FILE COY rdocument. Public Disclosure Authorized. of The World Bank FOR OFFICIAL USE ONLY. Report: No. P ES. Public Disclosure Authorized

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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized FILE COY rdocument of The World Bank FOR OFFICIAL USE ONLY REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO ADMINISTRACION NACIONAL DE TELECOMUNICACIONES WITH THE GUARANTEE OF THE REPUBLIC OF EL SALVADOR FOR A THIRD TELECOMMUNICATIONS PROJECT April 21, 1978 Report: No. P ES This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

2 CURRENCY EQUIVALENTS US$1 = Colones (0) = us$0.40 SDR 1 = FISCAL YEAR ANTEL - January 1-December 31 ABBREVIATIONS AID ANTEL CABE. CACM FSDVM IDB U. S. Agency for International Development The National Telecommunications Agency Central American Bank for Economic Integration Central American Common Market Salvadorean Foundation for Low-Income Development and Housing Inter-American Development Bank

3 FOR OFFICIAL USE ONLY EL SALVADOR THIRD TELECOMMUNICATIONS DEVELOPMENT PROJECT LOAN AND PROJECT SUMMARY BORROWER: GUARANTOR: AMOUNT: TERMS: PROJECT DESCRIPTION: Administracion Nacional de Telecomunicaciones (ANTEL) Republic of El Salvador US$23.0 million Repayment in 20 years including a grace period of five years at an interest of 7.5 percent per annum. The project consists of: (a) installation of about 41,000 additional lines of local automatic telephone exchange equipment; (b) expansion of the local cable network and subscriber facilities to provide about 36,000 additional individual connections, as well as about 320 additional public call boxes to be installed in low-income urban areas with total population of over 200,000; (c) installation of two long-distance automatic exchanges with about 2,200 terminations; (d) installation of long-distance equipment on various routes to provide about 2,400 additional circuits; (e) expansion of the telegraph network by 300 channels; (f) installation of 600 teleprinters at subscribers' premises; and, (g) installation of about 200 long-distance public call offices in municipalities and rural areas with populations of 2,000 or more, currently without service, in order to provide telephone access to about an additional 400,000 people. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

4 - ii - ESTIMATED COST: US$ Million Equivalent Local Foreign Total Local Facilities Internal Long Distance Facilities Telegraph and Telex Facilities Rural Services / Land and Buildings Base Cost Contingencies Total Project Cost Percentage of Total Cost FINANCING PLAN: US$ Million Equivalent Local Foreign Total Bank ANTEL Total Project Cost ESTIMATED -----US$ Million Equivalent---- DISBURSEMENTS: Bank FY Annual Cumulative RATE OF RETURN: 16 percent APPRAISAL REPORT: No ES dated March 3, / Represents cost of providing links from the communities to the long distance network. Costs of additional facilities needed to handle this traffic within the rest of the network are included under the long distance fac-ilities constsa

5 INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO ADMINISTRACION NACIONAL DE TELECOMUNICACIONES WITH THE GUARANTEE OF THE REPUBLIC OF EL SALVADOR FOR A THIRD TELECOMMUNICATIONS PROJECT 1. I submit the following report and recommendation on a proposed loan for the equivalent of US$23.0 million to Administracion Nacional de Telecomunicaciones (ANTEL) with the guarantee of the Republic of El Salvador to help finance a Third Telecommunications Project. The loan would have a term of 20 years, including 5 years of grace, with interest at 7.5 percent per annum. PART I - THE ECONOMY 2. A report entitled "Economic Memorandum on El Salvador" (1313-ES) was distributed to the Executive Directors on January 24, The main findings of this report, as supplemented by information subsequently obtained by Bank staff, are summarized below. Country data are contained in Annex I. Economic Growth and Prospects 3. El Salvador is one of the poorest countries in the Western Hemisphere, with estimated per capita income of US$490 in It has the smallest land area of the five countries in the Central American Common Market (CACM) area, but with over 4 million inhabitants, it has the second largest population in the area, the highest population density (195 per square kilometer), and only 3 hectares of arable land per capita. These density ratios are comparable to those of the Caribbean Islands and India. Not only must El Salvador increase agricultural productivity rapidly--since it has no land frontier--it must at the same time expand its manufactured exports at a rapid rate if it is to continue to grow satisfactorily over the longer term. 4. The nation's population has grown at a very fast pace. Between 1961 and 1971, the growth rate was 3.5 percent per annum, a result both of rapid natural growth (3.1 percent per annum) and of repatriation of Salvadorians living in Honduras. The Government is carrying out a family planning program with the support of the U.S. Agency for International Development (AID), the United Nations Family Planning Agency and the Planned Parenthood Federation. The program is focusing on rural areas where the birth rate remains high and family planning motivation is low. By mid-1977, an estimated 20 percent of the fertile female population was being reached by public and private family planning programs, and this figure is expected to increase to 26 percent by the end of the decade. 5. El Salvador's poverty is evident from a variety of indicators. Nutritional standards are among the lowest in Latin America. Calorie and protein deficiencies are common, particularly among pre-school children. Roughly 68 percent of the dwellings are without piped water and 55 percent without access to electricity. The illiteracy rate is high. Income is highly

6 -2- concentrated and unemployment is substantial. Living conditions and incomes in rural areas, which account for about 60 percent of the population, are considerably worse than in the cities. Although the Government made some efforts to change the structure of land ownership, the pattern of rural landholding remains very skewed. As a result of urban-rural differentials, migration of the rural population to the cities is substantial. The urban income distribution, however, is also skewed and living conditions in the cities are difficult for people in the lowest income brackets. About threequarters of the population of metropolitan San Salvador resides in makeshift squatter settlements. Minimum industrial wages are low; furthermore, workers employed in small factories or self-employed in informal work shops have incomes which are often below the minimum wage. Small informal business activities have created employment at essentially subsistence levels for almost one-half of the total urban labor force. The Government recognizes these urban problems and is making efforts to remedy them (see paragraph 12). 6. While the Salvadorian economy still depends heavily on agriculture, which contributes about 25 percent of GDP, the relatively fast growing industrial sector now accounts for 23 percent of GDP. Agriculture, however, continues to employ nearly 55 percent of the labor force, compared with only about 15 percent employed in industry. An ongoing Government program of agricultural development, which gives emphasis to the promotion of basic grains through the provision of credit, technical assistance and support prices, has already had a strong positive impact on production. This program is expected to continue in the future and, partly as a result, the agricultural sector is expected to grow at about 4.5 percent per year in the medium term. 7. During the first half of the 1970's, El Salvador's GDP grew in real terms at an average rate of 5 percent per year -- about 2 percent on a per capita basis. Growth during the period compared favorably with the 4.5 percent annual growth of the second half of the 1960's, although it fell considerably behind the 7 percent annual growth of the first half of the 1960's, when the development of the CACM gave impetus to industrial production. The growth rate is estimated at 4.7 percent and 6.2 percent for 1976 and 1977 as a result mainly of the unusually favorable price of coffee which stimulated domestic demand and output. 8. With a further improvement of the world economy, and with the Government export-promotion policies described below, real exports of manufactures are expected to grow by 9-10 percent annually in the coming years compared with 6 percent during This should have a strong impact on the growth of the manufacturing sector. The overall GDP is expected to continue to grow in real terms at about 5-6 percent annually, at: least until the mid-1980s. This growth could be attained more easily if the mediation process now underway between the Governments of Honduras and El Salvador results in a normalization of relations between the two countries. Should this happen, it would facilitate a full restoration of the CACM arrangements which were partially disrupted by Honduras' withdrawal in 1970.

7 -3- The Public Sector and Development Policy 9. The role of the Government in the economy traditionally has been supportive rather than a leading one. Public revenues and expenditures have been maintained at relatively low levels and, consequently, the growth of public services such as health, education and agricultural extension has been slow. However, under the Development Plan, some progress was achieved in this area. Thus, the share of Central Government revenues in GDP increased from an average 11.1 percent in to 13.1 percent in , while the share of public savings and investment in GDP increased from 3.3 to 4.4 percent and from 3.2 to 6.4 percent, respectively. The improvement in revenue performance has been mainly the result of better tax administration, which helped to quintuple the number of individual taxpayers within a three-year period and, in 1976, of the progressive tax levied on coffee exports which had reached exceptionally high prices. Further modifications of the basic tax system, which has remained virtually unchanged for many years, could provide additional income and thus make possible a stronger development effort. 10. The Salvadorian Government is also giving increased attention to the rural sector, intended to be the first stage of a broader long-term plan of "national transformation" designed to attack the serious unemployment problem. Effective unemployment (including underemployment) in El Salvador is estimated to be at least 30 percent of the labor force. By embarking upon a program to change the structure of production of the agricultural sector, the Government could bring about an increase in rural incomes and a reduction of seasonal unemployment. This, in turn, might lead to a slowdown of migration to urban centers, improvement in nutritional standards, and the creation of an expanded domestic market for industrial products. As a first step in its rural development plan, the Government in May 1975 secured passage in the Congress of El Salvador's first comprehensive land reform law. This law provides a framework for the Government to expropriate land (with deferred payments) for redistribution to small farmers in agrarian reform projects developed by a new Institute of Agrarian Transformation (ISTA). Government efforts to go forward with a major land reform project in 1976, however, were unsuccessful because of strong resistance from larger farmers. The new administration that took office in July 1977 secured passage last December of an amendment to the land reform law which reflects the intention to redirect the focus of the program. This amendment eliminates the requirement that land to be redistributed be limited to ISTA project areas, but it authorizes ISTA to acquire land outside such areas by purchase only. It is too early to assess the impact of the amendment. 11. The Salvadorian authorities recognize that with the country's limited arable land and high population density, the development of the rural sector, while important, could not suffice either to maintain a satisfactory rate of economic growth or to provide employment for the quickly expanding labor force. The Government has therefore embarked upon a broad program for the promotion of industrial exports to countries outside the CACM area. An Export Development Law which offers generous incentives to export industry, was passed in Furthermore, the Government is developing free trade zones for the production of industrial goods exclusively for export. The first of these free zones, located in the outskirts of San Salvador, is well advanced

8 - 4 - with a number of plants already in operation -- many of them foreign industries with labor-intensive assembling processes. The existence of a strong and growing entrepreneurial class in the country should contribute to the success of the export promotion program. However, the program also requires considerable investment in supporting economic and social infrastructure in fields such as power, communications, water supply, education and housing. Shortages in any of these fields, especially those affecting human resources, would seriously hamper the competitiveness of the Salvadorian industrial sector and could have a lasting detrimental effect on the future development of the country. 12. To improve living conditions in the urban areas, the Government has provided 13,062 housing units for low- and medium-income households during , through the existing Government housing agencies, and supplied physical inputs for community development projects through the Government's community development agency. A private organization, Fundacion Salvadorena de Desarrollo y Vivienda Minima (FSDVM), in the last few years has become a major provider of low-cost housing and community development in cooperation with Government agencies and with financial support from the Bank Group. By mid-1977, FSDVM had planned, designed and assisted in the construction of over 4,000 serviced sites. Further Government efforts are under way to improve housing conditions and incomes in San Salvador and several major cities by financing the construction of over 60,000 urban housing units during by providing access to land, basic services, infrastructure, and housing credit to over 10,000 of the lowest income families, by making available credit and training programs for informal industrial expansion, and by providing industrial training for 5,600 skilled and semi-skilled workers a year in the urban areas. Balance of Payments and External Debt 13. The small size and limited natural resources of El Salvador make it highly dependent on foreign trade. Following the 1969 conflici: with Honduras, all exports to that country, which accounted for over 10 percent of the country's merchandise exports, were suspended. Moreover, the closing of the border with Honduras resulted in a considerable increase in transport costs of goods traded with other Central American countries. By 1972, Ell Salvador had regained its market share in the CACM, offsetting the loss of the Honduran market by increasing its exports to Guatemala. In the following years, however, the world recession adversely affected El Salvador's manufacturing exports to both the Organization for Economic Cooperation and Development (OECD) and CACM countries. Fortunately, increased world prices for the principal export commodities -- coffee and cotton -- and the substantial increase in their export volume helped to soften the effect of the decline in manufacturing exports. 14. While coffee and cotton remain the most important commodities, El Salvador's exports the s are much more diversified than a decade earlier. During , nearly 80 percent of export earnings were derived from the two traditional products; almost 65 percent came from coffee alone. By these figures had dropped to about 52 percent and 41 percent respectively, while the contribution of manufactured products had increased from 13 percent to about 30 percent of export earnings.

9 15. Following seven years of either positive or slightly negative balances in the current account of the balance of payments, unusually high deficits occurred in 1974 and and 5.8 percent of GDP, respectively--as a consequence of the oil crisis. Subsequently and because of the sharp increase in coffee prices, which boosted El Salvador's export earnings, the balance of payments returned to its earlier healthy situation. In 1976 and 1977, the current account was in virtual equilibrium and foreign exchange reserves increased. 16. Coffee prices, while declining, are expected to be still relatively high in the next year or two, while manufactured exports and tourism receipts are expected to grow more rapidly than in the recent past. Nevertheless, high prices of crude oil and oil-based products (fertilizers and others) will continue to be a serious burden on the country's foreign exchange earnings -- the share of petroleum, oil and lubricants alone in imports increased frum 2.2 percent in 1970 to about 7 percent in In the medium term, the real price of coffee is expected to decline considerably. Therefore, in order to strengthen the balance of payments in the future, substantial effort to diversify and expand exports will be required. 17. As of the end of 1976, the country's external public debt outstanding and disbursed repayable in foreign currency amounted to US$272.3 million, or 12.5 percent of GDP. The public debt service ratio is estimated to have declined sharply from 9.2 percent in 1975 to 4.2 percent in 1976, partly because the 1975 figure reflected heavy prepayment of commercial loans but also because of high proceeds from coffee exports in This temporarily advantageous situation is bound to change and, even if a major portion of future external borrowing is obtained on soft terms, the public debt service ratio is expected to increase somewhat--to about 6 percent in the mid-1980s. External Assistance 18. The Inter-American Development Bank (IDB) has been an increasingly important lender to El Salvador for such sectors as power, water and sewerage, and agricultural credit. While IDB lending was largely repayable in local currency through 1972, the bulk of its loans in recent years is repayable in foreign currency. The Central American Bank for Economic Integration (CABEI) has focused on industry and infrastructure projects with a regional impact, while the U.S. Agency for International Development (AID) has assisted in the fields of agriculture, health, basic education, housing and industry. The activities of the major lenders during the period are summarized in the following table:

10 -6- EXTERNAL ASSISTANCE TO EL SALVADOR, (In Millions of US Dollars) IBRD IDA AID IDB CABEI Total Total Cumulative Lending Cumulative Lending Transport Power and Telecommunications Education Health Housing and Urban Agriculture Industry Water and Sewerage Others The balance of payments and growth projections call for an acceleration in El Salvador's total borrowing from major multi:lateral and bilateral lenders. While El Salvador has traditionally maintained a low debt-service ratio, the country's widespread poverty, the serious imbalance between natural resources and population as well as the uncertain long-term prospects of its main exports and the strong dependence of its industrial sector on imported inputs limit the country's capacity to borrow abroad on conventional terms. Under these circumstances, if domestic savings--which at about 18 percent of GDY are relatively high for a country of this income level--are to be complemented by a reasonable proportion of external capital at the same time as social projects with a low foreign expenditure component are undertaken, external assistance in excess of the foreign exchange component of individual development projects is called for. PART II - BANK GROUP OPERATIONS 20. El Salvador has to date received seventeen Bank loans and four IDA credits totalling US$185.2 million. The last operation involving a Bank loan of US$6.7 million and an IDA credit of US$6.0 million for a second urban development project was signed on July 28, Annex 11 contains a summary statement of Bank loans, IDA credits and IFC investments as of March 31, 1978, and notes on the execution of ongoing projects. 21. At the end of 1976, the Bank Group held 24.6 percent of the US$272.3 million external public debt outstanding and disbursed repayable in foreign currency. This share is likely to remain substantially the same over the remainder of the decade. The Bank Group's share of total public debt service in 1976 was 13.8 percent, and, because of the relatively softer

11 -7- terms provided by the other major external lending agencies, is projected to reach about 17 percent by In the past, the Bank Group assisted El Salvador in the uevelopment of its infrastructure through projects in highways, power and telecommunications. Together with IDB and CABEI, the Bank assisted the development of El Salvador's arterial highway system. A close relationship has evolved between the Bank and El Salvador's public power agency, Comision Ejecutiva del Rio Lempa (GEL), since its establishment, enabling the Bank to contribute significantly to the institution building efforts of GEL's management. Similarly, the Bank's efforts to strengthen the institutional capacity of the national telecommunications agency (ANTEL) have helped improve its organization and expand its operations. 23. Bank Group lending for the social sectors has been much less than that of IDB and AID, principally because of the Salvadorians' preference for the softer lending terms offered by these agencies. Nevertheless, the Bank Group has begun developing an important role in the social sectors with the result that three of the last four loans have been for education and serviced sites. Also, negotiations have been substantially completed on a proposed loan for industrial and agricultural training which we expect to present for the Executive Directors' consideration in a few weeks. Other projects currently under consideration for Bank loans include primary and secondary eduzation, squatter upgrading, small business credit, and urban sanitation. These projects would help El Salvador meet the educational needs of its rural population and develop a broad program of urban improvement addressed primarily to the lowest income groups. In addition, the Bank Group would help in meeting the growing requirements in power and in the further strengthening of the public power agency. The Government has so far met its requirements for external finance for agriculture and rural development largely through loans from IDB and AID. The possibility of Bank assistance to these sectors is being examined in the light of a recently completed FAO/CP agricultural and rural development survey of El Salvador, which has identified a project for small-farm credit. It is not yet clear, however, that this project will require external financing in addition to what IDB is planning to make available to the credit institution involved. 24. IFC has made two investments in El Salvador. The first, a US$140,000 loan made in 1959 to Industrias Textiles, S.A., has been fully repaid. The second, a US$233,000 equity investment and US$600,000 loan to Hoteles de Centroamerica, S.A., in 1969, was for a hotel project that was completed in IFC is exploring possibilities of additional investments to encourage private enterprise in El Salvador. PART III - TELECOMMUNICATIONS SECTOR Sector Characteristics 25. The telephone density in El Salvador, 1.39 per 100 persons, is one of the lowest in Latin America 1/ and lower than a number of countries in other 1/ Telephone density in Panama is 8.52; Costa Rica, 5.61; Mexico, 4.76; and Colombia, 5.45.

12 - 8 - parts of the world with per capita incomes similar or lower than El Salvador's (e.g., Tunisia--2.03, Zambia--1.45, and Syria--2.14). Existing telephone service is concentrated in the area of San Salvador, the country's major center of economic activity, although even there telephone density is only 5.40 per 100 people compared to 16.1 in San Jose, Costa Rica, 13.0 in Mexico City, 10.6 in Bogota and 8.9 in Santo Domingo. Telephone density for the rest of the country is approximately 0.41 per 100 people. Of the 201 "cantons" 1/ with populations over 2,000, only 9 have access to telephone service and of the remaining 1,821 cantons, only 8 have access to service. As evidenced by these figures, development of telecommunications in El Salvador has lagged behind the rapidly growing needs of industry and commerce, sect:ors which play an important role in the country's economic growth and are expected to become even more important in the future (paragraph 11). The rapidly increasing demand for telephones in industry and commerce is, to some extent, a result of the proliferation of small business concerns (with less than five employees) which are now estimated to employ nearly 40 percent of the non--agricultural labor force. Many of these are essentially household operations, and the availability of telephones is important for improving communications and thus the output and efficiency of these enterprises. 26. With regard to the actual usage of telephones, traffic generated by telephones assigned to business and professional tariff classes accounts for about 60 percent of all usage. However, this figure understates business related usage because a significant number of telephones which are categorized as residential are used for business purposes. The pattern of national long distance telephone traffic generally reflects the dominance of San Salvador in the country's economy. In some small communities, 70 percent of all long distance calls are directed to San Salvador. In larger towns t:he proportion varies between 35 and 45 percent. 27. In spite of improvement in the last decade, lack of timely investment and proper planning in the past has resulted not only in a large unsatisfied demand for telephone service but also in significant congestion in some exchange areas and some long distance networks. Test checks made for the first five months of 1977 showed that while the local service in San Salvador is reasonably satisfactory, the long distance service during peak hours is congested. Similar checks made for the three next largest towrns revealed local and long distance congestion during peak hours. Waiting times for long distance services in public call offices in several towns outside of San Salvador are about one to two hours. Where such towns are served by manual exchanges, the waiting time can be even longer. In addition, existing local service in manual exchange areas is unsatisfactory since the services provided, largely on open wires, are prone to faults, and numerous areas share a single long distance line. 28. With regard to international telecommunications service, El Salvador is a member of the Central American telecommunications network and has good service to countries in Central America, the United States and Europe. International direct dialing services are available to the Central American countries, to the United States and to several countries in Europe. 1/ The smallest administrative unit in El Salvador.

13 -9- Sector Organization 29. In 1963, the Government, with Bank advice and financial support, reorganized the telecommunications sector and placed it under the new automous agency, the Administracion Nacional de Telecomunicaciones (ANTEL), which is responsible for all telecommunications in the country. 30. ANTEL is administered by a 5-member Board of Directors, each with a tenure of 4 years. The President of the Republic appoints ANTEL's President who also furictions as the Chairman of the Board. The remaining four directors are appointed respectively by the Minister of Economy, the Minister of the Interior, the Banking sector, and the Industrial and Commercial associations. ANTEL's day-to-day business is administered by the President and by a General Manager. 31. As of December 31, 1976, ANTEL had a total of about 3,500 employee3 of which about 1,300 and 2,200 were involved in telegraph and telephone operations respectively. With ANTEL operating about 66,000 telephones, the employee ratio was about 33 employees per thousand telephones, which is considered reasonable. With the expected improved productivity at the end of the proposed project, the employee ratio should decrease to 28 employees per thousand telephones. 32. ANTEL's major institutional problems have been the lack of continous planning activities and shortage of technical staff. Acting with Bank advice, ANTEL retained technical consultants for planning and ANTEL has now considerably strengthened its planning organization. ANTEL has recruited technical personnel, has set up a local training center for low and medium level technicians and has recruited and sent several engineers abroad for specialized telecommunications training. 33. In spite of these improvements, ANTEL has yet to develop fully in-house capabilities for planning and expansion of telecommunications facilities, to identify projects for a balanced development, to improve service quality, to set up reliable data collection systems and to improve and refine demand forecasting methods. Also, ANTEL needs to introduce further improvements in its financial management and accounting procedures. Sector Development and the Bank's Involvement 34. The Bank has been closely involved in the development of the telecommunications sector in El Salvador through two projects. In 1963, long-distance service consisted of only a few unreliable manually operated radio circuits between the main urban areas in the country. The local exchange network at the time comprised a total of 16,000 lines of exchange equipment (7,000 of which were automatic), with about 14,000 connections. 35. Under the first Bank loan (Loan 358-ES of US$9.5 million equivalent), signed in October 1963, the Bank assisted ANTEL in financing the installation of automatic exchange equipment for 26,000 telephone lines, cables, line networks and long-distance facilities for inter-urban connections. While this project, which was successfully completed in 1968, helped overcome major

14 deficiencies of the sector at that time, the rapidly growing needs of industry and commerce soon overtook the capacity of the telecommunications sector. By 1972, serious capacity deficiencies had become obvious in the local telephone exchanges and in the long-distance network. 36. Under the second Bank loan (Loan 811-ES of US$9.5 million equivalent), signed in April 1972, the Bank assisted ANTEL in overcoming some of these problems. The Second Project was designed to: (a) increase local automatic exchange line capacity by about 45 percent and increase the traffic handling capacity to satisfy the backlog of applications for telephone service in metropolitan San Salvador and to meet part of the new demand for telephones; (b) provide a 150 percent increase in the long-distance circuits to remove congestion and meet growth in demand; and (c) provide technical assistance to ANTEL. 37. In 1975, in order to accelerate achievement of the objectives of the Second Project, ANTEL initiated a drive to increase the rate of telephone connections within the country. In that year about 6,200 additional connections were completed, compared with about 3,600 during 1974, and in 1976, about 7,500 additional connections were made. All project works under the second project have now been completed, and are beginning to be placed in service. Due to initial delays in procurement of equipment, however, project execution took two years longer than projected at the time of appraisal. 38. As a result of ANTEL's Bank-supported efforts, at the end of 1976 local telephone service had increased to 68,300 lines of exchange equipment with about 54,700 mostly automatic connection, an increase since 1963 of nearly 300 percent in connected subscribers. Additionally, El Salvador's long-distance network was expanded to 1,600 circuits with automatic longdistance dialing between all automatic exchange areas. Nevertheless, as discussed above, service still lags well behind demand, is becoming increasingly congested, and while existing service is heavily concentrated in San Salvador, even there waiting time for telephone applicants can range up to three years depending on the exchange area. Future Expansion 39. In May 1976, on advice of the Bank, ANTEL retained the services of consultants for the preparation of a short-term ( ) and a long-term ( ) telecommunications development plan. ANTEL, after completing the review of the consultants' recommendations for the short-term p:lan, prepared the telecommunications development program, which is estimated to cost about US$75.7 million equivalent. Pursuant to this prograra, the telephone density in El Salvador is expected to increase to 2.22 telephones per 100 persons by 1982, still low by Latin American standards, but a substantial improvement over the present situation. In San Salvador the telephone density is expected to increase by 35 percent over the period, while in areas outside San Salvador the telephone density is expected to increase by 78 percent over the same period. 40. In the long term--over the next ten to fifteen years--and in addition to steadily improving the quality of the service, ANTEL plans to extend local services particularly to rural areas in the country and to low-income urban

15 areas - both of which are currently poorly served. The proposed project would be the first major step in the progressive extension of services to these areas. In order, inter alia, to develop adequate in-house capability for continuous planning, ANTEL is utilizing the services of the International Telecommunications Union (ITU) to assist ANTEL in strengthening its planning group and in other areas as required. 41. A summary of requirements and sources of funds for ANTEL's development program is as follows: Requirement of Funds US$ Millions Percent Proposed project Other capital outlays Total Capital Expenditures Increase in working capital 0.5 Total Requirements Sources of Funds Internal cash generation Less: Debt service Net internal cash generation Borrowings: CABEI Loan IBRD Loan 811-ES Proposed IBRD Loan Total Net Sources As shown in the above table, ANTEL's internal cash generation (net of debt service) and the proposed Bank loan are expected to contribute 65 percent and 27 percent, respectively, of the total program requirements for capital expenditure. The CABEI financing of US$5.1 million has already been secured. PART IV - THE PROJECT 42. A report entitled "El Salvador, Administracion Nacional de Telecomunicaciones (ANTEL), Third Telecommunications Project," No ES, dated March 3, 1978, is being distributed separately. Project preparation was completed by ANTEL, assisted by foreign consultants, in April The project was appraised in June and July Negotiations were held in Washington from February 21 to February 24, The principal representative for the Government was the Minister of Planning, and for ANTEL, its president.

16 The Bank's role in the Third Project would be to assist ANTEL to: (a) significantly-develop local networks in San Salvador and secondary cities to meet part of the unsatisfied demand for local connections (including the provision of telephone service to low-income urban areas through public call boxes); (b) upgrade and expand the internal long distance network; (c) expand telephone service to rural communities now without facilities; (d) improve the quality of service; (e) improve financial management and practices (discussed in paragraphs 49 through 53 below) which, together with the planning improvements to be carried out with assistance from ITU experts, should help ANTEL largely to overcome its principal remaining institutional deficiencies; and, (f) obtain cost savings through utilization of international competitive bidding. Project Description 44. The project consists of: (a) installation of about 41,000 additional lines of local automatic telephone exchange equipment; (b) expansion of the local cable network and subscriber facilities to provide about 36,000 additional individual connections and about 320 additional public call boxes (the latter to be installed in low-income urban areas); (c) installation of two long-distance automatic exchanges with about 2,200 terminations; (d) installation of long-distance equipment on various routes to provide about 2,400 additional circuits; (e) expansion of the telegraph network by 300 channels; (f) installation of 600 teleprinters at subscribers' premises; and, (g) installation of about 200 long-distance public call offices in municipalities and rural areas with populations of 2,000 or more, currently without service. 45. Approximately one-half of the public call boxes to be provided in low-income urban areas would be installed in sites being developed by the Fundacion Salvadorena de Vivienda Minima (FSDVM) under the Bank Group-financed first and second urban development projects (serving over 100,000 low-income individuals located in urban areas throughout the country). The remainder of the urban call boxes would be installed in other low-income areas (with total population expected to be at least 100,000); the needs of some of these areas are being evaluated by a UNDP-financed urban study, for which the Bank is the executing agency. As ANTEL has recently acquired with its own funds a stock of call boxes sufficient to meet project requirements for low-income urban areas, these call boxes will not be financed with Bank funds as originally contemplated; however, ANTEL has agreed to install the 320 call

17 boxes in all FSDVM sites as mentioned above and in other locations selected in accordance with criteria which have been agreed with the Bank (Loan Agreement, Section 3.01, Schedule 2, Part A(3) and Schedule 5). In the rural areas, all communities with over 2,000 inhabitants will be provided with public call boxes, thus providing telephone access to some 400,000 individuals presently without service. Project Cost and Financing 46. The total project cost is estimated at the equivalent of US$51.6 million. The proposed Bank loan of US$23 million equivalent would cover about 45 percent of total project costs, and 64 percent of foreign exchange costs. ANTEL will provide US$12.7 million of foreign costs, and all (US$15.9 million equivalent) of the local currency costs. 47. A detailed breakdown of project costs by source of financing is shown in the following table: (US$ Millions) Local Costs Foreign Costs Total Item ANTEL Bank ANTEL Local Facilities Exchange equipment (2.8) (7.5) (5.4) (15.7) Cables (4.1) (4.1) (8.2) Subscribers' Plant (1.8) (0.6) (0.3) (2.7) Long Distance Facilities Transmission equipment (1.9) (7.3) (0.2) (9.4) Switching equipment (0.3) (1.5) (1.8) Telex and Telegraph Facilities Telegraph Equipment (0.1) (0.5) (0.6) Teleprinters (1.6) (1.6) Rural Services / Land and Buildings Base Cost Physical Contingencies Price Contingencies Total / Represents costs of providing links from the communities to the long distance network. Costs of additional facilities needed to handle this traffic within the rest of the network are included under long distance facilities costs.

18 Procurement and Disbursement 48. All equipment to be obtained under the project with Bank financing would be procured through international competitive bidding in accordance with the Bank's guidelines. ANTEL would utilize its own funds to obtain: (a) imported goods estimated to cost about $5.4 million comprising additions to existing equipment obtained earlier by ANTEL with its own resources; and (b) through international competitive bidding, other imported goods, such as cables, teleprinters and telephones, estimated to cost about US$7.3 million. All local cost items, which are to be financed with ANTEL's own funds, would be procured through local competitive bidding procedures which are satisfactory to the Bank. None of the goods to be financed by the Bank loan are currently manufactured in El Salvador or the other Central American Common Market (CACM) countries. ANTEL however expects that telephones, for which US$0.6 million of Bank funds are expected to be utilized, are likely to be manufactured in Costa Rica by the time bids are called, and has requested application of a regional preference. It has been agreed therefore, in accordance with the CACM Agreement on Fiscal Incentives for Industrial Development, that manufacturers from the CACM will be allowed a preference of 15 percent of the CIF price, or 50 percent of the tariff payable by non-cacm manufacturers, whichever is lower. 49. Disbursements would be for the CIF cost of imported equipment and for foreign costs of installation. Any unused balance of the loan would be used, with the concurrence of the Bank, to finance additional equipment required for ANTEL's expansion program. Project Execution 50. ANTEL would implement the proposed project. Its staff, with assistance from ITU experts for switching equipment, would prepare engineering designs and bid documents, evaluate bids and draw up equipment contracts. ANTEL would lay all distribution cables and would supervise construction of cable ducts by local contractors. The installation of all other equipment would be carried out by ANTEL's technical staff, except in the case of new and sophisticated types of switching equipment where ANTEL's staff would assist contractors' staff. ANTEL would carry out acceptance testing of all installed equipment. ANTEL's management is now sufficiently experienced and capable to handle these works satisfactorily. The project is expected to be completed by December 31, Financial Performance 51. ANTEL's past operating performance has been satisfactory both in terms of rate of return and internal cash generation. At the end of 1976, ANTEL had a cash balance of US$6.5 million equivalent, a debt/equity ratio of 30/70, a current ratio of 2.5 and debt service coverage of 4.7. However, some plant under construction was not promptly transferred on completion, for accounting purposes, to plant in service, which resulted in reduced depreciation and net plant in operation and an over-statement of the rate of return in ANTEL's financial statements. Nevertheless, taking into account

19 -15 - the adjustments necessary to correct those deficiencies, thie rate of return has been well over the ten percent required under tbe second loan. Aiso, ANTEL has now begun co transfer completed works to plant in (operation on a systematic and consistent basis and has agreed to follow consistently maintained appropriate accounting practices in the future (Loan Agreement, Section 5.01). 52. During "he period between 1963 and 1973 Government agencies received essentially free telephone service, since the service was treated as compensation by ALTEL to the Government for the latter's relinquishment of its equity share (as part of the process of confirming ANTEL s status as an autonomous agency). By 1973 the Government had been fully paid, but some Government agencies only very slowly accepted the obligation to make payments to ANTEL. As a result, Government account receivables amounted to a total of US$1.0 million equivalent at the end of 1976, which is equivalent to about 16 months of billings to the Government. In order to settle its overdue bills, the Government has agreed to a partial payment of US$560,000 equivalent for past due bills by September 30, 1978, to the settlement of the remaining balance by June 30, 1979, and to assure that all public agencies make prompt payment of future bills (Guarantee Agreement, Section 3.02). ANTEL, on its part, is installing a new computerized billing system which should expedite the billing and collection process. 53. Financial forecasts for 1977 through 1982 indicate a rate of return on revalued assets in excess of ten percent, an operating ratio between 71 and 77 percent, a debt/equity ratio of 30/70 to 38/62 and a debt-service coverage of not less than 3.3. All of these ratios would be satisfactory. ANTEL has agreed to (a) make a study, under terms of reference acceptable to the Bank, to provide the basis for suitable revaluation of fixed assets and to submit the study to the Bank for comment by July 31, 1980; (b) supply revalued values of fixed assets with its financial statements as from December 31, 1980; and (c) maintain a rate of return of at least 15 percent on the book value of net assets through 1979 and thereafter a rate of return of at least 10 percent on assets revalued in a manner satisfactory to the Bank (Loan Agreement, Sections 4.04 and 5.04). Furthermore, ANTEL has agreed not to incur long-term debt without prior Bank approval unless the preceding 12 months' internal cash generation would cover maximum future debt service at least 1.5 times (Loan Agreement, Section 5.05), and that investment, exceeding that included in the program by more than US$1.5 million in any one year, shall be undertaken only after the Bank has been afforded a reasonable opportunity to comment on such investment (Loan Agreement, Section 4.05). Tariffs 54. Under the Second Project ANTEL agreed to change its tariff structure which provided excessive allowances for free calls and had other deficiencies all of which contributed to traffic congestion and to distortions in traffic patterns. After several studies and reviews, ANTEL is putting into effect as of May 1, 1978, a revised tariff structure, which reduces the number of subscriber categories, lowers the fixed monthly rentals (and therefore is more accessible to lower income subscribers), and eliminates all free calls. Subscribers now pay according to their actual telephone usage.

20 The revised tariff structure, however, does not contain rates for peak and off-peak periods on long distance calls. Considering the high usage by business subscribers during peak hours causing congestion in the network, ANTEL has agreed to study the feasibility of introducing such rate adjustments in its tariff structure, to complete the study by December 1979, and to afford the Bank an opportunity to comment on the results of the study (Loan Agreement, Section 4.06). Economic Justification and Risk 56. In El Salvador, telephones and telex are primarily used as intermediate inputs in the production of goods and services. The investment program, by expanding system capacity, and upgrading the quality of local and long distance telecommunications services, and increasing rural access will (a) help reduce the number of subscribers waiting for telephones; (b) reduce wastage of time caused by having to make repeated call attempts during peak business hours; (c) reduce wastage of resources consumed by higher cost means of communication; (d) reduce losses of production and marketing efficiency resulting from lack of communications; and (e) facilitate improvement of transport and delivery services. The project's potential for fostering rural development is significant since the communities to be reached are small, dispersed and depend on the nearest market town for almost all their goods and services, e.g. supply of inputs like fertilizers, seeds, pesticides, repair services for pump sets, tractors, veterinary and other assistance and for marketing produce. Such needs are generally met by public call telephones and, eventually, by extension therefrom to some principal users. Furthermore, to the extent that a more efficient and wider access to telephone service for Government and business results in the substitution of telephonle communication for face-to-face communication, it will slow the growth of transport costs, energy costs, and vehicle traffic. 57. There is a significant excess demand for telecommunications services which the planned development program will be unable to eliminate. In this situation, the least cost solution for the implementation of the program depends on (a) having made the correct technical and economic decisions when the networks were planned in the early 1960s, and the plans revised in 1977, and (b) following the optimum path in the design, dimensioning and timing of the many installations which comprise continuing system expansilon. Given the existing network, the dimensioning and timing of the works under the existing program, of which the Bank project is an integral part, are based on engineering studies designed to determine the least cost means for improving service to existing subscribers, and meeting new demand in priority areas. 58. The internal rate of return, defined as the discounted rate which equalizes the stream of expected revenues (in 1977 prices) attributable to the program with capital and operating costs (at 1977 price levels) is 16 percent. This is, however, a significant understatement of total program benefits since it is based only on the current observed willingness of subscribers to pay ANTEL for telecommunications services. Thus, it does not take into account the fact that some consumers in El Salvador have in

21 the past demonstrated that they are willing to pay significantly higher prices for telecommunications services than they are currently being asked to pay. The rate of return also is significantly understated because it does not include an estimate of the value of time saved through a reduction in the proportion of unsuccessful call attempts, and benefits obtained by receivers of calls, by existing subscribers when new subscribers join the system, and by those who benefit indirectly through the better administration of regional development, health, transport, and agricultural programs, and increased urban and regional business and government efficiency. 59. The project is also justified on social and equity grounds as it will provide telephone access for the first time to over 500,000 low-income urban and rural dwellers. The installation of telephone service in the communities benefitting from the first and second urban development projects financed by the Bank Group would complement one of the objectives of these two projects which is the provision of adequate community facilities as an integral part of low-cost housing. The provision of telephones in these areas would also complement the efforts being made under the projects to assist small-scale businesses to increase their productivity. 60. The project involves no special risks. PART V - LEGAL INSTRUMENTS AND AUTHORITY 61. The draft Loan Agreement between the Bank and the Administracion Nacional de Telecomunicaciones (ANTEL); the draft Guarantee Agreement between the Republic of El Salvador and the Bank; and the report of the Committee provided for in Article III, Section 4(iii) of the Articles of Agreement of the Bank are being distributed to the Executive Directors separately. The draft agreements conform to the normal pattern of loans for telecommunication projects. 62. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank. PART VI - RECOMMENDATION 63. I recommend that the Executive Directors approve the proposed loan. Attachments April 21, 1978 Robert S. McNamara President

22

23 TABLE 3A ANNEX I EL SALVADOR - SOCIAL INDICATORS DATA SHEET Page 1 of 4 pages LAND AREA (THOU KM2) EL SALVADOR REFERENCE COUNTRIES (1970) TOTAL 21.0 MOST RECENT TOTAL 21.0 i96o 197( ESTIMATE GUATEMALA PANAMA COSTA RICA*** GNP PER CAPITA (USS) 180.0* 300.0* * 360.0* 830.0* 580.0* POPULATION AND VITAL STATISTICS POPULATION (MID-YR, MILLION) POPULATION DENSITY PER SQUARE KM PER SC. KM. AGRICULTURAL LAND VITAL STATISTICS CRUDE BIRTH RATE (/THOU, AV) CRUDE DEATH RATE (/THOU,AV) INFANT MORTALITY RATE (/THOU) LIFE EXPECTANCY AT BIRTH (YRS) GROSS REPRODUCTION RATE PDPLLATION GROWTH RATE (%) TCTAL ** URBAN 3.3 3,7 3,4 3.2 / /a URBAN POPULATION (% OF TOTAL) AGE STRUCTURE (PERCENT) 0 TC 14 YEARS TO 64 YEARS , YEARS AND OVER AGE DEPENDENCY RATIO ECONOMIC DEPENDENCY RATIO 1, /b 1.5 FAMILY PLANNING ACCEPTORS (CUMULATIVE, THOU), L 41.3, 40.2 USERS (% OF MARRIED WOMEN).,,. 20O/ c EMP LOYMEN T TOTAL LABOR FORCE (THOUSAND) /a I.ABOR FORCE IN AGRICULTURE (X) UNEMPLOYED (% OF LABOR FORCE) tD0 *D 7.0 INCOME DISTRIBUTION V o0 PRIVATE INCOME RECOD BY- 3 5 WIGHEST 5% OF HOUSEHOLDS /C alc 22.27k 22.8 HIGHEST 20% OF HOUSEHOLDS LOWEST 20% OF HOUSEHOLDS,., 2.0 C LOWEST 40% OF HOUSEHOLDS. *. 7. iif3 13.a/b 14.7 DISTPIBUTION. OF LAND OWNERSHIP 3 OWNED BY TOP 10% OF OWNERS b X OWNED BY SMALLEST 10% OWNERS b HEALTH AND NUTRITION e Id POPULATION PER PHYSICIAN la b ld, POPULATION PER NURSING PERSON ac 930.0/a 0. 0.L POPULATION PER HOSPITAL BED /C PER CAPITA SUPPLY OF - CALORIES (% OF REQUIREMENTS) PROTEIN (GRAMS PER DAY) * OF WHICH ANIMAL AND PULSE DEATH RATE (/THOU) AGES EDUCATION ADJUStED ENROLLMENT RATIO 7 PRIMARY SCHOOL L SECONDARY SCHOOL /f ~ YEARS OF SCHOOLING PROVIDED (FIRST AND SECOND LEVEL) VOCATIONAL ENROLLMENT (% OF SECONDARY) 3D /d 15, ADULT LITERACY RATE (X) 51.0/d Oh.. 820/d HOUSING PERSONS PER ROOM (URBAN) ,, 1.8 OCCUPIED DWELLINGS WITHOUT PIPED WATER (%) / ACCESS TO ELECTRICITY (% OF ALL DWELLINGS),, RURAL DWELLINGS CONNECTED TO ELECTRICITY (%) CONSUMPTION RADIO RECEIVERS (PER THOU POP) PASSENGER CARS (PER THOU POP) ELECTRICITY (KWH/YR PER CAP) NEWSPRINT (KG/YR PER CAP) SEE NOTES AND DEFINITIONS ON REVERSE

24 Page 2 of 4 pages NOTES UGlIas othbruise noted, data for 1960 refer to any year between 1959 and 1961, for 1970 between 1969 cnd 1971, and for Most Recent Eati-ate between 1973 ond 1976 o 'ip per capita dote arc based on the World Brank Atlas methodology ( baais). 0* too to repocriation of Saoi-dore-on from Hondur-s popolation growth rate is highbe than rote of natural incre-e. 000 Co-tt Rita hb been -elected as an objectire ceantry for El Salvader bec.ase both countriet are small, open economies dependent on agricoltural onporto and both hbosespeoial trade relatiant hipa with other Central Ameritan coantries, yet the per capita incone of Coata Rine ta subetantially higher cban that of El Salvador CoSta Rica ha achievad a very good rate of economic growth which assuring a sorb higher than average degree of Fl. SALVADOR 1960 /a 1963; /b Phyaitoeis hospitals only; /c including *-Aietant nu /d /ts; 10 yeara end ver /a Iocluding asaistant nurses. fost RECENT ESTIMATE: / Ratio of population under 15 and 65 and over to tota1 labor force; /b 1977; /c As per.eetage f w=oen in fertile age groap; /d Intone recipients, San Salvador only; /I 1972; /f Including traditional birth ettendants; 7 Z IBRD mission eactitte, beginning 1971, the duration of general secondary edonation wee reduced from 6 ti 3 ysar,sbhile primary edacatioa war entended by three yeace. Therefore, the 1975 figoree are not eamparabla to 1960 and 1970; /h Government esti.te. CUATEP4ALA 1970 /a ; /b Ratio of population unedr 15 and 65 and over to total labor forte; /t Partial aurvey of orban areas only; /d In-lding aesistant nrnes.. PANAMA 1970 /s Including residents working in Canal 000; /b Ieoome -ecipionta; Gc Goversnent hospital nstablishments only; /d 10 yearo and over; /e In.id only. COSTA RICA 1970 /r RI, April 16, 1978 DEI7NITIONS OF SOCIAL TYDICATORS Lond Area (thon m2s) Population per nur-sin perron - Popolation dtvided by nsmber of practicing Total - Total surface area coeprising land area ad ielsd ewater., me and femle grad.nte mores, "trained" or "cetified" nurse., and uric. - Hoot recent notimate of egriulturel ar-s used tapar -ily or perns- autlisry parenno-l with training or experenco. nently for crop-s pataures, narket I kitchen gardes rr to lie fellow Population ear hosital bed - Population divided by scober of hospital b da available in public end private genre.l and specialzeed hospital and GNP per capita 1 - GN11 GNP par capita eatituans at turrent market prices, rehabilitation cantera; sacludes noreing ho-ee and establishments for calculated by same conversion method as World RE.k utlos (1973-Ti basi); custodial and prveneti- scare 1960; 1970 and 1976 data. Par t.pita eupppl of oflonies (7 or rsqaaron-ntal - Copoted fr energy equivalent of net food supplie available in country per cspita per day; an _ueuot vial-tartsi Svailable sopplias eapri.e ds-stie prodot-ion, ilmpores les exporte, and opuolarion (mid-vear million") a f July first: if eat vailable, seesge changes in atock; net sopplisa eoluds animal fend, asede, quannitias used of two end-year eatisutas; lahi, 1970 and 1976 dts in fond processing end losses in distribution; requirements ware estisated by FAO bhasd on phymiologital needs fot normal activity and health nonsidporulati,o daneit, - par aau-rs km - Mid-year pepulstion par square kilo.str irinng smire ntol taaprertw-, body nights, ass and sea diatribotiona of (100 hectares) of total area populatien, and allowing 102 for waste at household lsvel Population density - per equtre lo of aari. land - Coputed as sbove for Per capita sanely of ptotein (gr p r day) - Protein consent of per ospita agricultural land only. net upply of food per day; net *Opply of food is defined aa abve; requiremeots for.1a coutries established by USDA Economic Research S-rvic-e Vital statistics provide for a niimm allowanoe of 60 gra- of tetn1 protein par dsy, ad Crudo birth rate per thousand. averae - Aanoal live birtha par thousand of 20 gresa of animal snd pulse protein, of which 10 graat should be anma,l oid-year population; ten-year Srithonti averages ending in 1960 and 1970, protein; theae standards are lower than those of 75 gra- of total protein and ftie-peer averago ending in 1975 for me-t rseot eatiete. and 23 grma of anil protein Sa an average for the world, proposed by FAO Crudo death r-te pet thooa-nd average - Atnual deaths par thoussnd of mid-year in the Third World Food Survey. population; ten-year arithm tic averages ending im 1960 and 1970 and fie- Per capita Protein supply fgr animal and pulse - Protein supply of food year average ending in 1975 for meet retest estimste derived fro animals and polses in gston par day. Infant mortality rate (/thoo] - Annual d.atha of infants under one year of age Death rate (/thoul) ges Anousl deaths per chou-and in age group 1-4 per thousand live births, peers, to childr-n is this age groop; auggasrtd as an indicator of Lifo cxpectancy at birth (yr-) - Average noumbr of years of life reaining at malnutrition. birth; usually five-year -v-ragea ending in 1960, 1970 and 1975 for developong countrina Education reproductin -ross rate- Average number of lion daughters soman - wall bear Adjusted enrollmnt ratio - primary school - EnrolLnt of a11 agee as paris her canal reproductive period if she expetienr s present age-specific osntnge of primary schoal-age population; inclodes children aged 6-11 years fertility race,; u-ually five-year averagas ending in 1960, 197i and 1975 bht ddjuated for different lanrths of primary edocation; fot tountrise with for developing countrie. universal education, enrollment may anteed 1500 sints soe pupils are below Population crouch rate (%) - total - Copoond annual grouth rates of mid-year or above the official school ag. population for , and Adjusted enrollment ratio - setoodary school - Cmputad as sbove; saondary Populeton growth rate urban - C pted lik. grwth rate of total eduoation reqoires at least foor years of approved primary inmtruotion; population; differo-t definitiome of urban areas may affect eoparsbility of provides general, vao.tionel or teobhar training instruoti.n- for pupila dota among countries of 12 to 17 years of age; cerrespond.n.. cures are generally ncluded. Urban population f% of coral) - R-tio of urban to total population; different years of sohooling potvided (first and second levels) - Total years of definition of orb as areas ma yaffeot conp_rability of dte aog ooatriyas schooling; at secondary level, voastional inatru_tion may be partially or oopletely.a.ldad. Ae -tructure (percen-t) - Children (0-14 y-pas), working-a.g (15-64 years), V-atioal esrollmnt (I of secoodary) - VPational in-titutiona include and retired (A5 rears and over) as parcentag-o of mid-year population. technial, induatrial or other progra dich operate independ.ntly or as Age depende-cy ra-to - Ratio of population under 15 and 65 and over to those departmenta at secondary insticuiont. of agec 1S ehrogh 61. Adult literacy rate (2) - Literate adolts (able to read and write) aa periconoolt derondencv ratio - Ratlo of population under 15 and 65 and over to centage of total adult population aged 15 years and ever I.e labor force in age group of years. Pocliv planningu-actsrtore (cumuletive, thou) - Cumulative nusber of acceptors Houaing of birth-control devices undor aunpices of national faily planting program Persona oet roo (urban) - Average number of persons per room in cupied slnce incepion. conventional dwellings in urban areas; deelliogs exclode.oo-pennanent allv pianning - uaera (% of married wmen) - Perteotages of married woen of st_uctures and unocupted parts. rhlld-be-ricg ago (15-44 years) who Ott birth-control devices to.11 married Occupied dwellinr withqut ' oipad water (7) - Occupied conventional dwellinga eoneonit: com- age group. in urban and rural areas without inside or outside piped o-aer facilities as percentage of all onupind dwellings. taplovnc-cca to electricit (7. of oil d-ellines) C-Covetional dwellings etch Total labor forte (thou-and) - Econoically active person-, inoluding armed el-truiectricitving quartets as per-ont of total dwellings in urban and forces and unemployed but excluding housewiv-e, students, etc; definitions rural ataa. 60 vcriou. countries are not comparable. Rral dwellings connettd to electricity (7) - imputed as above for rural Labor force in agricuitore (7) - Agricultural labor force (it fa-ning, forestry, dwelling only. hunting and fi hiug) as percencage of total labor force. Un-eployed (7 of labor farce) - Unemployed are a-ually defined as parsons who Con-umption are able and willing to cask a job, out of a job on a given day, remained out Radio receivar (peer thou eon) - All types cf for radi broadcasts -etests of a job, and seeking cork fora specified minimum period not exceeding one to general public per thosand of population; excludes unlicensed rece_iers week; may cot bh c-prabl between. o.ntriea dun to different definition- in countries and in years when registration of radio sets was in effect; of unemployed and *Purce of data, e.g., mploynt offi-e statistios, eapla data for recent yoars may not be ctpaahbls since moat contrias abolihnd sor_eys, coopuloory unemployment insrance licen-ing. Pasan.t.ar loot then pop) - Paesoger c-re comprise motor car easating income di-trtibtion - Percentage of privete intone (both in cash and kind) ea; than, eight permton; -od) dablenger a, heaters and mlitcary recoived hold. by richest 57, richest 207, poorest 207., and poorest 407 of house- vehicle.a Electricity (kwh/pr er cap) - Annual conaompptio of industrial, c-seruial, pu nadpri-ate elentricity in kilowatt hours per capita, generall1y Distribution of land ownerhip - Percentage of land cead by wealthiest 107. hboed on produtie data, withoot allowance for lp.--a in grida but alowacd pourest 107 of land owners. ing for imparts and expots of eiectricity. Oealtrh and Nutrition Nesprint (a/tyr per cap) - Per capita esimated frmdesiprdcinluntipoaofeernt annu 1 con-umption In kilogr PH1aiohn per N hyaitian - Populatiom divided by o,obsr of practicing.. t td r- do,a-ic production plus net iports of newsprit phyai,,ana qualified from a medical school at university level.

25 EL SALVADCR ECON04C feveiodpjt DATA (In million of US dollars) ANNEX I Page 3 of 4 A c t u a l Average Annual ProJection Growth Rate As percentage of GOT _ D 5 NATIONAL ACCOUNTS AmLounts in prices and exchange rate Gross domestic product , , , Gains from the ternf of trade Gross domestic inbome 1, , , , Imports ) Exports (import capacity) o Resource gap Consumption , , , Investirit Domastic Savings National savirgs NERCRUDISE TRADE lm'pts Annual data at current prices As percent of total Capital goods o 25.9 Petroleum, oil, lubricants Other intermediate Consumption goods Total,erchandise isports (eif) , Exports P?lmary products , Aianufactured goods Total merchandise exports (fob) , Merchandise trade indices Export price index o -- - Import price index Terms of trade index ll Export volum index VALUE ADDED SY SECTOR Annual data at prices Agriculture Industry o Services , Total , , , PUBLIC FINANCE Annual data at prices As percent of GDP (Central overnment) Current receipts Cuet exeitures Budgetary savings 2h7 2 65" W i 4.2 7y Other public sector Public sector fixed investrent io.8 DETAIL ON PUBLIC FIXED INVESTMENT pic SElECTED INDICATCRS L75WW Fof Ital ICOR o9 Social sector Import elasticity Agriculture Aver. Nat. Sav. rate Power Marginal Nat. Sav. rate Transport and telecomcounications Other Total fixed investment LABaR FCRCE AND OUTPUT PER WCERI labor Force Value added per worker ( prices) In thousands % of total In US S of averae T Growth rate OrwtY ra-te Agriculture U52 6T2 i h '5.2 Manufacturing and construction , Services Total 1,Tfl 07.1 W. T.0 5I 5 p72 1TU 100.0

26 EL SALVAICI BALANCE OF PADEETS, ErMRL ASSISTANCE AIJ IEbT (In sillion of US dollars at current prices) ANIXEI 1 Page 4 of 4 SW9ARr BE&LA] OF PANEW S A c t u a i Projected Exports (including NFS) Resourh dct-403 I3 7" M-2 Interest (net) Direct immestment incoms Workers remittance Current transfers (net) i Balance on curren *ccount ii M5 Priv-te direct iweatoent o Public sdiun and long-term loans Disbursemnts e,oynts ~ Net Dia Tr s !7 Capital transactions n...i. _ Change in reserves (-increase) A c t u a 1 Lill5 CINlTNIENTS 2/ DEBT AND DEBT SERVICE Mediu and long-ter. loan Public debt outs. & disb I3RD (end of year) IDA _ -_ Interest On public debt IDi Repayment on public debt CAREI Total public debt service Oovernments Suppliers Burden on exports (W) Private banks Bonds -.. Public debt service / 4.2 Loans n.e.i D & inmestent incove T.ta.lsediu and long-tear loan Debt Average terms ont EXTERNAL PUBLIC IFBT Outsts aadins of Dee Int. as % prior year DO & D o Disbursed OD1^ rper;nt Amort. as S prior year DO & D IBRD 1B 0 IDA RD Debt outs.-& diob DB IreD as 8 of public debt outs CABEI IbRD as S of public debt serv Osrerrrnts Private banks IDA debt oute. & disb Bonds IDA a* % pul ic debt cute Total N and LT public debt IDA as S public debt service o.6 Total N and LT public debt (including undisbursed) Excluede loans repayable in local currency. In 1975 the debt service ratio was unusually high as a consequence of prepaynwnt of conrmrcial loans contracted in 1974.

27 ANNEX II Page 1 of 3 STATUS OF BANK GROUP OPERATIONS IN EL SALVADOR (exclusive of exchange adjustment) A. STATEMENT OF BANK LOANS AND IDA CREDITS (as of March 31, 1978) Loan or US$ million Credit Amount (less cancellations) Number Year Borrower Purpose Bank IDA Undisbursed Eleven fully disbursed loans and credits ANTEL Communications COMISION DEL RIO LEMPA Power Government Education Government Sites and Services Government Sites and Services COMISION DEL RIO LEMPA Power T 1976 Government Power Government Urban Development Government Urban Development Of which has been repaid Total now outstanding Amount sold 5.1 of which has been repaid Total now held by Bank and IDA Total undisbursed B. STATEMENT OF IFC INVESTMENTS (as of March 31, 1978) Amount in $ million Year Obligor Loan Equity Total 1959 Industrias Textiles S.A Hoteles de Centro America, S.A Total less sold, cancelled or repaid Now held

28 ANNEX II Page 2 of 3 C. PROJECTS IN EXECUTION 1/ Ln. 811 Second Telecommunications Project; US$9.5 Million Loan of April 7, 1972; Effective Date: August 31, 1972; Closing Date: September 30, See discussion in paragraph 36 and 37 of this report. Ln. 889 Sixth Power Project; US$27.3 Million Loan of April 27, 1973; Effective Date: September 10, 1973; Closing Date: April 30, The project has been largely completed, the principal unfinished item being the effluent discharge canal to the Pacific, which is about three years behind schedule. Project costs are now estimated at US$158.7 million, 62.5 percent above the appraisal estimate, as a result of worldwide inflation and additional costs for construction of the geothermal effluent discharge canal arising mainly from the poor performance of local construction contractors. CEL is borrowing US$10.3 million from the Venezuelan Investment Fund (FIV) to help it meet the cost overruns of the first geothermal unit and the Cerron Grande Project. Pending completion of the discharge canal to the Pacific, output from the 30 MW geothermal plant at Ahuachapan has been restricted so as not to exceed agreed upon limits of boron and arsenic in the waters of the Paz River. A request for extension of the Closing Date to permit disbursement of the remaining US$1.3 million is under consideration. Ln Second Education Project, US$17.0 Million Loan of June 14, 1974; Effective Date: October 11, 1974; Closing Date: December 31, The project is about two-and-one-half years behind appraisal schedule. Delays have been caused by frequent turnover and limited experience of technical staff, shortage of construction materials, and lack of interest in school construction bids on the part of registered contractors, especially for school construction in rural areas. Over one-half of all project buildings are either completed or under construction; civil works bids are being reviewed for another onesixth of the project buildings, with the remainder in the planning stage. Bids for supply of furniture and equipment for the first three of eight phases of the project were evaluated and awarded. The technical assistance program is proceeding satisfactorily. The response of the rural communities in the regions of San Miguel and 1/ These notes are designed to inform the Executive Directors regarding the progress of projects in execution, and in particular to report any problems which are being encountered, and the action being taken to remedy them. They should be read in this context, and with the understanding that they do not purport to present a balanced evaluation of strengths and weaknesses in project execution.

29 ANNEX II Page 3 of 3 Morazan, where the nonformal ruiral training program is being implemented, has been good. It is expected that the project will be completed by June Ln Sites and Services Project; US$6.0 Million Credit and US$2.5 Million Loan of November 4, 1974; Effective Date: February 3, 1975; Closing Dates: March 31, 1981 (Credit) and May 31, 1981 (Loan). Although only three years have elapsed since inception of the project, civil works are complete in five of the eight sites. Units have been built at costs which have permitted their sale at prices within the reach of families with incomes of the target group. Total unit development costs for each site, including price escalation allowances, have been within 6 percent of the anticipated cost. The implementing agency, Fundacion Salvadorena de Desarrollo y Vivienda Minima (FSDVM), has increased its annual production capacity from 200 units in the early 1970s to about 1,500 units at present. The completion of the community centers and markets (both the responsibility of the Government's community development agency) has lagged; however, an agreement has now been reached with the Government that the facilities would be completed with additional assistance from FSDVM. The two major problems encountered under the project (land acquisition and water supply in San Salvador) have now been resolved. Ln Seventh Power Project; US$30.0 Million Loan and US$9.0 Million Third 1289T Window Loan of July 28, 1976; Effective Date: October 28, 1976; Closing Date: December 31, Procurement of major generating equipment has been carried out on schedule, while procurement of transmission system equipment is about four months behind schedule. CEL's planning department has been organized with full staffing of the department expected by mid CEL's asset revaluation study has been completed. Terms of reference for the required tariff study have recently been reviewed by the Bank. The geothermal studies are proceeding on schedule. Ln Second Urban Development Project; US$6.0 Million Credit and Cr. 724 US$6.7 Million Loan of July 28, 1977; Effective Date: December 20., 1977; Closing Dates: August 31, 1981 (Credit) and August 31, 1981 (Loan). The credit and loan recently became effective.

30 ANNEX III Page 1 of 2 EL SALVADOR THIRD TELECOMMUNICATIONS PROJECT SUPPLEMENTARY PROJECT DATA SHEET Section I: Timetable of Key Events (a) Time taken to prepare project: (b) Agency which prepared project: 1 year ANTEL (c) First presentation to Bank: April 1977 (d) Departure of appraisal mission: June 1977 (e) Completion of negotiations: February 24, 1978 (f) Loan effectiveness planned: August 1978 Section II: Special Bank Implementation Actions None. Section III: Special Conditions It has been agreed that: (a) A total of about 320 public call boxes will be installed in (a) all FSDVM sites being developed under the Bank Group-financed first and second urban development projects, and (b) other low income urban areas in accordance with criteria which have been agreed with the Bank (para. 45); (b) By September 30, 1978, ANTEL will collect US$560,000 equivalent as partial payment for past due Government bills, with the balance to be settled by June 30, 1979 (para. 52); (c) ANTEL will (a) make a study, under terms of reference acceptable to the Bank, to provide the basis for suitable revaluation of fixed assets and to submit the study to the Bank for comment by July 31, 1980; (b) supply revalued values of fixed assets with its financial statements as from December 31, 1980; and (c) maintain a rate of return of at least 15 percent on the book value of net assets through 1979 and thereafter a rate of return of at least 10 percent on assets revalued in a manner satisfactory to the Bank (para. 53);

31 ANNEX III Page 2 of 2 (d) ANTEL would not incur long-term debt without prior Bank approval unless the preceding 12 months' internal cash generation would cover maximum future debt service at least 1.5 times (para. 53); (e) ANTEL will undertake investment exceeding that included in the program by more than US$1.5 million in any one year, only after the Bank has been afforded a reasonable opportunity to comment on such investment (para. 53); and (f) ANTEL will undertake a tariff study for the establishment of peak and off-peak rates, will complete the study by December 31, 1979, and will afford the Bank an opportunity to comment on the results of the study (para. 55).

32

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