World Bank Document

Document of The World Bank tIir0IL

FOR OFFICIAL USE ONLY Public Disclosure Authorized

ReportNo. P-2979-PE

REPORTAND RECOMENDATION

OF THE

PRESIDENTOF THE

Public Disclosure Authorized INTERNATIONALBANK FOR RECONSTRUCTIONAND DEVELOPMENT

TO THE

EXECUTIVEDIRECTORS

ON A

PROPOSED LOAN

TO THE

CORPORACIONPERUANA DE AEROPUERTOSY AVIACION COMERCIAL (CORPAC)

Public Disclosure Authorized WITH THE GUARANTEEOF THE

REPUBLIC OF PERU

FOR AN

AVIATION DEVELOPMENTPROJECT

March 4, 1981 Public Disclosure Authorized

Thisdocument has a restricteddistribution and may be used by recipientsonly in theperformance of their official duties. Its contentsmay not otherwisebe disclosedwithout WorldBank authorizaion. CURRENCY EQUIVALENTS

The exchange rate is being adjusted daily roughly in line with the difference between domestic and international inflation. The exchange rate and currency equivalents in effect on January 31, 1981 were as follows:

CURRENCY UNIT = Sol (S/.)

Calendar 1980 January 31, 1981

US$1 = S/. 287.8 SI. 353.0 SV. 1 = US$0.0035 US$ 0.0028 SI. 1,000 = US$3.47 US$ 2.83

FISCAL YEAR

January 1 to December 31

ABBREVIATIONS

AEROPERU Aerolineas del Peru (Peru's State-owned airlines)

COPESCO Comision Especial para Coordinar y Supervigilar el Plan Turistico y Cultural (Cuzco regional tourism development corporation)

CORPAC Corporacion Peruana de Aeropuertos y Aviacion Comercial (Peru Airports and Civil Aviation Authority)

DGTA Direccion General de Transporte Aereo (General Directorate of Air Transport)

ERP Economic Recovery Program

IDB Inter-American Development Bank

MTC Ministerio del Transporte y Comunicaciones (Ministry of Transport and Communications)

PPAR Project Performance Audit Report

PPF Project Preparation Facility

USAID United States Agency for International Development FOR OFFICIAL USE ONLY

REPUBLIC OF PERU

AVIATION DEVELOPMENT PROJECT

LOAN AND PROJECT SUMMARY

Borrower.: Corporacion Peruana de Aeropuertos y Aviacion Comercial (CORPAC)

Guarantor: Republic of Peru

Amount: US$58.0 million

Terms: Repayable in 17 years, including 4 years of grace, at 9.6 percent interest per annum

Project Description: The objectives of this project would be to increase the efficiency and security of civil aviation in Peru and improve service to the eastern jungle and jungle high- land regions, which currently have poor transport links with the rest of the country. This would be accomplished through (i) the improvement of three regional airports and construction of a fourth; (ii) provision on a nation-wide basis of communications, navigational and other aviation equipment including a flight inspection aircraft; and (iii) final engineering for the project airports and for a new airport at Cuzco and technical assistance for CORPAC. This project faces no special risks.

This documenthas a rsricaed distribution and may be used by recipients onlyin the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. - ii -

Estimated Cost: The estimated cost of the project, including about US$10.0 million in taxes and customs duties, is:

Local Foreign Total ------(US$ million)---

1. Airport Improvement and Construction 15.9 21.4 37.3 Tarapoto 6.0 8.4 14.4 Pucallpa 2.9 4.0 6.9 Huanuco 1.8 2.4 4.2 Tingo Maria 5.2 6.6 11.8

2. Equipment 17.1 28.2 45.3 Communications 10.4 14.1 24.5 Navigational Aids 3.9 4.5 8.4 Flight Inspection Aircraft 1.4 5.7 7.1 and Equipment Other 1.4 3.9 5.3

3. Consultants Services 1.3 3.4 4.7

Baseline Costs 34.3 53.0 87.3

Physical Contingencies 3.3 4.9 8.2 Price Contingencies 13.0 19.1 32.1

Total Costs 50.6 77.0 127.6

Financing Plan: Local Foreign Total ------(US$ million)------

Bank Loan -- 58.0 58.0 CORPAC 49.4 -- 49.4 Government 1.2 -- 1.2 Cofinancing -- 19.0 19.0

50.6 77.0 127.6

Estimated Disbursements:

Bank FY 1982 1983 1984 1985 1986 …_____-----…US$ million------

Annual 8.9 22.0 17.9 8.7 0.5 Cumulative 8.9 30.9 48.8 57.5 58.0

Rate of Return: 20 percent

Appraisal Report: No. 2960b-PE of February 25, 1981 INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE IBRD TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE CORPORACION PERUANA DE AEROPUERTOS Y AVIACION COMERCIAL (CORPAC) WITH THE GUARANTEE OF THE REPUBLIC OF PERU FOR AN AVIATION DEVELOPMENT PROJECT

1. I submit the following report and recommendation on a proposed loan to the Corporacion Peruana de Aeropuertos y Aviacion Comercial (CORPAC) with the Guarantee of the Republic of Peru for the equivalent of US$58.0 million to help finance a project for aviation development. The loan would have a term of 17 years, including 4 years of grace, with interest at 9.6 percent per annum.

PART I - THE ECONOMY

2. A basic economic report entitled "Long-Term Development Issues: Peru" (Report No. 2204-PE) was distributed to the Executive Directors on April 13, 1979. This part is based on the report's findings and on those of more recent economic missions to Peru. Country data sheets are attached as Annex I.

Natural and Human Resources

3. Peru, the fourth largest country in Latin America, is divided by the Andes mountains into three distinct regions: the coastal region (Costa), with 46 percent of the population and where modern economic activity is concentrated; the mountain region (Sierra) with 44 percent of the country's population; and the sparsely populated, tropical rain forests east of the Andes (Selva). The country's rugged topography limits trade between the three regions.

4. Peru's natural resources include large deposits of minerals-- particularly copper, iron, silver, and zinc--located mainly in the Sierra and the southern Costa. There are also large phosphate deposits, located in the northern Costa. Petroleum resources found in the jungle areas and offshore are also substantial, but their full extent has not yet been ascer- tained. Another major natural resource is the large fishing potential in coastal waters, although the magnitude of the catch is subject to sharp fluctuations. Agricultural land is limited, and most of the soils suitable for intensive agriculture are already being farmed.

5. Crude oil is the dominant source of energy in Peru, supplying approximately 80 percent of Peru's commercial energy requirements. Although Peru's energy resource base is relatively diverse, with scope for expanding hydro and coal based power generation, petroleum is expected to be the major energy source in Peru through the rest of this century. After having been dependent on imported crude oil for many years, domestic oil production increased almost threefold between 1976 and 1979 to about 200,000 barrels per day, enabling Peru to export oil in substantial quantities (about 70,000 barrels per day). Despite this encouraging production trend, domestic consumption is rebounding after several years of stagnation, and Peru may once again become a net importer of petroleum in the mid-1980s unless new oil reserves are discovered and rational pricing policies adopted to contain demand growth. The Government has begun to address the problem vigorously. Prices for domestically consumed petroleum products were steeply increased, and new legislation was enacted offering special tax incentives to investors. Response to the tax incentives has been positive.

6. As a result of three decades of rapidly falling mortality rates, Peru's population growth accelerated during the 1930-1960 period. In the early 1960s, however, birth rates started a gradual fall, mainly caused by the urbanization process and by improved education. But with declining death rates, population has continued to grow at about 2.7 percent p.a. and is currently estimated at about 17 million. It is expected that population growth will fall only slightly to about 2.6 percent p.a. over the next 20 years, unless an effective demographic policy is adopted. The urban population is increasing rapidly at 4.5 percent p.a., and over 4 million people are concentrated in Lima. Given the structure of Peru's population, the labor force is expected to grow in excess of 3 percent per year during the next 20 years.

Past Development Policies and Performance (1968-78)

7. The military Government, in office from October 1968 until July 1980, followed a development strategy aimed at promoting economic growth and improving distribution of income and wealth, not only on the individual level but also between regions. To achieve these goals, the Government expanded the role of the State in the economy, changed the pattern of asset ownership, reduced foreign ownership of national resources, oriented industry and agriculture toward production of essential goods for the domestic market, stimu- lated regional deconcentration, and reformed the educational system. Through nationalization and creation of new enterprises, the State took direct control of key economic sectors. Moreover, the Government imposed complex legislation to control the operations of the private sector.

8. The pattern of asset ownership in the economy changed drastically. Through nationalization, the share of foreign-owned assets fell sharply. A sweeping land reform redistributed 49 percent of the country's best farmland to workers' cooperatives benefitting some 30 percent of all rural families. Through other laws, industrial workers were given shares in their employers' firms and, in the mining sector, a share in profits. While these actions benefitted large numbers of Peruvians, they barely reached the poorest groups, which continue to live in abject poverty. It is estimated, for example, that almost three quarters of rural families--mostly "minifundistas" (those farming less than 2 ha) and landless seasonal workers--were not reached by social programs. Moreover, subsidies were given to products that were more important in the consumption basket of high and middle-income groups than in that of the poorest groups. Artificially low prices for some products--such as mutton and cereals--actually hurt the poor who produced these items, and affected production negatively. Although many of the policies and structural changes carried out after 1968 were meant to achieve rapid growth and more equality, the cost of these measures proved to be excessive and their implementation inefficient. - 3 -

9. Between 1968 and 1977, the Government followed expansionary fiscal and credit policies. A rapid increase in expenditures was not matched by a parallel increase in revenues. Public sector savings dropped steadily in relation to GDP from 4.4 percent in 1970 to dissavings of 2.6 percent in 1977. Major causes were the erosion of the tax base owing to excessive tax incentives, loopholes, weak enforcement, rising budgetary cost of subsidies for foodstuffs and petroleum products, and sharp increases in defense outlays. At the same time, public investment expanded rapidly and was increasingly concentrated on capital-intensive projects with long gestation periods and little immediate contribution to the growth of output or employment.

10. Pricing, interest rate and foreign exchange policies encouraged consumption and discouraged savings, exports and sometimes overall production. The problems were exacerbated by circumstances beyond the control of the authorities such as the sharp drop in the catch of anchovies, the fiFhing industry's mainstay, and the sharp deterioration in Peru's terms of trade between 1974 and 1978. As a result, aggregate demand considerably exceeded aggregate supply. Excess demand, in turn, led to strong inflationary pressures and widening external gaps.

11. Inflation accelerated from 5 percent per year irl 1970 to 38 percent in 1977. Interest rates, however, remained substantially negative in real terms, discouraging financial savings and stimulating capital flight. Moreover, the exchange rate remained practically constant between 1968 and 1975, thus contributing to the overall disequilibrium. National savings fell dramatic- ally from 16 percent of GNP in 1970 to 8 percent in 1977, when they financed only about one-half of investment.

12. The growing disequilibrium was reflected in the balance of payments. The current account deficit averaged US$1.1 billion per year in 1974-77, equivalent to nearly 9 percent of GNP. To finance this deficit, Peru accum- ulated a massive external debt. At year-end 1977, Peru's total private and public external debt--including short-term indebte.ness--stood at almost US$8.3 billion, equivalent to two-thirds of GDP anX almost four times exports of goods and non-factor services. Much of this debt was contracted on fairly short maturities. Three fourths of the US$6.4 billion long-term public sector debt (including undisbursed) was scheduled to be r-paid over the 1978-82 period.

13. Following the 1968-74 period of rapid expansion during which GDP grew by more than 6 percent per year, the growth rate dropped progressively and became negative in 1977 and 1978. GDP (at constant 1973 prices) fell by 0.1 percent in 1977 and a further 0.7 percent in 1978. In this two-year period, GDP per capita dropped by over 6 percent and unemployment or underemployment is believed to have risen to almost 60 percent of the labor force, up from less than 50 percent during the early 1970s. According to Goverrunent estimates, the purchasing power of an average salary had fallen 40 percent by 1978 compared to 1970 and that of an average wage by over 16 percent.

Stabilization Policies and the Economic Recovery Program (1978-80)

14. From 1975 on, several unsuccessful attempts were made to cope with Peru's deteriorating economic situation. By mid-1978 the economic crisis had reached grave proportions, with a drop in real GDP and inflation - 4 - approaching 100 percent. Moreover, the private sector was finding it increasingly difficult to open letters of credit for new imports and the banking system's net international reserves had dropped to a negative level of US$800 million. Financial instability had reached the point where practically all economic activities were adversely affected. The public sector was fast approaching the point where it would no longer be able to fully service its external debt. Peru was no longer creditworthy.

15. Beginning in May 1978, the Government adopted a number of important measures aimed at strengthening public finances, improving the balance of payments and curbing inflation. It also reached an agreement with foreign commercial banks to reschedule US$185 million of principal payments due in the second half of 1978 until January 1979. Moreover, the Government negotiated a stand-by arrangement with the IMF for SDR 184 million. In July 1979, this stand-by was replaced by a new one for SDR 285 million in support of the same financial program. Peru's debt outstanding to the IMF as of January 31, 1981 amounted to SDR 617.5 million.

16. Major debt-relief operations carried out in late 1978 enabled Peru to reduce the debt-service burden for 1979 and 1980 by postponing repayment to the 1982-1986 period. In May 1978, the Soviet Union rescheduled the equivalent of about US$140 million of maturities originally due in 1978-80. These amounts are to be repaid over a 10-year period including three years of grace. In November, at a Paris Club meeting, the OECD countries agreed to reschedule 90 percent of principal payments due by the public sector to governments and guaranteed suppliers in 1979 (US$250 million) and 1980 (US$263 million). These amounts were to be repaid over a period of eight years, including three years of grace. The Paris Club creditors also agreed to reschedule 90 percent of the principal payments due in 1979 and 1980 on private sector debt guaranteed or insured in the creditor countries (about US$30 million in each year). In addition, Peru negotiated smaller amounts of debt relief with non-OECD countries. At the end of 1979, however, in view of the improved balance-of- payments situation, the Government decided to forego the Paris Club debt rescheduling option for 1980.

17. As regards the large medium-term public debt to commercial banks, in keeping with an agreement concluded in December 1978, Peru repaid in 1979 the bulk of the US$185 million rolled over from 1978 (para 15 above). The agreement gave the Government the option of refinancing up to 90 percent of the maturities due in 1979 and 1980. Again, in view of the strong balance- of-payments performance, the Government decided not to take advantage of the rescheduling of 1979 maturities, thus obtaining slightly better terms on the refinancing of 90 percent of the 1980 maturities.

18. To overcome the economic recession, the Government adopted a more comprehensive Economic Recovery Program (ERP), which, in addition to the above-mentioned stabilization actions, included measures to open up the economy, promote non-traditional exports, strengthen the tax system by broad- ening its base, and generally improve the efficiency of resource allocation in the private and public sectors. Import liberalization was the most important element of the ERP and is expected to have salutary long-term effects on the economy. The Government also drew up a public sector investment program that aimed at redirecting investment towards projects of clear economic - 5 - priority and with positive effects on production and employment. In support of the ERP, the Bank approved a US$115 million program loan in May, 1979. Progress in carrying out the ERP has generally been satisfactory. Performance in some critical areas--e.g., export promotion and import liberalization-- exceeded expectations. In other areas--e.g., improvements in the quality of public investment and in raising interest rates--progress was more modest.

19. The Government's stabilization-cum-economic recovery program resulted in a strong improvement in public sector finances in 1979. Central Government revenues increased by 23 percent in real terms, while current outlays declined by 6 percent. Payments for wages and salaries alone fell by some 7 percent in real terms, partly as a result of a reduction in excessive civil service employment. Public sector current account savings rose from - 0.7 percent of GDP in 1978 to about 3.6 percent of GDP in 1979, and the overall deficit was reduced from 6.4 percent of GDP in 1978 to 2.9 percent in 1979. In spite of the good fiscal performance, however, inflationary pressures have remained strong, with consumer price increases of 67 percent in 1979 and of about 60 percent in 1980.

20. The implementation of stabilization measures and of the ERP had a positive impact on the balance of payments. Moreover, an increase in petroleum exports, substantial price increases for silver, copper, petroleum, and other commodities, as well as the relatively low level of imports because of the recession led to an overall surplus of the balance of payments of US$1,580 million in 1979 and an estimated US$860 million in 1980. At year-end 1980, the net reserve position was estimated at about US$1.8 billion, equivalent to over 5 months of imports. Peru also made greater use of assistance from official bilateral and international sources thus improving the structure of its external debt. The short-term debt of less than one year, already sharply reduced from US$1.8 billion at year-end 1978 to US$1.1 billion at year-end 1979, is expected to be further reduced as the gradually improving economic situation permits new medium-term credit lines to be opened. GDP growth in 1979 was 3.5 percent at constant 1973 prices. Growth of some 3 percent is estimated in 1980 owing, in part, to a drought plaguing the agricultural sector.

Outlook

21. In July 1979, the military Government promulgated a new constitution, written by a popularly elected constituent assembly. Elections were held in May 1980, and the transfer of authority to the Government of President Fernando Belaunde took place on July 28, 1980. The new Government faces a challenging economic and social situation. Although the stabilization-cum-economic recovery program (1978-80) has resulted in an improved financial situation and has laid the ground fur more efficient resource use, the present economic situation is characterized by a number of acute problems such as persistent high inflation, high un- and underemployment, stagnating agricultural and petroleum production, a deteriorated pattern of income distribution, food and petroleum subsidies, and an inherited rigid structure of Government expenditures with relatively low expenditures for economic and social purposes and high outlays for interest payments and defense. Peru also faces severe long-term problems like wide- spread poverty, poor state of health and nutrition, rapid population growth, severe water and land resource constraints, rapidly expanding demand for -- 6 - energy and potable water, and the low degree of integration between the different parts of the country. These problems call for urgent corrective measures. Tackling them all will be difficult given overall resource scarcity and particularly the very limited public sector resource availabilities.

22. The new Covernment has a capable economic team, which is committed to economic efficiency, decontrol, promotion of the private sector, and policies conducive to a more equitable sharing of the benefits of development. During the first few months in office, the Government took important economic policy measures such as the elimination of import licenses, tariff cuts, major upward price adjustments--particularly for domestically consumed petroleum, power, and food items--adoption of higher interest rates, a new agricultural promotion law, and others. Moreover, it enacted a new petroleum law giving tax incentives to promote new petroleum exploration, and it is preparing programs to improve the situation in health, housing, and transport. Important efforts have also been made to work out a five-year public investment program that responds to the country's needs and resource availabilities. In this context, the creation in November 1980 of PROINVERSION, a committee attached to the Prime Minister's office and in charge of coordinating all efforts related to public investment including foreign financing, is an important initiative to improve the efficiency of resource use.

23. To tackle the most difficult short-term problems, inflation (running at over 60 percent per year) and the precarious public finance situation (with an overall public sector deficit equivalent to some 5 percent of GDP in 1980), the Government is planning a restrictive financial program for 1981 calling for tight credit ceilings and limits to foreign indebtedness.

24. Based on cautiously optimistic assumptions with regard to economic management and commodity prices, the country is expected to have economic growth of about 5 perr'ent per year and a manageable balance of payments situation during the next two years, with only minor current account deficits and continued gradua' build up of international reserves in spite of heavy debt repayment obligations. The balance of payments situation may, however, deteriorate in the second half of the eighties (or even earlier), if the exportable surplus of oil declines. This would eventually result in increasing current account deficits, particularly if imports further acceler- ate as a result of the import liberalization and economic recovery process. Against this background, there is a continuing need for official development assistance. Considering the expected medium-term balance of payments performance a debt service rati- hovering around the 30 percent mark and assuming that the authorities continue the initiated course of economic policies, Peru is creditworthy fo- Bank lending.

PAR'! 1 IAN-K GROUP OPERATIONS IN PERU

25. Sial"`-iaas gpprovedc 40 loans to Peru for a total amount of US$791.8 millior. net of cancellations. About 28 percent of the Bank's lending to Peru has been for transportation (mainly highways and ports), 23 percent for agriculture, 18 percent for the energy sector, 11 percent for mining and industry, abotut4 percent for education and urban development, and 14 percent for the US$115 million program loan of May 1979. - 7 -

26. As of January 31, 1981, US$265.4 million was undisbursed on project loans (i.e., excluding the 1979 program loan) currently in execution. (Annex II contains a summary statement of Bank loans as of January 31, 1981, and notes on the execution of on-going projects). Disbursements on Bank financed projects moved very slowly in the 1976-78 period, primarily because of weak project execution capacity and a shortage of counterpart funds that worsened as the economic situation deteriorated during this period. In an effort to improve this situation: (i) the Bank opened a resident mission in Peru; (ii) the Executive Directors approved modifications in the Education and the Lima/Amazon Corridor Projects (see Annex II for further details); (iii) the Government provided adequate counterpart funds for 1979 and 1980; and (iv) the Government also set up a special commission to monitor loan execution and resolve administrative problems which faced Bank-financed projects. With these actions, the pace of disbursement is now increasing; about US$44.0 million was disbursed on project loans in FY1980 and US$29.1 million was disbursed during the first half of FY1981. This compares with averave annual disbursements of US$27.5 million during FY1977-79.

27. The main objectives of Bank lending to Peru have been to assist in (i) the creation of the physical infrastructure needed to sustain and foster economic development; (ii) the expansion of productive capacity in crucial sectors; (iii) the consolidation of structural and institutional changes, particularly land and education reforms; (iv) the strengthening, through technical assistance loans and regular operations, of local capacity to prepare, implement and operate projects effectively; and (v) the improvement of living conditions for the urban and rural poor. In the past, Bank lending concentrated on infrastructure in the transportation and power sectors. More recently, the Bank's emphasis has shifted to more directly productive fields -- mining, agriculture and industry -- to help Peru to strengthen its balance of payments. Lending for social projects has also grown.

28. The next operations that would be ready for the Executive Directors' consideration include projects for industrial credit, road improvement and rehabilitation, power engineering, small-scale industry, mining, urban development, and health. This program has been reviewed with the new Government and is in line with its priorities.

29. It is estimated that Bank loans constituted about 4.0 percent of Peru's total public external debt outstanding and disbursed at the end of 1979, and absorbed about 3.3 percent of the country's external debt service in 1979. Assuming increased recourse to long-term bilateral and multilateral aid by Peru, the Bank's share in the country's outstanding public foreign debt by 1985 could reach about 10 percent, and its share of debt service would be around 4.5 percent.

30. IFC commitments as of January 31, 1981 were US$29.7 million (including US$15 million to the Southern Peru Copper Corporation for the Cuajone Copper Mining Project) of which US$15.4 million is held by the Corporation. A summary statement of IFC investments as of January 31, 1981 is presented in Annex II. - 8 -

31. The other principal public agencies lending to Peru are IDB and USAID. Total loan commitments as of December 31, 1980 by IDB and USAID were US$652.4 million and US$348.6 million, respectively, and their shares of debt service as of end-1979 were both estimated at 0.6 percent. In future lending IDB is expected to emphasize agricultural, industrial, and mining credit, roads, and small scale irrigation. USAID expects to stress rural development and health.

PART III - TRANSPORTATION IN PERU

Background

34. The concentration of Peru's population and economic activity in the Costa, the enormous barrier presented by the Andes Mountains and the effort to exploit Peru's rich mineral resources are some of the major factors that have shaped the country's transportation system.

35. Development of the system began with the construction of coastal ports during the colonial period. In the 19th century, independent private railways were built to connect mining areas in the Sierra with the coastal ports. Today, freight and passengers move primarily over roads in Peru. Difficult terrain and geologic and climatic conditions, however, have made expansion of land transport systems a slow and expensive process. Compared with many other Latin American countries, Peru's system is rudimentary with resultant high transport costs, long travel times and considerable damage to vehicles and cargo. As a result, civil aviation has grown rapidly in impor- tance as an alternative, particularly for isolated areas in the Sierra and Selva.

36. Transport sector activities in Peru are the responsibility of the Ministry of Transportation and Communications (MTC), which sets policy, handles planning through its Sectoral Planning Office and carries out most construction projects. The MTC supervises the activities of five public enterprises which are responsible for transportation operations in the areas of railways, shipping, ports, airports and public transportation. The MTC is also responsible for setting transport tariffs, based on the studies and recommendations of its Transport Tariff Regulation Organization.

Highways

37. Peru's highway network totals some 58,000 km, of which 6,000 km are paved, 16,000 km have gravel surfacing and 36,000 km are earth roads. Road development in the Costa is adequate. The principal road is the 2,750 km Pan American Highway, which carries the bulk of the country's traffic. The larger towns in the Sierra are linked to the Pan American Highway by secondary roads, while only a handful of roads, mostly unimproved, lead to the Selva region. The Bank-financed Transandean Highway, which runs 800 km from Lima to Pucallpa in the Selva, is the only all-weather road connecting the three regions of the country. The technical difficulties and high costs that have been encountered in constructing this highway (see para 52 below) are indicative of the problems confronting highway development in Peru outside the Costa. 38. The Government put heavy emphasis on road construction in the 1960's but this effort lagged in the 1970's because of the country's economic problems. Also, with limited technical and administrative capacity, the MTC encountered difficulty in carrying out the program. In recent years, few new construction projects have been undertaken and the MTC has concentrated on paving and improving the more heavily used roads and on an expanded road maintenance and rehabilitation program. This latter activity is of very high priority since many roads have deteriorated badly after years of inadequate maintenance. The Bank-financed Lima Amazon Transport Corridor Loan (Ln. 1196-PE of May iS76) was restructured in April 1979 to provide increased support for road maintenance.

Ports

39. 'In addition to serving international traffic--most of which flows through Lima's port, Callao--coastal ports play an important role in the internal movement of bulk cargo. This consists primarily of crude oil and oil products from the terminal of the northern Peru pipeline at Bayovar to Lima and, to a lesser extent, iron ore to supply the SIDERPERU steel works at Chimbote.

40. Domestic river traffic, although growing, is still much smaller than coastal traffic and is mainly composed of diversified dry cargo. This traffic is carried entirely on the extensive river system of the upper Amazon River and its tributaries, which provide a natural transportation network for the whole of eastern Peru. The Amazon River within Peru is navigable year round bv ships of 20 ft. draft up to Iquitos. Further inland, the Amazon's tributaries constitute a vast network navigable by smaller vessels. However, since this river system is oriented toward Brazil and the Atlantic and connections with the Costa are poor, it has been largely underutilized. It was with the idea of utilizing this potential network more fully that the Lima-Amazon transport corridor concept, financed under Loans 1025 and 1196-PE, was developed. This calls for a highway link from the coast to the Amazon head-waters at Pucallpa and a series of river ports to serve the Selva.

Railroads

41. Peru has never had an integrated railway system. Most lines run east-west to link the mining industry in the Sierra with the Costa. In the 1930's, the railway system consisted of about 4,200 km of track; at present, after the closing of several lines (the latest badly damaged by the 1970 earthquake), the system has been reduced to 2,150 km. Studies are now underway for an expansion of the system in the southern Sierra to improve connections with Bolivia and for a major new system to serve the Costa.

Pipelines

42. In 1977, the 900 km North Peru pipeline was opened to connect the potential oil fields of the Selva with a terminal at Bayovar on the north coast. The pipeline, and a branch line serving the area which has been the principal producer to date, were built at a cost/of about US$900 million. The main pipeline has a capacity of about 210,006 barrels per day. Because of much slower than expected development of the Selva oil fields, however, it operated well below capacity for the first few years. Production has now increased and the pipeline now operates at about 65 percent of capacity. - 10 -

Civil Aviation

43. Civil aviation in Peru has long been importantas a means of inte- grating isolated areas of the country into the national economy. In fact, one of Peru's main domestic airlines, Faucett,was founded in 1928 and is one of the oldest in the Americas. Passenger traffic is the most important element of domestic operations. Air freight consists mostly of high value cargo to areas with poor land transportconnections.

44. In addition to the privately-ownedFaucett Airlines, the other principal carrier is the State-ownednational airline, AEROPERU,which was created in 1973 in a reorganizationof the military airline, SATCO. Faucett and AEROPERU roughly share domestic passengertraffic, which totaled about 1.5 million in 1979. AEROPERUhas most of Peru's share of international traffic but Faucett has recently establisheda route to Miami via Iquitos. Together, these airlines have an unduplicatedroute network of about 48,000 km. Since 1972, the number of jet aircraft in domestic service has grown from one three engine Boeing 727-100 to four such aircraft and six two-enginejets. AEROPERU has also acquired two wide-bodyaircraft for its international routes.

45. Domestic passenger traffic in Peru grew rapidly through 1976. It then slowed because of the country's economic difficulties but picked up again in 1979. Over the 1971-1979 period, the average annual growth rate in passenger traffic was 9 percent. Domestic air cargo traffic, which amounted to over 100,000 tons in 1979, grew at 11 percent per year in the 1971-79 period. It is expected to continue growing rapidly in the future, particularly for areas where land transportis unavailableor unreliable.

46. Because of the slowdown in passengergrowth, the airlines' rapidly rising operatingand fuel costs were not covered by revenues,despite tariff increases. As a result, both airlines have shown operating losses over the past few years. AEROPERU has been particularlyaffected since--asthe Government-owned airline--it is required to serve routes which are not always profitable. These losses have been partly offset by profits on AEROPERU's international operations.

47. The route structure developed by AEROPERU and Faucett is of the "hub and spoke" type, with Lima as the center and all main routes radiating out to the various cities of the country. The most importantairports in terms of trafficwere Lima, Cuzco, Iquitosand Arequipa,with 67 percent of domestic and all internationaltraffic. In addition to these, there are 52 other airports. Some of these, however, are small strips with little traffic and only about 24 serve more than 5,000 passengersper year. A number of airports where traffic has been growing rapidlywere not designed to handle larger and more efficient aircraft. This limits passenger growth for the airlines and an expansionof efficientair service for these cities. In addition,on a national level communicationsand navigationalequipment is 15-20 years old and is rapidly becoming obsolete. This inadequateequipment makes airline operationmore costly and undependable. - 11 -

48. Institutions. The General Directorate of Air Transport (DGTA) of the MTC has responsibility for planning the development of civil aviation and for its regulation. DGTA has, until recently, been the principal entity responsible for designing and constructing airports. The DGTA has competent staff but a lack of financing has impeded the expansion of aviation infrastructure.

49. Peru's commercial airports are owned, operated and maintained by the Peru Airports and Civil Aviation Authority (CORPAC). CORPAC, which was created in 1943, is an autonomous public enterprise under the MTC. With responsibility for operating the nation's commercial airports and air traffic control system, it is the largest entity in the aviation sector and has about 2,700 employees. CORPAC was recently granted authority to undertake the airport construction to be financed by the proposed loan. It is a well-managed and technically competent organization with a salary structure that has enabled it to retain the qualified personnel necessary for its operations. CORPAC's financial management is good but would be further improved through the installation of a cost accounting system, which would be financea under the proposed loan. The tariffs for CORPAC's operations are set in dollars and have generally kept pace with inflation in Peru. As a result, CORPAC's overall financial situation is good. Its financial position is discussed in detail in paras 69-73 below.

Previous Bank Activities in Transportation

50. The Bank has made 12 loans for US$219.3 million for transportation development in Peru. Four loans, totaling US$20.2 million, have been for ocean ports, including the first Bank loan to Peru in 1952. There have been seven loans totaling US$186 million for road construction and/or road maintenance, including the most recent loan for the Lima Amazon Transport Corridor (Ln. 1196-PE of May 1976), which also has a river port component. Finally, there was a US$13.1 million railroad rehabilitation loan in 1963.

51. The two most recent transportation projects (Lns. 1025-PE of 1974 and 1196-PE), which have been carried out by MTC, have encountered implementation problems. The Lima Amazon Corridor projects financed by Loans 1025-PE and 1196-PE have both faced substantial delays because of topographic and climatic problems. As a result, there were cost overruns on both projects and the loans were eventually restructured to eliminate sections which could not be completed within a reasonable period. Financing for road maintenance activities was increased under Loan 1196-PE given the high priority of this operation. Loan 1025-PE is expected to be completed by June 30, 1981. All road sections and ports under Loan 1196-PE have either been completed or are under construction. This project is expected to be finished in mid-1982.

52. There have been Project Performance Audit Reports (PPARs) on three Peru transportation projects. The first (SecM 75-567 of August 1, 1975) covers the Port of Pisco Loan (Ln. 446-PE of 1966). The PPAR concludes that this project, completed with some two years of delay, helped the Bank to play - 12 - an important role in strengthening the sector's institutions, including the establishment of a National Port Authority in 1970. However, by the time the project was completed, the Government had not taken any action to provide housing for port workers and to readjust port tariffs to reflect costs -- both conditions of the loan. The second PPAR (SecM 76-292 of April 23, 1976) prepared in connection with the Second Road Construction Loan (Ln. 425-PE of 1965) concludes that the project's primary objective -- the construction of a paved road between La Oroya and Aguaytia -- was not achieved. This was mainly because of large cost overruns -- caused by extraordinarily difficult topography, inclement weather and landslides -- and the shortage of counterpart funds triggered by a fiscal crisis in Peru in the late sixties. Nevertheless, a revised, scaled-down project suggested by the Bank was completed with a delay of three years. The Government generally complied with loan covenants, including those concerning a user charge study, and axle load control. The third PPAR (SecM 80-590 of July 29, 1980) dealt with the Road Reconstruction Project (Ln. 706-PE of 1970). The loan was made to assist Peru in overcoming the emergency caused by the 1970 earthquake in the Huaraz Valley. The PPAR concluded that approval of the loan -- because of the emergency -- before project preparation was completed resulted in serious delays in project execution. Preparation of the aviation project will be substantially completed by the time of signature of the proposed Bank loan so as to avoid this problem. The PPAR also concluded that because of the Bank's limited ability to act quickly in urgent situations, the project did little to alleviate the emergency. Comments received from the Government share this view. However, the project contributed to regional institution building, and the roads now provide better land access to the Huaraz Valley, thus opening up the region to economic development.

PART IV - THE PROJECT

53. Feasibility studies of six Lima Amazon Corridor airports were financed under Ln. 1196-PE. Three of these airports were found in need of upgrading; a fourth required reconstruction. The communications equipment component is now being prepared with financing from the German Government and this study should be completed by April. The remaining equipment components were prepared by CORPAC. The Bank made a Project Preparation Facility (PPF) advance of US$800,000 to finance the engineering of civil works so execution could begin promptly after loan approval. Cost estimates for the civil works are based on this engineering.

54. The project was appraised in February-March 1980 but negotiations were delayed until firm project cost estimates were available. Staff Appraisal Report No. 2960b-PE entitled "Staff Appraisal Report - Aviation Development Project" dated February 25, 1981 is being circulated separately to the Executive Directors. Supplemental data is contained in Annex III. Negotiations were held in Washington from February 3-6. The Peruvian Delegation was headed by Mr. Nicolas Hurtado, Vice President of the Board of Directors of CORPAC. - 13 -

Project Objectives

55. The objectives of the project would be to increase the efficiency and security of civil aviation in Peru and improve service to regional centers in the Selva and Ceja de la Selva regions, which currently have inadequate transport links.

Project Description

56. The project would consist of:

(a) upgrading, including equipment replacement, for airports at Pucallpa, Tarapoto and Huanuco and the construction and equipping of a new airport for Tingo Maria;

(b) installation of navigational aids and communications systems at 32 other locations throughout Peru and the provision of a flight inspection aircraft and other airport equipment; and

(c) final engineering for a new airport at Cuzco and for the four airports being improved/reconstructed under the project as well as technical assistance to improve CORPAC's operations.

Airport Improvements

57. The airports to be financed under the proposed loan -- Tarapoto, Tingo Maria, Huanuco and Pucallpa -- serve rapidly growing regional centers in the Selva and Ceja de la Selva (jungle highlands). The population in the areas to be served by these airports is close to 900,000, ranging from about 385,000 in Huanuco to 85,000 in Tingo Maria. Aviation carries a high percentage of total long distance passenger traffic to these cities and such traffic is projected to grow at 7-10 percent per year in the future. Aviation is particularly important in transporting cargo for Tarapoto, where road transport is very difficult. The project airports were built years ago for small aircraft at minimal construction cost (Tingo Maria and Huanuco have gravel runways) and they cannot handle larger, more economical aircraft. Also, their communications and navigational systems are obsolete. As a result air service is erratic and costly, thus limiting the growth of these areas. A principal objective of the proposed project is to correct these problems.

58. The airport improvement component represents 43 percent of total project costs. In order to eliminate access problems created by nearby mountains, realigned paved runways with better approaches would be constructed at Tarapoto and Huanuco and new navigational and other equipment would be provided. This would enable Huanuco to handle jets and the Tarapoto airport to operate in conditions of poor visibility and to serve as an alternate for Iquitos when planes cannot land there. For Pucallpa, the existing paved runway would be strengthened with an overlay so it can support larger aircraft. Equip- ment and facilities would also be improved. - 14 -

59. The problems of terrain at Tingo Maria cannot be resolved by a re- alignment of the runway. A new airport with clear approaches would, therefore, be constructed and equipped at a location about 25 km north of the city. The new airport would permit larger aircraft to serve Tingo Maria and the airport to operate in conditions of poor visibility.

Equipment

60. In order to improve the efficiency and safety of CORPAC's air traffic control operations, the project includes the installation of navigation and communications equipment on a nationwide basis, including the replacement of obsolete equipment. CORPAC would also purchase a flight inspection aircraft (probably a small two-engine airplane) and related equipment to calibrate the navigational aids. New aircraft handling equipment would be provided, including tractors, baggage and cargo loaders and carriers, forklifts, etc. Finally, the project would include electric generators and crash, fire and rescue equipment for various airports. The equipment component would represent 52 percent of total project costs.

Technical Assistance

61. The present airport at Cuzco, Peru's third largest city and a major tourism center, cannot handle planes larger than 727-100s and is frequently shut down because of poor weather conditions. A feasibility study for a new airport was financed by the IDB. This study shows that a new airport is technically and economically justified. The project would include the preparation of final engineering for such an airport. This is expected to require about 370 man-months of consultants services at about US$7,500 per month.

62. Final engineering for the four project airports, which is being done under the PPF Advance mentioned in para 53, requires 200 man-months of consultants services at US$7,500 per month. An additional 48 man-months of technical advisory services for CORPAC at $6,000 per month would be required for supervision of the design and construction of these airports. The project would also include about 24 man-months of consulting services at US$6,500 per month to design and install a cost accounting system for CORPAC. The consultant for this work would be engaged by March 31, 1982 (Section 3.03(a) of the draft Loan Agreement). CORPAC would discuss with the Bank the recommendations of the cost accounting study and would adopt a plan, satisfactory to the Bank, to put into effect those that are mutually agreed upon (Section 3.06 of the draft Loan Agreement).

63. Altogether, the technical assistance component would represent five percent of total project costs. For all consultants, the qualifications, terms of reference and conditions of employment would be satisfactory to the Bank (Section 3.03(d) of the draft Loan Agreement). - 15 -

Project Execution

64. The project would take about five years to complete. CORPAC would be responsible for carrying out all project components. Tt would enter into an agreement with COPESCO, the Cuzco regional tourism development corporation, under which COPESCO would hire consultants to prepare the final design of the Cuzco airport. CORPAC would make available loan funds on a grant basis and provide technical support to COPESCO for this purpose. Execution of an agreement between CORPAC and COPESCO, satisfactory to the Bank, would be a condition of loan disbursement for this component (Section 3.01(b) and para- graph 4 of Schedule 1 to the draft Loan Agreement).

CORPAC's Financial Situation

65. CORPAC's financial performance has been good since 1977. Its tariffs are linked to the dollar and have generally kept pace with inflation in Peru. The Company has been able to cover all operating expenbes from operating revenues (primarily charges for airport services and duty free shop operations in Lima) and to carry out a limited investment program. Its after tax rate of return on revalued assets rose from 0.8 percent in 1977 to 12.4 percent in 1979.

66. CORPAC's liquidity situation is also satisfactory. Its current and liquid ratios for 1980 are estimated at 1.2 and 1.0 respectively. The ratio of its accounts receivable to annual operating revenues is currently a satisfactory 25 percent and CORPAC has agreed to maintain its ratio of accounts receivable to operating revenues at no more than the present level (Section 5.05 of the draft Loan Agreement).

67. In order to help CORPAC generate sufficient revenues to carry out the major investment program represented by the project, in March 1980 the Government reduced the applicable income tax rate for CORPAC from 45-55 percent to 10 percent for 1979 and thereafter. If CORPAC is to generate sufficient cash to finance its portion of the investment program it will also require a real increase in its tariffs of 15 percent by 1983. With this action and the tax reduction, CORPAC's cash generation would cover its borrow- ings and investment program, while maintaining good liquidity. It has been agreed that CORPAC would apply and maintain tariffs and other charges as necessary through the closing date of the loan to cover operating expenses, debt service and the local cost of its investment program, including its share of the local costs of the project (Section 5.06(a)(i) of the draft Loan Agreement). Government agreement to permit tariff increases or to take other measures to enable CORPAC to meet this obligation is reflected in the provision of the Guarantee Agreement by which the Government guarantees the punctual performance of all to Borrower's obligations under the Loan Agree- ment (Section 2.01 of the draft Guarantee Agreement). Finally, CORPAC has agreed that it would earn at least an 8 percent return on revalued assets (Section 5.06(a)(ii) of the draft Loan Agreement).

68. Because it has made few investments over the past ten years, CORPAC has done little borrowing. It had almost no debt in 1980; with heavy borrowing for the investment program its debt equity ratio would rise to an acceptable 25/75 by 1985. - 16 -

69. During the next five years, while CORPAC is undertaking a substantial investment program, it should be careful in initiating additional projects. To this end, CORPAC has agreed to maintain a five year capital investment program and would, not later than November 1 of each year until the Closing Date of the Loan, update this program and promptly provide a copy to the Bank for its comments (Section 5.07(i) of the draft Loan Agreement). Until the closing date of the loan, CORPAC would also not undertake any investment of more than US$1.0 million a year at any single airport (except for investments included in this project) unless the investments were technically and economically justified (Section 5.07(ii) of the draft Loan Agreement). Finally, CORPAC would not, without the Bank's agreement, incur any long term debt unless it could maintain a minimum debt service coverage ratio of 1.5 (Section 5.04 of the draft Loan Agreement).

Project Cost and Financing

70. Total project cost (including US$10.0 million in taxes and duties) would be US$127.6 million of which US$77.0, or 60 percent represents foreign costs. The Bank loan would be for US$58.0 million, US$800,000 of which, in accordance with usual Bank practices, would refinance the PPF advance (Section 2.02(b) of the draft Loan Agreement). The Bank loan would be made to CORPAC and would finance the foreign cost of all project components except the communications system. The German Government, which is financing a feasibility study of this system, has indicated that it is prepared to consider financing the foreign cost of the component. The Bank has been advised that, if the study is satisfactory, a loan -- most likely to be made by the Kreditanstalt fur Wiederaufbau -- would be considered by end-CY1981 or early in 1982.

71. CORPAC would finance US$49.4 million of the project's US$50.6 million local costs. The Government would finance the remaining US$1.2 million in local costs for the engineering of project airports, which is being carried out by the DGTA, and for the final design of the Cuzco Airport which will be carried out by COPESCO.

Procurement and Disbursement

72. All contracts for civil works and equipment to be financed by the Bank would be procured under international competitive bidding procedures in accordance with Bank guidelines. Qualified local suppliers of equipment produced in Peru and those from Cartagena Agreement member countries parti- cipating in international competitive bidding would be accorded a margin of preference of 15 percent or the prevailing custom duty, whichever is lower.

73. The Bank loan would finance: (i) 100 percent of foreign expenditures for equipment; (ii) 60 percent of total expenditures for civil works; and (iii) 70 percent of total expenditures for local and foreign consultants, except for the technical advisors for CORPAC to supervise the design and construction of project airports; 100 percent of foreign expenditure for these advisors would be financed. - 17

Benefits and Risks

74. The lack of adequate infrastructure and facilities has restrained the growth of Peru's civil aviation and reduced its efficiency. Airports are frequently shut down because of poor operating conditions and many cannot handle the most economical aircraft for existing traffic volumes. Also there has been a growing safety problem because of the inadequacy of the communications and navigational aids systems.

75. These problems not only make airline operations more costly, but also hamper the Government efforts to promote regional development. Cities, such as those included in the project, have poor land transport links and rely heavily on air service. The Government's programs to stimulate regional growth, therefore, depend in part on the adequacy of this service.

76. The improvements in the existing airports at Tarapoto, Pucallpa and Huanuco and the new airport at Tingo Maria would permit these towns to be served by more cost-efficient aircraft and would reduce the number of cancelled or delayed flights. Cost savings would produce an average rate of return of 22 percent (13 percent for Huanuco and Tingo Maria and 22 and 42 percent respectively, for Tarapoto and Pucallpa). These are conservative estimates based on fuel and operating cost savings through increased efficiency. They do not take into account such factors as savings from the elimination of flight cancellations due to bad weather and the use of Tarapoto rather than more distant cities as an alternative landing site for flights which are diverted from Iquitos or Pucallpa.

77. The average rate of return on the equipment to be provided under the project is about 18 percent. The benefits of the equipment component of the project are reflected in reduced maintenance costs for new transistorized equipment and aircraft time savings because of improved flight procedures. Fuel savings through a reduction in aircraft time losses because of replacement of inadequate equipment have been calculated on a conservative basis. Benefits to foreign aircraft would be recaptured through a proposed 15 percent tariff increase for enroute navigation services.

78. The project's overall rate of return is 20 percent. Sensitivity analysis indicates that with a 15 percent increase in costs, the overall rate of return would drop to 18 percent and no component would have less than an 11 percent rate of return. With a 25 percent decrease in benefits, the rate of return would fall to 16 percent and only the flight inspectior.aircraft and the Huanuco airport (with rates of return of 7 and 9 percent, respectively) would have a return below 10 percent.

79. This project faces no special risks. CORPAC is a well-managed company which should be able to carry out project construction in a timely manner. The project should improve the environment in the four cities, as noise from aircraft operations would be reduced and safety improved. - 18 -

PART V - LEGAL INSTRUMENTS AND AUTHORITY

80. The draft Loan Agreement between CORPAC and the Bank, the draft Guarantee Agreement between the Repubic of Peru and the Bank, and the Report of the Committee provided for in Article III, Section 4(iii) of the Articles of Agreement of the Bank are being distributed to the Executive Directors separatelv.

81. These draft agreements conform to the normal pattern for loans for aviation projects. The main features of the draft Loan and Project Agreements are referred to in the text and are listed in Section III of Annex III. A condition of loan disbursement for the final design of the Cuzco airport would be the execution of an agreement, satisfactory to the Bank between CORPAC and COPESCO (para. 64). Newly adopted legislation in Peru provides that all agreements for foreign loans to Government entities (except the Development Finance Corporation-COFIDE) must be registered with the Office of Public Credit of the Ministry of Economy, Finance and Commerce. Such registration will be a condition of loan effectiveness of the proposed loan and all other Bank loans to Peru in the future.

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

PART VI - RECOMMENDATION

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

Robert S. McNamara President by Ernest Stern Attachments March 4, 1981 Washington, D.C. ANNEX I -19- Page 1 of 5

TABLE3A PERU - SOCIAL INNSCArOPSDATA SIFFT

PERU REFERENCEGROUPS (WFIGHTED AVFRAEPS LAND AREA (THOUSAND M.) - HO?ST RECENT ESTIMATE) TOTAL 1285. 2 AGRICULTURAL 305.5 MOST RECENT MIDDLE IIICCIE MIDDLE INCOME 1960 Lb 1970 /b ESTIMATEft LATIN AMERICA6 CARIBBEAII EUROPE

GNP PERCAPtTA (U_S 230.0 410.0 730.0 1562.9 2749.5

ENERGYCONSUMPTION PER CArTTA (KILOGRAMSOF COALEQLIVALESrPJ 445.0 619.0 649.0 1055.9 1641.4

POPULATION AND VITAL STATISTICS TOPULATIN, MID-TEAi (MILICIOhS) 10.2 13.5 16.8 LRBANPOPULATION (PERCENT OF TOTAL) 46.3 57.4 65.6 63.4 53.9

POPULATION PROJECTIOSS POPULATION IN YEAR 2000 (MILLIONS) 29.0 STATIOIIARY POPULATION (MILLIONS) 57.0 YEAR STATIONARY PUPLLATION IS REACHED 2090

POPULATION DENSITY PER SQ. S1t. 8.0 11.0 13.0 28.1 77.2 PER SQ. EM. ACRICULTURALLAND 33.0 44.0 55.0 81. 7 1 9.5 POPULATIONAGE STRUCTURE(-NRC17T) 0-14 YRS. 44.2 45.0 42.9 41.4 30.6 15-64 YRS. 52.0 51.9 53.4 54.7 61.1 65 YRS. ANDABOVE 3.8 3. 1 3. 7 3.9 8.2 POPULATIONGROTH RLATE(PERCENT) TOTAL 2.6 2.8 2. 7 2. 7 1.6 URBAN 4. 7/C 5.0 4. 5 4. 1 3. 3

CRUDEBIRTH RATE (PER THOUSAND) 47.0 43.0 39.0 34.8 22.8 CRUDEDEATH RATE (PER THOUSAND) 19.0 15.0 12.0 8.9 8.9 CROSS REPRODUCTIONRATE 3. I/d 2.9 2.8 2.5 1. 5 FAMILYPLANIENC ACCEPTORS.ANNUAL (THOUSANDS) USERS(PERCENT OF MARRIEDWOMEN) .. ..

FOODAND NUITRITION INDEX OF FuOD PRODUCTION PER CAPITA (1969-71-100) 96.0 102.0 85.0 106.9 113. 1 PER CAPITA SUPPLYOF CALORIES (PERCENTOF REQUIREMENTS) 95.0 99.0 97.0 107.4 125.3 PROTEINS(CRAMS PER DAY) 62.0 61.0 59.0 65.6 91.0 OF WHICHANSIMAL AND PULSE 27.0 25.0 24.0 33.7 39.6

CHILD (AGES 1-4) MORTALITYRATE 28.0 20.0 16.0 8.4 4.3

HEALTH LIFE EXPECTANCYAT BIRTH (YEARS) 48.0 53.0 56.0 63. 1 67.8 INFANT MORTALITYRATE (PER THOUSAND) .. 122. 0fe .. 66. 5 55.9 ACCESS TO SAFE WATER(PERCENT OF POPULATION) TOTAL .. 35.0 47.0 65.9 URBAN .. 58.0 72.0 80.4 RURAL *. 8.0 15.0 44.0

ACCESSTO EXCRETADISPOSAL (PERCENT OF POPULATION) TOTAL .. 36.0 .. 62.3 URBAN .. 52.0 .. 79.4 RURAL 16.0 .. 29.6

POPULATIONPER PHYSICIAN 2251.Of 1859.0 1556.0 1849.2 1030.1 POPL1LATIONPER NURSINGPERSON 2205.0/f 738.0 745.0 1227.5 929.4 POPULATIONPER HOSPITAL BED TOTAL 424. O°i 470.0 547.0 480.3 289.7 URBAN .. 425.0 RURAL .. 3144.0

ADIISSIONS PER HOSPITAL BED .. 19.0 .. *- 17.0 ROUSING AVERACESIZE OF HOUSEHOLD TOTAL 4.9 4.9/h URBAN 4. 8 S. 17h RURAL 4. 9 4. 7/h

AVERACENUMBER OF PLNSONSPUR RO81 TOTAI. 2. 3 1. 9!L . URBAN 2.0 1. 7/h RURAL 2. 7 2. 42h

ACCESS T1 ElFCTRICITY (PERCENT OF DW/ELLINGS) TOTAL 26.0 32. 1 .. URRAN 50.7 54. 3 .. RURAL L2 7/h ANNEX I - 20 - Page 2 of 5

TABLE 3A PERU - SOCIAL IE1ICATORS DATA SHEET

PERU REFERENCEG5ROUPS (WEIGIITED AVERAGES - MOST RECENT FSTIMATZ)

MOST RECENT MIDDLE INCOME MIDDLE INCOME 1960 lb 1970 /b ESTIMATE /b LATIN AMERICA& CARIBBEAN EUROPE

EDUCATION ADJUSTED ENROLLMENTRATIOS PRIMARY: TOTAL 83.0 107.0 110.0 99.7 105.9 MALE 95.0 114.0 115.0 101.0 109.3 FEEIALE 71.0 99.0 106.0 99.4 103.0

SECONDARY: TOTAL 15.0 30.0 52.0 34.4 64.0 MALE 18.0 34.0 56.0 33.5 71. 1 ERALE 13. 0 26.0 48.0 34. 7 56.9

VOCATIONALENROL. (Z OF SECONDARY) 20.0 17.0 23.0 38.2 28.8

PUPIL-TEACHER RATIO PRIMARY 34.0 40.0 40.0 30.5 29.4 SECONDARY 12.0 23.0 23.0 14.3 26. 1

ADULT LITERACY RATE (PERCENT) 61.0 . 72.0 76.3

CONSUMPTION PASSENGERCARS PER THOUSAND POPULATION 8.0 17.0 18.4 43.0 84.6 RADIO RECEIVERS PER THOUSAND POPULATTON 110.0 137.0 131.0 245.3 192.2 TV RECEIVERS PER THOUSAND POPULATION 3.0 30.0 38.0 84.2 118.5 NEWSPAPER ("DAILY GENERAL INTEREST") CIRCULATION PER THOUSANDPOPULATION .. 124.0 96.0 63. 3 93.0 CINEMA ANNUAL ATTENDANCE PER CAPITA ...... 5. 7

LABOR FORCE TOTAL LABORFORCE (THOUSANDS) 3187.8 3909.3 4980.4 FEMALE (PERCENT) 21.0 20. 7 23.9 22.2 30.4 AGRICULTURE(PERCENT) 53.0 45.0 39.0 37. 1 37.0 INDUSTRY (PERCENT) 19.0 20.0 21.0 23.5 29.3

PARTICIPATION RATE (PERCENT) TOTAL 31.3 29.1 29.2 31.5 40.9 MALE 49.2 45.8 45.3 48.9 55.9 FEMALE 13.2 12. 1 12.8 14.0 26.2

ECONOMIC DEPENDENCYRATIO 1.5 1. 7 1.6 1.4 1.0

INCOMEDISTRIBUTION PERCENT OF PRIVATE INCOME RECEIVED BY HIGHEST 5 PERCENT OF HOUSEHOLDS 39. 0/i HIGHEST 20 PERCENT OF HOUSEHOLDS 64.4/i 61.0/h LOWEST20 PERCENT OF HOLSEHOLDS 2.5/i 1.9/h LOWEST 40 PERCENT OF HOUSEHOLDS 8. I/i 7. 0/h

POVERTYTARGET GROUPS ESTDIATED ABSOLUTEPOVERTY INCOME LEVEL (US$ PER CAPITA) URBAN .. .. 235. 0 RURAL .. .. 180.0 190.9

ESTIMATED RELATIVE POVERTYINCOME LEVEL (US$ PER CAPITA) URBAN .. .. 293.0 474.0 RURAL .. .. 200.0 332.5 385.8

ESTIMATED POPULATIONBELOW POVERTY INCOIE LEVEL (PERCENT) URBAN .. .. 49. 0 RURAL ..

Not available Not applicable. NOTES

/a The group averages for each indicator are populatlon-weighted arithmetic means. Coverage of countries among the indicators depends on avallability of data and is not uniform.

Lh Unless otherwise noted, data for 1960 refer to any year between 1959 and 1961; for 1970, between 1969 and 1971; and for Most Recent Estimate, berween 1974 and 1978.

/c 1956-61; /d 1960-65; /e 1970-75; /f 1964; /a 1962; /h 1972; /A Personal income within labor force.

Most recent estImace of GNP per capita is for 1979, all ocher data are as of April, 1980.

October, 1980 ANMEXI - 21- Page 3 of 5

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c~-utaceidho naeaue- ic rhud an atid lank utiun (19717-7 baninl; 19h0, enteteifuli n eiaegres ndaetlie nptti,. bedye 1910, aid ha- '.i.b.>i Pnaiiblinneaer.d pltti-aeteenhletm erserlysafe hy i phatnan.Eaahhshmetlastte pherdte Prtanially nesmedi itORti IONSLttPTIONPER 00170T - AnnuaI..a...nptia_ ci tg cd bnyaear Iia o Iedd. te hepnes .ene,idriad i eeit11 ead mdical and thnine,netral enrutes. gis and ydra-.nudestand gethetnsl then cennec,n prtasnedlyi gmifIed b siphyboise- htn bys madial dms daiemt tlIt)In kIltg-em at anal q.i--len pet capita; 1OhI, 1970, and 19708are niata. 1 et.) aity niter b tepetteen armedtt tan payd data. liitdrse a mad- e hischltfe. Par stdt tialpaseeura beed POPTLOIOO slat00101IitilMtIP

dOUATa. N VT_ TAITC .I. hn- ptidt diO,ided hy tie nube it teds.;l.dh it.,- t1

Tondcont tt;tol 10,ad97dAi. f 17,.d 98a, Onet1IO nPiit at. Iatenl hr.tn p ei nahli-tea.ahc e e Papulatint tnI ceninne beseehald cnsiats nO atrACy no unIfiul edbn share. liing -ettet

lOEse sad .eat 20e necetc ateiln-nba-7 .1 et. be.d-18 Pa- dAlId gt cenpecIiselo. ieiotetdeant~annatrs

tetih scatdig e a te..-nr sad Dent tasul plnigptttai . Ocni... ili ptet ldrlnsy. nl.aht adma aa erlui red I-d rf enie pup-ra n tca, rbn,an rca-d-iinadapc-sey the blciI tacteqnsl a tic dest ca I,sabie 7 h g ttuiucee- ooc fppt .. pl -

mintltne'h -eutint-e nlth-anlirn eduatnIa atietmysre i en Dean niatiasrynneultiie is r pahed- Th be itsmrb-ultn Cts inc -nm papiStaehgeb nabs h nitcta suen ag.l. tuehin been reahed. gec-nareacnnt d -uta1 ache an .g nal-epa ashn;aendr

Pra.h .sstiealtuhalland-T-ma_ed asebeertuc-asri-lGu...lnsd enaludtd PnyI---n:leeelei srca i eeda')-_natna Cntthin P ieal hcienhe 't:u ",hnIrerc Pnt -_thidreJ 0-4yc)siCn-g (1-lsfdnehnnt.idatihi tahncaem oihnesriapr 04sas) n itdI(5yIr adnet at pelltncar oh idyer.. D d.nty a asdyRirnen tna tysiutet letien, t0. 17,an 98 aa Pua-recenrai f- drifacy, - tecgtdhrI- PIntel snd...a IIestiedi 1 east pnashne b l n 195-60,i COh-bld saTd 190-79h. eneni-ynpending letrhit d

p kuait;10,190 n 197 data. l .. E0 OOb .d .df5 _T-d . .V; ... CrdeDeth ae(r hnn1-Anuldah e t--atnd e hl-yr-nr P ten.. r tern.. (see th .s.nepIenina; - PIf ee er npee an psyalaiec,960, 970, ad tIl data cars neetingi_l lest.d tha siht ancnt;cnnad umbtenta,'dg fearta -se

he eml pedu-citte(6 petind it a 1bseyra- pbl- etAg~ age-s_eciti ten- adn Oesst crtnrn srlt l-61tpse retainer ....red ii it 196;uelt0 layaraeae a iga 11,17, n 9) b1nd7nreagrrrldphia1pr7b8uee t D .. tpia...Ine nne et

at tll-6aain age6-7, 119704y78rt nOpt-tc-asta.gsetta T'Oeeec ( tru Ire ts 1 dnultetnp..t- crelrg1 d tar- hndca en

£501ddtD-tTlIth it npunitlesd end. Il yeart stan-. rdgietthetdtnt-it To-gtrim ass he - lodenFnad eL Praduntlan ret Ca.c .. 99-tId ) Idennhpe capita, Ieua tine al "aly reabneeterppn,dtnlassidclpb pradctunttallPon ,,meItIles. trnantnt e lode teedan P ire n Rdasi n dri ntediptiaiyi r lggAlrl ceypa. If ... is dre hacalendar nc yea h yCe ...cdihe cater primary g60d1 e.g. suacd e eb ha "da-it" It.. hi aprbain at lathtnnttled nek

blae nl- dd ugIgtfpnun n raeti ce -cty pishted s nicke--n n--d-duing -- eni- .nld iagadIsa t-E In dtina-Ifrlnama

enryrqiart Ier adeip_ssslhrisnstrietspt no oc reant a cbat11ligr ic aten44 Net) h.plr -bnclod anmaI L_e,_ srd, acdOrt n tepae uteouighusle net.el dutiucue ntn rot tg,adln ndsebto.RqIte TV liletC sanest caungdPpleti Ir ta TVeanbi;fOO, b197. ard.

LOD_Nit n elhtsinIgeotartltmraue oyuthe s lema, )erc dII- Female lsh- _atin asl penatg Ct abrfra I td aetbFld lesa.t;i196-61, 197, and t97 data -laingat eroItfe n itat.pbot.ee; 960.190 ed 178_eta ne.oplymd per day SetJappi I(n i ete a to.l- n lcrii serddgtaIenag pR of cl laht fares i91 qurnnc s allatactisasanhitda h -Ihpnode midsteud 1970-sod. d97td iptis. yt -ti,gg.. alessanh irasttna pondint pe day and.t 11 etact gl anea ad PrIclrin "d lacy If (aiet - ecet mat. ard teal -_erk hptaa

tbas neet s t ntineldderan pI aph ted-y IPal- Inb.hr 190,k 197d ad t975Ih ysets.Th ce areitO .i. ptein .. dpi-ietcsaeflrn_et _ond oa _2roey;16-, 1970 an 197 date. d111 tn eiscrnh arlyta ema n nt - ProIteh - nplly at (sad. Or- sAt-sCEa rntr itepptcn.ndlt heted A, i btd_tid~~~~~~~~~~mts r Ie nsneientt e a rie astcs sad.pu lles i t grmi e dy 91li 91sddOil-tn- aa. fnntt1latC1.Eal.nenPt...ada lnarc - .itan NIt adroa

I'll i I I..~~~~~~~~~~5pecenhetl.. pI_ et pa.Itet dl p-btant, landpars 197 perne llytetaectnc anIl birt )ycsre -I-lb.hoerag- - achetyai ra-nFaI hIe teogaoing of huneholda

as.hitch; 1900, 1971 ned 1970 dat.d197dt._f-tyhtg d

e.tagpe thousandI f s iehs ishete hnnue nRg lon- Iee 00 p tcets) -abrhe end. r9r0

peorour- a thetCr repecilc papahatIdass .- p..b.Isaahn Tehplhc Naalre ledporo Ite_ts IrN iee-hr Illanrag partpit

dont -aat soesd ed pdllarDtleaaa part at the da,sP ro g h;n rurald - FeRnent o Ropsisa Ifaphaa sad rua-d a r alaepn'

t 1cem4Nort lianltysal (s l Puatd thra-atd - Ata-I daihac and lt. .t r -pta4l-tat tbahIl1-apt aban tthti, sedteel fetnsb eanrat1e. ..- sisnl. as ti. ferseegelaftei 1960ttin 197 p d 197C7ad~tenac dIN-COMEe saItacaR ateDtnaOa nesal ay Inlude ani he nalattieor ittnuteeaceee. tedSisrasl, ineeni haslals ad Pin-rtbas Deyr hse t iALt-hama -ncrtasdasti scrhlter..bn-eesysc - If thease at . ,p1b, ih.t2 -. t - . perbithe 19p11 . 4 .l pn'i lee and altla hoa...lA"tIinnhad.

222 -

ANNEXI Ppge 4 of 5 PERU

ECONOMICDEVELOPMlENT DATA

A C T U A L P R O J E C T E D GROWTHRATE (# p.a.) Nof 1965 1970 1975 1976 1977 1978 p/ 1979 Z/ 1980 1985 1965-76 1976-78 1978-85 GDP NATIONALACCOUNTS (illons of OR dollars at 1977 pi.ces)

Grors Do-etic Product 9046.7 10759.9 13403.2 13718.9 13639.6 13795.6 14247.6 i4685.5 18695.9 3.9 0.3 4.4 l00.0 GaAs. fro Terms of Trods -610.9 130.0 -246.9 -179.4 0.0 -186.3 467.9 0C1' J 501.2 . . . 0 Gross Domsetic Income (GDY) 8435.8 10889.9 13156.3 13539.5 13639.6 13609.3 14715.5 15489.9 19197.1 4.4 0.3 5.0 100.0 Imports 1840.2 2190.1 2985.4 2697.7 2706.8 1868.3 2135.4 2742.2 4240.8 3.5 -16.8 12.4 19.8 Ecports 2314.3 2616.8 1906.9 1908.8 2129.5 2355.1 2646.8 2655.3 3136.9 -1.7 11.1 4.2 15.6 Exports, Tern of Trado Adjusted 1703.4 2746.8 166o.o 1729.4 2129.5 2168.8 3314.6 3459.7 3638.1 0.1 12.0 7.7 15.6 Resource Gap,Terui of Trade Adjusted (-:euspl-m) 136.8 -556.7 1325.4 968.3 577.3 -300.5 -1179.2 -717.5 -602.7 4.2 Total Cossu=ption 6605.5 8735.3 11339.7 11766.6 12172.2 11505.3 11588.3 12392.3 15183.5 5.4 -1.1 4.o 89.2 Investmnt 1967.1 1597.9 3142.0 2741.2 2044.7 1803.5 1947.9 2380.1 3410.9 3.1 -18.9 9.5 15 .0 Domestic 6evings 1830.3 2154.6 1826.6 1772.9 1467.4 2104.0 3127.2 3097.6 4013.6 -0.3 8.9 9.7 10.8 d/ prelimAnary

PRICES IN US DOLLARS (1977 c 100)

Euport Price lmdec 32.9 46.5 87.4 90.6 100.0 101.3 142.4 Import Price Index 44.7 44.3 100.4 95.7 100.0 110.0 122.3 Terms of Trade Iden 73.6 105.0 87.1 94.7 100.0 92.1 116.4 Annual Average Eauoangs RGte (Gales per S) 26.8 38.7 40.8 57.4 83.81 156.3 224.6

OUTPUT, LABORFORCE AND PRODUCTIVIUYIN GNP by Sector Labor Force Labor Productivity 1970 PRICES In Mil. of US Doll-ro Perce-t of Total Gro-th Rate ID Thousende Percent of Total Grovth Rate An US Dellarm # of Average Growth Rats 19'70 L979 1970 1979 1970-79 197G 1979 1970 1979 1970-79 2970 1979 1970 1979 1970-79

Agriculture 1534.2 1536.6 17.3 13.9 0 2011.9 2222.4 48.o 40.8 1.1 762.6 691.4 36.1 31.9 -1.1 InduStry 3226.3 4476.5 36.5 38.0 3.7 769.1 1005.3 18.4 18.5 3.0 4194.9 4452.9 198.6 205.4 0.7 Srvices 4084.8 5780.6 46.2 49.0 3.9 1407.6 2212 33.6 407 5.2 220 2612.2 137.4 120.5 -1.2 Total/Average 345.3 11793.7 100.0 100.0 3.2 16 5440. 100.0 100.0 2.9 2111.8 2167.7 100.0 I 7 0.3

CENTrALGODERNhENT FINANCE Projected (us percent of Currrnt rDP) 1965 1970 1975 1976 1977 1978 1979 1980 1981 1982

Current Revenue 13.2 14.6 14.0 13.4 13.5 14.5 16.6 19.4 19.4 19.5 Corrent Enpeoditore 12.4 12.1 14.4 i4.8 16.9 15.7 i4.o i6.0 16.7 17.2 Current 6arirgs o.8 2.5 -0.4 -1.4 -3.4 -1.2 2.6 3.4 2.7 2.3 Capital Expenditure 3.9 3.7 4.5 4.5 3.5 3.1 3.9 3.9 3.9 3.9 External Assistasce (Net) 1.0 0.5 2.3 1.8 3.0 0.4 -0.2 3.4 n.a. n.a.

CU4RENTEXPENDITURS DETAILS- Actal DETAIL ON 1977l/82 DveS ent Plan (e4 percent of total Current Expend.) 1968 1975 1976 1977 1978 PUBLIC SECTOR US SHillon Total INV250MENT PROGRAM Educ-tion 30.6 27.9 22.9 18.1 16.1 en.lth 9.0 6.3 6.2 4.7 6.0 Agriculture 1262.2 19.6 Agriculture 3.6 4.4 1.8 1.3 3.4 Tndustry, To-ris and MiAnig 1375.1 21.3 Other Econo ic oSrvice. 3.2 4.0 5.2 3.2 2.7 Energy 1794.4 27.8 Genoral S-rives (inc. defence) 46.4 42.7 46.9 54.1 45.2 Tre-mport and Coasonicstiun 892.4 13.8 Interest on Debt 5.4 11.3 10.8 15.1 24.1 2Scic1 ad Local Interect Projecto 1128.3 17.5 Other 1.8 3.3 6.2 3.5 2.5 Total Current Expenditures 100.0 100.0 100.0 100.0 100.0 Totel 65. 1500

MONEYAND CREDIT 1973 1974 1975 1976 1977 1978 1979 ThRll-o= of Soles cutotnuding at the end uf period)

loney and Quosi-1onuy 98268 119996 141766 166296 220453 321200 615699 BRak Credit to Public Sector 27234 26896 49711 101399 198854 287700 212129 Beck Credit to Privats Sector 73189 84512 108234 134536 173772 239300 379509

MOcuy cc percent uf GOP 25.0 24.3 22.4 20.0 1. 07 10 Coxucuer Price cIdsx in Soles (1977=100) 37.5 43.9 54.3 72.4 lOO10 157.8 284.7

Ancual perceutage uhacge in: Conoser Pice Index in Sles 9.5 16.9 23.7 33.5 38.0 57.8 67.7 BRnk Credit tu Public Sctor 53.7 -1.2 84.8 104.0 96.1 44.7 _26.3 Scok Credit to Private Sector 27.7 15.5 28.1 24.3 29.2 37.7 58.6

torc 4, 1981 - 23- fee5t

A C T UAL PROJ 00700 D 40101101OPORIAOO OP PRTUS 1922 1973 1974 1975 1976 1977 1972 1979 1910 1985 1990

0000rt5 icain I 1152.9 15 17. o828. a 1674c1 179.6 7157.8 2399.9 4066c 6507. 874'. 1948.6 I.,:,t (icodt 97) 129 214.0. 212.3 3-02. 268. 264. 200. 2619.2 3915.8, 788,5.2 13985.4 Assoro .. iac (deficit =)50.0 57.1 -634., -347.9 -834 -566 39.8 0447.2 590.381,-03.

is atc -ccs(ic -12.9 -10. -28.5 -2t0.3 -366.4 -426. 4 577.7 477.3 -793.6 -1201.7 -187 1. litIneet Pesste1 2 74.2 -0107 -,175.8 -214.0 -324.0 -370.9 -563 -6335. 800 34. cc sicci 8817cc Icecopoll - ~~~~~50.31 -(. -186.6 -98.6 248.0 -707.2 456. -487. -668.5 -1228.:1 iecIcotsiIcc-e .6.7 - 0.2 - 42.7 - 26.3 -4o2.4 - 36.5 - 61.t -064. -347.9 -517-729.7 Net Oc--et Ircafer 39.2 42.1 45.1 19.1 57.9 56.8 56.0) 94.0 132.3 16.2 209.2 tasc cC-re Icocit -391.7 091. 6 a.875 _153696 -090.9 -926. -00. 63.9 - 70.0 -243.3 -288.9 list Diret -eli, Occtt-t 24.2 49.4 ic3.8 505.7 170.8 54.1 25.0 62.0 - 20.7 76.0 155.0

Disiccoseec 280.0 667.4 0980 i0. 144.4 028.-. 841.0 1540.3 1401.8 1970.1 14725. 1,tttc.ti- .104 -0. - 338. -29.4 -354-. -26. -67.2-85c. -1546.0 -991.0 set ttrrcetcg 049.6 362.9~~~~~~~~~~~~~~~:77.6 830.8 890 620.0 595.8 694.1 596.6 424.0 2735 .2 lOclaresesat 20.1~ ~~~~67. ~ ~~~~805 ~~~84.5, 87.9 74.3 61.8 81.4 93.9 187. 301.5 Rcatissa - 30.8 - 38.3 478 _-567 5.2 - 74. - 73. 78.2 -29.1819 -3. lid troia-3.7 9.3 32.7 78 1. 0.1 - 0.2 3.2 40536. Oitrt-tsce Otpltal 25.~~~~~~~~~~~~17-124.7 263.5 -150-.0 -350.0 - 975 -75.5 110.9 350.0 0 0 Oc.s Cepilte (let) 848 - 916 - 15 - 5.6 0 0 -8. 85.2 0 - 09 06 cis,s It Reot -iac--s) 2/ -5.4 -1.3 -281.6 350.1 520 .4 349.7 - 20 -589 -859.98 -28203 -27.5 Iscel of Oors(cc .l cf 110 penil p/ c1 476 897. 165.1 -355.3 -705.0 -627. 995.9 11. 04349. P01090710 Orceti Rtes 18 p...) Pecsta Totel eE -caOtbPtR9cI42 i922 1974 1975 1976 /9ZZ 1978 3W9 1980- -1905 1972-76 19-78-70 1970.05~ Z al

OttO 83.6 96.4 185.5 219.3 183.0 182.9 1596.1 276. 80566. 07 -1. 22. . . Ote0 att trdial ~~~~13.9 ~ ~~~~~75.143.3 4i.4 84.5 126.4 051 91.1 157.7 149.040. 67.9 17.6 24.0 5.6 9. Petr-lss oa.-sa - -ric-l..a 37.3 t71 99.4 267.4 260.8 2"68.9 39.0 I 0 6.6 -63.4 . 100 0. 564.1 962.6 60.o 626.9 532.7 7991099.8 2504 15.8 - 5.9 24.8 23 .2 31.8 aceresocd .. 336.6 339. 2103.9 36.0 -17.6 23.8 17.4 25. OspItodcoals 097.4 307.7 469.2 750 .0 7. 4606 1.6 65 8789 150 Rd3dateectccaa-scceierc sad tall ~~~~151.719. 638.5 160.1 216.9 673.0 501.4 310.3 50.5 8600 9.3 21.8 33.1 17.6 18.9 ota geaRs 6P.a.0.b 81.0 1032.9 0908.9 2391.1 21100 oo64.o 0610.5 2052.7 3035.8 6484.6 26.8 - 1.7 22 .1 80.3 82.0

631.9 528.0 530.4 469.6 566.3 8100 1420.6 161 57 7. 19.7 i8.o tHa-ftar -olce 291.9 367. 553.6 7105. 22 : - 1. 2. 11.0 11.1 Tall stdssodttsfatarserkee111.9 111.0 8623 3220 2628.0 2694.4 2070.1 2615. 3915.8

FisOsel 219.5 137.7 2018 153.8 177.5 179.0 191. 23. 180. 283.7 - 5.2 4.0 5.8 84 7.3 C foe 69. 63.6 34.8 53. 101.0 16.3 168.2 246.8 163.4 280.4 19.8 29.0 6.4 9.30 81sk ciat-cc 1al98.6 203.7 357.1 385.8 20. 76.6 158.6 2116 219.5 650.7 0.? 11.8 22.3 8.3 7.9 Dipper r88.o 525.0 500.0~~~~~~~~8155.7 2270 592.3 408.6 875707.3 1341. o. 4.2 18.5 18.4 15i4 slte 61.2 79.5 140.9 183 651 125 21. 392 5.8862.8 26.1 19.4 22.8 8,o 9.9 16.3 15.7 8. 1111cr slcerale ~~~~~~~~~~~~~189.3225.0 282.9 250.3 548.6 335.:7 296.6 100.0 403. 757.6 03.93- 35 Drts.1s, cradeaoRrsle 6.5 15.0 28.2 37.3 53.3 52. 17. 645.7 797.87/ 1589.97/ 69.2 85.7 345.5 2.4 07.3 saaol-s cods 32. 65.2 1560.5 10. I3.0 221. 330.0 677.2 775.2 1869.0 42.0 57.5 28. 10. 21.4 Ttali od 945. 1111.8 15303.2 129. 1399 75.6 o9A. 3074.0 7838. 7536.0 .. 55 2. 07 8.

N sccte-i...t 207.9 239.4 325.0 385.5 385. 412.2 '159.3 591.8 4670.6 0168.4 16.7 9.2 16.7 89.3 113.4 cocci cccl.sadcca-foctr cerc..e 1152.9 1307.2 0628.2 1670.1 17846.6 203~7.8 2549.9 1066.4 6507.1 8710.t 10.9 07.3 20.2 1100 00.

1Wm 195050033 19l2 1974 1975 4976 1977 0978 1979 -1os 8972 1973 1974 1915 178 1977 1970- 1979 1011 49.0 26.0 0 174.1 80.0 8.8 171.0(. - .1 wa 0 00 0 10W16 OLWc00B5-5t mlrs o)~ 04t- ad10tce 86 25.9 t2.0 113.4 42.11 ~33. 73.4 M locersasctt 210~~ ~~~~~~~358.5 ~~~~~.1541.3 586.7 845.3 45. 262 5258 Ucos Dell Oatt-ll147og (0010 sad.3 441. ~30 99 sopplies 85.o 17.2 a3.8 80.1 139.1 39.5 733 216.6 of tie srloll 047.0 130.0 221.13318.8 366.3 4411365863. 9031. S. 85~~~~~~~~~~6.245. 8. 3. 9. 8. 0. 6. alll olied13. 51 3434 40202 555991 6437.6 8742.9 70. Fi-.~~l 1-t-ti- 161.2 05. 08. 03. 908 1.3 000ulcDilI6cc 182.46-508.0 -031.9 -440:7 - 453.0- 653.3 -749.5 -918.4 Tat. 811. 4.sa4617 1297.4 1318.2 947.6 1862.7 1118.4 501.8 1891.3 Iatss 52. -93.1 - 13.2 - 16.9 - 19907. 6. 375-3. a0is 861 Ics (a cecisie - - 108 00001 (oblic taut)

(alTiOl 000 D0icrssd aclc8 0-=tcito cof te.3,1979 108OO) 1. aetlrieRta 29.5 23.6 26.3 26.1 38.6 31.2 22.8 ~oaon ~~ ~ ~ ~ ~ ~ ~ ~ 0011 Direice -- (= OO 15 3.9 5.6 0.9 7.1 6.848 6.3.3 6.2~~~~~~~~~~~~~~bt-i6. teal Ircuop 234.7 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~4.0411 -eri-e/Gat. Isoo- 15.5 28.9 24.4 20.7 23.4 35.6 43.4 .37.3 Ots otisn-l- 96.8 1.6 Prso Dii Oa- -teol 2407.9 40.6 196766j11tall10 . 6.5 5.1 6.2 5.4 5.3 5.9 7.4 Ooppllera 7~~~~~~~~~~~~~~~~~~~~~~~~~'02.11.8 ' q14.6 12.4 13.9 13.9 45.5 8,Pi-sca ctltcs(60.bo 488 4. TotalDl soc/ot 0 17.6 7.8 095

Tals -clOic. 7D 5971.5 1100 T9014/ecl (1I .tO 544. 43.8 36:.8 33. 48.2 40.7 42.45 OIter 811. sat c..84taas/eot oa,c0 .8 19. 2632. 65 23.9 45 7.5 Bet fratrOos4ioreat 5.9 40.4 86.0 80.2 48.9 49.7 11.0 1.

807 N0It P010 008 0210 0111./cross1156= 7.3:5 1. 8. i4 2.2 2. 3.0 5.5 IsaiclIi./Oroac cr007 Dial. 3. 1.3 o.8 1.4 2.2 2.5 7.0 5.5 00101002000 12~~ ~ ~~~.592 59 4.6 4.c 3.:6 34 4.0 00 Rroa .oR/DOD 12.5 9. 9 4.6 40 3.6 3.4 4.0 01001 oecle1t 1 Rerics 8.6 90 4.09 4. 4.3 3.4 3.6 3.3 san Dsa111lr/08 eo .6 0. 4.1 4.2 4.3 3. 3.6 3.

ttieaoo il04 ie slos cta"losof Paytete Mslo. sri4, 1981 - 24 - ANNEX II Page 1 of 6

THE STATUS OF BANK GROUP OPERATIONS IN PERU

A. STATEMENT OF BANK LOANS (as at January 31, 1981) --- US$ million --- Amount Loan (less cancellations) Number Year Borrower Purpose Bank Undisbursed

25 loans fully disbursed 268.2

949 1973 Republic of Peru Education 24.0 8.6 1025 1974 Republic of Peru Roads 26.0 0.7 1196 1976 Republic of Peru Transport 76.5 48.4 1215 1976 Republic of Peru Power 36.0 11.2 1281 1976 CENTROMIN Mining 39.7 23.3 1283 1976 Banco Vivienda Urban Dev. 21.6 13.6 1358 1977 COFIDE Industry 35.0 15.8 1403 1977 Republic of Peru Agriculture 25.0 24.1 S-ll 1978 Republic of Peru Preinvestment 8.8 4.1 1693 1979 Republic of Peru Program Loan 115.0 0.7 1771 1980 Republic of Peru Irrigation 56.0 56.0 1806 1980 Petroleos del Peru Petroleum Prod. 32.5 32.1 1812 1/ 1980 Republic of Peru Rural Dev. 15.0 15.0 1888 1980 Republic of Peru Preinvestment 7.5 7.5 S-19 1/ 1980 SIDERPERU Technical Asst. 5.0 5.0

Total 791.8 266.1 of which has been repaid 160.9 Total now outstanding 630.9

Amount sold 18.3 of which has been repaid 18.3 -

Total now held by Bank 630.9

Total undisbursed 266.1

1/ Not yet effective. - 25 - ANNEX II Page 2 of 6

B. STATEMENT OF IFC INVESTMENTS (as at January 31, 1981)

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

1960 Industrias Reunidas, S.A. Home Appliances 0.3 0.3

1960 Luren S.A. and Ladrillos Calcareos, S.A. Bricks 0.3 0.3

1960 Durisol del Peru, S.A. Building Materials 0.3 0.3

1960;1962 Fertilizantes Sinteticos, S.A. Fertilizers 4.1 4.1

1962;1968 Cemento Andino. S.A. Cement 2.2 0.2 2.4

1964;1967 Cia. de Cemento Pacasmayo Cement 1.1 0.5 1.6

1975 Southern Peru Copper Corp. Mining 15.0 15.0

1978 Cia. de Minas Buenaventura Mining 2.0 0.5 2.5

1980 Cia. Minera San Ignacio de Morococha, S.A. Mining 2.7 0.5 3.2

Total gross commitments 28.0 1.7 29.7 less cancellations, terminations, repayments and sales 13.9 0.4 14.3

Total commitments now held by IFC 14.1 1.3 15.4

Total undisbursed 2.2 - 2.2 - 26 - ANNEX II Page 3 of 6

C. PROJECTS IN EXECUTION 11

Loan 949-PE: EducationProject; US$24.0 million Loan of December 5, 1973; EffectiveDate: March 5, 1974; Closing Date: June 30, 1981.

The project has experiencedserious difficulties and is now about 40 months behind schedule. In the first 3-1/2 years after effectiveness, there was little progress owing to delays in establishingand staffingthe project unit, weaknessesin the unit itself and a long delay in adopting the educational reform which was to determine curricula. This last difficulty was resolved with the reform's implementation in 1977, but project execution was still hampered by weaknesses in the project unit and cumbersome bureau- cratic procedures. In order to resolve these problems,the project has been modified to reduce its scope, increase the Bank disbursementpercentage, create a revolvingfund and improveadministrative procedures (see President's memorandumR79-59 of March 27, 1979). As a result,the pace of project executionhas improved noticeablyin recent months and disbursementsnow stand at about US$15.4 million.

Loan 1025-PE: Sixth Highway Project; US$25.0 million Loan of July 1, 1974; EffectiveDate: August 21, 1974; Closing Date: June 30, 1981

Loan 1025-PEfinances improvementof the Lima-Pucallpahighway which connects the Amazon basin to the Pacific Coast. In view of the unusually difficult terrain and limited Government implementationcapacity, the works was divided into two stages which were financed by separateloans, 1025-PEand 1196-PE (see below). Because of initial delays and substantialcost increases, the scope of the projectwas reduced in February 1978 (see President'sMemo- randum R78-360 of February 17, 1978) and the Closing Date postponed. Construc- tion has been completedand studies are being finishedup. Since the loan is almost fully disbursed,we do not anticipateany extension of the closing date.

Loan 1196-PE: Lima-AmazonTransport Corridor Project; US$76.5 million Loan of May 27, 1976; EffectiveDate: August 18, 1976; Closing Date: December 31, 1982.

Constructionof the project'sriver ports component is almost completed, although with some cost increasesbecause of start-up difficulties.There have been seriousdelays in contractingfor civil works under the road component because of slow procedures and limited Government implementation capacity. These problems now appear to be largely overcome and construction is underway on all project components. The project has been modified so as to increase

1/ These notes are designed to inform the Fxecutive Directors regarding the progressof projects in execution,and in particularto report any problemswhich are being encountered,and the action being taken to remedy them. They should be read in this sense, and with the understand- ing that they do not purport to present a balanced evaluationof strengths and weaknesses in project execution. - 27 - ANNEX II Page 4 of 6 the financing for urgently needed road maintenance and eliminate improvement of those road sections which cannot be completed within a reasonable time (see President's memorandum R79-88 of April 27, 1979).

Loan 1215-PE: Fifth Power Project; US$36.0 million Loan of September 20, 1976; Effective Date: November 18, 1976; Closing Date: December 31, 1981.

The slowdown of demand in ELECTROLIMA's market in the wake of the recent economic difficulties, as well as procurement problems, have delayed the project's power distribution component and completion is expected about a year behind schedule. Serious delays were also experienced in getting the technical assistance program of the loan underway; however, most consultants have now been retained, and with strong support from the current staff in the Ministry of Energy and Mines the program has begun to progress normally. Because of the delays, the closing date has been extended.

Loan 1281-PE: CENTROMIN Mining Project; US$40.0 million Loan of December 6 1976; Effective Date: May 24, 1977; Closing Date: December 31, 1982.

Initiation of the copper mining component, which the IDB is cofinancing with the Bank and which amounts to about 90 percent of total project costs, was delayed by about two years because of the lack of local counterpart funds. The Government is now proceeding with the project with support from a supplementary IDB loan which will help cover part of the financing shortfall. Engineering, procurement and mine development activities on this part of the project are well-advanced. Construction of the mine-water treatment plant is now almost completed.

Loan 1283-PE: Urban Sites and Services Development Project; US$21.6 million Loan of October 12, 1976; Effective Date: January 10, 1977; Closing Date: December 31, 1982.

Administrative difficulties, particularly the need to reconcile Peruvian procedures with Bank guidelines for procurement, delayed the project by about one year. All components are now moving ahead well, but because of past delays, the closing date has been extended.

Loan 1358-PE: Industrial Credit Project; US$35.0 million Loan of January 28, 1977; Effective Date: March 30, 1977; Closing Date: June 30, 1981.

Peru's economic recession led to a contraction of investment and to lower than anticipated demand for the loan. In view of this, the Borrower--the National Development Bank (COFIDE)--has agreed to finance projects identified by commercial banks and other financial institutions, - 28 - ANNEX II Page 5 of 6 which would also guarantee these loans and provide some loan servicing. With this action and improving economic conditions over the past year, demand for the credit line has increased and it is now over 91 percent committed, with full commitment expected by early 1981.

Loan 1403-PE: Irrigation Rehabilitation Project; US$25.0 million Loan of May 20, 1977; Effective Date: August 2, 1977; Closing Date: June 30, 1983.

DEPERTC, the executing agency, has completed the design for civil works in the six valleys where irrigation systems are to be improved and construction has started. The project's implementation is behind schedule because of delays in completing designs but is now accelerating as construction gets underway.

Loan S-11: Water Supply and Power Engineering Project; US$8.8 million Loan of December 22, 1978; Effective Date: June 27, 1979; Closing Date: December 31, 1981.

Consultant's studies have commenced and are proceeding on schedule.

Loan 1693-PE: Program Loan; US$115 million Loan of May 17, 1979; Effective gDate: May 24, 1979; Closing Date: December 31, 1980.

The economic recovery program supported by the program loan was concluded in a generally satisfactory manner and $114.3 has been disbursed. The Closing Date was extended to December 31, 1980 in order to permit additional technical assistance which is now being finished up. No further extension of the Closing Date is anticipated.

Loan 1771-PE: Lower Piura Irrigation Rehabilitation Project; US$56 million Loan of February 4, 1980; Effective Date: May 28, 1980; Closing Date: December 31, 1985.

Project execution is now getting underway.

Loan 1806-PE: Petroleum Rehabilitation Project; US$32.5 million Loan of April 28, 1980; Effective Date: September 30, 1980; Closing Date: January 31, 1983.

This loan was signed April 28, 1980 and project execution has commenced.

Loan 1812-PE: Puno Rural Development; US$15 million loan of April 28, 1980; Effective Date: ; Closing Date: June 30, 1985.

This loan was signed April 28, 1980. Start-up of project activities has been satisfactory but there has been a delay in satisfying the condition of loan effectiveness in regard to approval of the bylaws for the Project Unit. We expect this to be completed shortly. - 29 - ANNEX II Page 6 of 6

Loan 1888-PE: Bayovar Engineering and Technical Assistance Project, US$7.5 million loan of August 21, 1980; Effective Date: December 22, 1980; Closing Date: June 30, 1983.

This loan was signed August 21, 1980. Consultants have been contracted and project execution has commenced.

Loan S-19: SIDERPERU Technical Assistance Project, US$5.0 million loan of December 15, 1980; Effective Date: Closing Date: June 30, 1985.

The conditions of effectiveness are now in the process of being satisfied. - 30 - ANNEX III Page 1 of 2

PERU

AVIATION DEVELOPMENT PROJECT

SUPPLEMENTARY PROJECT DATA SHEET

SECTICN T: TIMETABLE OF KEY EVENTS

(a) Time taken by the country to prepare project: Three years

(b) Project prepared by: MTC, CORPAC and Consultants

(d) Departure of Appraisal Mission: February 18, 1980

(e) Completion of Negotiations: February 6, 1981

(f) Planned Date of Effectiveness: July 1981

SECTION II: SPECIAL BANK IMPLEMENTATION ACTIONS

None

SECTION III: SPECIAL CONDITIONS

It has been agreed that:

(a) CORPAC would engage the consultant for the cost accounting study by March 31, 1982 and CORPAC would discuss the recommendations of this study with the Bank and adopt a plan, satisfactory to the Bank, to implement those recommendations that are mutually acceptable (para. 62);

(b) CORPAC would maintain its ratio of accounts receivable to operating revenues at no more than 25 percent (para. 66);

(c) CORPAC's tariffs and other charges would be maintained and applied so as to cover operating expenses, debt service and the local costs of its investment program until the Closing Date of the Loan and it would earn at least an eight percent rate of return on its net revalued assets (para. 67);

(d) the execution of an agreement, satisfactory to the Bank, between CORPAC and COPESCO under which COPESCO would contract consultants for the final design of the Cuzco airport, would be a condition of loan disbursement for this component (para 64); - 31 - ANNEX III Page 2 of 2

(e) until the closing date of the loan CORPAC would maintain a five year capital investment program and would, not later than November 1 of each year, update this program and promptly provide a copy to the Bank for its comments. Until the Closing Date of the loan, CORPAC would not undertake any investment of over US$1.0 million at any one airport, unless such investment were technically and economically justified (para. 69);

(f) CORPAC would not, without the Bank's agreement, incur any long term debt unless it can maintain a minimum debt service coverage ratio of 1.5 (para. 69);

(g) the PPF advance of $800,000 would be refinanced by the proposed loan (para. 70); and

(h) a condition of loan effectiveness would be the registration of the Loan Agreement with the Office of Public Credit of the Ministry of Economy, Finance and Commerce (para. 81). r 0i 75 I ' >:10^E:p y7Pj: ~ E R U - ol2r AVIATION DEVELOPMENTPROJECT < N COMPONENT LOCATIONS C O L 0 M B I A -. New or improvedorports ==.. ..-, ± VASI V VOR B NOB-N ;i = .: . ~~~~~DDME " C COM-STATION Ke ti / | ;:-:; - ~~~~EENGINEERNG WNORK :Vei12 - Esistiog airports - Asphrlt roads PosAll-w erroads-d, ' . . .; 8 y X ~~~------DOr -ods 3

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