, t1ie UNDP may finance other experts for the rural development planning group to support the work of those provided under the proposed loan (ref. para. 35). - 20 -

TABLE 1

S/. (000) US$ (000) Subprojects: Local Foreign Total Local Foreign Total

Rural Development Planning Group 9,500 14,875 24,375 380 595 975

Lower Guayas- Naranjal Studies 14,125 54,625 68,750 565 2,185 2,750

Tungurahua Province Studies 4,375 9,375 13,750 175 375 550

Esmeraldas Basin Studies 4,500 8,625 13,125 180 345 525

Total 32,500 87,500 120,000 1,300 3,500 4,800

Contingencies (Price) /1 7,500 12,500 20,000 300 500 800

Total Project Costs 40,000 100,000 140,000 1,600 4,000 5,600

/1 Price contingencies are calculated based on an estimated price increase of 10% per year for foreign cost and 15% per year for local costs. Physical contingencies are included in the estimates of the cost components themselves.

55. The proposed loan would be made to the Government of Ecuador, repayable over 15 years, including 4 years of grace. Proceeds of the loan would be channeled as a grant by the Government to FONAPRE on behalf of the National Planning Board, thus conforming to the prevailing practices concerning the Fund. It was agreed that FONAPRE would provide the funds required for the project studies to the agencies designated to carry them out on its standard terms. The Pre-Investment Fund presently charges such agencies 6 percent for productive and economic infrastructure projects (which most of these activities are likely to be considered) and 4 percent for social projects or studies of a general nature. As they do not earn revenues, the agencies who will execute the studies are expected to repay FONAPRE through automatic retention of a portion of their future budget allocations. Repayments of and interest on these sub-loans would accrue to FONAPRE's resources and would be available for its further lending operations. - 21 -

Procurement

56. The selection and contracts of all consultants would be subject to approval by the Bank. The Bank would disburse from the proposed loan 100 percent of foreign exchange costs for technical services and overseas training; and 100 percent of foreign exchange costs (and 80 percent of the cost of locally procured imported goods) for equipment. The Government would finance offices, office equipmlent and the salaries of all Ecuadorian personnel. Re- troactive financing not exceeding US$200,000 is proposed for consultant services or equipment provided after January 1, 1976 with the approval of the Bank.

57. Vehicles and equipment would be procured through competitive bidding advertised locally, because of the size and timing of individual purchases. Grouping of orders wouLld not be practical since vehicles and equipment have to be purchased in smELll numbers by different agencies and over a period of more than 2 years. Ite presence of local representatives of foreign manu- facturers, furthermore, would permit adequate service and spare parts.

Benefits and Risks

58. The technical services to be provided under the proposed project will help strengthen the capabilities of Ecuadorian agencies in rural development and reduce the critical shortage of skilled manpower. The project will assist the Government to increase the number of well-prepared priority projects and to shift some of the emphasis of its investment programs from infrastructure to rural developm!ent. Moreover, without this proposed assistance, future rural development project preparation would very likely result in more costly and/or ineffective projects, consequently frustrating the Government's goals of improving the quality of life of the rural poor and raising agricultural production. Thus, there would be achieved better resource allocation, as well as a basis for improved use and coordination of external financial assistance. The combined impact of these benefits would be substantial. However, since the investment costs of most of the projects which will be prepared and imple- mented as a result of the subprojects financed by the loan are not yet deter- minable, it is not possible to quantify their likely benefits in a meaningful fashion.

59. The execution of the project does not entail substantial risks but does place considerable responsibility on the quality of the staff that JUNAPLA assigns to the rural development planning unit and the specialists to be recruited as their advisors (ref. para 34). Both would require close monitoring by the Government and the Bank. In order to minimize the risks, the aforementioned specialists would be appointed with the approval of the Bank. The terms of reference of all studies financed under the Loan would be approved, furthermore, by the Bank (ref. para 52). - 22 -

PART V - LEGAL INSTRUMENTS AND AUTHORITY

60. The draft Loan Agreement between the Republic of Ecuador and the Bank, the Report of the Committee provided for in Article III, Section 4(iii) of the Article of Agreement and the text of a resolution approving the proposed loan are being distributed to the Executive Directors separately. The draft agreement conforms to the normal pattern of loans for this type of project.

61. The following are additional conditions of effectiveness:

(i) That the rural development specialist has been retained by FONAPRE and his counterpart designated and has taken his post (Section 5.01(a));

(ii) That the Borrower has made the proceeds of the Loan available to FONAPRE in accordance with Section 3.06(a) of the Loan Agreement (Section 5.01(b)); and

(iii) That the Project Coordinator has been designated and has taken up his post (Section 5.01(c)).

62. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank.

PART VI - RECOMMENDATION

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

Robert S. McNamara President

Attachments

March 18, 1976 Annex I

ECUADOR - SCA INDICATORS DATA SHEETPae 1o 5 LAND AREA (THOU KNZ2 - --- ECAO REFERENKE COW TRIES (19701 TOTAL 283.6 MOST RECENT ARABLE .. 1960 1970 EST1IRATE ALGERIA PERU VENEZUELA"

GNP PER CAPITA IUS$3 190.0 280.0 380.0 0 510.0 ---. 1 -.O----

POPULATION AND VITAL STATISTIC:S

POPULATION (MID-YR. MILLIONI 4.4 6.1 6.8 14.7 13.3 10.3

POPULATION DE~. iYY PER SQUARE KM. 16.0 21.0 24.0 6.0 11.0 11.0 PER SQUARE KM. ARABLE LANO . 103.0... 400.0

VITAL STATISTICS 3 9 CRUDE BIRTH RATE PER THOUSAND 48.0/a 38.0 a .0O/a 49.0 42.0 40.0 CRUOE DEATH RATE PER THOUSAND 14.0r. 11.0 10.0 ; 17.0 i1.08. / 6 INFANT MORTALITY RATE I/Ti-IOU) ioo.o7; 77.0 Ia 79.0 a 8 .0/a 65.0 49.0 LIFE EXPECTANCY AT BIRTH IYRS) 5i.07;b 57.0 60.0 51.0 58.0 64.0 GROSS REPRODUCTION RATE . 3.3 3.2 3.5 2.9 Z.9

POPULATION GROWTH RATE Is) TOTAL 3.0 3.4 3.4 3.1. 2.9 3.5 URBAN 5.0 5.0 5.0 7.0 5.01 4.5

URBAN POPUJLATION tS OF TOTAL)I 36.0/c 38.0 39.0 45.0 51.0 16.0

AGE STRUCTJRF (PERCENT) 0 TO 14 YEARS 45.0/a c 48.0/a 47.0 /a 47.0/b 45.0/. 47.1 15 TO 64 YeARS 52.07a c 49.07;. 50.0 49.0/b S2.0/a 50.5 65 YEARS AND nVER 3.07a.. 3.07;a 3.0 a4.07b 3.07; 2.4

AGE OFPFNDcNCY RATIO 0:9/a c 1.0/a 1. O/a 1.0/b 0.9/a 1.0 ECONOmiC DFPENOFNCY RATIO 1.77 1.67;b 1. 57;- z.6/7b 1.5 1.6/

FAMILY PLANNING- ACCEPTORS (CUMULATIVE, THOU) . .. USERS IT OF MARRIED WOMEN,I. ..

EMPLOYMENT

6 0 0 4 3 00 TOTAL LABOR FORCE ( THOUSANOD,, 1400.0/a,c 1900.0 2200.0 2 4 .0/b c 4 .0/a 3200.A,b LABORCORCFIN AGRICULTURE ) 5 7IS.0/a,c- 54.0 .. 6 ./c ./a 2. UNEMPLOYEOIT OtF LABOPR FORC) . . . I .Oj/bc 5.07b 6i.0/c

INCOME nISTRIBUTION

I OF PRIVATE INCOME REC'D RT'- HIGHEST 5R OF POPULATION 52.6/d 43.0 /c .. 31.4/c HIGHEST 205 OF POPULATION 69.277d 72. 07 .. 62.6/c. LOWEST 20R OF POPULATION 4.377d 1.8 /c i...8-c LOWEST 401 OF POPULATION 9.a77 5.2 77c F.. 37-7

DISTRIBIJTInN OF LAND OWNERSHI)l

S: OWNED BY TOP 1OR OF OWNEP!, . . 93.0 S OWNEn BY SMALLEST 101t OWNF RS . .. 0.1

HEALTH AND NUTRIT ION

POPULATION PER PHYSICIAN 21300.0/c 2930.0 . 1860.0 1920.0 L100.0 POPULATION PER NJRSING PERSrIN . 8 630.0. 273 0.3 3 20J.0 530.0 POPULATION PER HOSPITAL BED 520.0/c,e 430.0 470 .0 340.0 470.0 320.0

PER CAPITA SUPPLY OF - CALORIES I8 OF REQUIREMENIIS) 81.0 89.0 88.0 71.0 98. 0 100.0 PROTEIN (GRAMS PER flAY) 46.0 49.0 47.0 45.0 62.0 62.0 -OF WHICH ANIMAL AND PULSE 24.0 22.0 . 9.0/d 24.0 32.3

DEATH RATE I/THOU) AGES 1-4 . 13.0 . 1 2.0/b . 5.0

EDUJCAT ION

ADJUSTED FNROLLMENT RATIO PRIMARY SCHOOL a3.0 95.0 . 75.0 115.0 82.0 SECONDARY SCHrOOL 12.0 24.0 .. 1.0 41.0 3 3.0 YEARS OF SCHOOLING PROVIDED (FIRST ANO0 SECOND LEVEL) 12.0 12.0 12.0 15.0 1z.O 11.0 VOICATIONAL ENROLLMENT IS OF SrCONnARY) 29.0 29.0 . 20.0 17.0/d 33.0 ADULT LITERACY RATE IS) .. 68.0 69.0 25.0

HOUSING

PERSONS PER ROOM (AVERAGEI 2.1/c .. 2.8/b e OCCUPIED DWELLINGS wiTHOUT PIPED WATER 88.0/c f . 77.0/b ACCESS TO ELECTRICITY Il OF ALL DWELLINGS) 32.0/c .. 34.0/b RURAL DWELLINGS CONNECTED 9 TO ELECTRICITY (II .0/c . 12.0/b

CONSUMPTION

RADIO RECEIVERS (PER THOU PCPI 41.0 279.0 . 52.0 134.0 164.0 PASSENGER CARS (PER THOU POP) 2.0 4.0 5.0 10.0 11.0 55.0 ELECTRICITY (KWH/YR PER CAP) 92.0 156.0 1 72. 0 139.0 3 92 .0 1215.0 NEWSPRINT (KG/YR PFR CAP) 2.0 2 .3 3 .8 0.01 3.6 7.8

SEE NOTES AND DEFINITIONS ON REVERSE Anniex I

___ Page 2 of 5

Unless otherwise noted, data for 1960 refer to 1959-61, for 1970 to 1968-70, and for Most Recent Estimate to 1971-73.

** Venexuela has been selected an en objective country because of its e"erimen in economic dawlopseut based on petroleus exports.

ECUADOR 1960 /a Excluding ncedic Indian jungle population; lb 1961-63; /c 1962; /d 1965, incase recipient; /a Covermsent hospital establishments; Lf inside only. 1970 /a Ezcluding nomedic Indian tribes; lb Ratio of populaticm under 15 and 65 and over to total labor force; Ic Income recipient.

MOST RECENTESTIMTE: /a Excluding nasadic Indian tribes; /b Ratio of population under 15 and 65 and over to total labor force.

ALGERIA 1970 /a 1965, Algerian population only; /b 1966; /c Excluding military persawoel in barracks and 274,663 nationals abroad of whom 229,020 are econasically active; also excluding 1,200,000 mainly occupied in agriculture; /d 1964-66; Ie Total, urban and rural.

PERU 1970 Ia Excludes Indian jungle population; /b Urban areas only; / Economically active population; /d Including evning achools.

VENEZUELA 1970 Ia Ratio of population under 15 and 65 and over to total labor force; /b E onoaically active p.pul.tion; Tc April and Deceaber. R5 February 19, 1976 IEFflTfIONS OF SOCIAL INDICATORS

Iand Area (thou ~~~ ~~~~~~~~~~Popuationer nursj peron - Population divided by number of practicing Total-'fot,al surface area comprising land area and inland vawates maeadfmaegaut nurses, "trained" or 'certi-fied" nurses, and U a- Most recent estimate of land area used temporarily or permanently auxiliar-y personnel with training or experience. for-cultivation, patures, market and kitchen gardens or to lie fallow. Poplaio prhoilbd-Ppatndvmdynuerfhsialed aalbeIn public and private general and specialized hospital and proN cito )" - (DP per capita estimates at market prices, calcu- rehabilitation centers; excludes nursing hones and establishments for saeconversion methiod as World Bank Atlas (1972-74&basis), custodial and preventive care. Per capita supply of calories (%of.a rurments r omputed from energy = tio.n and vital statistics equivalent of net food supplies available in ~country per capita per day; ultion mid-yr. million) - As of July first; if not available, average available supplies comprise dDmstic production, imports lens exports, of two end-year estimates, and changes in stock; net supplies exclude animal feed, seeds, quanti- ties used in food processing and losses in distribution; requirements Popurlaiondenity - er squae Mo-i~d-yearpopulation per square kilo- were estimated by FAO based on pbysiological needs for normal activity mee1(7hctrs of Tta ara and health considering environmental temperature, body weights, age and Popultion density - per square los of arable land - Computed ase above for sex distributions of population, and allaowing 10% fur waste at household arale land only. level. Per capita supply oprotein (grams per day) - Protein content of per Vital statistics capita net supply .1 food pr day, net supply of food is defined as Or-ueb= raeper tahousand - Aimual live births per thousand of mid- above; requirements for all countries established by USDA Economic year population ; msualy five-year averages ending in 1960, 1970 and Research Services provide for a minimum al-lowance of 60 grams of total 1975 for developing countries, protein per day, and 20 grams of animal and pulsHe protein, of whiich 10 Crddeeat rat perthousand - Annual deatha per thousand of mid-year grams should be animal protein; these standardLs are lower than those of populatin; usalyfive-year averages ending in 1960, 1970 and 1975 75 grams of total protein and 23 grasms of animal protein as an average for developing countries. fum the world, proposed by FAO in the Third World Food Survey. rorate ~/thou) - Annual deaths of Infants under one year Per capita porotein uppl fro animal ad pulse - Protein supply of food of age pe usn e births. deie rmaiasedpie ngas par day. Life ectan at birth Rs) -Average number of years of life remain- Dahrate /,thu) aags 1-14 - Annual deaths par thousand in age group 1-4 13 wi'l9htoiil fv year averages ending in 1960, 1970 and en, -is age group; suggested as en indicator of mal- 1975 for developing countries. nutrition. 11rosrR:ctinrarte - Average number of live daughters a woman will berF e poutv periodi if she experiencees present age- Education speci-fic fertility rates; usually five-year averages ending in 1960, A us eenrolletrto col-Enrollment of all ages as per- 1970 and 1975 for developing countries. o popag tion; cludes childrben aged 6-li1 Popuatiogroth rte () - otal-Compound annual growth rates of mid- years but adjusted for different lengths of primary education; for coon- yer opltin otlO0 190 70, and 1960 to most recant year. tries with universal eduication, enrolment mnay excee 0%soesm Popul.ation grwhrate ()-urban - Computed like growth rate of total pupils are below or above the official school age. popuatio; dfferent definitions of urban are-as may affect cumapara- Adjusted enrollment ratio - secondary school - Computed as above; second- bility of data among countries. ary, education requires at least four yearn of approved primary instruc- Urbanpqpj of total) - Ratio of urban to total population; dif- tion; provides general, vocational or teacher training instructions for ! Nl ontl or urban areas may affect comparability of data pupi-ls of 12 t 7yaso g;crepnec ore r eeal amonig countries, excluded. stute~ 4t - Children (0-14, years), working-age (15-614 years), Years of schoolin prvded (fist and secn levels) - Total years of an retirTe year end over) as percentages of mid-year population, schooling; tscnaylvl voatina nstruction nay be partially Agmend rati - Ratio of population under 15 and 65 and over to or completely excluded. Mofs age through 614. Voca tional enrollmernt (%ofosecondary) - Vocational institutions include r-patio - Ratio of population under 15 and 65 and over tcacl nutilo te rgaswihoeaeIdpnatyo to eh ao prsin age gmup of 15-614 years. as departments of secondary institutions. Ffmyplanning - acetors (cumuilative, thoui) - Cumulative number of Autle ra te %)- Literate adults (able to read and write) as per- acetor of bio-t=otrrol devices under auspices of national family cnaeof tog?addult population aged 15 years and over. planning program since inception. Family o arie omn)-Percentages of married Housing women chdle age (15" ye ar) who use birthm-control de- Personas room (average) - Average nmober of persons par room in occupied vices t~o all married women in sance age group. covafiHiicI&eIlimgs in urban areas; dwellings exclude non-permanent structures end unoccupied paris. ~~~~l~~~~~~~ant~~~~~~~~~~Occupied dwellingswithoutapiped water ()-Occupied conventional dwell- TotZ =a r force (thousand) - Economically active persons, including ig nubnedrrlaeswtot~ieo usd ie ae are ocsGruneM06 but excuding housevives, students, etc.;1 faci-lities as percentage of all occupied cdwellings. definitions in various countries are not coqmprable. Access to electricity (%of all dwellings) - Conventional dwellings with lao orei - Agricultural labor force (in farming, electricity in livi.ng quarters as per-cent of total dwellings in urban foetr,as percentage of total labor force, and rural areas. Unemployed (%olarfrc)-Unemployed are usually defi-ned as per- Rural dwlinigs connected to electricity' (%) - Computed as shove for rural sons who are beed~ln to take a job, out of a job on a given dWelig only. day, remained out of a job, and seeking work for a specified minimum period not exceeding one week; may' not be comparable between coon-Co t tries due to different definitions of unaMployed and source of data, a thou ) - All types of receivers fbr radio broad- e.g., employment office statistics, sample surveys, compulsory unam- casts to gamer Ppu c par thousand of population; excludes unlicensed ploynent insurance, receivers in countries and in years when regiBtrationi of radio sets was in effest; data for recent years may not be comparable since msat ooun- Income distribution - Percentage of private incase (both in cash and tries abolished licensing. kind) received by richest 5%, richest 20%, poorest 20%, and poorest ercr rthou p) - Passenger cars comprise motor cars seating 140% of population. L"i.iiiF pirsons; axcludes ambulances, hearses end military vehicles. Distribution of land ownesrhip - Percentages of land oumed by wealthiest Eleetricci IAVW gc -Anulomu tinfidsra,cmeca, 10% and poorest 10% of land owners. I ~~~ teiec ricity in kilowatt hours per capita; generally based on production data, without allowance for losses in grids but allow- Health end Nutrition ing for imports and e tort of electricity. P20 to r Iian - Population divided by number of practicing !!Nit~gy e - Per capita annual oorsumption in kilograsm p siciansquaI a5 rc a medical school at university level. estimatedfrm. escFocutnplsetiorsf nw rnt SELECTED ECONOMICDEV W?Xr DATA

(A-out i. clllioco of dollre)

Actol Prolected Grmwth arte. Percent Aver... As of 0 1970-72 1972 1973 1974? 1975 1976 1978 1980 1982 1985 1965-70 1970-74 1974-80 1980-83 1972 1974P 1976 118 1903 1963 Constant 1970-72 PrIei. and Exchoe Rate

GCP 1,623 1,749 2,038 2,160 2,290 2,427 2,815 3,265 3,754 4,731 5.5 8.9 7.1 7.7 100.4 86.6 87.7 86.0 85.7 84.3

Gains free Teom of TrAde - -7 58 334 217 341 459 545 910 878 - - - - -0.4 13.4 12.3 14.0 14.3 15.7

C-ms Do.tic Ioc 1,623 1,742 2,096 2,494 2.507 Z,768 3,274 3,810 4,664 5,609 4.6 12.1 7.3 8.0 100.0 100.0 100.0 100.0 100.0 100.0 b_orte (incloding FWS) 426 422 430 760 770 842 1,076 1.412 1.648 1,984 11.0 19.3 10.9 7.1 24.2 30.5 30.4 32.9 37.1 35.4 Teport Capnaity (Enportt) 269 348 512 768 673 867 1,077 1,253 1,822 1,963 18.2 12.2 8.5 9.4 20.0 30.8 31.3 32.9 32.9 35.0 Rc-or-e Cap 157 74 -82 . 97 -25 -1 159 -174 21 - - - , 4.2 -0.3 -0.9 0 4.2 0,4

'en-.ptimo EnpendLttre 1.400 1,427 1,541 1,872 1,934 2.025 2,394 2.780 3,197 4,013 4.4 8.9 6.8 7.6 81.9 75.1 73.2 73.1 73.0 71.5 loveserent EmneodLcre 380 389 473 614 670 718 879 1,189 1,293 1,617 18.2 18.0 11.6 6.3 22.3 24.6 25.9 26.8 31.2 28.8 De-tic S-vi1g. 223 51S 555 622 573 743 880 1,030 1,467 1,596 9.0 30.0 8.8 9.2 18.1 24.9 26.8 26.9 27.0 28.5 NIclonel S-vin8g 188 246 358 602 543 724 845 993 1,420 1,528 11.7 34S 8.7 9.0 14.1 24.1 26.2 25.8 26.1 27.2

Price Indices (1970-72-100)

D-tic Price lodes 100 109 122 150 177 203 246 293 357 45

Imort Pri Inde. 100 105 120 150 155 162 179 199 222 276

Rnport Price Indc- 100 103 135 266 229 267 312 352 444 499

Tares of Trade loden 100 98 112 177 148 165 174 117 200 181

11-12-75 BAIANCEOY PAY)1Nrs

rert 1 Import Det.l

(million US$)

Aver...lrc Actuel Proleted 1970-72 1972 1973 1974P 1975 1976 1977 1978 1979 1980 1981 1982

I. IMPORTS C.I.F.

A. Constant (1970-72) Price, Primary and intermediate good. 143.2 133.6 142.4 239.5 252 260 320 355 393 459 501 538 Capital good. 107.7 120.7 118.0 287.8 286 338 399 448 531 614 665 710 Conaumer goods 40.8 42.6 57.3 76.7 83 82 82 88 98 108 119 131 Fuel. and lubricants 18.5 9.3 8.0 6.3 7 9 7 6 6 6 6 6 Total goods 310.2 306.2 325.7 610.3 628 689 808 897 1,028 1,187 1,291 1,385 Non-factor .ervi... 115.8 115.3 103.8 149.6 142 153 170 179 205 225 245 263

Total goods and 808 426.0 421.5 429.5 759.9 770 842 978 1,076 1,233 1,412 1,536 1,648

B. Ptcin Indi... (1970-72-100) Prilary and inter- -ediate goods 100 101 122 185 177 181 186 189 194 204 215 227 Capital goodo 100 104 125 135 145 153 163 173 184 196 207 218 Consumer goods 100 111 112 144 156 168 178 191 204 218 232 247 Fuel, and lubricant. 100 114 138 267 285 510 335 360 385 411 439 469 Total good. 100 104 122 167 161 167 175 182 181 202 213 225 Non-factor servic.s 100 108 114 122 130 139 149 159 170 182 193 205

Total goods and NFS 100 105 120 150 155 162 170 179 187 199 210 222

C. Current Priceo Proiary and inter- nediat. goods 143.2 135.0 173.8 443.1 446 471 595 671 762 936 1,077 1,221 Capital good. 107.7 125.7 147.8 388.6 415 517 650 773 977 1,203 1,376 1,548 Consumer goodo 408 47.2 64.4 110.4 130 138 146 168 200 235 276 323 F.-l, nd lubric-nta 18.5 10,6 11.2 16.3 19 28 23 22 23 25 26 28 Total goods 310.2 318.5 397.2 958.4 1,010 1,154 1,414 1,636 1,962 2,399 2,755 3.120 Non-factor services 115.8 124.5 118.2 182.5 185 213 253 285 349 409 473 539

Total goods end NFS 426.0 443.0 515.4 1,140.9 1,195 1,367 1,667 1,921 2.311 2,808 3,228 3.659

Part II: Exoort Detail

(million US$)

Average Actunl Proiected 1970-72 1972 1973 1974P 1975 1976 1977 1978 1979 1980 1981 1982

11. EXPORTS

A. Constant (1970-72) Price. Bananas 100.8 126.0 102.2 98.7 116 116 116 119 122 125 130 134 Coffee 44.4 51.1 62.9 49.2 48 47 49 51 52 52 53 54 Co... 23.4 24.8 17.4 36.6 29 30 31 32 33 34 34 36 Sugar 11.5 13.6 9.8 11.7 12 13 20 27 37 50 55 60 Shrimp and fioh 9.6 7.8 7.7 9.6 9 10 14 19 22 24 25 26 Petroleun 20.5 59.5 171.0 127.0 121 169 184 203 231 228 275 354 Other. 28.2 32.2 53.7 713 99 109 120 132 145 160 176 206 Total good. 238.4 315.0 424.7 404.1 434 494 534 583 642 673 748 870 Non-factor e-rvoc.. 30,8 39.7 29.2 29.6 29 32 34 35 36 37 39 42

Totl good. and NFS 269.2 354.7 453.9 433.7 463 526 568 618 678 708 787 912

B. Price Indlce. (1970-72-100) Banana. 100 104 107 115 128 123 132 139 147 157 172 188 Coffee 100 92 104 137 141 196 233 266 272 276 297 320 Co.o. 100 95 149 281 214 229 244 240 238 234 251 269 Sugar 100 97 128 363 348 319 246 247 267 286 306 327 Shrimp and fish 100 196 184 159 158 166 174 183 192 202 214 227 Petroleua 100 100 165 530 449 488 527 566 608 651 697 746 Other. 100 104 122 132 137 148 161 175 187 200 214 256 Total goods 100 103 135 274 233 273 296 318 345 359 399 453 Non-factor aervica, 100 105 134 147 169 177 185 194 204 214 226 239

Total goods and NFS 100 103 135 266 229 267 289 312 338 352 390 444

C. Current Price. Bananan 100.8 131.0 109.4 113.5 148 143 153 165 179 196 224 252 Coffee 44.4 47.0 65.4 67.4 68 92 114 136 141 144 157 173 Cocoa 23.4 23.6 26.0 102.9 62 69 76 77 79 80 85 97 Sogar 11.5 13.2 12.5 42.5 42 41 49 67 99 143 168 196 Shri=p and fi1h 9.6 15.4 14.2 15.3 15 17 25 54 43 48 54 59 Patrole,oa 20.5 59.5 282.1 673.1 543 825 970 1.149 1.404 1,484 1,917 2,641 Other, 28.0 33.5 65.5 94.1 136 161 193 231 271 320 377 527 Total goods 238.4 323.2 575.1 1,108.8 1,014 1,348 1,580 1,859 2,216 2,415 2,982 3.945 Non-factor -ervice. 30.8 41.7 39.1 43.5 49 56 63 68 73 79 88 100

Total goods and NFS 269.2 364.9 614.2 1,152.3 1,063 1,404 1,643 1,927 2,289 2,494 3,070 4.045 PART III: SUMMARY BALANCE OF PAYMENTS

(million US$)

Average Actual Projected 1970-72 1972 1973P 1974P 1975e 197t 1977 1978 1979 1980 1981 1982

1. Imports (incl. NFS) 426 443 515 1,046 1,195 1,367 1,667 1,921 2,311 2,808 3,228 3,659 2. Exports (incl. NFS) 269 365 614 1,081 1,063 1,404 1,643 1,927 2,289 2,494 3,070 4,045 3. Resource Balance -157 -78 99 35 -132 37 -24 6 -22 -314 -15° 3O 4. Factor services -51 -87 -54 -68 -76 -122 -134 -149 -174 -185 -229 -307 5. Transfers, net 16 15 38 18 20 25 30 35 40 45 50 50 6. Balance on Current Account -192 -150 83 -15 -188 -60 -128 -108 -156 -454 -337 129 7. Private M & LT Capital 161 211 54 75 60 121 164 160 170 252 262 235 8. Public M & LT Capital 41 77 26 -9 74 83 65 68 107 137 129 108 (Disbursements) (66) (105) (59) (59) (135) (155) (133) (133) (163) (197) (184) (186) (Amortization) (25) (28) (33) (68) (61) (72) (68) (65) (56) (60) (55) (78) 9. Allocation of SDR's 4 4 ------10. Capital Transactions, n.i.e. -34 -68 -65 62 -76 40 -20 -20 30 30 30 30 (incl. errors and omissions) 11. Change in Reserves 20 -74 -98 -113 130 -184 -81 -100 -151 35 -84 -502 (- increase) 12. Reserves (net) end of period 69 128 226 339 209 393 474 574 725 690 774 1,276 13. External Public Debt, Outstanding and Disbursed (end of period) Total 245 301 327 293 367 450 515 583 690 827 956 1,064 IBRD 33 34 36 37 42 51 71 101 138 172 206 237 IDA 8 12 18 21 27 32 36 37 38 38 38 38 14. Public Debt Service Ratio 11.4 10.0 7.2 7.4 8.0 7.3 6.3 5.6 3.6 3.8 4.0 3.8 15. IBRD Debt Service as percent of Public Debt Service 14 12 12 7 11 10 12 13 18 20 18 17 16. IDA Debt Service as percent of Public Debt Service 0 0 0 0 0 0 0 0 0 0 0 0

11-12-75

U'0 ANNEX II Page 1 of 4

THE STATUS OF BANK GROUP OPERATIONS IN ECUADOR

A. STATEMENT OF BANK LOANS AND IDA CREDITS (as at January 31, 1976)

Loan or US$ million Credit Fiscal Amount (less cancellations) Number Year Borrower Purpose Rank IDA Undisbursed

7 loans and 2 credits fully disbursed 57.7 9.1 -

124 1968 Ecuador Education - 5.1 2.0 555 1968 Ecuador Fisheries 4.6 - 1.2 222 1970 Ecuador Agriculture - 10.0 4.2 721 1970 Ecuador DFC 8.0 - 0.2 286 1972 Ecuador Power - 6.8 1.7 930 1973 Ecuador DFC 20.0 - 7.2 425 1973 Ecuador Irrigation - 5.5 1.8 1030 1974 Empresa Municipal de Agua Potable de Guayaquil Water Supply 23.2 - 22.9 1157 1975 Ecuador Education 4.0 - 4.0

Total 117.5 36.5 45.2 of which has been repaid 39.0 0.2

Total now outstanding 78.5 36.3

Amount sold 1.8 of which has been repaid 1.8 - -

Total now held by Bank and IDA /a 78.5 36.3

Total undisbursed 35.5 9.7 45.2

/a Prior to exchange adjustments ANNEX II Page 2 of 4

B. STATEMENT OF IFC INVESTMENTS (as at January 31, 1976)

Type of Amount in US$ million Year Business Loan Equity Total

1966 & 1972 La Internacional S.A. Textiles 3.72 0.24 3.96 1969 Ecuatoriana de Desarrollo S.A. 1973 & 1975 Compania Fiaanciera (COFIEC) DFC - 0.34 0.34

Total gross commitments 3.72 0.58 4.30 less cancellations, terminations, repayments and sales 2.47 0.24 2.71

Total commitments now held by IFC 1.25 0.34 1.59

Total undisbursed - - -

C. PROJECTS IN EXECUTIi)N 1/

Credit No. 124-EC - Education Project; US$5.1 million Credit of June 27, 1968; Effe:tive Date: August 30, 1968; Closing Date: December 31, 1976.

The project is about three years behind schedule because of initial difficulties in appointing the project director and recruiting experts, and later because of shortages of counterpart funds. As a result of the reorgani- zation in 1974, project administration has improved and the project is now progressing satisfactoriLy. Twenty-three of 28 project schools are now in operation. The Government has authorized funds to finance the local cost component of the project. The Association has extended the Closing of this Credit until December 31, 1976 Ln order to conclude the construction of the remaining five project schools.

Loan No. 555-EC - Fisheries Project; US$5.3 million Loan of September 5, 1968; Effect:Lve Date: September 4, 1969; Closing Date: June 30, 1976.

This project had a slow start owing mainly to institutional problems and less than anticipated demand for the fishing vessels included in the project. The project is now proceeding satisfactorily towards its scheduled termination. Consultants are now concluding the final stages of the preparation of a fishery training school, which should be opened shortly.

1/ These notes are desiLgned to inform the Executive Directors regarding the progress of projects in execution and, in particular to report any problems which are being encountered and the action being taken to remedy them. They should be read in this sense and with the understanding that they do not purport to present a balanced evaluation of strengths and weaknesses in project execution. ANNEX II Page 3 of 4

Credit No. 222-EC - Third Livestock Development Project; US$10.0 million Credit of December 10, 1970; Effective Date: September 30, 1971; Closing Date: December 31, 1976.

The project is progressing satisfactorily. There was a slowdown in lending from May 1973, when negotiations regarding changes in interest rates for subloans were begun, until the issue was settled in May 1974. However, the credit is now fully committed and is expected to be fully disbursed by the Closing Date. The objectives of the project are being met, and demand for investments for subloans for beef and dairy development is good.

Loan No. 721-EC - Development Finance Companies Project; US$8.0 million Loan of February 5, 1971; Effective Date: October 15, 1971; Closing Date: MIarch 31, 1976.

Disbursements are running slightly behind the original schedule, but the loan is expected to be fully disbursed by the new Closing Date of March 31, 1976.

Credit No. 286-EC - Third Power Project; US$6.8 million Credit of February 15, 1972; Effective Date: December 15, 1972; Closing Date: May 15, 1976.

The generation components of the project were completed with excep- tion of the Cumbaya by-pass which had to be redesigned to overcome geological difficulties found while building the tunnel for the Nayon power plant. The transmission and distribution componenets of the Project remain to be completed. The beneficiary, Empresa Electrica de Quito, effected a tariff increase in December 1975; approved new organizational statutes; contracted for an asset revaluation study; and obtained a settlement of the outstanding debts of the Municipality of Quito. On the basis of these actions, the Association agreed to extend the Closing Date to May 15, 1976.

Credit 425-EC - Milagro Irrigation Project; US$5.5 million Credit of August 17, 1973; Effective Date: January 17, 1974; Closing Date: August 31, 1979.

Civil works are proceeding on schedule although there has been some delay in awarding bids for some project equipment. The arrival of a construction consultant has been scheduled to fit the expected arrival of the equipment. Consultants have been retained to carry out the feasibility studies for a possible second project.

Loan 930-EC - Second Development Finance Companies Project; US$20.0 million Loan of August 17, 1973; Effective Dates: COFIEC February 27, 1974; CFN March 4, 1974; Closing Date: December 31, 1977.

The project is proceeding according to schedule, and the loan is now almost completely committed. ANNEX II Page 4 of 4

Loan 1030-EC - Guayaquil and Guayas Province Water Supply Project; US$23 million Loan of July 23, 1974; Effective Date: January 29, 1975; Closing Date: June 30, 1978.

Disbursements have been considerably slow, owing to delays in effectiveness and changes in management and engineering consultants. However" procurement is now under way. Lower than anticipated revenues and cost increases are likely to create financial problems in the medium-term, and the Bank has started to discuss alternative solutions with the Borrower and the Government.

Loan 1157-EC - Vocational Training Project; US$4.0 million Loan of September 3, 1975; Effective Date: November 24, 1975; Closing Date: September 30, 1978.

Project implementation is proceeding satisfactorily. Construction of the first phase of the Guayaquil vocational training center has commenced and the equipment provided for this phase by the Federal Republic of Germany has been delivered. Design work for the remainder of the civil work is about half completed. Furniture and equipment lists are under preparation. ANNEX III Page 1 of 3

ECUADOR

TECHNICAL ASSISTANCE PROJECT AGRICULTURAL AND RURAL DEVELOPMENT PREPARATION LOAN AND PROJECT SUMMARY

Borrower: The Government of Ecuador

Amount: US$4.0 million

Terms: Repayable over 15 years, including a 4 year period of grace at 8-1/2 percent.

Re-lending Terms: From Preinvestment Fund (FONAPRE) to Government Agencies: 5-10 years including 1-3 years of grace at 4-6 percent per annum.

Project Description: The project provides technical assistance and associated equipment over a three-year period for the following subprojects: (a) establishment and training of a national rural development planning group, within JUNAPLA; (b) preparation of rural development projects in the province of Tungurahua; (c) preparation of rural and agricultural development projects in the lower Guayas Basin and a framework plan for water control and agricultural development for this region; and (d) pre-investment studies of rural development possibilities in the Esmeraldas River basin zone. ANNEX III Page 2 of 3

Estimated Cost: US$ Thousand Cost Components Technical,1 Services- Equipment Training Total

Rural Development Planning Group 907 32 36 975

Lower Guayas-Naranjal Zone Studies 2567 100 83 2750

Tungurahua Province Studies 495 55 - 550

Esmeraldas Basin Studies 485 40 - 525

Subtotal 4454 227 119 4800

Contingencies (Price) /2 756 24 20 800

Grand Total 5210 251 139 5600

/1 "Technical Services" include costs of foreign and local experts, office services and transportation. Foreign consulting services have been estimated at an average of US$45,600 per man-year for long-term consultants and an average of US$7,500 per man-month of short-term consultants, based on recent Bank experience in comparable projects in Latin America.

/2 Physical contingencies are included in the estimates of the cost components themselves.

Financing Plan: US$ million

IBRD 4.0

Govt. of Ecuador 1.6

5.6

Estimated Disbursements: 1976 1977 1978 1979

Annual 700 1,100 1,400 800 Cumulative 700 1,800 3,200 4,000 ANNEX III Page 3 of 3

Procurement Arrangements: Vehicles and equipment would be obtained on the basis of competitive procurement advertised locally and limited to firms that have service facilities in Ecuador.

Consultants: All contracts for consulting services would be subject to prior approval of the Bank. The advisors for the Planning Group would be recruited on an individual basis.

Experts for the subprojects would be provided as follows:

Estimated Man-Years over 3-year Period Ecuadorian Foreign Total

JUNAPLA Planning Group 18 11 29

Tungurahua Province 6 2.5 8.5

Guayas Basin 25 13 38

Esmeraldas Basin 8 3 11

Total 57 29.5 86.5

In addition, services by a foreign topographic mapping team would be provided.

Since one emphasis of the project is on improving the planning capacity of the Government of Ecuador, a major function of the consultants would be to train their Ecuadorian counterparts. For this reason, the draft Loan Agreement (ref. Section 3.05) calls specific attention to the consultants' obligations in this regard.

Rate of Return: Not applicable. I I1 82- 81° 81OD~Id 79.'7 8

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