FILE COPY R E S T R I C T E D. Report No. P-132

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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized FILE COPY R E S T R I C T E D This report was prepared for use within the Bank. In making it available to others, the Bank assumes no responsibility to them for the accuracy or completeness of the information contained herein. Report No. P-132 INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATIONS OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE TRUST TERRITORY OF RUANDA-URUNDI June 14, 1957

2 REPORT AND RECC2fMENDATIONS OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE TRUST TERRITO-I OF auaida-urundi 1. I submit the following report and recommendations on a proposed loan in various currencies equivalent to $ 4.8 million to the Trust Territory of Ruanda-Urundi to help finance two transocrt projects, the port of Usumbura and a section of the Usumbura-Kigali highway. PART I - HISTORICAL 2. In Nay 1955 the Belgian Government advised the Bank that Ruanda- Urundi intended to seek assistance in financing its Ten-Year Development Plan. After preliminary discussions in Washington and Brussels, a mission spent three weeks in Ruanda-Urundi in November and December 1955 to learn about the country and its development prospects. However, since at that time substantial revisions were being made in the Ten-Year Plan, it was felt that consideration of lending by the Bank should be deferred until the Administration's investment plans for the next few years had been worked out in greater detail. 3. Accordingly, in October 1956 a second mlission visited Ruanda- Urundi when the public investment program was taking final shape. The mission collaborated with the officials responsible for development planning and examined several of the proposed transport and land reclamation projects. Subsequently, the Bank informed the Belgian Government that among the investment proposals in an advanced stage of preparation the highway and port projects were suitable for Bank financing. Final negotiations took place in Brussels and Washington. 4. The Bank has already made the following loans to Belgium or with the guarantee of Belgium (in millions of dollars): Year Borrower Amount Repayments Outstanding as of March 31, 1957 held by held by other the Bank investors 1949 Kingdom of Belgium 16 4 _ Belgian Congo 4o Kingdom of Belgium Kingdom of Belgium 20 / Made simultaneously with a $30 million issue of Kingdom of Belgium bonds in New York.

3 5. In addition, the Bank made in 1947 a $12 million loan to the Grand-Duchy of Luxembourg which is a member of the Bank in its own right but depends on the Belgo-Luxembourg foreign exchange pool for the transfer of debt service. Through cancellation, repayment and prepayment the Luxembourg loan has now been reduced to $8.2 miil.lion, of which $0.7 million is held by third parties. PART II - DESCRIPT ION OF THE PROPOSED L&AN 6. The main characteristics of the loan would be as follows: Borrower: Guarai tor: Amount: Amortization: The Trust Territory of Ruanda-Urundi Kingdom of Belgium Equivalent in various currencies of $4.8 million In 34 semi-annual installments, commencing on January 15, 1961 and terminating on July 15, 1977 Interest rate: 5-5/8%, including 1% commission Commitment Charge: Disbursement: 3/4 of 1% per annum Disbursement would be related to an appropriate percentage of expenditure on the projects and would correspond to the cost of goods and services originating outside Ruanda-Urundi. 7. Ruanda-Urundi has been administered since 1946 as a United Nations Trust Territory, Its political and administrative organization is laid down in the Trusteeship Agreement with the United Nations, approved by the General Assembly on December 13, 1946 and promulgated in Belgium on April 25, Since 1925 Ru.anda-Urundi has been linked to the Belgian Congo by an administrative union. But within that union, Ruanda-Urundi has separate legal states, It has fiscal autonomy and its own assets, and can incur debt. On the other hand, the Belgian Congo and Ruanda- Urundi form one customs ares. In both territories the Congo franc circulates as legal tender, they have a common central bank and draw up a joint balance of payments.

4 - 3 - PART III - LEGAL INSTRTENTS AND AU THORITY 9. Attached is a draft of the Loan Agreement (No. 1) and of the Guarantee Agreement (No. 2). These agreements incorporate Loan Regulations No. 4 and follow the general pattern of the Bank's agreements. However, because of the character of the Borrower, the Loan Agreement is natterned after the Bank's agreements with member governments rather than after those with corporations or statutory authorities. (See especially Section 5.03 and Schedule 3, (e), (f) and i)), A condition of effectiveness is that the General Council of Ruanda-Urundi shall have passed a resolution expressing its approval of the loan (Section 7.01) 10. There is also attached (No. 3) a letter from the Belgian Congo to the Bank. The Belgian Congo undertakes to cause the Compagnie des Chemins de Fer du Congo Superieur aux Grands Lacs Africains (C.F.L.), which by virtue of a convention of 1932 is in charge of port operations at Usunibura, to provide the necessary storage and cargo-handling equipment and maintain the port in working order. PART IV - APPRAISAL OF THE PROPOSED LOAN 11. Technical reports on the port of Usumbura (TO-134) and the Usxmbura-Kigali road (TO-133) are attached (No. 4 and No. 5 respectively). A report on the economy of Ruanda-Urundi (EA-57b) was distributed to the Executive Directors on June 5 and a report on the curent economic and financial position of Eelgium is attached (No. 6). The Projects 12. A modern port is to be built at Usumbura on the north-eastern tip of Lake Tangantika to replace the existing inadequate and obsolete facilities. The project consists of two quays built around an interior basin with breakwaters to protect the entrance from the high waves caused by the prevailing south-westerly winds. Its cost is estimrated at the eauivalent of j2.7 million and construction is expected to take about two and a half years. The ancillary storage and cargo-handling equipment are not a. part of the project but will be provided by C.F.L., a large old-established Congo transport enterprise at a cost equivalent to about $1.5 million. 13. The road from Usumbura to Kigali is the backbone of the Ruanda- Urundi transport network. The first 53 km. leading from Usunbura up the mountains to the central plateau has very poor characteristics and also carries the heaviest traffic load. The project is to replace this stretch of the road by a new hard surface highway which would be only 40 km. long and would traverse more favorable terrain. Its cost is

5 - 4 - estimated at the equivalent of about ';3 million and construction is expected to take about twio and a half years. 1h. Contracts on both projects are being let on the basis of international competitive bidding. 15. These two closely connected projects form a vital link between the Trust Territory and the rest of the world. Most of the people live on the central plateau and economic activity is concentrated there. The bulk of the coffee and minerals, the country's staple exports, are produced there, carried down the highway in trucks and shipped through the port of Usumbura. Most of the imports also come by way of Usunbura and are distributed in the central highlands. Adequate and efficiently operating port installations at Usumbura and a modern highway connecting the port with the central plateau would expedite the transport of exports and imports and lower costs. The Need for the Loan 16. Ruanda-Urundi is a densely populated country whose natural resources are very modest. Conditions of life for most of the African population are primitive and the productivity of labor is very low 0 To improve education and health and increase per capita income in the face of the rapid population growth is a very difficult task and requires a substantial investment. 17. Under Belgian trusteeship great progress has been made. Thirty years ago subsistence agriculture and periodic famines were tlhe rule. Since then roads, schools and hospitals have been built, the threat of famine eliminated, coffee and cotton introduced as peasant cash crops, and deposits of tin and wolfram ores opened up. Some private capital has been invested in manufacturing and Usumbura has become an active commercial center. 18. The savings required to make this development possible could not be generated inside Ruanda-Urundi and practicall- all the capital has been furnished by Belgium. In 1950, a Ten-Yesr Plan for the Economic and Social Development of Ruanda-Urundi was dra-wtn up by the Administration and the Belgian Government has been supporting it w:ith interest-free advances. About $30 million equivalent has been invested under the Plan in the past five years, most of it in schools, hospitals, housing, administrative buildings, roads and aariculture. In order to continue this investment and to carry out several larger projects which are now ready, the Ruanda-Urundi Administration needs more money than the annual $8 ndllion advances from the Belgian Government. Belgium does not find it possible to increase her regular contribution but is prepared to give her guarantee to enable Ruanda-Urundi to secure additional finance from the Bank.

6 Prospect of Fulfillment of Obligations 19. Due to favorable prices for coffee and metals the ordinary budget of Ruanda-Urundi showed substantial surpluses in the early 1950's. Since then, however, the increased public investment has brought rising recurrent expenditure on their maintenance and operation and a deficit has appeared. The budget estimates for 1957 show a substantial deficit. Actual results may work out better than the estimates, but it rnay well be that in the next few years revenue will not catch up with expenditure. Since Ruanda-Urundi has no means of its own to cover such deficits, Belgian funds would have to be used as they sometimes have been in the past. But the financial stability and economic progress of a Trust Territory are the recognized responsibility of the Administering Authority and I am satisfied that it is proper for the Bank to support the development of Ruanda-Urundi by lending on the strength of Belgium's credit. 20. Once Ruanda-Urundi has made Congo francs available for debt service, their conversion into foreign exchange should not cause difficulty. Together, the Belgian Congo and Ruanda-Urundi have annual export earnings equivalent to about $700 million and a consistent dollar export surplus of about $50 million per annum. Although the Congo continues to be primarily a supplier of raw materials, its agricultural and mineral resources are well diversified and are being rapidly developed. The gold and dollar resources of the common central bank are substantial and the existing external debt of the Congo and Ruanda- Urundi, including the debt to Belgium, is very moderate. Interest and amortization on a Bank loan of $4.8 million would hardly affect the external financial position of the Belgian Congo and Ruanda-Urundi. PLRT V - CCINtLIANCE WITH ARTICLES OF AGREEivENT 21. I am satisfied that the proposed loan will comply with the requirements of the Articles of Agreement of the Bank. The report of the Committee provided for in Article III, Section 4 (iii) of the Articles of Agreement is attached (No. 7). PART VI - RECOPILENDATIONS 22. I recommend that the Bank at this time make a loan to the Trust Territory of Ruanda-Urundi in an amount in various currencies equivalent to $ h.8 million for a total term of 20 years with interest (including commission) at 5-5/8% per annum and on such other terms as are specified in the form of the draft Loan and Guarantee Agreements, and that the Executive Directors adopt a Resolution to that effect in the form attached (No. 8). Attachments: (8) Washington, D.C. June 14, 1957 Eugene P. Black