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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Document 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 BANCO NACIONAL DA HABITACAO WITH THE GUARANTEE OF THE FEDERATIVE REPUBLIC OF BRAZIL FOR A SITES AND SERVICES AND LOW-COST HOUSING PROJECT January 10, 1979 Report No. P-2W42-BR 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 Calendar 1977 November 20, 1978 Currency Unit - Cruzeiro (Cr$) Cr$ US$1 - Cr$ Cr$1 - US$ ABBREVIATIONS AND ACRONYMS BNH - Banco Nacional da Habitacao COHAB - Companhia de Habitacao Popular COHAB-PE - Companhia de Habitacao Popular do Estado de Pernambuco COHAB-SP - Companhia Metropolitana de Habitacao de Sao Paulo COS - Carteira de Operacoes de Natureza Social FICAM - Financiamento de Construcao, Ampliacao e Melhoria de Habitacao de Interes Social PLANHAP - Plano Nacional de Habitacao Popular PROFILURB - Programa de Financiamento de Lotes Urbanizados SFH - Sistema Financeiro da Habitacao UPC - Unidade Padrao de Capital URBIS - Habitacao e Urbanizacao da Bahia FISCAL YEAR January 1 - December

3 FOR OFFICIAL USE ONLY BRAZIL SITES AND SERVICES AND LOW-COST HOUSING PROJECT LOAN AND PROJECT SUMMARY Borrower: Guarantor: Amount: Terms: Relending Terms to Final Beneficiaries: Proiect Description: Banco Nacional da Habitacao Federative Republic of Brazil US$93.0 million equivalent Repayment in 15 years, including three years of grace at 7.00% per annum. Repayment for housing in 25 years following grace periods of up to 3 years at interest rates of 1.0% to 6% p.a. on indexed principal. Repayment for community facilities in 18 years following grace periods of up to 3 years at interest rates of 3% to 8% p.a. on indexed principal. The project would provide sites and services, low-cost housing, building material loans, and community infrastructure for the urban poor in the northeastern states of Bahia and Pernambuco and in the metropolitan area of Sao Paulo. In Pernambuco, it would also include a squatter upgrading subproject. In addition, it would include a limited number of sites and services subprojects in other states to show the viability and replicability of low-cost housing options for other areas in Brazil. Also for this purpose, the project would include a technical assistance program channelled through the Borrower. The project would provide about 41,800 sites and services units; 19,500 embryo, semi-finished and finished low-cost housing units; and 23,200 loans to buy building materials and to upgrade 7,200 squatter housing units. Over 80,000 families, some 400,000 individuals, would directly benefit from improved housing, infrastructure and community facilities with concomitant improvements in their health and education. It is estimated that 91% of the families benefitting from this project would have incomes below three times the regional minimum wage, the measure commonly used in Brazil to define the relative poverty group. Bank disbursements would be limited to subprojects with average unit costs that could be afforded by families within the target population. Project risks are associated with undertaking large investments in the sites and services and low-cost housing sector in Brazil. These risks have been minimized by selecting as executing intermediaries 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 - three low-cost housing companies that have records of reasonable success and are willing to try new approaches, in consultation with the Bank, to improve housing conditions for the urban poor. Estimated Cost: Part A: US$ Million Local Foreign Total Low-cost Housing Sao Paulo Pernambuco Bahia Sites and Services Sao Paulo Pernambuco Bahia Loans for Building Materials Sao Paulo Pernambuco Bahia Infrastructure Sao Paulo Pernambuco Bahia Squatter Upgrading Pernambuco Part B: Sites and Services (several states) Total Parts A and B Price Contingencies Total Financial Plan: US$ Million Proposed IBRD Loan 93.0 Banco Nacional da Habitacao State of Pernambuco

5 - iii - Estimated Disbursements: Bank FY79 FY80 FY81 FY82 FY83 FY84 Annual Cumulative Rate of Return: Internal economic rates of return for sample subprojects in the three project states have been estimated at 17% (Sao Paulo), 22% (Pernambuco) and 23% (Bahia). Sensitivity analysis revealed that even with a 10% increase in construction costs and a 20% reduction in benefits all three subprojects are still economically justified. Appraisal Report: Report No BR, dated January 3, 1979.

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7 REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE IBRD TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO BANCO NACIONAL DA HABITACAO (BNH) FOR A SITES AND SERVICES AND LOW-COST HOUSING PROJECT IN BRAZIL 1. I submit the following report and recommendation on a proposed loan to Banco Nacional da Habitacao (BNH) with the guarantee of the Federative Republic of Brazil for the equivalent of US$93.0 million to help finance a sites and services and low-cost housing project in Brazil. The loan would Wave a term of 15 years, including 3 years of grace, with interest at 7.00% per annum. Proceeds of the loan would be channeled to state low-income housing companies at 0% to 3% per annum on the indexed principal. On-lending terms to final beneficiaries would vary with the unit cost from 1% to 6% per annum on the indexed principal and amortization period for the housing companies and the final beneficiaries would be 25 years following grace periods of up to 36 months. Proceeds would also be channeled to states and municipalities, in this case the final beneficiaries, for community facilities and infrastructure at 3% per annum on indexed principal in Bahia, 4% in Pernambuco and 7% in Sao Paulo. Amortization periods would be 18 years following a grace period of up to 36 months. PART I - THE ECONOMY 2. A report, entitled "Economic Memorandum on Brazil" (1665a-BR), dated October 13, 1977, was distributed to the Executive Directors on October 21, An economic mission visited Brazil in April A new economic report to be issued shortly is being prepared. The country data sheets attached as Annex I to this report reflect the findings and projections of that mission. The following discussion reflects our latest views on the Brazilian economy. Recent Economic Performance 3. During the late 1960s and early 1970s, Brazil achieved very rapid economic growth together with much reduced inflation rates and a good balanceof-payments performance. Net capital inflows fluctuated between I and 2.5% of GDP. The petroleum crisis of late 1973 and the ensuing world recession cum inflation produced a sharp deterioration in the balance of payments and inflation accelerated. Brazil's response was more successful than that of most LDCs, even though, with 80% of its petroleum imported, it was particularly hard hit. The growth rates of the economy and of prices were: GDP General Price Index

8 - 2 - The maintenance of high rates of growth after 1973 required large amounts of external financing. Gross capital inflows averaged $9 billion in , compared to $6 billion in Government policies were to keep imports approximately constant through a combination of import restrictions and import substitution; to maintain investment levels; and to continue to stimulate non-traditional exports. 4. The major problem facing Brazil after the onset of the petroleum crisis was the merchandise trade balance, which turned into a large deficit in 1974, as a result of a doubling in the value of imports. Since then, under the influence of the policies described below, the trade balance gradually improved, and turned again into a small surplus in 1977, helped in part by the favorable trend of coffee and soy export prices in 1976 and in the first half of In 1978, on the other hand, agricultural exports have been adversely affected by falling commodity prices and have suffered the impact of a severe drought in Brazil's most important agricultural states. As a result, primary product exports are estimated to have fallen by more than $1 billion. This shortfall has been largely offset by increased manufactured exports which are rising very rapidly. Total exports, thus, are estimated to have remained at about the same level as in The merchandise trade account has shown a deficit of about US$1 billion because of increasing imports. Borrowing requirements will continue to be high because of rising debt service payments. 5. During 1977, at the same time as the balance of payments was improving, the Government began to make some headway in the fight against inflation, by placing more rigid limitations on credit expansion and more effective restraints on public sector investment. By May 1978, the annual rate of inflation, which had accelerated sharply in 1976, was reduced to 35%, as compared to 47% a year earlier. The restrictions on public investment played a major role in the program to control aggregate demand. The overall size of the public investment program leveled off in real terms in 1977, after a decade of strong growth which had, in recent years, come to place a significant amount of strain on available resources. In 1977, in addition, ceilings were placed on the lending programs of the National Economic Development Bank, the National Housing Bank, and other official credit agencies. These measures reinforced the impact of increasingly stringent policies in other areas, including increases in bank reserve requirements and continued curbs on consumer and real estate credit designed to dampen speculative demand and reverse inflationary expectations. The anti-inflationary program induced a slowdown in the rate of growth of GDP, from 9.2% in 1976 to 4.7% in The growth of manufacturing industry dropped to 2.3%, reflecting a slackening of both consumer demand and gross fixed investment. 6. While information on economic trends during 1978 is still fragmentary, it appears that a recovery of industrial activity has taken place in Agricultural output, on the other hand, grew very little because of widespread crop failures caused by the drought, and the overall rate of growth of the economy is not believed to have exceeded 5%. The Government has maintained its anti-inflationary monetary and fiscal policies. Credit policy remained tight and current public sector investment plans did not call for a significant increase in investment in real terms, except in the priority sectors of petroleum, electric power and steel. The overall increase in public investment

9 - 3 - has probably not exceeded 5%. However, a number of factors have led to some intensification of inflationary pressures in In the first place, inflation was affected by the drought, as the decline in food production put pressure on the cost of living. Moreover, on the wage front some industrial workers in the state of Sao Paulo were able in May-June 1978 to negotiate increases significantly above the annual inflation adjustment and the slight real increase authorized by the official guidelines. Finally, as the Government has continued to take advantage of favorable conditions in the international financial markets to borrow in excess of requirements and build up exchange reserves, there has been a large inflow of external capital into the economy. Although steps were taken to minimize the domestic impact of this inflow by sterilizing the funds temporarily at the Central Bank, the pace of inflation has accelerated to approximately 42% a year. Poverty Programs 7. Brazil is a country with great income inequalities and extensive poverty. While the debate on income distribution goes on, and the statistical evidence remains inconclusive, in recent years the Brazilian Government has made serious efforts towards the relief of poverty. During the Administration of President Geisel social programs have increasingly been designed to meet the needs of the lower income groups. Although the provision of basic social services such as health, education and housing is still very inadequate, there has been significant progress in many areas. The coverage of the social security program has been expanded in the urban areas and extended to rural populations in the early 1970s. The urban public health care system now covers more than 70% of the urban population. In the rural sector, a system of cash transfer to poorer old persons has been established. By 1978 virtually all rural persons over 65 years of age received the equivalent of US$30 per month per household--a very substantial income supplement equal to almost twice the average per capita expenditure in the rural Northeast and a much higher proportion for the poorer rural recipients. A similar program covers the urban population over 70. Literacy of the population aged 10 and over has increased from 48% in 1950 to 67% in 1970, and between 1970 and 1974 the adult literacy program (MOBRAL) enrolled some 7 million persons. In the area of urban housing, the National Housing Bank (BNH) has made over 1.7 million loans over the period Beginning in 1975, a new sites and services program (PROFILURB) was established to serve the urban poor and in 1977 this was complemented by a program to finance the purchase of construction materials. Increased priority has also been placed on improving urban water supply. The percentage of urban dwellings connected to general water supply networks rose from 54% in 1970 to 61% in 1973, and it appears likely to reach at least 70% by Available evidence suggests that malnutrition remains one of the most serious social problems in Brazil. Beginning in 1973, the Government established a National Nutrition Program (PRONAN) to attack the problem. Long-Term Prospects 8. During the past decade, the Brazilian economy grew at an average rate of 10% a year. The Government has now recognized the need for moderating growth because of the balance-of-payments constraint and to contain inflation.

10 - 4 - In broad terms, a growth rate of 6 to 7% a year is probably needed to absorb new entrants into the labor force and permit the continued transfer of manpower from low to high productivity areas and sectors. GDP growth rates in that range seem feasible through 1980, and growth might accelerate to 8 to 9% a year in the 1980s. The assumptions underlying this projection include a significant growth of export volume (at a rate of about 10% a year in ). The terms of trade are expected to turn against Brazil sharply in , but should improve again slowly after Coffee prices are expected to level off in the early 1980s, but to resume their rise subsequently. Soybean prices should improve earlier. The growth of manufactured exports volume is projected to range between 15 and 18% a year until 1983, and taper off gradually thereafter, to 10% in the late 1980s. Assuming a continuation of present import substitution policies, a sizeable trade surplus would begin to emerge by 1980 and the current account deficit would narrow in the early 1980s to about $3 billion or 1% of GDP as compared to 4-5% in The rate of growth of the external debt would slow down considerably in the 1980s. In the late 1980s, the growth of imports is expected to accelerate as import-substitution projects are completed and the import ratio to GDP can be expected to increase as a result. At the same time the exceptional momentum of export growth can be expected to slow down as the absolute magnitude of Brazil's non-traditional exports becomes large by world standards. As a result, the current account deficit of the balance of payments is projected to increase somewhat in nominal terms, although it would still remain below 1% of GDP. 9. This outlook rests on a number of basic assumptions, including, in particular, the expectation of a relatively favorable world economic situation and the continued expansion of market opportunities for manufactured exports. Although there are indications of increasing protectionism in industrial countries, Brazilian commercial policy has so far proven extremely flexible. Brazil can be expected to diversify its export products and markets and revise its commercial strategy within a wide range of options to overcome emerging obstacles in international trade. Even under a less favorable set of assumptions, however, Brazil can still be expected to sustain a long-term growth rate of about 6.5% a year, a growth rate which would constitute a reasonably good performance, and would in all likelihood be adequate to satisfy the expected demand for employment opportunities. 10. Brazil's current development strategy was defined in the second National Development Plan ( ). It relies on rapid expansion of both agriculture and industry. Agriculture grew by an impressive 5% per year over the past decade, largely by expansion of land under cultivation. The cultivated area makes up less than 5% of Brazil's surface, and there is every indication that rapid agricultural growth will continue to meet both export and domestic demands, though the development of frontier lands will become progressively more expensive. In the industrial sector, manufacturing has been expanding at the average rate of 11% over the past 10 years. In the late 1960s and early 1970s the leading sectors were automobiles, consumer durables and light equipment, with basic industry lagging behind. Since 1975, however, Brazil's strategy has been to promote a more balanced pattern of industrial growth and reduce dependence on imports by emphasizing heavy industry. One

11 - 5 - element of this policy involves stepping up the development of Brazil's raw material resources to supply industrial input needs. Large investment programs are now being carried out, often with substantial public sector involvement, in steel, petrochemicals, fertilizers, pulp and paper, non-ferrous metals and cement. At the same time, Brazil is building up its capability in the machinery and equipment sectors, moving into the production of heavy and more sophisticated equipment, and equipment made to order. The recent decision to build the turbines for the Itaipu dam (one of the largest in the world) in Brazil reflects the growing capability of the sector. The National Economic Development Bank (BNDE) is supporting these efforts through its large dredit program. 11. Public sector investment plays a key role in Brazilian national development plans. Defined broadly, public sector investment accounts for more than half of total fixed investment in the Brazilian economy. Federal investment has been heavily concentrated in infrastructure and basic industry. These two areas together account for about 70% of total investment by federal Government agencies and enterprises. Regional development and social programs absorb most of the remaining 30%. Until 1975, the rapid expansion of public investment reflected a heavy emphasis on road construction and regional development. The Second National Development Plan added the massive program of import substitution in basic industrial inputs, and an acceleration in the pace of social programs. Since 1977, with the restraints placed on public investment, road and rail transport expansion plans have been cut back sharply. Investments in electric power, on the other hand, are maintained at a high level. In basic industries such as steel, non-ferrous metals and petroleum, investments are being stepped up considerably. The share of regional development programs in total federal investment has now stabilized at about 7%. The percentage allocated to social investment is increasing gradually, reflecting continued expansion of federal investment in housing, water supply and sewerage, and other urban development programs. State and municipal governments also devote a substantial proportion of their resources to health, education, welfare and other public services. External Assistance and Creditworthiness 12. Although Brazil's resource gap may be expected to turn into a surplus in the early 1980s - barring major unforeseen developments in the world economy - and its balance-of-payments current account deficit is expected to be reduced by half in 1980 as compared to the levels reached in , external capital requirements will remain high in because of heavy debt service payments. The gross capital inflow needed during is projected at US$10.7 billion annually, compared with a US$8.3 billion average medium- and long-term capital inflow (including net direct foreign investment) in Of this, gross disbursements of suppliers' credits are expected to average US$1.6 billion a year, bond issues are projected to continue at the current annual rate of US$1 billion and the gross inflow of financial credits needed should average US$5.2 billion a year over the period, or about the same as in This level of borrowing would represent mostly the roll-over of existing credits. In contrast to the period , when financial credits supplied a net inflow of US$3.8 billion a year, the net contribution from this source is expected to

12 -6- drop to less than US$1 billion a year, on average, in The remainder would be made up of direct private investments and bilateral and multilateral credits. 13. On December 31, 1977, Brazil's public and publicly guaranteed medium- and long-term external debt amounted to $19.3 billion. Financial credits make up a little more than half of this amount. Total external debt (both public and private) registered by the Central Bank at the end of 1977 was $32.0 billion. Of this total, $21.5 billion, or about two-thirds, was in the form of financial credits. During 1977, the share of financial credits in total debt outstanding declined slightly, as a result of an increase in net disbursements by multilateral agencies and bilateral lenders, and a significant rise in bond issues. The share of public and publicly guaranteed debt in total external debt has continued to increase, largely reflecting the growing needs of public sector entities for investment capital. Reflecting this change in the composition of the total debt, the public debt service ratio is expected to rise from about 20% in 1977 to 31% in The net debt service ratio (debt service less interest earned on reserves) on the total external debt, which reached 49% of exports of goods and non-factor services in 1977, is also expected to increase to about 55% in This ratio will be high in 1978, because of the exceptional factors depressing Brazilian exports in that year, but can be expected to improve steadily beginning in 1979 and fall gradually to about 28% in The public debt service ratio can also be expected to decline from its 1978 peak, as a result of the growth of exports and the improvement of the debt profile. 14. During Brazil has been able to finance a cumulative current account deficit of nearly $25 billion, while increasing reserves by more than $1 billion and improving the terms at which it obtains credit in the world financial markets. With the balance-of-payments deficit on current account expected to continue to improve in the early eighties, and with further improvement in the terms of new borrowing, the rate of growth of debt service payments should slow to an average of about 5% a year in , as compared to more than 25% a year during the period In sum, Brazil may be expected to remain fully creditworthy for Bank lending. PART II - BANK OPERATIONS IN BRAZIL 15. By October 31, 1978, the Bank had made 82 loans to Brazil, amounting to US$3,887.1 million, of which 40 were not yet fully disbursed. During FY70-75, disbursements averaged US$150 million per year, reaching US$248 million in FY75, US$202 million in FY76, US$267 million in FY77 and US$252 million in FY78. The decline in disbursements in FY76 was due primarily to the reduced level of lending in FY Disbursements are expected to increase during the next few years. Annex II contains a summary statement of Bank loans as of October 31, 1978 and notes on the execution of ongoing projects.

13 16. Over the FY75-77 period, Bank lending to Brazil amounted to between US$400 and US$500 million per year. In FY75, five loans were made totalling US$426.5 million; in FY76, ten loans totalling US$498 million; and in FY77 seven loans totalling US$425 million. In FY78, nine loans totalling US$705 million were made. Work is advanced on the preparation of an industrial pollution control project in Sao Paulo; an aluminum project; a second irrigation project in the lower Sao Francisco river valley; a power distribution project in southern Brazil; two rural development projects in the northeast; a medium-sized cities development project and a water supply and sewerage project in the northeast. We expect to propose loans for these projects in the near future. 17. Of Brazil's external public debt outstanding and disbursed at the end of 1977, amounting to nearly US$19.3 billion, the Bank held about 8.0%. The Bank's share of the service on this debt was about 7.0%. When Brazil's total (public and private) external debt is considered, the Bank's share in the total outstanding at the end of 1977 was 4.8%, and its share in Brazil's external debt service was about 2.9%. By 1980, the ratios of the Bank's share in total outstanding debt and in total debt service are expected to rise to 6.2% and 3.3%, respectively. 18. As of October 31, 1978, IFC commitments to Brazil totalled US$395.2 million, of which US$265.4 million had been cancelled, repaid or sold. Of the balance of US$129.8 million, US$98.7 million represent loans and US$31.1 million equity. A summary of IFC's investments as of October 31, 1978 is given in Annex II. Lending Strategy 19. In its lending to Brazil, the Bank has sought to help the Government achieve a number of important development objectives which are interdependent and complementary. One important lending objective in Brazil is to help intensify the efforts of the Government to identify and develop projects that will increase productivity and income of the lowest income segments of the population, to broaden the economic opportunities open to those groups, and to improve their living conditions. The loans for nutrition research and development, vocational training, agricultural research, agricultural extension and polder construction in the Lower Sao Francisco as well as for integrated rural development in the States of Rio Grande do Norte, Minas Gerais, Ceara, Paraiba and Bahia were all designed to assist low-income groups in rural areas. Additional projects designed to assist low-income groups in rural areas are in preparation, including a rural education project, several integrated rural development projects in the Northeast and a second irrigation project in the lower Sao Francisco river valley. The loans for water supply and sewerage in the State of Minas Gerais and in Greater Sao Paulo and for the first urban transport project are assisting to improve the living conditions of the urban population, particularly of the urban poor. Several projects to reach low-income groups in urban areas are in preparation: a medium-sized cities development project, a water supply and sewerage project for northeastern Brazil, and a second urban transport project. The proposed project would better the standard of living of the urban poor in the States of Pernambuco and Bahia and in the city of Sao Paulo through the construction of sites and services and low-cost housing.

14 Another of the Bank's lending objectives in Brazil is to support institutional development and policy reform designed to develop rational policies and procedures, establish adequate coordination and control, and help maximize public savings and ensure that they are used economically through rational selection of investment projects. This institution-building objective has been important in Bank assistance, for example, in the transportation sector where there has been emphasis on the rational selection of investments, the strengthening of railway operations, and the improvement of railways' financial performance and in the power sector as well. The proposed project would assist three low-income housing companies to improve their project planning and execution capabilities. We expect that the experience gained from structuring the proposed project will be instrumental for the development of similar projects in other areas of Brazil. 21. Another lending objective is to ease the foreign exchange constraint on development, a constraint that has become more critical since the increase in petroleum prices, by supporting projects designed to increase Brazil's export capacity and, where economical, to substitute domestic production for imports. As a result of the deterioration in Brazil's terms of trade and balance of payments which took place at the time of the 1974 energy crisis, this objective was placed in the forefront of the Government's economic policy. Lending for the electric power sector supports this objective, since it is based primarily on hydroelectric energy, and its development lessens the need for petroleum imports. Bank support of fertilizer and petrochemicals projects is assisting Brazil to substitute imports with large-scale efficient domestic production and aid its balance-of-payments position. Bank lending for agro-industries in the Center and South of Brazil is also supporting this objective and much of the Bank-assisted investment in the transport sector -- railways, ports and highways -- is designed to facilitate the smooth and economical flow of exports. Support of the steel expansion program is helping Brazil to expand domestic output of a traditional import commodity which can be produced efficiently in Brazil due to the country's ample supply of highgrade iron ore and the scale of its internal markets. A similar objective would be achieved through the aluminum project being prepared. 22. A final objective which applies to all Bank lending to Brazil is to provide part of the very large volume of medium- and long-term capital inflows that Brazil has needed and will continue to need for some years in order to sustain rapid growth and achieve its employment creation and regional development objectives. Continued active lending by the Bank in Brazil is regarded by the international financial community as an important sign of confidence in Brazil and encourages others to continue their own programs there. In some sectors, especially in electric power and industry, Bank participation is helping Brazil obtain additional resources in greater amounts and on more favorable terms from bilateral credit agencies and private financial institutions than may have otherwise been provided. Eight co-financing operations for more than US$275 million, have been concluded since 1976 with private financial institutions and several others are in preparation.

15 PART III - THE URBAN HOUSING SECTOR Urbanization and Urban Poverty 23. Brazil's urbanization over the last 30 years has been characterized by rapid growth, large absolute size of urban population and geographical imbalance. Between 1950 and 1970, the urban population (according to the generally accepted definition) grew at an annual rate of above 5.5%, rising from 13.0 million to 37.8 million (52 million according to the Brazilian definition) 1/. The current rate of growth is estimated at 4.4% p.a. and is expected to slow down to 4% during the period. Nevertheless, the urban population is likely to reach 85 million by There are nine metropolitan areas with populations close to, or over, one million inhabitants in Brazil: Porto Alegre and Curitiba in the south; Sao Paulo and Rio de Jarieiro in the southeast; Belo Horizonte in the center west; Salvador, Recife, Fortaleza in the northeast; and Belem in the north. Traditionally the urban population has been concentrated along the coastal areas, particularly in the southeast. During the period, the rates of urban growth were highest in the south and in the center west. as a result of the expansion of Belo Horizonte and the creation of Brasilia. This, however, was not enough to overcome the large imbalance between the southeast and other regions. 25. Brazilian agencies in the urban sector define the urban poverty group as families with monthly incomes of up to three times the regional minimum wage (to account for regional differences in the cost of living). This definition is close to the Bank's definition of relative poverty level of one third of per capita personal income, adjusted for differences in the cost of living between urban and rural areas or about US$465 equivalent per capita in Since all income statistics in Brazil are kept in terms of multiples of the regional minimum wage, for operational purposes, we have set the relative poverty line at three times the regional minimum wage. According to this definition, the percentage of families living in urban poverty ranged from 41% in Sao Paulo to 77% in Recife at the time of the last comprehensive national census in Urban Housing and Services 26. The rapid growth of the urban population has created a huge demand for housing and urban services. Between 1964 and 1977, the number of urban households increased by 6,740,000 or about 480,000 annually. During the same period, the number of housing units financed through the formal housing finance system totalled 1,740,000 or about 125,000 units per year. Thus, over 75% of the housing needs have had to be accommodated outside the formal housing system. This has led to proliferation of squatter settlements, illegal subdivisions and widespread use of precarious structures. In 1970, 1/ While the generally accepted definition of urban population includes people living in cities of at least 20,000 inhabitants, the Brazilian definition also includes people living in communities of smaller size that are considered urban on the basis of their administrative status.

16 % of urban housing structures in Brazil was estimated to be substandard, i.e., overcrowded, built from non-durable materials or lacking elementary services, such as water, sanitation and electricity. Since then, the continuing growth of the urban population has contributed to the further aggravation of the housing problem. 27. Many of the urban poor are recent migrants who squat on the periphery of metropolitan areas, or in central neighborhoods in illegal and precarious settlements. Furthermore, the demand-supply gap has consistently driven up the price of land, infrastructure provision, and construction materials making it increasingly difficult for the low-income population to participate in the shelter market. Housing Conditions in Recife, Salvador and Sao Paulo 28' The bulk of the shelter financed under the project would be in the metropolitan areas of Recife, Salvador and Sao Paulo. These three areas contained close to 20% of the urban population of Brazil in 1970, over 11 million persons, of which an estimated 4.7 million were in the poverty group. 29. The housing deficit in the Recife metropolitan area is estimated to be 122,000 units. Of these, approximately 67,000 units are needed in the city of Recife, and the rest in surrounding municipalities. Most of the population with deficient housing, estimated at 63% of the total metropolitan population, live in illegal settlements on steep hillsides or swampy land. These sites are subject to torrential floods, landslides and offer conditions propitious for the rapid transmission of contagious diseases. 30. In Greater Salvador, 137,000 housing units could be classified as substandard dwellings, 27% of the city's population lack access to piped water and 90% access to sewerage. About 20,000 families live under the most precarious conditions in the constantly flooded area of Alagados. The situation is likely to get worse in the coming years as the metropolitan population continues to grow. It is estimated that by 1985 the deficit would reach 250,000 units. 31. In Sao Paulo, close to 500,000 housing units are classified as substandard; they shelter 2.9 million people or about 30% of the 1976 metropolitan population. The major housing problem of Sao Paulo is the sprawl of unserviced, often illegal, settlements that have sprung up around the city to accommodate the 5.6% average annual population growth experienced over the last 15 years. The combination of a baseline deficit of 500,000 units and a population growth rate approaching 5%, which requires between 80,000 and 100,000 additional housing units a year, indicates the magnitude of the problem. Housing Policy, Institutions and Financing 32. In 1964, the federal government started a very large effort to improve housing conditions in Brazil. At that time, it established the Housing Finance System (Sistema Financeiro da Habitacao-SFH) and the National Housing Bank (Banco Nacional da Habitacao-BNH). By the time the National Commission

17 on Urban Policy and the National Fund for Urban Development were created in 1975, BNH and its related agencies had already established strong policy guidelines and working procedures and controlled about 70% of public investment resources in the urban sector. BNH had become and is expected to remain the key institution in the housing sector. It is the largest government banking institution in Brazil dedicated to social development. One of its tasks is to guide, regulate and control the Housing Finance System comprising the local executing agencies and the Brazilian savings and loan system which is the fourth largest such system in the world. BNH also finances urban infrastructure, in particular water supply and sewerage. 33. BNH is a financially strong institution whose total assets equalled US$11.6 billion equivalent in Including US$14.5 billion through the savings and loan system BNH directs the use of US$26 billion. The BNH-financed investments in 1977 totalled US$2.4 billion representing 1.4% of GDP or 6.5% of the Gross Capital Formation of the country. About 70% of the BNH investments are in the housing sector with the balance in sanitation and urban development. Since 1964, over 1 million families have bought housing units financed by BNH. Low-income housing that could be afforded by families with monthly incomes of up to five times the minimum wage, averaged under 20% of BNH commitments during the period. As a result of progressive p,olicy changes, investments in low-income housing over would increase to about 26%. 34. BNH promotes the social objectives of the SFH through a complex series of cross-subsidization schemes: BNH's low-income housing programs are subsidized by its higher-income programs (it charges interest at 0% to 3% p.a. on the indexed principal of loans for the former; 3% to 10% p.a. for the latter); more prosperous southern states pay higher interest rates (8% p.a.) than northeastern states (3% p.a.); and low-income housing companies pay lower interest rates for urbanized lots than for finished houses. 35. In order to encourage house acquisition, the Government authorized, starting in 1971, a deduction of interest payments from the taxable income of SFH beneficiaries. However, this system did not reach families who did not pay income taxes--a majority of the potential beneficiaries of BNH low-income programs. In order to correct this distortion, the government introduced in 1974 a fiscal incentive to beneficiaries of SFH. This is a rebate equal, on the average, to 12% of the beneficiary's actual loan repayments in the previous fiscal year subject to a minimum of about US$50 and a maximum of US$300, respectively, and credited against the current year payments. BNH and COHAB off icials believe that the fiscal benefit has had a very positive impact on payments by the beneficiaries and has improved the cash position of COHABs. 36. By its statutes, BNH is prevented from executing and managing the operations it finances. It has therefore taken steps to encourage the creation of viable intermediaries at the local level to execute and manage housing and urban development operations. For low-income housing, its intermediaries are low-income housing companies (Companhias de Habitacao Popular--COHABs) owned by states and municipalities. There are now 34 COHABs in operation.

18 Low-Income Housing Program - PLANHAP 37. In 1973, BNH established a comprehensive planning framework for its low-income housing operations through the National Low-Income Housing Program (Plano Nacional de Habitacao Popular - PLANHAP). PLANHAP operations involve (a) BNE's Directorate of Social Operations (COS), (b) COHABs, and (c) state and municipal governments. COS is responsible for all low-income housing operations of BNH. defining the rules and regulations of PLANHAP, approving COHABs' subprojects and providing financing. COHABs are responsible for the preparation and execution of subprojects, selection of final beneficiaries and sale of houses and lots to them. States and municipalities, are responsible for the financing and execution of infrastructure and community facilities and often facilitate land acquisition for low-income housing. Thus, support from local governments is essential to the success of the program. 38. The original goal of PLANHAP was to eliminate within ten years the housing deficit for families with monthly incomes of up to three times the minimum wage. This deficit was estimated at two million housing units. PLANHAP I, as the first program was called, had a disappointing early performance, mainly as a result of the difficulties encountered by the COHABs and the states to fulfill their financial obligations and the rapid increase in land and construction costs, which grew more rapidly than the minimum wage. As a result, the target population was unable to afford conventional housing. To correct these problems, BNH introduced a series of modifications in PLANHAP I and established a new planning framework for its low-income housing activities through PLANHAP II. The goal of PLANHAP II is to (a) expand housing production as fast as supply capacity permits; and (b) develop a wider range of shelter alternatives. The target population of PLANHAP II was expanded to include families with monthly incomes of up to five times the minimum wage. PLANHAP II operates through a series of subprograms and lines of credit. The main subprograms are: (a) land acquisition; (b) construction and acquisition of finished houses including embryo houses, detached houses, semi-finished and finished apartments or a combination of these; (c) production and acquisition of sites and services (Programa de Financiamento do Lotes Urbanizados - PROFILURB); and (d) construction, completion, enlargement, or improvement of individual houses (FICAM). Loans under these subprograms are made to COHABs and are refinanced by BNH when COHABs sell the units to the final beneficiaries. Only shelter units costing up to about US$7,375 equivalent are eligible for BNH financing under PLANHAP. 39. In addition, BNH finances the provision of infrastructure and community facilities through three lines of credit: (a) FIEGE--for roads and drainage; (b) FISIP--for power, gas, water and telephones; and (c) FIEP-- for health care, education, manpower training, and other public services. Loans under these lines of credit are made directly to the state and municipal governments. Performance under PLANHAP 40. Under PLANHAP I, BNH approved loans to COHABS for 15,000 and 16,000 housing units in 1973 and 1974 respectively. Since BNH started PLANHAP II in 1975, the number of units financed has expanded significantly. At the end of 1977, COHABs had completed 265,300 units; had 131,000 units under construction and 102,400 units in final design or tendering stages.

19 In spite of this impressive performance, most housing projects in PLANHAP II were affordable only to families in the three to five times the minimum wage range because of the high cost of land and construction and the preference of COHABs and local governments to construct finished housing. The sites and services program (PROFILURB) was established in 1975 to counter the tendency to price finished housing out of the reach of families in the one to three times the minimum wage range. After an initial slow start caused largely by the reluctance of COHABs and local governments to support the program, it is now progressing significantly. Sixteen thousand units were approved by 1977 which is two times the number of units approved durinfg the previous yea. 42. In addition to the initial reluctance of the COHABs and local governments, lack of BNH financing for individual house improvement and building materials also adversely affected PROFILURB's performance and excluded many low-income dwellers. To remedy this situation BNH created a new program for individual house improvement and construction (FICAM) which may also be used for tenure regularization purposes. Since its inception in 1977, BNH has approved financing for 5,000 units under this program. It is expected that this program will become increasingly important to meet the needs of the lowest-income segments of the population. 43. While PLANHAP performance compares favorably with housing programs of other countries at a similar level of development, its major shortcoming has been its inability t. effact-vely reach the lower strata of its target population--families with monthly incomes of up to three times the minimum wage. The proposed project is designed to assist BNH to reach this segment of the target population which constitutes the urban poverty group. Housing conditions of the urban poor will be improved; squatter upgrading will be promoted; reduction of design standards, particulary for infrastructure, and of housing construction costs will be sought; COHAB's financial and physical planning procedures will be improved; and the terms and conditions of PLANiAP lines of credit will be monitored to ensure that they encourage low-cost solutions while providing adequate remuneration to the COHABs. PART IV - THE PROJECT Project Background 44. A report entitled "Staff Appraisal Report of a Sites and Services and Low-Cost Housing Project" (No BR dated January 3, 1979) is being circulated separately to the Executive Directors. The dialogue started with BNH, in 1975, on possible Bank financing of BNH's sites and services program. It culminated in BNH requesting the Bank, early in 1977, to consider for possible financing a project including sites and services, semi-finished and finished housing. Families within the relative poverty group would be able to afford the average cost of the shelter units included under each subproject. BNH subsequently prepared a detailed report reviewing the PLANHAP program, its past performance and future prospects, and proposed a housing project in the States of Bahia and Pernambuco and in the city of Sao Paulo for Bank financing. The project

20 was appraised by a Bank mission which visited Brazil in mid Negotiations with the Borrower, Guarantor, COHABs and related local governments were held in Washington, D.C. from November 13 to 27, BNH was represented by Messrs. Jose Maria Aragao and Fabio Alvares. A supplemental project data sheet, including a timetable of key events and a summary of special conditions is presented in Annex III. Project Objectives 45. The principal objectives of the proposed project are: (a) to promote sites and services, low-cost housing and building materials credit subprojects support a pilot squatter upgrading effort; and encourage the use of lower housing and infrastructure design standards; (b) to contribute to the institutional development of the selected COHABs and strengthening of their overall delivery capacity, in particular, development of on-site assistance to the beneficiaries of sites and services and building materials loans; and (c) to improve financial and physical planning and closer coordination among agencies in charge of providing infrastructure and community facilities. 46. The proposed project would include the construction of subprojects offering a balanced social mix of beneficiaries. It would focus on the development of sites and services and a credit program for the acquisition of building materials. However, it would also include low-cost housing units, ranging from embryo houses to one- to three-bedroom houses. In this way, it would create opportunities for social integration and cross-subsidization in favor of the lowest income groups within each subproject. 47. To facilitate the achievement of the institution-building objectives of the project, the bulk of the subprojects would be located in the city of Sao Paulo in the south and in the States of Pernambuco and Bahia in the northeast. The three project areas provide a good cross-section of urban shelter problems in Brazil and the three respective COHABs have reasonable records of success in building traditional low-cost housing and are willing to try new approaches. Together, they accounted for 33% of PLANHAP housing units approved by BNH in 1977 and 32% of estimated PLANHAP disbursements. The project would seek to demonstrate, using the three COHABs, the feasibility, replicability and public acceptance of large-scale sites and services and squatter upgrading operations. The experience derived from it could then be applied to BNH's low-income housing program across Brazil. Project Description 48. The project would consist of sites and services and low-cost housing subprojects and credit programs for the acquisition of building materials included under the PLANHAP program for the COHABs of the states of Bahia and Pernambuco and the municipality of Sao Paulo, community facilities and infrastructure for selected subprojects, and an experimental squatter upgrading operation in Recife. In addition, it would include a limited number of sites and services subprojects to be carried out by COHABs in other states. The project would be complemented by a comprehensive technical assistance program. Bank financing would be limited to subprojects with average cost of housing units that can be afforded by families with monthly incomes of up to three times the regional minimum wage. Criteria for subproject approval are discussed in para. 62.

21 On the basis of the analysis of the investment programs of the three beneficiary COHABs and of their execution capabilities the proposed project would include: (a) about 31,800 urbanized lots under the PROFILURB program, including basic urbanized lots, hydraulic wall lots 1/ and sanitary unit lots; (b) about 23,800 home improvement and construction loans under the FICAM program, which would be provided in connection with, but not restricted to, the PROFILURB subprojects; (c) about 19,500 core units, low-cost finished and semi-finished dwellings; (d) complementary infrastructure and community facilities provided in connection with selected sites and services and low-cost housing subprojects; (e) experimental squatter upgrading in Pernambuco. 50. The project would also include selected sites and services (PROFILURB) subprojects (up to a total of about 10,000 units) in other states. Furthermore, the project would include a program of technical assistance financed by BNH which would expand and complement ongoing BNH programs. The program would focus on the following priority areas: COHABs operational and financial management, reporting and incentives; design efficiency; lowering of infrastructure standards and construction costs; and squatter upgrading. The program would also include monitoring and evaluation of COHABs subprojects (Annex to Schedule 2 to the draft Loan Agreement). 51. The states of Bahia and Pernambuco and the municipality of Sao Paulo would provide the community facilities and infrastructure required for the subprojects (Section 6.07 of the draft Loan Agreement). In accordance with BNH's regulations, financing of these investments through PLANHAP lines of credit would be limited to special cases when difficulties in obtaining financing from other sources might lead to delays in the execution and sales of subprojects. It is estimated that 10% of the loan amount would be devoted towards the financing of community facilities and infrastructure. 52. The experimental squatter upgrading program in Pernambuco merits special mention since it would be one of the first projects of its kind in Brazil. It would include the legalization of tenure, the provision of basic infrastructure (drainage, water, sanitation, roads and electricity and community facilities) and the upgrading of housing conditions for about 7,100 families through partial house improvements, construction of low-cost dwellings and provision of about 1,200 urbanized lots of which 300 would be used to relocate families affected by on-site upgrading works. These actions would be complemented by a series of community development programs, and technical assistance for the development of the productive activities and small-scale enterprises funded and implemented by the government of the State of Pernambuco and its agencies (Section 6.06 of the draft Loan Agreement. 1/ Lots with a wall containing hook-ups for bathroom and kitchen facilities.

22 Costs of Housing Units 53. Unit costs for different types of shelter categories financed by BNH range from US$440 to US$1,620 for sites and services; US$740 to US$2,600 for materials loans; and US$2,600 to about US$7,375 for finished houses. Differences in unit costs reflect differences in design standards between the three COHABs and construction costs in their respective areas. It is expected that the COHABs would progressively reduce their construction costs, through more efficient layout design, smaller plot sizes and lower infrastructure standards during project execution. The subproject review system and technical assistance program have been designed to attain these objecti-ves (Annex Lo Schedule 2 to the draft Loan Agreement). The Executing Agencies 54. The three main intermediaries and executing agencies for the project would be Companhia Metropolitana de Habitacao Popular de Sao Paulo (COHAB-SP), Companhia da Habitacao Popular do Estado de Pernambuco (COHAB-PE) and Habitacao e Urbanizacao da Bahia (URBIS). 55. COHAB-SP operates in the metropolitan area of Sao Paulo. Its performance has improved dramatically over the last years as a result of the appointment of a dynamic management team in 1975 and the modifications introduced in the low-cost housing programs of BNH. Up to 1975, it had completed only 3,600 units. But by end 1977, it had completed 9,400 add4tional units and had 30,500 either under construction or out to tender and 9,000 more awaited bids. COHAP-SP has developed a community development program for the residents of its housing complex, a pilot self-help program providing building materials loans to low-income families and is researching the use of soil cement in house construction. 56. COHAP-PE was created by merging two COHABs, one state and the other municipal. COHAB-PE is an efficient company with a well-organized, competent and dedicated staff. In the period , it obtained approval from BNH for 28,000 housing units as compared with 1,200 in the previous two years. In addition to construction it has put much effort into helping form residents' associations to encourage self-help. Also, it has established a variety of training programs oriented largely towards women in their homes. To improve the design of subprojects, COHAB-PE would conduct an experimental program of economic analysis of subprojects to help decide on the mix of dwellings for a given site during project design (Section 5.10 of the draft Loan Agreement). 57. URBIS was established in It has not been as effective as the other two COHABs as a result of an inexperienced middle management team, excessive centralization of decisions in the President's office and inefficient deployment of its staff. Production of housing units declined between 1971 to 1974, after a good start between 1967 and However, URBIS has now improved its performance and, by the end of 1977, had 7,400 units under construction, with another 3,600 at tendering stage and 1,453 awaiting BNI approval. URBIS is also developing building materials credit operations, has approved financing for 2,122 loans and has another 5,000 in the pipeline.

23 Under the project, a management diagnosis of URBIS would be carried out as part of the technical assistance program and the state would undertake to improve the physical facilities provided to URBIS (Section 6.04 of the draft Loan Agreement). 58. Under the project, the three COHABs would improve their financial planning and budgeting systems by expanding their financial staff and by preparing annual financial statements for the ensuing three-year period. As part of a continuing policy dialogue with the Bank, they would inform the Bank of proposed changes in operating policies that may affect the execution of the project and allow the Bank a reasonable opportunity to comment on such changes (Sections 5.06 and 5.08 of the draft Loan Agreement). Project Cost and Financing Plan 59. Total project cost, including price contingencies, has been estimated at US$265.7 million at January 1979 prices. The foreign exchange component amounts to US$61.5 million (23% of project cost) practically all of which is indirect. Technical assistance, which would be carried out by BNH's staff, has not been included as part of the cost of the project. Project costs were determined on the basis of actual average unit costs of subprojects that would satisfy Bank's criteria. Since actual unit costs of comparable subprojects were used to estimate the base cost of the project, no provision for physical contingencies has been made over and above the 10% provision included in these unit costs. Any increase in the real costs of construction in excess of increases in the minimum wage would require a decrease in the total number of higher cost units and an increase in the number of lower cost units (para. 64). BNH's accounting unit was used in calculating the base project cost. Over the years, the relative value of this unit in relation to the US dollar has remained approximately constant. Thus, the price contingencies have been calculated in US dollar terms and are based on Bank projections of worldwide inflation. They amount to 7*5% in 1979 and 7% p.a. in 1980 and Bank financing of 35% or US$93.0 million of total project cost is proposed for the project. The proposed loan amount would allow the Bank to make a significant contribution to the cost of a project that would improve the living conditions of the urban poor and strengthen both federal and local institutions responsible for the development of the sites and services and low-income housing sector. The balance of the project funds would be supplied by BNH. The states of Bahia and Pernambuco and the municipality of Sao Paulo would finance most of the community facilities and infrastructure required for the project out of their own budgetary resources or loans under other programs of BNH. The state government of Pernambuco would finance complementary facilities and infrastructure for the squatter upgrading subproject in Recife (Section 6.06 and 6.07 of the draft Loan Agreement). Channelling of Funds and On-Lending Terms 60. Under the project, BNH would make subloans to the COHABs. Proceeds of the Bank loan for shelter subprojects would be channelled to COHABs in cruzeiros on the terms specified in BNH's PLANHAP regulations (Sections 1.02(b) and 3.03(a) of the draft Loan Agreement); 0% to 3% p.a. on the

24 indexed principal. 1/ Interest rates for subprojects would vary in relation to the cost of shelter units included. The on-lending terms to the final beneficiaries would also vary with the unit cost from 1% to 6% on the indexed principal. The amortization period would be 25 years. The proceeds of the Bank loan for community facilities and infrastructure would be channelled in cruzeiros to the states and municipalities responsible for their execution on standard BNH terms: 3% on indexed principal in Bahia, 4% in Pernambuco, and 8% in Sao Paulo. The amortization period would be 25 years for housing and 18 years for infrastructure and community facilities following the construction and sales period of up to three years. A change in any of the PLANHAP regulations which materially and adversely affect the carrying out of the Project or any subproject would be an event of default under the Loan Agreement (Section 7.01(d) of the draft Loan Agreement). The difference between the rate of interest paid by BNH to the Bank and those it would charge to the COHABs; and the repayments of principal due to the Bank but not received from the COHABs would be met by BNH out of its own resources. Given the strong financial position of BNR and the fact that its program for low-income housing is small compared to its medium- and large-sized housing programs, where it makes substantial profits, BNH should be able to absorb the cost of the project without difficulty. Implementation Arrangements 62. The overall project coordination would be ensured by a special working group within BNH. BNH would be responsible for subproject appraisal and approval, technical assistance and channelling of funds to COHABs. Subproject preparation up to detailed engineering, would be the responsibility of the COHABs, which would also be responsible for tendering and direct supervision of shelter construction. They would also carry out all complementary activities such as selection, orientation, and community development assistance, as well as administration of subloans to final beneficiaries. The financing and construction of infrastructure and community facilities would be the responsibility of the States and Municipalities. To facilitate the smooth and efficient execution of their programs, the three intermediaries would employ specialized staff to guide and counsel final beneficiaries in self-help building techniques and to prepare standard plans and building manuals for shelter construction. They would also establish a system to ensure the regular supply of building materials and credit to final beneficiaries and adjust their organizational structure for the execution of sites and services and building materials credit programs (Section 5.09 of the draft Loan Agreement). 63. Over the life of the project it is expected that changes in the implementation capacity of the intermediaries, land availability and shifts in demand may require periodical revisions of their investment plans. BNH 1/ Principal and interest of BNH's loans are adjusted in accordance with changes in the national treasury bond index (ORTN index). Inflation in Brazil in the years was 28%, 41% and 43% respectively and is expected to average about 40% p.a. during The ORTN index used in public sector lending increased 24%, 37% and 30% over the same period and is expected to increase on the average 32% p.a. during

25 and the COHABs would undertake an annual review of such plans with the Bank (Section 5.07 of the draft Loan Agreement). Subproject Approval Procedures 64. Subprojects eligible for Bank financing would be selected on the basis of the following criteria: (a) they should form part of the agreed investment program; (b) the average unit cost should be such that it can be afforded by families with monthly incomes of up to three times the regional minimum wage; (c) subprojects should have efficient design in terms of location, land use and infrastructure; and (d) subprojects should be economically viable. The first sites and services and the first housing subprojects from URBIS, COHAB-PE and COHAB-SP and the first two sites and services subprojects from COHABs in other states would be first approved by BNH and then forwarded to the Bank for approval. The supporting documentation would include the project summary submitted by the COHABs to BNH and BNH's own report. For subsequent subprojects, BNH would notify the Bank of its approval and keep the documentation for review. Should the Bank determine that a subproject had been erroneously approved, it would have the option to cancel a part of the loan equivalent to the value of the expenditures eligible for Bank financing under the subproject (Schedule 5 to the draft Loan Agreement). Procurement 65. Procurement of civil works contracts for low-cost housing costing more than US$2.4 million equivalent and sites and services costing more than US$1.5 million equivalent under the responsibility of URBIS, COHAB-PE and COHAB-SP (about 60% of the value of procurement under the project) would be subject to international competitive bidding in accordance with the Bank's guidelines. Local procurement procedures acceptable to the Bank would be applied to civil works contracts for: (a) low-cost housing costing less than US$2.4 million and sites and services costing less than US$1.5 million equivalent; (b) infrastructure and community facilities under the responsibility of States, Municipalities and state-controlled agencies; and (c) sites and services subprojects outside of Pernambuco, Bahia and Sao Paulo. These procedures would allow foreign contractors to bid. However, it is expected that foreign firms would not be interested in participating in the contracts to be procured under local competition since they would be relatively small in size and the works would be scattered over several states of Brazil. Overall, it is expected that most, if not all, of the works under the project would be contracted to local firms since Brazil's construction industry is well advanced. Disbursements 66. Bank disbursements would consist of the reimbursement of 35% of all BNH disbursements on its subloans for eligible subprojects in accordance with certificates of expenditures to be submitted by BNH to the Bank. The documentation in support of such certificates would be available to the Bank for inspection during the course of project supervision missions. Unallocated funds (amounting to 15% of the loan) would be used, as approved by the Bank, for subprojects included in the investment programs of any of the three COHABs, according to their demonstrated execution capacity. The last disbursement is expected to occur in the fourth quarter of 1983.

26 Project Benefits 67. The beneficiaries of the proposed project would be some 80,000 families (including beneficiaries of the building materials credit program), about 90% of them with monthly incomes of less than three times the regional minimum wage. Furthermore, it is estimated that 82% of the project cost will directly benefit families below the relative poverty level. The construction activities under the project would generate an estimated 70,000 man-years of employment. The project would reduce by about 10% the estimated housing deficit in the project areas. 68. All sites and services units, building materials loans, embryo houses in Sao Paulo and about one-half of finished houses in Bahia and Pernambuco could be afforded by families in the poverty group. The following table presents, by type of shelter unit, information regarding the expected number of beneficiaries, average unit cost and percentage of families in the poverty group that could afford each type of unit. Urbanized Lot with Embryo Completed Plot type: Lot Sanitary Core House Housing Services: Industrial /1 Industrial Industrial Industrial Access to building material credit program: Yes Yes Yes Yes Percent of investment going to poverty group 100% 100% 100% 50% /2 Number of households benefitted / , ,300 10,200 Cost to purchaser /4 (US$ per unit) 959 1,623 3,127 4,071 to 5,531 Monthly payments (US$ per household) to Minimum monthly income required (US$ per household) to Percentage of families in poverty group that can afford each type of unit: Sao Paulo 88 n.a /5 Pernambuco /5 Bahia /5 /1 Connected to public water supply and power distribution systems. /2 One-bedroom units in all states and two-bedroom units (in Pernambuco and to a large extent in Bahia) can be afforded by families with monthly incomes of up to three times the minimum wage. Three-bedroom units can be afforded by families with monthly incomes of 3.5 times the minimum wage in Sao Paulo, 4.1 in Pernambuco and 4.8 in Bahia. /3 Does not include beneficiaries of building materials credit program. /4 Costs (January 1979 prices) are based on unit types in Pernambuco where housing costs are close to average for the project as a whole. /5 Refers to one-bedroom units only.

27 The cost of the housing component (90% of the project costs) would be recovered through the repayment of loans by final beneficiaries. Costs for infrastructure and community facilities (10% of the project costs) would be recovered through utility charges and property taxation by local governments. Internal Rate of Return 70. Given the sectoral nature of the project, it was not possible to carry out an economic evaluation for the project as a whole. However, an analysis has been done for sample subprojects--one from each of the three COHABs--which have been or will be submitted to BNH for approval this year. Costs and benefits of urbanized lot and embryo house consolidation have been included in the analysis for these three sample subprojects. Imputed market rents were used as a measure of benefits. Internal rates of return are 17% for Sao Paulo, 22% for Recife, and 23% for Salvador. Sensitivity tests on reduction of benefits and increase of costs were also carried out. In all cases the subprojects have rates of return above 12%. Project Risks 71. Implementation of the sites and services program, timely provision of infrastructure, squatter upgrading, and location of subprojects are the main areas where project risks appear. 72. The three COHABs have only limited experience with the sites and services program. However, the resulting risk of inadequate executing capacity is considered manageable in view of their previous experience with other lowcost housing programs and the specific steps they have taken (such as on-site technical supervision) or would take to ensure adequate funding and staffing for the execution of the project (Section 5.09 of the draft Loan Agreement). 73. Timely provision of infrastructure during project construction is dependent on state agencies. To minimize the risk of delay, the State Governments of Bahia and Pernambuco and the Municipality of Sao Paulo would undertake to provide the required infrastructure on time (Section 6.07 of the draft Loan Agreement). Also, BNH's regulations require the COHABs to obtain firm commitments for the provision of infrastructure for subprojects from the concerned local agencies before the submission of subprojects to BNH for approval. 74. The squatter upgrading component in Recife would represent a new undertaking for COHAB-PE and the metropolitan planning agency. Its success will require close cooperation between the two agencies and the support of the State Government. The complex question of tenure regularization will also require close cooperation between all agencies involved. To ensure the success of this venture, the State of Pernambuco would coordinate the actions of the various agencies participating in the subproject (Section 6.06 of the draft Loan Agreement).

28 Due to high land prices in the three metropolitan areas, sites on city outskirts are often the only ones available for COHAB projects. Many families to be selected for sites are likely to be employed in the city center and the time and cost of commuting could be a serious problem. To limit this risk, several measures are proposed. First, the site location will be a parameter of design efficiency to be used as one of the project selection criteria. Second, during appraisal, a sample of sites were reviewed and found to have adequate access to centers of employment. Third, the States of Bahia and Pernambuco and the Municipality of Sao Paulo would: (a) use their legal power to facilitate land acquisition by the COHABs; and (b) take into account the location of COHAB operations in their plans for public transport (Section 3.07 and Schedule 5 to the draft Loan Agreement). The availability of land for at least the next 18 months was reviewed and found satisfactory. PART V - LEGAL INSTRUMENTS AND AUTHORITY 76. The draft Loan Agreement between the Bank and Banco Nacional da Habitacao, Habitacao e Urbanizacao da Bahia S.A., Companhia de Habitacao Popular do Estado de Pernambuco, Companhia Metropolitana de Habitacao de Sao Paulo, State of Bahia, State of Pernambuco, and Municipality of Sao Paulo, as well as the draft Guarantee Agreement between the Federative Republic of Brazil and the Bank and the draft Report of the Committee provided for in Article II Section 4(iii) of the Articles of Agreement are being distributed to the Executive Directors separately. Special conditions of the project are listed in Section III of Annex III. 77. A special feature of the draft Loan Agreement is the possibility of declaring it effective for each one of the three COHABs separately (Sections 8.01 and 8.02 of the draft Loan Agreement). 78. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank. PART VI - RECOMMENDATIONS 79. I recommend that the Executive Directors approve the proposed loan. Attachments January 10, 1979 Washington, D.C. Robert S. McNamara President

29 -23- ANNEX I Pag1 BRAZIL - SOCIAL INDICATORS DATA SHEET BRAZIL REFERENCE GROUPS (AD.IUSTED AVERAGES LAND AREA (THOUSPND SQ. FM.) - MOST RECENT ESTIAT) _ TOTAL 8512.C SAME SAME NFXT HlER AGRICULTURAL MOST RECENT GEOGRAPHIC INCOME INCOME 1960 b 1970 Lb ESTIMATE lb REGION _ GROUP Id GROUP Is. GNP PER CAPITA (LSf ENERGY CONSUMPTION PFR CAPITA (KILOGRAM'S OF C.AL EQUIVALENT) POPUL6TICN AND VITAL TI ATISTICS TOT2AL. )PUFULATY(N, MID-YEAR (4TLLIONS) URBAN POPULATION iperce:t Or TOTAL) POPULATION DENSITY PER SQ. KMO PER sq. EM. AGRICULTURA LAND POPJLATIOtN AGE STRUCTURE (PERCENT) 0-14 IRS S YRS YRS. AND ABOVE POPULATION GROWTH RATE (PERCENT) TOTAL U3RBAN CRUDE BIRTH RATE (PER THOUSAND) d CRUDE DEATH RATE (PER THOUSAND) GROSS REPRODUCI[LOi RATE 2.b FAMILY PLANNING ACCEPTORS. ANNUAL (TNOUSANDS) USERS (PERCENT OP MARRIED WOMES) is FOOD AND NU,RITITNi INDEX OP FOOD PRODUCTIOD PER CAPITA (19;0-100) PER CAPITA SUPPLY OF CALORTES (PERCENT OF REQUIREMENTS) PROTEINS (GRAMS PER DAY) OF MIlCH ANIMAL AND PULSE CHILD (AGES 1-4) MORTALITY RATE HEALTH LIFE EXPECTANCY AJ BIRTH (YEARS) INFANT MORTALITY RATE (PER THOUSAND) ACCESS TO SAFE WATER (PERCENT OF POPULAT ION) TOTAr URBAN RURAL * ACCESS TO EXCRETA DISPOSAL (PERCENT OF POPULATION) TOTAL URBAN RURAL POPULATION PER PHYSICIAN If POPULATION PER NURSING PERSON /f B POPU;LATION PER HOSPITAL BED O TOTAL URBAN RURAL ADMISSIONS PER HOSPITAL BED ROUSING AVERAGE SIZE OF HOUJSEHOLD TOTAL DRBAN RURAL AVERAGE NUrBER OF 'ERSONS PER ROOM TOTAL If URBAN * /f RURAL (f ACCESS TO ELECTRICITY (PERCENT OF DWELLINGS) TOTAL URBAN * RURAL *

30 BRAZIL SOCIAL lndicators DATA SHEET - Page 2 BRAZIL REFERENCE GROUPS (ADJUSTED AVERA(ES /a - MOST RECENT ESTIMATE) SAME SAWM NEXT HIGISER MOST RECENT GEOGRAPSIIC INCOME INCOME 1960 Lb 1970 Lb ESTIMATE /b REGION Lc CROUP /d GROUP Le EDUCATION ADJUSTED ENROLLMENT RATIOS PRIMARY: TOTAL FEMALE SECONDARY: TOTAL FEMALE VDCATIONAL (PERCENT OF SECONDARY) j& PUPIL-TEACHER RATIO PRIMARY * SECONDARY ADULT LITERACY RATE (PERCENT) CONSUMPTION PASSENGER CARS?ER THOUSAND POPULATION RADIO RECEJVERS PER TSOUSAND POPULATION TV RECEIVERS PER THOUSAND POPULATION NEWSPAPER ("DAILY GENERAL INTEREST") CIRCULATION PER THOUSAND POPULATION CINEMA ANNUAL ATTENDANCE PER CAPITA EMPLOYMENT TOTAL LABOR FORCE (THOUSANDS) FEMALE (PERCENT) AGRICULTURE (PERCENT) INDUSTRY (PERCENT) PARTICIPATION RATE (PERCENT) TOTAL MALE FFMALE ECONOMIC DEPENDENCY RATIO *1.6 INCOME DISTRIBUTION PERCENT OF PRIVATE INCOME RECEIVED BY HIGHEST 5 PERCENT OF HOUSEHOLDS 27.7 /h 34.9 /h HIGHEST 20 PERCENT OF HOUSEHOLDS 54.4 /h 62.2 /h LOWEST 20 PERCENT OF HOUSEHOLDS 3.5 lh 3.2 lh LOWEST 40 PERCENT OF HOUSEHOLDS 11.6 /h 10.0 /h POVERTY TARGET GROUPS ESTIHATED ABSOLUTE P.VERTY INCOME LEVEL (US$ PER CAPITA) URBAN RURAL ESTIMATED RELATIVE POVERTY INCOME LEVEL (USS PER CAPITA) URBAN RURAL ESTIMATED POPUUTION BELOW POVERTY INCOME LEVEL (PERCENT) URBAN RURAL Not available BNot applicable. NOTES /a The adjusted group averages for each indicator are population-weighted geometric means, excluding the extreme values of -the indicator and the most populated country in each group. Coverage of countries among the indicatore depends on availability of data and is not uniform. b Unless otherwise noted, data for 1960 refer to any year between 1959 and 1961; for 1970, between 1969 sod 1971; and for Most R,centnt FtlnaLe, between 1973 and le Latin Anerica & Caribbean; /d Upper Middle Income ( per capita. 1976); le High Income (over $2500 per capita. 1976); /f 1972; [& Beginning duration of general education reduced from 7 to 4 yoars, therefore data my not be comparable to those of earlier years; Ih Data refer to economically active population. September. 1978

31 -25- ANNEX I DEFINITIONS OF SOCIAL INDICATORS 'or 1 Notg: The adjusted group averages for each indicator are population-weighted geometric means, excluding the extreme values of tho indicator cod the -ost populated country in each group. Coverage of countries among the indicators depends on availability of data and is not uniform. DIe to lack of dotv, group averages for Capital Surplus Oil ERporters and indicators of access to wartes sd excrets disposal, housing, income distributio and poverty ore siople population-weighted geometric neans without the exclusion of extreme values. LAND AREA (thousand sq. k) Population per hbspital bed - total, urban, and coral - Population (total, Total - Iotal surface ares coxprising laud area sod inland waters. urban, and rural) divided by theif respective somber of hospital beds Asricult.ral - Most recent estimate of agricultural area seed temporarily available in public and private general and specioliood haspieol and coor pernanently for crops, pastures, otrket and kitchen gardens or to habilitation centers. Hospitals are establishments permanently staffed by iie fallow. at least one physician. Establishments providing principally custodial care are not included. Rural hospitals, however, include health cnd m-di- INP PER CAPITA (00$) - GNP per capita estimates at current market prices, cal centers not permanently staffed by a physician (but by a medical ascalculated by sane conversion method as World Bank Atlas ( basis); sietant, nurse, midwife, etc.) which ofer in-patient asommodation and 1960, and 1977 data. provide a limited range of =edical facilities. Admissions per hospital bed - Total number of admissions to cr discharges ENERGY CONSUMPTION PER CAPITA - Annual consumption of commercial energy Atom hospitals divided by the number of beds. (coal and lignite, petroleum, natural gas and hydro-, nuclear asd gesthermal electricity) in kilograms of coal equivalent per capita. HOItSING A-rasze nice of household (persons per household) - total', urban, and rural- POPULATION AND VITAL STATISIICS A household ronsists of a group of individuals who share liviog quartets Total populatin., mid-year (millions) - As of July 1; if nor available., d th.eir -- '' 's A boarder or lodger soy or may nor ho included ic average of two end-pear estimates; 1960, 1970, and 1977 data. the household fr statistical purposes. Staitiical definitions of h.oso- L'rbha population (percent of totl) - Ratio of urban to total popula- hold very. tioo; different definitio-s of urban areas may affect comparability Average number of persons per room - total, urban, and rtoal I - cavcoe nunof data smong countries, bar of persons per coon in all, urban, and rural occupied convcntiol Population density dwellings, respestively. Dwellings e-clude non-permanent strscturcs and Per sq. kh. - Mid-year population per square kilometer (100 hectares) unoccupied parts. Of total ursa. Access to electricity (percent of dwellings) total, urban, and rural- Per sq. ho. agriculture land - Computed an above for agricultural land Conventional dwellings with electricity in living quarters as prcentage only. of total, urban, and rural dwellings respectively. topulation ago structure (percent) - Children (0-14 yearn), working-age (15-64 years), and retired (65 years and over) as percentages of mid- EDUCATION year population. Adjusted enrollment ratios Popslation growth rate (percent) - total, and urban - Compound annual Primary school - tctal, and female - Total sod female enrollment of all ages growth rates of total and urban mid-year populations for , at the primary level as percentages of respectively primary school-uge , and popalations; normally includes children aged 6-11 years but adjosted for Crude birth rate (per thcusand) - Annual live births per thossand of differeot lengths of primary education; for countries with universal edomid-yeur population; ten-year arithmetic averages ending in 1960 and cation enrollment may exceed 100 percent since some pupils are beluw or 1970 and fie-year average ending in 1975 for most recent estimate. above the official shchol age. Crude death rote (Per thousand) - Annual deaths per thousand of mid- Secondary school - total, sod female - Compated as above; socondary educayear population; ten-ye-e arith-etic averages ending in 1960 and 1970 tion requires at least four years of approved primary instruc-t.o; proand five-yesr average ending in 1975 for most recant estimate. vides general vocational, or teacher training inutruct-no. for pup:ls Gross reproduction rate - Average nu=ber cf daughters a wo=an will bear usually of 12 to 17 years of age; correspondenoc courses arc generally in her normal reprodactive period if she enperiennes p.reset age- excluded. specific fertility rates; asually five-year averagen ending in 1960, Vocational enrollment (percent of secondary) - Vocatissal Institutic ir.- is 1970, and clude technical, industrial, or other programs which operate indopyodently Faeily plannisg - acceptors, annual (thousands) - Annual number of or as departments of secondary institutions. acceptors of birth-control devices under auspices of national family Pupil-reacher ratio - primat and -, secondary - Total utadents incurled in planning program. primary and secondary levels divided by numbers cf teachers in thi cartefamily planniog - users (percent of married women) - Percentage of sponding levels. married women of child-bearing age (15-l4 years) who use birth-control Adult literac rat (pr t) - Litrate adults (abls to read and u-ite) o delices to all married cnes in same age group. a percentage of total adult population aged 15 years and crer. FOOD AND NUTRITION CONSPICPTION IsdAa of food production per capita (197D=100) - Index number of per Passenger cars (per thousand Populaticon - Passenger cars co-prise -olr r cars capita annusl production of all food commodities. seating less than eight persons; excludes ambulances, hearses a-d rilitroy Per capita supply of calories (percnt of requirements) - Co=puted from vehicles. energy equivalenr of net iced supplies available in country per capita Radio receivers (ee thoosand opoplation) - All types of recesets for radi per day. A'ailable nupplies co=prise domestic prodrutiom, imports lens broadcasts to general psblic per thousand of population; sxcluden u-licensed expcrts, and changes in stock. Net supplies exclude animal feed, seeds, receivers in countries and in yearn when registration cf radio sets can in quantities used On food prmcessing, and looses in dintribution. Re- effect; data fur recent yearn mpy not he comparable since mcst countries quire-ents were estimated by FAO boned on physoologicel needs for nbr- cbolished lice.ning. mal activity and health ccnsidering environmentafl teperature, body TV receivers (per thiusand populatio) - TV receivern for br-ad-ast to gencra weigbht, oge and sex dietributions of population, and allowing 10 per- public per thousand population; excludes unlicensed TV ce,oidro In.cu.ncent for wasre at household level., tris and in yoars wheo registration of TV sets was in sffert. Per capita su.ply of protein (grams per day) - Protein content of per N..espaper circulation (per thosoanp population) - Shown the average cirrulacapita nrt supply of food per day. Net supply of food is defined as tion of "daily general interest newspaper", defined as a periodical publiabove. Requirem=nts for all countries established by USDA provide for cation devoted pri-arily to recording general sees. It is considcred to a minimu. allowace of hi gcams cf total protein pnr day sod 20 grams be "daily" if it appears as leaet four tinn a weal. of ani=al and pulse protein, of whieh 10 grams should be animal protein. Cinema annual attendance per copita per year - Basod on the unuber *'. tickett These standards are lower than those of 75 grams of total protein and sold during the year, including adnissions to drive-ic cinemos -sd sobile 23 grams of animal protein as an overafe for the world, proposed by units. FAO in the Third World Food Survey. Per capita protein sopelt from animal and paloe - Protein supply of food EMPILOYMENT derived from animals and pulses in grams per day. Total labor force (thousands) - Econcoically ac-t-o percon, icludieg urmed Child (sacs i-h) =ortalit, rota (per thousand) - Annu.l deaths per thous- forcns a.d unemplcyod but excluding ho..s.i-r, st udents, eta. Defiu,iand in age group 1-4 years, to children in this age group. tions in various countries are cur cno parable. Pem-1e (percent) - PaFe..1 Iober force as percentage of voidl lobcr force HEALTH Agriclture (per enrt) - labor frco in farming, forestr,. hunting and fishins Life expeciancy at birth (years) - Average number of yearn of life as percectago of total labor force. remaining at birth; usually five-year averages ending in 1960, 1970, Industry (percent) - Labor force in mining, construction, manufacturirg and and electricity, water and gas as percentage of total labor for_c. Iufant -ortallit date (pnr th..o.sd) - Annual deaths of infants under Parriioparion rate (percent) - roral, male, and female - Total, nal, and one year of age per thousand live birhbs. omale labor force us percn_tages of their respective populaticns. Access to safo water (percent of population) - total, urban, and rural - These are ILO's adjusted participa tics rates reflecting a"c-sc Number of people (total, urban, and rural) with reasonable acoes- to str-c-rr of the populati-o, u-d loop rime trend. safe coter supply (includes treated surface waters or untreated bet croi - Ratio of pcpulatics -rder 15 artd 65 ac ever to uncontaminated water such as that from protected boreholes, springs, tho labcr force in age grtup of fera. and sanitary wells) as percentages 9f their respective populations. In as crba. area a public fouctain or utandpost lasted not mnre INCOME DTSTRIBfTION than 200 meters from a house may be considered as being within rea- Percentage of private income (both in cash and kind) received by richest 5 sonable access of that house. In rural areas resor.able accens would percent, richet 20 percent, puorost 20 percent, and pcorest 40 pe-c-nt imply that rho housewife or members of the household do not have to of bouseb e1dspend a disproportionate part of the day in fetching the family's water needs. POVERTf TARGET GROUPS Accesn to excreta disoosal (percent of pulation) - total, urban, and Estimated absolute poverty iscome level (US5 Per capita) - urban and rutu' - rural - Number of people (total, urban, and rural) nerved by excrete Absolste poserty inc--e level is that Mncome level below which a icci.a disposal an percentages of their respective populations. Excreta nutritionally adequate diet plas essential nec-fuod roquirer.ucs is -ot disposal nay include the collection and disposal, with or without affordable. treat=ent, uf human encreta and wante-nater by water-borne systems Esti=ated relative poverty income level (USS Ier capita) - occr and coral - or thn use of pit privies and similar installations. Relative poverty incomo level is that.ncome Iue uss than ore--hord Population per physician - Population divided by number of practicig per capita personal income of the country. physicians qualified from a medicai school at university level. Estimated copulotion below p-vesty income ler-i (perne-t - urbhnsaad rural - Popalation per nursing person - Population divided by number of Percent of population (urban and raral) who ore either ''abnlutr poot" or proctiring male and female graduate nurses, practical nurses, and "relative poor" whichever is greater. ossiutant nurses. fcosomic cod Social tata Division Economic Analysin and Prubectioc DepsrtmeDtt

32 OHH 00: '0 HH0: O-"--OOOHIH:.1 H :0 oz-,oo Ho-On 000 H HO -. HH HOOH.40'H a:".. L 1 o0 HO 0 0 OOOOOHOH to H 0 H 0 O0.H.%H H H'tO H'0"1HO 0000 HOHOHO H CHHHHH OOHHHHHt,.HHH ' OOHH H 00'00' OOH.00 - o-.4oh.th ""H' 0.1HHHH OOHH H HHO; 0H0OH.H 0 HHO H '4 0-. <... 'HO oo Ot't HHHOOO o 0 &OOHOO OH : 'HH.HH H.'tH OOHHOOOHOO HO o,..., H 0 ' ' H OHO H a: ' OOH '0 0.: OH..-. '0 'H 0 HO oo.oooooo 000 H 00 HOH OH 0 '0 -O H OH 0 OH 0 H 'H 0. 0 H *0 H H H 'H HHHHHHOHH HHHO0.OHH.0. 0 H * - 'H H000.HHO. OHOCHO -.. 'H 'HOHOHH 0 0 H OHOtIHO 0 HHH'HH JOOHOH 000 H H0'00H0 - 'HHHO H' OHHOOHHH'H H HOHOOHO H H H OH HHHHH H.OHH0'H.H0H H HO HHHHHH OHHOOOOH'HHOH OH HOH'HHHHH 0 HO 0 H 0 - 'H HHHHOHOO. HC.'HOOOHHHHHO H OOH.C H HHOOH OHOOHO HHHOH - 0 C OHH.O H - HHHOHHHH H 0HO0HHHHHH H HHOOHHOHHO OHOHOHHIH H HHO'HOHHHHHOH OHOHO' 0HHHHH H HHOHHHO H'HH OH 00 0H0HHHO00 OOH HOHHH HOHHH -. 'H OH.HO 0 HHHHOOH HHOOHH 'HHH H HOHOHO H OHHH,0 HHOHHHHHHHO 'H OoH-oo 0 OHOH OOHH'HOH.OHH I -- H H HHHHLOH I HOHHH... OHOHOHO H HHO'H HO H H HOHO HHHOHH HO HHHHOHO'H Oooo HOHOHO 'H0.OHO. OHHH H H HHHHHHHH fl 0 00 HHH 'Ho HHHHO OO000000HOH OH OHO OHHOOHH 0 HHHO Hj OH I HOC O HOOHO HHHOHH0OHOH I H H H.OHHHHO H0 H 'H 000 'HOHOOHO 0 H 0'H.HHOHHOOOO O000000H'H00 00 HOHO HHH.. 'HOHOHO HH 00.4 H HOHOHO.o0000 H, H H 0 0 H 0000' HOOHO oi) HHOHHHO44H00 OOH0HHH'HHH H ' ' HO H - - o o OHHtOOHO H H H H 0-00 H 'H H OH HH0' H. OH'HHH'HH 0 HOHO 0H'HHHOH000H 0 H * HOH.4 I : H H Hi 0 HH.HH.H..oOH OHH... HH ' 00 HHHHHO00-040: H 0 'HHH 0 '0 0 0'- -' HOHOHO ' HOt OH - ' HHHH OHOHO Ho 00-0-HO OH 000 H HH 000. HI HO H 'HO OH H 0 0 o0'o0.oo-oo HHH0 HHHH OH OHO H HHH H H HOHO to 000 H HH H H ' H HHO H HO H.o00000 OH'H'H 0H ' H '0 00oH.HOHHH H 'H0HHOHoHHOH olo HO IH 'HO 'HO-H 'H HI i;t2 ot:.oo0o0 - H 0 H 0 0

33 BALANCE OF PAYMENTS AND EXTERNAL ASSISTANCE (Mi lliro US) ANNEX I Page 5 A C T U A L P R O J E C T E D o A. Summary of Balance of Payments 1. Exports (incl. NFS) 8,471 9,376 10,797 12,826 12,772 15,373 17,775 40,115 76, Imports (incl. NFS) 14,678 14,308 14,440 13,847 14,194 15,749 16,987 35,166 73, Resource Balance -6,207-4,932-3,643-1,021-1, ,94) 3, Net Factor Service Income ,770-2,339-2,859-3,440-3,873-4,374-7,068-10, Net Interest Payments ,809-2,103-2,284-2,412-2,521-3,538-4, Direct Investment Income ,030-1, Other Factor Service Income ,263-2,500-3, Current Transfers (Net) Balance on Current Account -7,122-6,700-5,978-3,874F -4,855-4,242-3,579-2,112-6, Net Private Direct Investment Medium and Long Tere Loans a. Traditional Sources- 8. Disbursements 1,956 1,612 2,054 2,553 3,303 3,571 4,005 6,599 10, Amortization ,350-1,701-1,280-1,218-1,518-3,818-6, Net Disbursements 1, ,023 2,353 2,487 2,781 4,182 b. Financial Credits 11. Disbursements 5,103 4,524 5,978 5,940 5,671 5,644 6,603 3,574 8, Amortization -1'181-1,193-1,664-2,426-3,526-4,150-5,008-3,907-4, Net Disbursements ,331 4,314 3,514 2,145 1, , Use of IMF Resources Short-term Capital and Capital n.e.i , Reserven (-- Increase) 1. Reserve Accumulation_/ 958 1,062-2, Dollar Valuation -1,086 Adju6tme t -2, Changes in Reserve LevelS! 1,143 1,238-2, _J ,086-2, Foreign Exchange Reserves 5,272 4,034 6,541 7,256 7,349 7,724 7,987 11,894 20,160 (End of Period) B. Grant and Loan Comnitments 1. Total M&LT Loans 7,179 7,005 9,482 9,637 I1.. IBRD IDB Governments ,251 1, Suppliers ,376 1,300 1, Bonds Financial Credits 5,103 4,524 5,978 5,940 C. Memorandum Items 1. Grant Element of Total Commitments Average Interest (Percent) Average Maturity (Years) a/ Includes rdultilateral agencies, bilateral lenders, suppliers' credits and bond issues. b/ IFS Line 79d. c/ IFS Line Id. September 1, 1978

34 ANNEX I Page 6 DEBT AND CREDIT1'nRTHINESS Actual A. Medium and Long-Term Debt (Disbursed only) 1. Total Debt Outstanding (end of period) 17,166 21,171 25,985 32, By type of Debt 1, Financial Credits 11, ,5?3 2. Traditional Lendersa/ 5,955 6,610 7,791 10,509 2, By type of Borrower 1. Public and Publicly Guaranteed 8,533 11,461 14,852 19, Private 8,633 9,71U 11,133 12,7a9 2. Net Debt Service 2,572 3,683 4,825 6, Total Interest 1,370 1,863 2,091 2,462 2, Net Interest 652 1,498 1,810 2, Public Debt Service 1,287 1,550 1,982 2,500 B. Debt Burden 1. Net Debt Service Ratio h/ Total Net Debt Service Ratio Public Debt Servidc Ratio Liquidity Ratio Net Debt Service/GDP el Public Debt Service/GDP e/ Total DOD/GDP e/ C. Terms 1. Interest on Total DOD/Total DOD f/ Net Debt Service/Total DOD f/ D. Dependency Ratios for M&LT Debt 1. Gross Disbursements/Imports (incl. NFS) Net Transfer/Imports (incl. NFS) Net Transfer/Gross Disbursements E. Exposure 1. IBRD Disb./Gross Total Disb , 3,G 2. IBRD DOD/Total DOD IBRD Debt Service/Net Debt Service F. External Debt (Disbursed Only) Outstanding December 31, 1977 Amount Percent I. IBRD 1, Other Multilateral Governments 2, Suppliers 3, Bonds 1, Financial Credits 21, Other Total MpLT Debt 32, Total Public M&LT Debt 19, G. Debt Profile 1. Net Debt Service 197& 4 5/Total DOD end of a/ Includes multilateral agencies, bilateral lenders, suppliers' credits, bond issues and M&LT loans n.e.i, b/ Net Debt Service as percent of exports of goods and NFS, c/ Including Direct Investment Income in debt service. d/ Net Debt Service as a percent of exports of goods and NFS plus exchange (at beginning of year) in excess of 3 months imports. e/ In constant 1975 prices. f/ As percent of DOD at beginning of year. Note: Debt service ratios have been calculated on the basis of net rather than gross interest payments in order to take into account interest earned upon Brazil's international reserves. September 1, 1978

35 -29- ANNEX II Page 1 THE STATUS OF BANK GROUP OPERATIONS IN BRAZIL A. SUMMARY STATEMENT OF LOANS (As of October 31, 1978) Amount less Loan # Year Borrower Purpose Cancellations Undisbursed (US$ Million) Forty-two loans fully disbursed 1, Brazil Education / Brazil Ports Companhia Siderurgica Industry Paulista Centrais Eletricas de Minas Power Gerais - Sao Simao Brazil Land Settlement Furnas Centrais Eletricas - Power Itumbiara Brazil Agro-Industry Cia. Hidro Eletrica do Sao Power Francisco-Paulo Afonso IV Banco Nacional de Habitaco Water Supply Brazil Education Rede Ferroviaria Federal Railways Brazil Roads Companhia Siderurgica Nacional Industry Companhia Siderurgica Paulista Industry Brazil Agriculture FEPASA - Ferrovia Paulista Railways Brazil Rural Development Brazil Development Bank Brazil Feeder Roads Brazil Agriculture Petrobras Fertilizantes Fertilizer Companhia Paranaense de Power Energia Eletrica - COPEL

36 -30- ANNEX II Page 2 A. SUMMARY STATEMENT OF LOANS (Continued) (As of October 31, 1978) Amount less Loan # Year Borrower Purpose Cancellations Undisbursed (US$ Million) Eletrobras Power Brazil Nutrition Banco Nacional de Habitacao Water Supply Brazil Agro-Industry ELETROSUL Power State of Minas Gerais Rural Development Petrobras Fertilizantes Fertilizer Fertilizantes Vale do Fertilizer Rio Grande S.A.-VALEFERTIL Brazil Education Brazil Rural Development Banco Nacional de Habitacao Sewerage Brazil Rural Development ELETROBRAS Power Brazil Roads COPESUL Petrochemicals Brazil Urban Transport Brazil Agric. Extension Brazil Rural Development Total 3,887.1 /2 Of which has been repaid to the Bank Total now outstanding 3,378.1 Amount sold 45.8 of which has been repaid Total now held by Bank 3,364.6 Total undisbursed 1,820.1 /1 Balance less than US$50,000. /2 No IDA credits have been made to Brazil.

37 ANNEX II -31- Page 3 B. STATEMENT OF IFC INVESTMENTS (as of October 31, 1978) Year Obligor Type of Business Amount in US$ million Loans Equity Total Siemens do Brasil Cia. de Eletricidade Electrical Equipment Olinkraft, S.A. Celulose e Papel Pulp and Paper D.L.R. Plasticos do Brasil, S.A. Automotive Parts Willys-Overland do Brasil, S.A. Industria e Comercio Motor Vehicles 2.45 _ 2.45 Companhia Mineira de Cimento Portland, S.A. Cement Champion Celulose, S.A. Pulp / Acos Villares, S.A. Steel Papel e Celulose Catarinense, S.A. Pulp and Paper Ultrafertil, S.A. - Industria e Comercio de Pertilizantes Fertilizers Petroquimica Uniao, S.A. Petrochemicals Poliolefinas, S.A. Industria e Comercio Petrochemicals Oxiteno, S.A. Industria e Comercio Petrochemicals Industria de Celulose Borregaard, S.A. Pulp Companhia de Cimento Nacional de Minas Cement /1977 Companhia Siderurgica da Guanabara - COSIGUA Steel Capital Market Development Fund - FUMCAP Capital Market Development Empresa de Desenvolvimento de Recursos Nickel Mining and Minerais - CODEMIN, S.A. Refining Industrias Villares, S.A. Elevators and Industrial Equipment Fabrica de Tecidos Tatuape, S.A. Textiles Capuava Carbonos Industrias Ltd. Carbon Black Oxiteno Nordeste, S.A. Petrpchemicals Santista Industria - Textil do Nordeste, S.A. Textiles Tecanor S.A. - Textil Catarinense do Nordeste Textiles FMB S.A. Productos Metalurgicos Iron and Aluminum Castings Mineracao Rio do Norte S.A. Mining Cimetal Siderurgia S.A. Iron and Steel Total Gross Commitments Less Cancellations, Terminations, Repayments and Sales Total Commitments Now Held by IFC Total Undisbursed

38 -32- ANNEX II Page 4 C. PROJECTS IN EXECUTION 1/ There are now 40 effective Bank loans under disbursement: Loan No. 755 Education Project: US$8.4 million loan of June 21, 1971; Effective Date: October 28, 1971; Closing Date: June 30, The project is substantially completed. Final project costs are US$25.2 million with a cost overrun of US$4.2 million (20%) being met by the Borrower. Final disbursements of the Bank loan are underway. 756 Santos Port Project: US$45 million loan of June 21, 1971; Effective Date: October 29, 1971; Closing Date: June 30, After long delays, project execution is proceeding satisfactorily. Construction of the railway access Paratinga-Pereque by FEPASA is completed. The inability of RFFSA to pay its share of the costs for the left bank rail access was overcome by PORTOBRAS which obtained a loan from Banco do Brasil for this purpose. Because of insufficient increases in tariffs to compensate for inflation, Santos port is experiencing financial difficulties. 828 COSIPA Steel Expansion Project, Stage II: US$64.5 million loan of June 14, 1972; Effective Date: October 5, 1972; Closing Date: June 15, The Stage II project will be substantially complete by December 1978 at a total project cost of US$970 million. This is thirty months behind the appraisal schedule and at a cost of US$593 million (157%) higher than anticipated at the time of appraisal. However, the project is still justified. Production reached 1.54 million tons of raw steel equivalent in Production reached the project's design capacity of 190,000 tons of raw steel per month (the annual equivalent of 2.3 million tons) during one peak month in mid Sao Simao Hydroelectric Project: US$60 million loan of June 14, 1972; Effective Date: September 20, 1972; Closing Date: September Construction of the project is proceeding according to schedule, and is expected to be completed by March of An anticipated 50% cost overrun, which does not affect the economic justification of the project, is being covered by local and foreign borrowing. The first four units of the power plant were commissioned in June of / These notes are designed to inform the Executive Directors regarding the progress of projects in execution, and in particular to report any problems which are being encountered, and the action being taken to remedy them. They should be read in this sense, and with the understanding that they do not purport to present a balanced evaluation of strengths and weaknesses in project execution.

39 -33- ANNEX II Page 5 Loan No. 853 Alto Turi Land Settlement Project: US$6.7 million loan of July 24, 1972; Effective Date: February 15, 1973; Closing Date: June 30, The settlement agency, COLONE, has prepared revised farm development plans whose credit component, to be financed by public financial institutions, will be significantly higher than originally estimated, although still low in comparison to other settlement projects. Administrative delays in the release of public funds for farm credit, road construction and COLONE working capital requirements and difficulties in recruiting project staff delayed the start of project execution. COLONE continues to be hampered by lack of assured financing, and this problem is compounded by cost overruns presently amounting to about 240%. 923 Itumbiara Hydroelectric Project: US$125 million loan of August 1, 1973; Effective Date: October 30, 1973; Closing Date: December 31, Construction of the earth-fill dam was delayed by about nine months due to very heavy rains. However, construction of the concrete dam and power house is ahead of schedule. FURNAS expects to complete the power plant in December 1981, about four months behind schedule. The present cost estimate is about 88% over the appraisal cost estimate, 13% of which is due to the need for increased physical quantities due to geological problems. The rest of the increase is due to a substantial increase in the size of the transmission works and to an increase in the cost of civil works. However, the project remains economically justified. 924 Agro-Industries Credit Project: US$54 million loan of August 1, 1973; Effective Date: March 11, 1974; Closing Date: December 31, Disbursements for sub-loans totalling US$14.7 million were made during under procedures which were not in accordance with the Loan Agreement. These funds have now been prepaid by the Government, reducing the effective loan amount to US$39.3 million. Commitments under this loan are almost at a standstill as a result of competing credit lines at subsidized rates and a general slow-down in industrial investments. However, disbursements are expected to improve in 1979, as the Government now plans to restrict the availability of subsidized credit at the end of The Government has indicated it will request a postponement of the Closing Date Paulo Afonso IV Hydroelectric Power Project: US$81 million loan of June 17, 1974; Effective Date: April 15, 1975; Closing Date: December 31, Resettlement of the 9,700 families displaced by the Sobradinho reservoir has been satisfactorily completed, and new towns and villages to house the displaced population have been constructed. The construction of the underground power station and Sobradinho Dam is proceeding on schedule. Construction of the transmission lines and sub-stations is about 12 months behind schedule. A postponement of the Closing Date will be required.

40 -34- ANNEX II Page 6 Loan No Minas Gerais Water Supply Project: US$36 million loan of June 17, 1974; Effective Date: January 9, 1975; Closing Date: August 15, Difficulties in subproject preparation, which are now resolved, caused disbursements to fall behind schedule. The loan is now fully committed to 41 subprojects of which 10 are under construction and 31 completed. The 10 subprojects under construction are expected to be completed in early Second Education Project: US$23.5 million loan of December 27, 1974; Effective Date: April ; Closing Date: December 31, Project execution is one year behind schedule mainly because of delays by the government in providing counterpart financing. Project implementation units have been established in all eight project states and these, together with the main project unit, PREMEN, are working well. The pre-investment studies in the Northeast, financed under the loan, have been completed and have yielded useful information for future sector investment planning Second Railway Project: US$175 million loan of January 17, 1975; Effective Date: June 17, 1975; Closing Date: June 30, Project execution is progressing satisfactorily and appropriate steps are being taken to strengthen project management and control. Cost estimates for the Investment Plan, of which the project is a part, have increased substantially on several items. Therefore, the Plan has been revised and several items have been deleted or postponed. This revision is not expected to affect significantly the items included under Bank financing. Although the financial situation of the borrower has improved, further improvement is necessary for it to be able to effectively carry out its investment program. The Government has decided to deregulate most freight tariffs and is expected beginning in 1979 to make payments to the railways to meet deficits on uneconomic services which it requires to remain in operation. These actions should significantly improve the borrower's financial position Fifth Highway Project: US$110 million loan of January 17, 1975; Effective Date: May 15, 1975: Closing Date: December Project execution is proceeding satisfactorily. Roadworks are progressing well, and detailed engineering studies for road construction and road rehabilitation are now completed. Implementation of the road maintenance component is making progress.

41 -35- ANNEX II Page 7 Loan No CSN Steel Expansion Project - Stage III: US$95.0 million loan of August 4, 1975; Effective Date: April 30, 1976; Closing Date: December 31, The latest cost estimate is US$3,530 million, an increase of about 67% over the appraisal estimate due to a slower than expected start of project implementation, higher than expected construction costs, difficulties in holding the scope of the project to its essentials and some problems in the management of the expansion program. At the request of the Bank, a thorough review of the project was made. Substantial changes were made resulting in better management and control of the project. The project is now progressing satisfactorily in line with the revised cost estimate and schedule, and remains economically justified COSIPA Steel Expansion Project - Stage III: US$60.0 million loan of August 4, 1975; Effective Date: March 4, 1976; Closing Date: June 30, The project is about two years behind schedule. The cold mill has been deleted from the project to reflect changes in forecast demandu. The Bank has recently agreed to three additional changes in the project's scope as follows: construction of a conveyor belt system to deliver iron ore to the raw materials yard (in lieu of a second rail line), an additional reheating furnace for the hot strip mill, and changes in the port layout. COSIPA is preparing for Bank review a comprehensive report on Stage III including revised project capital cost, implementation time schedule and financial projections. Due to a shortfall in the government's equity contributions, COSIPA is experiencing some financial difficulties in spite of its improved operations Lower Sao Francisco Polders Project: US$23.0 million loan of August 4, 1975; Effective Date: November 25, 1975; Closing Date: December 31, CODEVASF made only limited progress on construction for this project during 1977 and 1978 because of heavy rains in the project area. Physical completion of the project will probably extend to 1981, and postponement of the closing date will be required. Current cost estimates show an 80% increase over the appraisal estimate of US$56.5 million. These increases have resulted from design changes, rapid increases in the costs of civil works and equipment, and in the cost of land expropriation. Modifications in the design of emergency and irrigation works are being studied by CODEVASF and its consultants with a view to limiting further cost increases. Project implementation had encountered certain opposition from the population of the project area, which disagreed with the principles and procedures for land expropriation, settlement, future land tenure and the structure of the proposed cooperative system. The implementing agency CODEVASF has revised the social strategy to be followed under the project and is improving communications and relations with the area population.

42 -36- ANNEX II Page 8 Loan No Third Railway Project (FEPASA): US$75.0 million loan of November 12, 1975; Effective Date: March 24, 1976; Closing Date: June 30, Project execution is proceeding satisfactorily. The Transport Master Plan Study for Sao Paulo is presently under way and the first results are expected shortly. The technical assistance program which is intended to improve FEPASA's operations, marketing and data processing systems is showing results. FEPASA's financial position is not satisfactory. The Government recently deregulated most freight tariffs and is starting to make payments to the railways to meet deficits on uneconomic services which it requires to remain in operation. These actions should assist in improving FEPASA's financial position. However, the need for a significant redimensioning of FEPASA's operation is becoming apparent Rio Grande do Norte Rural Development Project: US$12.0 million loan of March 1, 1976; Effective Date: July 30, 1976; Closing Date: June 30, Progress is being adversely affected by funding delays and marketing problems in the principal project crop, perennial cotton. Means of resolving the problem are under discussion. Implementation of the research and credit components of the project has been successful. Disbursements are behind the original appraisal schedule, partially because of funding delays Development Banking Project: US$85.0 million loan of March 1, 1976; Effective Date: August 26, 1976; Closing Date: March 31, Project implementation is behind schedule. The major reasons are: (i) an initial delay in the commitment of funds under this project because of differences between the relending terms of the agencies concerned and those required under the Loan Agreement. These differences are now partly resolved; (ii) a leveling off of the industry's demand for investment financing; and (iii) resource constraints of the National Development Bank (BNDE). To accelerate commitment of the loan, the Bank agreed to amend the Loan Agreement so as to finance the full foreign exchange cost of subprojects. However, commitment of the loan is progressing slowly because of the existence of competing credit lines at subsidized rates and a general slow-down in investments Secondary and Feeder Roads Project: US$55.0 million loan of March 1, 1976; Effective Date: July 13, 1976; Closing Date: December 31, Five sub-loans totalling US$101 million have been committed with a total Bank contribution of US$23.5 million. Prospects are good that the full amount of the loan will be committed by the end of 1978 or in early 1979.

43 -37- ANNEX II Page 9 Loan No Agricultural Research I Project: US$40.0 million loan of June 23, 1976; Effective Date: September 21, 1976; Closing Date: December 31, The project is progressing well and in spme areas ahead of schedule. Implementation of the civil works program is actively in progress at 10 of the 21 research stations included in the project, and is expected to be accelerated during Facilities and research programs at seven experiment stations in the three priority regions (North, Northeast and Central-West) are proceeding in accordance with project goals. Staffing is in advance of project goals, but technical assistance being provided by consultants and the training program are somewhat behind schedule Araucaria Fertilizer Project: US$52.0 million loan of May 19, 1976; Effective Date: July 20, 1976; Closing Date: December 31, Project completion is expected to be delayed by about 15 months due to delays in delivery of equipment to be provided by Brazilian suppliers. Total project cost has increased to US$321 million, which is US$49 million over the appraisal estimate of US$272 million. All the increase is in local currency and with the planned increases in local loans and equity commitment the project has no financing gap COPEL Power Distribution Project: US$52.0 million loan of May 19, 1976; Effective Date: August 17, 1976; Closing Date: December 31, Project execution is on schedule and about 60% completed. Disbursements are behind appraisal forecast, mainly because of delays in procurement of major subtransmission equipment. The Borrower is updating its distribution expansion program, and the adjusted program should bring disbursements closer to the original schedule by year-end Northeast Power Distribution: US$50.0 million loan of August 27, 1976; Effective Date: January 31, 1977; Closing Date: June 30, Project implementation is about 12 months behind schedule because of initial difficulties in obtaining a Government definition regarding participation by Brazilian suppliers. Procurement is now progressing satisfactorily Nutrition Research and Development: US$19.0 million loan of October 1, 1976; Effective Date: December 30, 1976; Closing Date: December 31, The INAN project unit is seriously under-staffed which is adversely affecting the progress of the project. The nutrition delivery system's field tests are proceeding reasonably well. Disbursements under the industrial credit components are behind schedule because of competitive programs at subsidized rates. Measures to deal with these problems are under study.

44 -38- ANNEX II Page 10 Loan No Second Minas Gerais Water Supply and Sewerage Project: US$40.0 million loan of August 27, 1976; Effective Date: January ; Closing Date: September 30, The loan is now fully committed to 65 subprojects in cities of less than 5,000 inhabitants, 38 subprojects in cities of between 5,000 and 20,000 inhabitants and water supply and sewerage subprojects in Greater Belo Horizonte. Execution of the project is progressing satisfactorily Second Agro-Industries Credit Project: US$83.0 million loan of September 22, 1976; Effective Date: March 25, 1977; Closing Date: December 31, Because of commitment delays under the First Agro-Industries Credit Project, commitments for the second loan have not started ELETROSUL Transmission Project: US$82.0 million loan of February 23, 1977; Effective Date: June 13, 1977; Closing Date: December 31, The project is about 30% complete and about 60% of the contracts for supply of equipment and materials to be financed under the loan have been awarded; the remainder are expected to be awarded by mid With the exception of a relatively minor component, project execution is on schedule. The shortfall (25%) in loan disbursements, caused by delays in the procurement process, is expected to be reduced to 10% by mid-1979 and eliminated by the end of that year Minas Gerais Rural Development Project: US$42.0 million loan of February 23, 1977; Effective Date: June 29, 1977; Closing Date: December 31, Organization of this project is progressing satisfactorily after initial delays. The credit component is expected to gather momentum in the near future. Mainly as a result of administrative difficulties, participation in this project by landless producers is significantly lower than originally envisaged, but concerted efforts by the State Government and the participating banks have improved this situation recently. Both the health and education components have advanced significantly Sergipe Fertilizer Project: US$64.0 million loan of April 29, 1977; Effective Date: August 31, 1977; Closing Date: November 30, Plant buildings and equipment foundations are under construction, but some delays have been experienced in procurement of imported equipment which may delay the project completion date by about nine months VALEFERTIL Phosphate Fertilizer Project: US$82.0 million loan of April 29, 1977; Effective Date: July 29, 1977; Closing Date: May 31, The project has been progressing satisfactorily within the original budget estimate, and the plant start-up will experience only a minor delay. The reorganization of VALEFERTIL in December 1977 should improve the efficiency of project execution. Personnel recruitment and training are underway.

45 -39- ANNEX II Page 11 Loan No Vocational Training Project: US$32.0 million loan of September 7, 1977, Effective Date: April 5, 1978; Closing Date: December 31, Construction of training centers and procurement of equipment are proceeding according to schedule. With one exception (FUNDACENTRO), the technical assistance program is underway at the training centers Ceara Rural Development Project: US$17.0 million loan of November 17, 1977; Effective Date: March 28, 1978, Closing Date: December 31, The implementation of the project has proceeded satisfactorily after initial local funding delays. Agricultural extension and experimentation services, agricultural credit, input supply, marketing and storage services are making good progress while the parts of the project relating to land purchase credit, agricultural mechanization and cooperative societies organization are progressing at a slower than expected rate Greater Sao Paulo Sewage Collection and Treatment Project: US$110.0 million loan of March 10, 1978; Effective Date: August 7, 1978; Closing Date: September 30, The project is proceeding according to schedule Paraiba Rural Development Project: US$24 million of May 8, 1978; Effective Date: October 19, 1978; Closing Date: September 30, The project is proceeding according to schedule South-Southeast Power Distribution Project: US$130.0 million loan of May 1, 1978; Effective Date: September 14, 1978; Closing Date: December 31, Initial disbursements have been delayed by about six months due to necessary revisions of the beneficiaries' construction programs caused by changes in the power market; however, it is not certain that project completion will also be delayed Sixth Highway Project: US$114.0 million loan of May 8, 1978; Effective Date: October ; Closing Date: December 31, The project is proceeding according to schedule COPESUL Petrochemical Project: US$85.0 million loan of July 6, 1978; Effective Date: October 30, 1978; Closing Date: June 30, The project is proceeding according to schedule Urban Transport Project: US$88.0 million loan of May 22, 1978; Effective Date: September 1, 1978; Closing Date: December 31, The project is proceeding according to schedule Agricultural Extension Project: US$100.0 million loan of May 22, 1978; Effective Date: September 22, 1978; Closing Date: December 31, The project is proceeding according to schedule Bahia Rural Development Project: US$37.0 million loan of May 22, 1978; Effective Date: December ; Closing Date: December The project is proceeding according to schedule.

46 -40- ANNEX III Page 1 BRAZIL SITES AND SERVICES PROJECT SUPPLEMENTARY PROJECT DATA SHEET Section I - Timetable of Key Events (a) Time taken by country to prepare project: Approximately 2 years (b) Project prepared by: BNH and the low-cost housing companies of the States of Bahia and Pernambuco and of the Municipality of Sao Paulo (c) First presentation to the Bank: January 1977 (d) Departure of Appraisal Mission: May 1978 (e) Completion of Negotiation: November 27, 1978 (f) Planned Deadline for Effectiveness: April, 1979 Section II - Special Bank Implementing Actions None. Section III - Special Conditions (a) States of Bahia and Pernambuco and Municipality of Sao Paulo to provide community facilities and infrastructure required for subprojects (paras. 51 and 60); (b) State of Pernambuco to undertake community development programs and provide technical assistazc^ for the development of smallscale enterprises (para. 52); (c) BNH to undertake studies to reduce construction costs and lower infrastructure standards (para. 53); (d) COHAB-PE to conduct an experimental program of economic analysis of subprojects to help decide on the mix of dwellings for a given site (para. 56); (e) State of Bahia to improve the physical facilities provided to URBIS to increase its productive efficiency (para. 57);

47 -41- ANNEX III Page 2 (f) COHAB-SP, COHAB-PE and URBIS annually to prepare financial statements based on their investment program for the ensuing three-year period for the purpose of financial planning (para. 58); (g) COHAB-SP, COHAB-PE and URBIS to inform the Bank of any proposed changes in policy that may affect the execution of the project and allow the Bank a reasonable opportunity to comment on such changes (para. 58); (h) State of Pernambuco to finance infrastructure for the squatter upgrading subproject in Recife (para. 60); (i) BNH to relend proceeds of Bank loan under standard PLANHAP terms (para. 61); (j) COHAB-SP, COHAB-PE and URBIS to strengthen their implementation capacity to ensure the smooth and efficient execution of sites and services and building materials loans subprojects (paras. 62 and 72); (k) BNH, COHABs and the Bank to undertake annual review of the PLANHAP investment plans (para. 63); (1) Bank to have the right to cancel from loan account amount equivalent to the value of expenditures eligible for Bank financing under subprojects incorrectly approved by BNH (para. 64); (m) State of Pernambuco to assure coordination of the various state agencies involved in the squatter upgrading subproject (para. 72); and (n) The State of Bahia, the State of Pernambuco and the Municipality of Sao Paulo to facilitate land acquisition by the COHABs (para. 75)..

48 a v * 0

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