Document of. The World Bank FOR OFFICIAL USE ONLY REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE

Transcription

1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized FILE COPY 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 THE REPUBLIC OF COSTA RICA FOR AN AGRICULTURAL CREDIT AND DEVELOPMENT PROJECT April 14, 1977 Report No. P-2042-CR 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 (as used in this report) Currency Unit = Costa Rican colon 8.5 = US$ = US$0.12 GLOSSARY OF ABBREVIATIONS BNCR - National Bank of Costa Rica CABEI - Central American Bank for Economic Integration CACM - Central American Common Market CAN - National Agricultural Council CAR - Regional Agricultural Center CB - Central Bank of Costa Rica CNP - National Production Council CRIO - County Road Improvement Office DCD - Development Credit Department of CB, IDB - Inter-American Development Bank IFAM Institute for Promotion and Assistance to Municipalities MAG - Ministry of Agriculture and Livestock MOPT - Ministry of Public Works and Transport NSC - National Seed Commission OFIPLAN - National Planning Office PB - Participating Bank SBN - National Banking System USAID - US Agency for International Development REPUBLIC OF COSTA RICA FISCAL YEAR January 1 to December 31

3 FOR OFFICIAL USE ONLY INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC OF COSTA RICA FOR AN AGRICULTURAL CREDIT AND DEVELOPMENT PROJECT 1. I submit the following report and recommendations on a proposed loan to the Republic of Costa Rica for the equivalent of US$18.0 million for an agricultural credit and development project. The loan would have a term of 17 years, including a grace period of 3-1/2 years, with interest at 8.2 percent per annum. PART I - THE ECONOMY 2. A report entitled "Economic Memorandum on the Current Economic Situation and Prospects of Costa Rica" (No. 960-CR) was distributed to the Executive Directors on December 16, In October 1976, an updating economic mission visited Costa Rica, and an economic memorandum is now in preparation. The principal findings of the mission are summarized in the following paragraphs. Annex I summarizes the main economic and social indicators. 3. Costa Rica provides a rare example among developing countries of how high per capita income growth may be achieved without an undue concentration of development benefits in the upper income groups. A high level of investment and rapid export growth allowed real output to grow at about 6.5 percent yearly between 1960 and 1975, while family planning and rising educational and income levels contributed to a sharp decline in the population growth rate from close to 4.0 percent in 1960 to 2.6 percent in the early 1970's. The fast growth of output facilitated the absorption of the rapidly growing labor force and the unemployment rate has remained at about 7 percent during the last fifteen years. Real output per capita grew at 3.3 percent per year during and per capita GNP in 1975 reached US$910.0 (World Bank Atlas). 4. Agriculture continues to be an important sector of the economy, generating about 21 percent of GDP and accounting for about 36 percent of total employment. Agricultural output growth exceeded that of all other countries in Latin America in recent years, especially as a result of the production and export expansion of bananas and beef. Four products (coffee, bananas, beef and sugar) made up about two-thirds of merchandise export earnings in while 20 years earlier only two commodities - coffee and bananas - accounted for 85 percent of exports. Rapid industrial growth was made possible as a result of the creation of the Central American Common This document has a restricted distribution and may be used by recipients only in the performance of their omcial duties. Its contents may not otherwise be disclosed without World Bank authorization.

4 - 2 - Market (CACM) and the favorable economic conditions resulting from the growth of agricultural exports. Industrial exports, largely to the CACM and Panama, have grown from about 10 percent of all merchandise exports in the early 1960s to about a third currently. 5. The openness of the economy, the continued heavy dependence on the export of a few agricultural commodities and the government's expansionary fiscal and monetary policies, which were adopted whenever it was necessary to offset periods of cyclical downswings, have led to periodic and at times severe financial difficulties. On the whole, however, the economic policy makers have, through demand management and production incentives, been able to overcome these difficulties and to sustain economic growth. Economic management was made easier by the long term, rapid rate of growth of exports. The experience of provides a vivid illustration of the policies followed. In 1974, the rate of economic growth declined to 5.4 percent, largely reflecting a poor agricultural crop year. At the same time, the terms of trade deteriorated sharply. Consumption and investment growth, however, fueled by expansionary monetary policies, far exceeded GDP growth and the balance-of-payments deficit on current account reached $270 million or the equivalent of 17 percent of GDP. Inflation, measured by the consumer price index, rose from 2.5 percent per year during and 15 percent in 1973 to 30 percent in The level of net international reserves by the end of the year was the equivalent of less than three weeks of imports. 6. The Costa Rican Government, aware of the mounting economic difficulties took several measures during late 1974 and early 1975 to curtail excessive private demand, reduce imports and increase exports. Interest rates were raised as were consumption and sales taxes, credit restrictions for consumer durables were introduced, support prices for basic grains were increased substantially and special credit facilities were granted for basic grains production. These measures facilitated an improvement in agricultural (mostly basic grains) output, and in spite of the effect of the world recession on industrial production and on exports, GDP grew at 3.4 percent in real terms, in The current account deficit on the balance of payments was reduced to about $217 million or 11.3 percent of GDP, inflation slowed down to 17.4 percent, and net international reserves by the end of 1975 increased to the equivalent of one month of imports. 7. Real GDP growth during 1976 increased to an estimated 5.5 percent. The outstanding element in the economic picture was the sharp rise in realized coffee prices (in coffee accounted for one-fourth of total merchandise exports) which increased from 57.1 cents/lb in 1975 to cents/lb in As a result the current account deficit in the balance of payments decreased further to the equivalent of 8.9 percent of GDP and net international reserves increased to the equivalent of almost 2 months of imports. The annual average rate of inflation decreased to 10.9 percent in 1976, or to only 4.4 percent when measured from December 1975 to December 1976.

5 The public sector has for long played a vital role in Costa Rica's development process. The Government has given substantial attention in recent years to improving the country's basic infrastructure such as highways, feeder roads and the development of the hydroelectric potential of the country. Substantial emphasis is placed on the opening up of new areas for settlement and cultivation. At the same time, the Government has provided a wide range of public services. More than 40 percent of all expenditures of the Central Government have traditionally been in education, health, nutrition and other social sectors. Health and nutrition programs have been an important factor in reducing mortality rates from 9 per thousand in the early 1960s to the present 6 per thousand. Life expectancy at birth has risen to 69 years. Moreover, by spending almost a third of its budget on education, the Central Government has been able to improve coverage and quality of primary and secondary schools, reduce illiteracy to a minimum -- the adult literacy rate was 89 percent in and provide a good quality university education. Costa Rica has no standing army and the share of Central Government expenditures devoted to security - about 2 percent - has long been one of the lowest in the world. 9. Costa Rica's income distribution is one of the most equitable in Latin America, and the principal beneficiary of the development process in the last decade has been the middle class. A new initiative enacted by the Government in 1975 is the "Family Welfare Program" which is designed to increase the living standards of the poorest rural families representing about one fourth of the population. The program includes, among others, rural health, sanitation, housing and education projects, as well as nutrition programs for pre-school and school-age children and is financed primarily through a recently passed payroll tax and an increase in the sales tax rate. On the whole, the program's impact on the distribution of income and on rural living levels is significant: currently, roughly 1.5 percent of GDP is being redistributed to the pooiest 20 percent of the population. 10. The policy of maintaining high levels of public services and investment has from time to time been accompanied by serious financial difficulties. The tax system is income inelastic, pricing policies by some state enterprises, such as the water supply agency, have been inadequate to generate sufficient revenues and several new autonomous agencies have become increasingly reliant on the Central Government for finance. Large budget deficits have emerged, which were then periodically reduced through the introduction of new taxes and increases in tax rates. Thus, in 1974, when several new taxes were introduced, the improvement in public sector finances was reflected in a public sector deficit equivalent to only 1.4 percent of GDP down from close to 5 percent during Since then, expenditure growth has outstripped revenue growth and the public sector deficit during 1975 and 1976 was again equal to about 5 percent of GDP.

6 Prospects are that the public sector deficit will remain at about 5 percent of GDP during / At the same time, realized coffee prices are presently estimated to rise further to close to 200 cents/lb in In order to absorb the resulting excess liquidity and control inflation the Government has initiated a stabilization program, involving increased reserve requirements, credit restrictions and the issuance of Government bonds designed to provide the domestic resources necessary to finance the public sector deficit. A replenishment of international reserves should also result from implementation of this program. 12. Though the balance-of-payments situation is expected to improve further during 1977, the current account deficit, is estimated to be still at a level of about 5 percent of GDP. tioreover, this improvement is attributable to the exceptionally high level of coffee prices and is therefore likely to be temporary. Over the longer term a substantial effort towards industrialization, through selective import substitution and export diversification would be necessary if Costa Rica is to continue its high GDP growth rate while strengthening its balance-of-payments. Some important steps in this direction have already been taken. Thus, a major effort towards export promotion has been initiated. Currently exports of non-traditional products to countries outside the Central American Common Market are promoted through a tax rebate scheme equivalent to 15 percent of f.o.b. value; marketing outlets are being established in several countries in the Caribbean; an export and tourism promotion fund has been created and special interest rates are accorded to production for export; also, a substantial expansion of hotel facilities is taking place to promote the tourism industry. The country has good potential to expand existing and develop new export lines and the experience thus far has been satisfactory: despite depressed world market conditions, nontraditional exports grew at 7 percent yearly in real terms between 1974 and Assuming that the efforts to diversify and strengthen the export sector over the longer term are successful, Costa Rica will remain creditworthy for the foreign borrowing envisaged by the Government to implement its development program. The public debt service ratio has fluctuated around 10 percent during the last several years and is projected at 10.2 percent for Assuming a gradual decline in coffee prices to more normal levels by 1980, but a parallel and successful implementation of export promotion policies, the public debt service ratio is estimated to rise to a still manageable level of around 15 percent by External Assistance 14. As of December 31, 1976, it is estimated that the Bank Group held 22.7 percent of the US$888.6 million external public debt outstanding-- including undisbursed--repayable in foreign currency. This share is likely 1/ Presidential elections are due in February Further modifications in the tax structure are not expected before that date.

7 - 5 - to decrease somewhat by 1980 because of an expected increase in the activity of other external lenders. The Bank Group share of total public debt service in 1976 is estimated at 13.6 percent, and it is projected to decline to 12.6 by Of the other major lenders to Costa Rica, the IDB holds 14.5 percent of external public debt outstanding, including undisbursed, CABEI 10.6 percent, the U.S. Government 9.8 percent, Venezuela 4.1 percent, other bilateral lenders 6.6 percent and private lenders 31.7 percent. 15. In terms of the sectoral thrust of the lending by the principal external agencies, apart from the Bank, AID has concentrated on agriculture, transport and health, the IDB on transport, power, agriculture, health and industry, and CABEI on infrastructure and housing, and they are likely to continue in these areas in the future. The lending of these agencies during the past 10 years is summarized as follows: Lending June 30, 1976 IBRD AID IDB CABEI (US$ millions) Transport Power and Telecommunications Education Health Urban Development Agriculture Industry Others Total PART II - BANK GROUP OPERATIONS 16. Costa Rica has received to date 19 Bank loans and one IDA credit totaling $233.6 million net of cancellations. The last operation, a loan for a highway project amounting to US$39.0 million, was signed on January 14, Annex II contains a summary statement of Bank loans, IDA credits and IFC investments as of January 31, 1977, and notes on the execution of ongoing projects. 17. Since other lenders have been able to provide Costa Rica with substantial amounts of concessional lending which the Government preferred to use for its socially oriented investments, the main thrust of the Bank's past lending has been to help develop basic infrastructure, such as power, telecommunications and highways. However, the Bank has also supported efforts to increase and diversify exports through lending for agricultural

8 - 6 - credit, and has helped make educational programs more consistent with manpower objectives through a loan for secondary and vocational education. 18. In future lending to Costa Rica, we intend to continue to provide some support for infrastructure such as power and telecommunications, in view of the continuing need for substantial amounts of external financing and our long-standing involvement in these sectors which gives us a special ability to foster institutional development. However, we are planning to increase Bank lending in other areas, particularly agriculture and rural development and industrial and urban development to provide support for productive investment and assistance to the rural and urban poor. The proposed loan will finance preparation of a rural development project; after completion of an urban analysis this year a project will be developed to improve living conditions in urban areas and provide additional employment; and a DFC project to stimulate industrial growth is proposed. The project in the most advanced stage of preparation is for urban transport in San Jose. In addition, in order to help expand exports, particularly those with a high percentage of local value added, the Bank is considering possible participation in the financing of, and in helping to mobilize additional external resources for, the large Boruca hydroelectric project which is designed primarily to supply the power requirements of a proposed aluminum complex. 19. In our lending activities in Costa Rica, we will continue to coordinate closely with IDB, USAID and the Central American Bank for Economic Integration not only with a view to improving the effectiveness of lending by major external agencies at the national level, but also to help assure that Government programs are developed in a manner consistent with Central American priorities. 20. IFC has made only one investment in Costa Rica ($0.6 million in 1966 to Productos de Concreto, S.A.) which has been fully repaid. At present, IFC is exploring the possibility of participating in the financing of the proposed aluminum project. PART III - THE AGRICULTURE SECTOR Agriculture in the Economy 21. After achieving a growth rate in volume of more than 7 percent per year in the late 1960s, agricultural production slowed down in the early 1970s with growth in volume averaging about 4.1 percent per year from 1970 to Production for export (primarily bananas, sugar and beef) showed dramatic increases in the period; however, incentives for farmers to produce for the domestic market have not been strong for all products, and food imports have grown. In order to diversify the economy and benefit

9 -7- small and medium farmers who are important producers of corn, beans, sugar and millc, the Government has recently increased retail price ceilings and provided more resources in credit, research and technical assistance to promote the production of food crops. Land Use and Land Tenure 22. Costa Rica has a total land area of about 50,900 km2, of which about 61 percent is farmland, distributed among 77,000 farms. Half of this farmland is pasture, 16 percent is used for annual and permanent crops, and the remaining 34 percent is under forests and scrub growth. Costa Rica is still expanding its agricultural frontier, and some 450,000 ha were added to the country's farmland in the 10 years between the last two censuses (1963 and 1973). Most of the expansion has taken place on the dry Pacific coast (Guanacaste) and in the northern plains of the country, which are used for extensive production of beef for export. It is estimated that about 400,000 ha on the Pacific and Atlantic Coast are unused, potentially good cropland and that about 330,000 ha more could be used for livestock, mostly in the northern plains. However, development is hampered by the lack of roads and infrastructure such as drainage works (on the Atlantic plain) and irrigation (on the Pacific coast). 23. About 3.5 percent of farm units comprise close to 55 percent of the total farmland, in holdings of more than 200 ha each, while 70 percent of farm units occupy 8 percent of the land, in holdings of less than 20 ha each. However, more than half of the farmers in the latter category cultivate coffee, often as the main crop, which in 1973 provided an income above the subsistence level in most cases. Government Agricultural Strategy 24. Without abandoning its traditional policies aimed at strengthening and improving the export subsector, Government, since 1974, has directed efforts toward increasing milk production (retail prices which had been held at the same level for several years almost doubled during 1974 and 1975), and designing a comprehensive program to achieve self-sufficiency in basic grains (corn, beans, rice and sorghum) by 1978, while-assisting small farmers who are the principal producers of these products. As a result, since 1975, production relative to 1973 output has increased by almost 90 percent for rice, 75 percent for corn, 47 percent for beans and 108 percent for sorghum, and imports of these products have been reduced. These increases, however, were mostly achieved through area expansion rather than productivity increases. The Government hopes that with additional technical assistance for farmers and implementation of the seeds program, to which this project would contribute, producers will be encouraged to adopt more efficient technologies and practices.

10 The Family llelfare P'rogram (described in para. 9) wilt have a significant impacl on thc demand for food since Llte program requiremenls in 1976 represent a 10 percent increase over the normal consumption of milk and milk products. By 1980 this percentage would be 18 percent. The program will also have substantial effect on demand for fish, cocoa, sugar products, vegetables, fruits and fals. Agricultural Credit 26. The national banking system (Sistema Bancario Nacional -- SBN) consists of the Central Bank (CB) and four autonomous state-owned commercial banks (PBs). All are well organized, operate according to sound banking principles, and have performed well in the execution of the first two Bankfinanced agricultural credit projects. The PBs operate within the framework of the General Banking Law, which is administered by CB, which also sets interest rates and implements Government credit policy. The PBs have 236 banking offices throughout the country with special departments to deal with small farmers. These departments coordinate their activities with the extension service and other government agriculture sector institutions. At present, one of these banks, the Banco Nacional (BNCR) provides about 60 percent of small farmer credit, and the other three commercial banks the balance. 27. At present, the supply of medium- and long-term investment credit is inadequate to meet demand. The PBs have access to medium- and long-term funds primarily through the CB, which depends on foreign loans as an important source of such financing. It is estimated that, during the three-year commitment period of the proposed loan, the additional requirement of foreign exchange for the agricultural lending program of the National Banking System will total at least US$57 million. Of this amount, at least US$11 million will be required by small farmers. In order to help meet this demand, particularly small farmer demand, the Government has requested the proposed loan from the Bank, and also a loan from the IDB (with the latter to be managed by the BNCR). As the Government has given small farmer programs priority, portions of the Bank loan (a minimum of 25 percent) and of the IDB loan are to be allocated to loans for small farmers. The Bank and IDB loans together should meet about 75 percent of the foreign exchange component of the medium- and long-term credit demand of small farmers over the period. Ministry of Agriculture 28. The Ministry of Agriculture and Livestock (thag) is divided into two main components, each under the authority of a vice-minister. One is a technical section which consists of Bureaus of Research, Training, Technical Services, etc. The other consists of eight Regional Agricultural Centers (CAR's) and 59 field extension offices which have a total staff of 336. For the development of sectoral policy, MAG has a sectoral planning office. Also, the Minister of Agriculture heads the National Agricultural Council (CAN), which was established in 1970 and includes representatives of all the public agencies concerned with agriculture. The CAN advises the Government on

11 - 9 - policy matters and coordinates activities of the various public entities concerned with the agricultt.ral sector. Tn each region, the director of the local CAR presides over the meetings of the local CAN, a regional body parallel in structure and func-tion to Lhe national level CAN. These local CANs include representatives of the PBs. 29. The MAG, with assistance from USAID and IDB, is staffed with adequately trained technicians and has most of the necessary facilities to carry out its work. However, it would need additional technical personnel and equipment for its extension service to meet the projected increase in demand for its services over the next few years. National Production Council (CNP) 30. CNP has been operating as an autonomous public enterprise since Its major functions are to stabilize producer and consumer prices of major food items through market intervention and to promote agricultural production. Its staff of 2,500 is involved in a wide range of activities, including price regulation of grains through purchase, storage, sales and direct imports and exports; import and export licensing for grains and beef; and production, purchase and sale of seeds and other agricultural inputs. The CNP has generally performed well; however, in the past few years it has suffered heavy losses on its grain purchase program because unduly high support prices resulted in large oversupplies, for which it did not have sufficient storage facilities. The support prices have now been reduced, and its.storage capacity is now being expanded with assistance from CABEI. Seed Program 31. At present, rice is the only crop for which a significant volume of improved but uncertified seed (about 40 percent of amount required) is produced within the country. The seed used for other crops is unimproved and small quantities are imported, mainly for corn and sorghum. In 1972, a Seed Law was approved which created the National Seed Commission (NSC), the purpose of which was to coordinate and promote activities aimed at implementing a national seed program to increase productivity of the major crops. Between 1974 and 1976, under the auspices of NSC and with financing from USAID, the University of Costa Rica built and equipped a modern seeds laboratory. The CNP has recently constructed and equipped a seed processing plant, which, together with a plant in the private sector, has the capacity to meet all crop seed needs until The country also has qualified seed technicians who were trained abroad. The program, however, is being held up primarily by lack of seed storage space and distribution centers. Feeder Road Program 32. In addition to the Pan-American highway and other major national roads, the country has some 20,000 km of feeder roads and tracks. Most of the feeder roads are so poorly constructed and maintained that the marketing

12 of farm products and the provision of institutionalized technical and financial assistance to farmers are seriously hampered. In 1970, the Government, believing that problems of local interest should be solved basically by municipal governments, created the Institute for Promotion and Assistance to Municipalities (IFAM) to provide financing and technical assistance. IFAM also acts as a coordinating agency among local governments and between local governments and other government agencies. IFAM is well run and has adequate sources of internal financing. Since its establishment, IFAM's operations have grown dramatically, particularly in 1976 when loans quadrupled to million from 23 million in In the past, IFMI has entered into agreements with municipal governments under which assistance is channeled Lo them from the Central Government and from international organizations for a variety of projects. Most of these projects have been related to education and health. Now, however, IFAM is in the process of designing pilot projects to assist municipalities in assuming responsibility for the rehabilitation and maintenance of feeder roads. Marketing and Prices of Selected Products Beef 33. Although domestic demand accounts for 40 percent of total production, consumption per capita has been declining over the last 15 years as increasing exports have resulted in high domestic prices. The Government is attempting to stabilize local consumption through imposition of ceilings on domestic retail prices. United States imports of meat are projected to expand at about 6 percent per year during the next 10 years and, if Costa Rica is to retain its present share in that market (about 5 percent), its exports should increase at the same rate. Prices received by producers for exported meat declined in 1975 but picked up again in 1976, and are expected to continue increasing slowly over the next few years. Milk 34. Costa Rica is currently 90 to 95 percent self-sufficient in milk and dairy products. Supply and demand have grown at about 6 percent per year in the past; however, demand is expected to grow at 8 percent to 8.5 percent per year, at least until 1980, as a result of implementation of the Family Welfare Program. Import requirements will increase, therefore, unless there is an increase in domestic production. The price for producers of raw milk is currently attractive, and retail prices are regulated at levels which are reasonable to consumers. Sugarcane 35. The domestic market absorbs about 60 percent of total production of sugar and has been growing at around 8 percent per year. Growth of domestic demand is expected to slow down somewhat as consumer prices, which were exceptionally low until 1974, were raised in Provided Government

13 does not unduly restrain domestic consumers' prices, demand for credit for productivity increases in sugarcane planting and processing is expected to be strong. Assuming an annual rate of Increase in domestic consumption of 6 percent and in exports of 3.5 percent, demand should grow by at least 5.5 percent per year. Grains and Beans 36. Demand for grains and beans for human and animal consumption is increasing at about 2.5 percent per year. The producer prices of these commodities are stabilized through market intervention by the CNP, and have been raised significantly in the past few years. Retail prices are controlled by Government. Ceilings are fixed at levels covering CNP support prices for producers and a distribution mark-up not to exceed 18 to 23 percent depending on the product. Retail prices have been allowed to rise to the same extent as producer prices. Other Crops 37. Although Costa Rica imports almost all of its cotton requirements, most of its very small production has traditionally been exported. Prices for locally produced cotton are not expected to differ from average international prices for similar types of fiber and should remain stable. Cassava is an expanding crop with export potential, benefiting from the high international cereal grain prices since it can be substituted for grains used in feed formulations. Besides coffee, a whole range of tree crops can be grown economically in Costa Rica, the most common being plantains, cocoa, citrus and mango. Domestic demand is expanding rapidly and Costa Rica is currently importing US$3 million worth of fruit and fruit preparations. Performance under Previous Projects 38. The First Agricultural Credit Project (Loan 538-CR) for US$3 million which became effective in December 1968, was aimed at expanding production and export of beef, bananas, pineapples, and cotton. The Second Agricultural Credit Project (Loan 827-CR) for US$9 million, effective January 1973, continued the program but included a wider range of crops, as well as dairy production, forestry and agro-industries. In both projects, sub-loans have been channeled to farmers by CB through the-four PBs, and CB was responsible for project execution. 39. The First Project was evaluated in a report by the Operations Evaluation Department dated August 6, The report identified slow disbursements as one of the principal problems. Disbursements were completed in April 1973 after two postponements from the original date of June The slow disbursement resulted from staffing problems and inexperience in the PBs and in the CB unit responsible for project administration, and overcentralization in the CB of responsibility for subproject approval. These administrative problems have been largely resolved in the course of execution of the

14 First and Second Projects through the experience gained, in project implementation, and the recent decentralization to the PBs of authority to approve subloans of up to US$100,000. There will, however, be a delay in completion of the Second Project from the original date of December 31, 1976 to September (As of the end of February 1977, the loan was over 85 percent committed and 72 percent disbursed.) This is the result of slower than expected commitments prior to the recent change in approval procedure, and the cancellation of commitments for some slow moving subloans and from a large agro-industry subloan which was cancelled because of poor management by the sub-borrower. 40. The other principal problem identified by the evaluation report on the First Project was the failure to meet expectations on the size of producers and the mix of products to be promoted. Ultimately, subloan size was US$57,000 compared with the appraisal estimate of US$18,000, and 90 percent of the lending went for beef cattle investment as compared with the appraisal estimate of 30 percent and a revised estimated of 74 percent, made in April 1971, after changes in market and other circumstances were taken into account. These variations from appraisal projections came about partly because alternative sources of funds became available to banana producers before they could borrow under the project, and because cotton growing areas were affected by volcanic eruptions and droughts. Also, however, the PBs seemed to prefer loans to larger cattle ranchers because these ranchers were better able to prepare the relatively complex farm plans required, and because this type of loan offered greater security. While diversification and employment goals of the First Project were not achieved, a survey of a sample of participating ranches showed that improved pastures increased, on average, by 5,882 ha, compared to the 4,291 ha expected in the farm development plans. In the Second Project livestock loans have accounted for a greater than expected share of lending primarily because of the strength, until 1975, of the beef market, and more recently of the milk market. Subloans approved thus far are somewhat larger than estimated at appraisal (US$30,000 vs US$24,000) as a result of higher than expected inflation, but this differential as well as the average size of subloans is significantly lower than in the First Project. 41. While deviations from appraisal targets such as have occurred in the past are difficult to anticipate or control because they generally result from unexpected market shifts and the individual responses of many ranchers and farmers, the proposed project has been designed so as to reduce the risk of larger than anticipated subloans or greater than expected lending for large beef operations. This will be accomplished principally by allowing lending for "complementary" investments (i.e., inputs designed to increase productivity on viable farms--see para. 45) which require simple cash flow projections, rather than detailed farm plans; by expansion and strengthening of the extension service which serves small farmers; and by delegation of approval authority for small subloans to the PB branches which are more likely to rely on their personal knowledge of the borrower rather than require collateral. All these changes will make subloans under the project more accessible to small farmers who tend to invest primarily in crops and milk production rather than beef breeding.

15 PART IV - THE PROJECT A. Project Objectives 42. The project would provide agricultural credit as a continuation of the First and Second Agricultural Credit Projects, but it would be designed to facilitate the participation of a substantial number of small farmers, not served under the previous projects. The project would also strengthen the national extension service, provide for implementation of a seed improvement program, and a pilot scheme for the rehabilitation and maintenance of feeder roads, and include preparation of a comprehensive regional development study and rural development project. The five project components would aim at (a) increasing agricultural output leading to import savings and increased export earnings; (b) raising income levels, particularly of small- and mediumsize farm operators; and (c) building up selected institutions for planning and execution of projects aimed at the improvement of living standards for the rural population. B. Project Components 43. The project would include: 1. On Farm Investment for: (a) Small-size farms (i) 300 five ha dairy enterprises; (ii) (iii) 300 three ha permanent crop enterprises; and 1,500 complementary investments. (b) Other farms Subloans for: (i) 100 beef cattle breeding enterprises; (ii) (iii) (iv) 100 dairy enterprises; 50 mechanized annual crop enterprises; 100 permanent crop enterprises; and (v) 800 complementary investments; 2. Subloans for agro-industrial projects including financing for heavy equipment for contractors providing farm improvement services;

16 Purchase of 69 vehicles and other equipment for the National Extension Service, and training for extension staff and farmers; 4. Construction of two foundation seed warehouses and 26 seed storage facilities; 5. Improvement of 107 kms of rural access roads in the County of Perez Zeledon; and 6. Preparation of a regional development study which would include preparation of a rural development project. On-Farm Investment 44. The project would provide medium- and long-term subloans to help finance on-farm investments on about 3,250 farms and ranches. About 2,100 of the farmers expected to benefit from the program would be those classified as small farmers, defined in accordance with CB criteria as those whose income is derived principally from farming and whose annual net income does not exceed t25,000 (about US$2,900) a year. Farmers earning less than this amount are estimated to be within the lower 45 percentile of income earners in Costa Rica. Average subloan size is expected to be about Us$6,000, with average subloans to small farmers of US$3,500 and to other farmers of US$10,700. While it is expected that about a third of the lending would be to small farmers, in order to ensure substantial small farmer participation, it has been agreed that a minimum of 25 percent of the amount allocated to subloans under the project would be earmarked for small farmers (Schedule 2, Part A of the draft Loan Agreement). Subloans would finance any viable farm project for livestock and annual or perennial crops. 45. Two types of subloans would provide financing for on-farm investments: the first type would consist of subloans for comprehensive farm development subprojects, which would be prepared and appraised on the basis of farm plans; the second type of subloan would finance complementary investments on viable farms. These investments would mainly involve farm machinery and equipment, cattle handling facilities, on-farm tracks or roads, or other infrastructure as well as rehabilitation works. 46. It is expected that the bulk of subloans would finance the production of milk and beef in the livestock subsector, rice in the annual crop category, and sugarcane and fruit trees in the case of semi-permanent and permanent crops. The main items of on-farm investment would be machinery and equipment (25 percent), land preparation and pasture improvement (19 percent), construction (26 percent), fences (5 percent), on-farm roads (7 percent), and breeding stock (18 percent)

17 Financing for Agro-Industry and Services 47. Under this category the project would provide a line of credit for enterprises engaged in the processing of agricultural products such as feedmixing plants, rice mills, and the canning and bottling of juices and other products. Financing would also be provided to individuals, companies or cooperatives for the purchase of machinery and equipment with which to do contract work for farmers. Land clearing, leveling, on-farm road construction and transport of sugarcane from farms to mills would be the main types of services provided. Improvement of the National Extension Service 48. The project would provide financing to strengthen the National Extension Service of MAG. It has been agreed that MAG would employ an additional 65 extension workers (thus increasing its staff to at least 400) by September 1, 1978 to reinforce extension offices (Section 3.05 of the draft Loan Agreement), and that these workers would be assignecl in areas where they are needed to service project sub-borrowers (Schedule 2, Part B of the draft Loan Agreement). The proposed loan would finance the purchase of 69 vehicles and other equipment needed, as well as training for staff and farmers, including staff travel out of the country for advanced training and study tours. Construction of Seed Storage Facilities 49. The proposed loan would finance the construction, installation and equipment needed to complete the physical infrastructure for the implementation of a National Seed Program. This would involve the construction and equipment of two foundation seed storage rooms to be used by MAG, and 26 seed storage units in 5 regions be used by the CNP for the storage and distribution of certified or other improved seed. A draft plan for the execution of the National Seed Program which includes projections of the country's seed requirements, establishes targets for production of seed and proposes a plan for the coordination of the institutions involved, has been approved by the Bank. It will be a condition of disbursement for this component that a final seed plan be approved by the Bank and that the Government sign a subsidiary contract with the CNP (Schedule I of the draft Loan Agreement). It was agreed further that the plan would be implemented as approved beginning in the first year of project execution in accordance with a schedule approved by the Bank (Section 3.08 of the draft Loan Agreement). It has also been agreed that construction designs and specifications of all the seed storage facilities would' be approved by consultants acceptable to the Bank before invitations to bid were advertised, and that adequate staff and budget would be provided for all facilities (Sections (3.05 and 3.07 of the draft Loan Agreement). Implementation of a Pilot Feeder Road Program in Perez Zeledon 50. The project would enable the Municipal Government of the County of Perez Zeledon under the supervision and guidance of IFAM to initiate a pilot scheme for the construction and maintenance of feeder roads. The construction

18 work would be designed mainly to make the roads usable on a year-round basis and would consist of earth moving, grading, gravel surfacing, and providing drainage, including installation of culverts and minor bridges. A total of about 100 km of roads have been selected for this project. The estimated average cost is US$15,500 per km. ConstrucLion works and maintenance of the roads would be carried out by a county road improvement office (CRIO), an autonomous division of the County Government which would be created to carry out this and future projects. It has been agreed that the manager of the CRIO and a road construction consultant would be appointed by December 1, 1977 and that staffing of the CRIO would be acceptable to the Bank (Section 3.06 of the draft Loan Agreement). 51. The proposed loan would help finance the road consultant's services for six months, the salary of a qualified engineer during project implementation, the purchase of equipment and civil works. It will be a condition of disbursement for this component of the project that an agreement, satisfactory to the Bank, had been signed by the Government, IFAM and the Municipal Council of Perez Zeledon, to govern implementation of the project and to provide financing of counterpart contributions and maintenance expenses (Schedule 4 of the draft Loan Agreement). Preparation of a Regional Development Study and a Rural Development Project 52. The proposed loan would provide financing to assist OFIPLAN in preparing a regional development study which would include preparation of a comprehensive rural development project for a region of the country to be selected by OFIPLAN, in consultation with the Government and satisfactory to the Bank (Section 3.03 of the draft Loan agreement). Major items to be financed would be the services of experts working under terms of reference prepared by OFIPLAN and acceptable to the Bank, and vehicles and equipment to be used during the course of the study. It has been agreed that by March 1, 1978, a region would be selected for the study and that terms of reference acceptable to the Bank will be prepared (Section 3.13 of the draft Loan Agreement). Since OFIPLAN has had little experience in regional planning, Bank staff will provide assistance in the design of this program. C. Cost Estimates and Financing 53. The total cost of the project is estimated at US$37.6 million, of which US$18.0 million, or 48 percent, represents the foreign exchange component which will be financed by the proposed loan. Of the US$19.6 million balance of project costs, sub-borrowers under the agricultural credit component of the project would finance US$5.1 million, the CB US$6.7 million, PB's US$3.3 million and the Government US$4.5 million (a detailed financing plan and cost estimate is provided in Annex III). Costs have been estimated at August/September 1976 prices, with a physical contingency of 10 percent of base-line costs allowed for the extension service, seed program and feeder road components. A price contingency of 21 percent of total base-line cost plus physical contingencies, expressed in dollars, has been added. The cost per man/month of technical assistance is estimated at US$6,000.

19 D. Project Implementation 54. CB, through its Development Credit Department (DCD), which is administering the Second.Project in satisfactory fashion, would administer and supervise the agricultural credit component of the project, which would be carried out by the four state-owned commercial banks which are operating efficiently under the Second Project. Under the proposed project, DCD would provide overall guidance, training and assistance to PB's and the MAG Extension Service in project analysis and other matters related to the project's credit component, and by March 1, 1978 establish a monitoring system to facilitate the preparation of project completion and evaluation reports and to contribute to the formulation of national agricultural credit policies (Section 2.04 of the draft Project Agreement). 55. The proceeds of the loan for other project components would be channelled through CB, acting as fiscal agent for the Borrower, to the different entities responsible for their execution as follows: MAG for the strengthening of the National Extension Service and construction of the foundation seed storage facilities; CNP for the construction of the storage and distribution facilities for commercial seed; IFAM and the County of Perez Zeledon for the feeder roads project; and OFIPLAN for preparation of the Regional Development Study. OFIPLAN would also act as liaison between these executing agencies (except the CB) and the Bank, in order to centralize reporting and monitoring activities. For this purpose, OFIPLAN would by September 1, 1977 appoint one of its senior staff members, acceptable to the Bank, as liaison officer. It has been agreed that the liaison officer would be appointed under terms of reference satisfactory to the Bank and that a monitoring system, acceptable to the Bank, would be established by OFIPLAN by March 1, 1978 (Section 3.10 of the draft Loan Agreement). On-Lending Arrangements 56. The Government would bear the exchange risk (Section 4.03 of the draft Loan Agreement) on subloans and on-lend the funds for the credit component to CB on the same terms as the Bank loan under a "Banco Central Loan Agreement". The execution of this Agreement will be a condition of effectiveness (Section 6.01 of the draft Loan Agreement). Rediscounting of PB subloans by the CB will be governed by Subsidiary Loan Agreements satisfactory to the Bank (Section 2.01 of the draft Project Agreement), and it will be'a condition of disbursement under the agricultural credit component of the project that CB has signed such a contract with at least one PB (Schedule 1, para. 4(a) of the draft Loan Agreement). 57. PBs will extend subloans for approved subprojects not exceeding 90 percent of investment costs in the case of small farmers and 80 percent in the case of other beneficiaries. Subloans not exceeding US$35,000 would be approved at PB field offices in cases where these offices have adequate personnel for this purpose. Subloans between US$35,000 and US$100,000 would be approved at PB main offices, and those exceeding US$100,000 (which will most

20 likely be for agro-industrial projects) will be appraised by DCD and require CB approval; those exceeding US$150,000 will require Bank approval. (Schedule 1 of the draft Project Agreement). 58. PB subloans would be made with repayment terms ranging from a minimum of three years to a maximum of 12 years, including grace periods of up to five years. Repayment terms would be established for each subloan on the basis of cash-flow projections. 59. The interest rate structure and proportions of financing by CB and the PBs under the Project's lending program would be in accordance with the following schedule: Interest Rate Structure Portion of Subloan PB's to Type of Beneficiary Rediscounted by CB CB to PB's Subborrowers (%) (x) (%) Small farmers Other beneficiaries The proposed interest rates to subborrowers are in line with rates now being applied in Costa Rica for similar loans, and would represent positive real rates assuming a continuation of the moderate inflation experienced during The Government is projecting an inflation rate of 5-6 percent for 1977, and it has undertaken a monetary stabilization program designed to achieve this target (see paragraph 11 above). While 8 percent for small farmers is thus a positive real rate, it is somewhat low in comparison with the rate to other beneficiaries and the Central Bank will therefore carry out by December 31, 1977 a study of the impact on the allocation of resources and the cost to the Central Bank of maintaining the rate to be charged to small farmers. Margins of 3.0 and 2.5 percent on small and other farmer lending, respectively, should be adequate to cover the PB's administration costs and provide a satisfactory profit. F. Procurement 60. The items to be procured by farmers financed under the agricultural credit component would be bought from local commercial agents, who represent a broad spectrum of international suppliers. Equipment for the feeder road component, civil works and equipment for the seed storage buildings and all vehicles, estimated to cost about US$3 million, would be procured by international competitive bidding (ICB) in accordance with Bank guidelines. Bidding documentation, advertising procedures to be followed for the bidding, and contract award would require Bank approval when the estimated cost of the contract is US$75,000 or more. The rehabilitation of the feeder roads would be done by force account, utilizing the equipment purchased through ICB. Materials for road construction would be procured according to local competitive bidding procedures, which are acceptable to the Bank.

21 G. Disbursements 61. Disbursements would be made over a period of five years for: (a) 60 percent of amounts disbursed by PBs for project subloans to beneficiaries of the agricultural credit componenl of the project; (b) 100 percent of the foreign cost of vehicles and equipment, or 75 percent of the cost of imported but locally procured vehicles and equipment; (c) 30 percent of the total cost of the civil works for the construction and installation and equipment of the seed warehouses and for the feeder road component; (d) 100 percent of the foreign cost of training and advisors for the extension component; and (e) 75 percent of the total cost of technical assistance for salaries, travel and subsistence of consultants, supervision services for construction and installation of seed facilities and preparation of the rural development study. The schedule of estimated disbursements is given in Annex III. H. Project Benefits 62. The proposed project would provide increased production of crops and livestock products both to meet domestic demand and to provide surpluses for export, and thus to contribute to improvement in the balance of payments. In addition, at full development, the project would generate incremental net revenues to the Government of about US$0.4 million per year. The agricultural credit and extension service components would assist farmers to increase their productivity and thus their income levels, while the seed program component would lead to higher crop yields as a result of increased availability of improved seeds. The total annual value of incremental production as a result of the project is estimated to be US$14.7 million at full development, and the financial rates of return on incremental farm investment are estimated to range from 17 to 24 percent. Incremental employment created would be equivalent to 2,400 full-time annual jobs. The feeder road component, besides serving as a pilot scheme for the establishment of the CRIO in other parts of the country, would provide better access to markets for crop and dairy producers within the region selected for this project. The regional rural development study is expected to lead to the preparation of a comprehensive rural development project, and to strengthen the institutional capacity of OFIPLAN in the field of project preparation. 63. The economic rate of return on the farm investments, the calculation of which includes costs attributable to the expansion of the extension service and the seed program, is estimated at about 16 percent. Together these three

22 components account for over 90 percent of project costs. The economic rate of return of the feeder road component is about 13 percent. The overall economic rate of return of the project, excluding the cost of the rural development study and of agroindustries, is estimated at about 16 percent. Risks 64. The economic viability of farming operations in Costa Rica is heavily dependent on domestic and export prices, and weather conditions. The technical assistance and improved seeds to be provided under the project would help improve the quality, and thus the marketability of farm output and contribute to reducing financial risk to producers. The projections for export beef and sugar are favorable, and recent Government agricultural pricing policy has been effective in encouraging production of food for domestic consumption; it has been agreed that the Bank would have a reasonable opportunity to exchange views from time to time with the Government concerning pricing policy and any proposed changes therein (Section 3.14 of the draft Loan Agreement). 65. None of the activities financed under the project is expected to have an adverse impact on the environment. PART V - LEGAL INSTRUMENTS AND AUTHORITY 66. The draft Loan Agreement between the Republic of Costa Rica and the Bank, the draft Project Agreement between the Central Bank of Costa Rica and the Bank, the Recommendations of the Committee provided for in Article III, Section 4 (iii) of the Articles of Agreement, the text of a draft resolution approving the proposed loan are being distributed to the Executive Directors separately. Conditions of disbursement applicable to specific project components are referred to in paragraphs 49, 51 and 56. A special condition of effectiveness would be the execution of an on-lending agreement between the Central Bank and the Borrower (see paragraph 56). 67. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank. PART VI - RECOMMENDATION 68. I recommend that the Executive Directors approve the proposed loan. Attachments April 14, 1977 Robert S. McNamara President

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24 ANNEX S Page 2 of A pages UaIses ot.herwise noted, data for 1960 refer to any yea bertsan 1959 and 1961, for 1970 betwaso 1968 and 1970 and for Moat Recen.t Estimate be tween an 175. Span baa been asisoted as an objettive houn try.basusiito haa tha sn osituesi tradition, it is 1as an open..non.y with strong trade relations wi th neighboring nountrie ad baa a hightaandardofjlivin. Yet becaus of a dynamin groth of esporta of goode and srie,spain has achieved an eno int diveratfios:tinsd stability that would ho desirable for Cota RIta. COSTA RICA 1960 / 19i5l-63 lb 1963; /. Span usanploytaent. Id InsIde only. 197S /a MOST RECENT ESTBIATE. /a : /b Open oneploysoet; /t 1971; /d 1972; /s ; /f Total, urban sad rural. MEXICO 1970 / , /b Inside only. PANOAMA 1970 /a -1olding r-identa working in Canal Zoos /b Intone retipienta; /n 10 years sod -us; /d Ineide only. SPAIN 1970 /a iogtnrsrd unnplnyod; /b Registered, not all practicnig in the.-outry. R3, Haobh 3, 1977 IPDEFrINIINS OF SOCI-AL DiNICATORS Land Ama. (thou l..t 3Population nor to- L.&. -cu- Popolatiot dividod by mashe af practicing Total - Totol surf.c aro tt cuprising land area and inland watoro. na. and fonalo iradaato nro,"trainod' or "osrtified" nurses, and Agric. - Hot re-en eatiaato of agrionitaro1 ares sand.tanparnily or per- au_iltar porsnn1 with tra ining or noperienos. tunnoy fo trps, panturon, narbot h kit.ben grdono or to lie fallow. o ataaio hospital hod - Population divided by number of hospital COP oor osnita (Us") -;N lpe potnita ntinatond at curroan marbst prices, bode availablo in psblio sod private g.. oral sod apeciali.ed bospitni r.caloata d by -an -ovoi ion -othu a trld Hank Atlas ( banis); and rehabilitation nentorn, enolodon nursing bann and establishuste 1960, 1970 and 1975 data. for tuntodial end pr-evotion tarn. Per cspita napoly of talonine CT of rosirnet) - Conputed frau Pouainad utto Intatiutica Aonfrgy equivalent of-lanot food apiios availble in o.untry pet pouain(aid-yr. oliion) -9 AaoSoyfrt fno vlai,seae tapirs per day; available sapplins tonpriso donatic production, imports of tw -ed-you petinaten, 1960, 1970 and 1971 data, lean na-ports, nnd changen in stock, not ouppli..en oclude Manial feed, need, quatities saed in food praossing and losses in distribution; tousondsuc-o usaoia- Mid-your Ppoplotion por aqoars kilo- requiesatn worn ostinated b'y FA bao nphsooial needs for ortor (100 hotrs ofttlaasea ciiyadbat oadring sovirosonenta1 ia raun,bd P.otiation doet-y-nopr notar- Io f aoriu. land - Canputed an shovn for weights, ago and ason dietribatians of popalation, and alloing 102 for agri-tu-tro loand otiy. weato at boosohold 1levl. Per capita supply of protoin forans ant day) - Protein constent of pot not napply of food per day, not spp ly of food in defined a Vital utarisrito ~~~~~~~~~~~~~capita Crodo birtbhan e thousad- iuua -Su births pot thousand of old-year above reqairnants for al nountriea established by ESDA Etoonanic-, popalation. to-yost rithantit a,rorgos -ndingi 0 t1960 and 1970, and fit- cenero h srvicsa pravid for a niian alowaoco 60 gras of total y-r average ondiog i1975 for noo Potent estinteprotein pot day, and 20d grana of an_ima and puine protein, of whith Crude death rain po thusnd - Annul deaths perthrboaoad of aid-ratr 10gsra sehoold he animal protein those otandarde art lowr than.populaion; ten-yer arth sntic ave rages sdingtin 1960tand 1970 and thoseof 701 gea- of_-ntlp proa ns 3"on faimal prntoin as fiuryoaravorgo ndingo 171 fan sotte tosin. anaeaefrthe word, prapoad by PASO To the Tbhird world PFod Infant nrtality r-no i/thou) - Annual d-aths of infants under ona year of S"7ey 800 per rn_oud lire hirthn Per oapita wrotein anelofran animal and puise - Protein napply of Lita, eapentaoy, atybirth (yrn) A-Avrago nonhr of years of life remaiing food derived from nm an andpulata in grt Pot day. at birth; oso11y flvo-ye-r avrages codini in 1960, 1970 and 1971 far Oeth rte f/thaw) ages 1-4 _ Annal deaths Pot thous and in ag grou 1-4 deoc pigcnti. yeasra, to childrmn in thin ago group. suggestod as an inditatr ofp iron roorduttion r-te-a-orago unbor of livo dooghters a w-an will malntrition. boat in her atr_a re:production period I~f.shee-potinoces preset agosp,ecific fortuiityrates,.nully fiv-_yoravrags ending in 1960, Mutation 9190 and '197)tforr developing vontrloa.l Adjusted rnollaseot ratio - Polmatry school - Enrolloont of all ages as Population growt rate (%- total - Cspud annual growth ratee of aid- percentage of primary school-age population, inciudno children aged Vear population, for ad yearn hut adjusted for different lengths of primary education; Poonlati-n growth re te M% -urban - Canputod like growth rate of tntal for countries with univernal eduction, onrollset may eateed 1002 population; difforent deinitions of urban areas nay affect tumpars- elate sane pupila are below or abovt the official school age. Ubilit ofdate- anang coutal-ries. o bnttt-pplin,dfe Adjusted enrolloet ratio - necondary school - Canputed as above; Urban peounations( ftta)-r of ofubabotaa opltin ifo socondary eduo..tion requires at lean.t four yearn of approved primary, ten deiniinso. ubnareas nay affect nonparsbility of data anong instruction, provides genersl, -oatinsi or retb..er training countries, 01 ers,wri -e(1-4y.) ins")-cilde -truction for papils of 12 to 17 yeara of age, cottespondeane ge rrutirur ((11-6yyear), prot Cided0l and otiod (5 yars ad tero) as,wriga an perceotages of aid-yea.r population. corses ate generally escladed. Years of schooling provided (first and senond levels) - Total year. of Age dependenc.y rat io -Raio of population onder 15 and 61 and over to enh-oling; at senondary leve, vocational instruction nay he partially thene of agna 1) through 64. or conpletely enclded. Etcanaic depeadeacy ratio - Ratio of population under 13 asd 61 and overvoainlermntiofecday -Vntusintttos toj thilbo fors i rag group of yeats include technical, industrial or other program which operate indefatlyplaning -accetors(c_nlative. theul C-Caulative nuber of pondatly or an depatusonts of secondary institutions. acceptors of birth-control devices under suapiosas of national fanily Adult literacy rate C(TI - Literate odn1ts (able to read and write) as planning program inc pa_ily pleauni -srs( inneption of married wa-m) - Porce6otages of married porcentage of total adult population aged 15 yearn and over. wases of child-beaing age (15-44 years) who us birth-cotrro1 devices Heas ing to all,mrried wrps in sam age group. Persea Per roan faversia) - Average number of person pot rown in occupied noeantisnal dwellingo in urban areas; dwellings eatlude nn Baploycasni pooma~~~~. nsen srcue anononcupied parta.. Totl abr force (thouand) - Eton1casclly active persons, inluding Ocuiddelnswtotppdwter CT) - Occopied nonventional armd faroes and unaployd but anluding housowives, etudente, etc.; dwellings in urban end rural areas without inside rotid ie deintions to various ecoutisaema oprbe water facilities as porcontage of all occupied dweillgg. Labor farce inagiutr (I- Agricu1tur1 labor forte (to farming,.forestr,hunting and fiohing) aso Percentage of total labor forco, Accessa to electrinity (T of all dwellings) - Conventional dwellings with eetr 1 Piy nliving quarters as portent of total dwellings in urham Z T flbr henloe fore - Seployed. are usually defined as porona soz urlaeas. who are able and wingto take a Job, out of a job on a gina day, Rural dwelnscnatdtoeetiiy()-captda hv o raaied oat of a Job, and seeking work for a spocified otmi:umf period rua wlingsoly sot eusteding on week; nay nor be casparable botween onutrins dun to ua 1 different defiuitiona of unapioyed sand source of data, o.g., esplay- Ca-t. mat offine statistics, nooplo surveys, cumpulonry aaplnysant insrne adorierso. (ant thou pop) - Aliltypes of receivers for radio bradlecoame Perctag. istrib.tm of rivate - itone (boh casts togera publin pot thousand of population; excludes unlicensd Incna -Percntag disribuion of pivat intne (bth i tan and.bind) reteivrer in onuntriee and is y.ear when registration of radio aset wass receiveld by richest 5T, richest 20T, pooreat 20%, and po-oret 40% of bosho.da. l in effect; data for recant yoarn may not be tonsparable countries abolished licensing. Itnot mast Di.trib.tlon -- hip - of Prr..t.g.. land ofp land r oas ea thou PoP) - Pasnenger cats canprins mator tar seat..ing Dianiboron lan ownrahi-porontaos t o lan ownd by wealthinat les than sight Person; ealudes ambuolances, boarses and military 152 and poorest lot of lend 0wsat5. v"ehices Health and Nutrition ~~~~~~~~~~~Electricity (khy/yr Par cap) - Aasnal COnSumPtion of industrial,ti - NeaIth and - Nutricin-P tion Ponultionper pysican -Poplto dvcial, iided.by masher of practicing public and private electricity in kilowtt honsar pot capita; generally based an production data, without allowacsa for lasese in pbysiciams qualified fran a madical school at university level, grids but allowing for imports sand eaporta ef electricity. Ngewarint Gsa/er see cap) - Per capita annual -nefiumption in kilogreas estimated frsam damiti production Plus met imports of newsprint.

25 COSTA RICA ECONIOMII DEVEoPMEN1T DTA (Aounts =n milos r7s dlas ANNEX 1 Page 1 of NATIONAL ACCOUNTS Actual Prel Prjeted 19Q 1973 M I E 177l9 98O Amounts in Prices & ExchanLge Rates Average Annual Growth Rates As Percent of GDY Gross Domestic Product , , , , , Gains f'rom Temosof Trade O Gross DIesiIncome B ,0Z.9 1,10.7 Tm 7 1, I0. Import (incl. NFS) Exports "1 (import capacity) 273, Resource Gap 6 3S **'TT TT Consumption Expensitures , , investment -(incl. stocks) Domestic Savings National Savings IEACHANDISE TRADE Annual Data at Current Prices As Percent of Total Imports Capital goods Intermediate goods (excl. fuels) h0.9 Pstroleum, Gil, Lubricants Cos singo~dsqt Tota.i1rc.Ips to(cif) 3I6.7 ' 7 T 720G TI T TZ Exports Primary products (excl. fuels) Namufactured goods ~~~~~ Tota 33, PE 3ec.Eprt T 3t. 933 r 7gT Merchandise Trade Indices Average ,- 100 Export Price Index ? _ Import Price Index Term s of Trade Index Expor ts Volume Inkdex VALUE ADDED BY SECTOR Annual Data at Prices and Exchange Rates Average Annsual Growth Rates As Percent of Total Agriculture Industry, and Mining Services g Annual Data at Current Prices As Percent of GDP Actual Pra1in1or~ PUBLIC FINANCE -197u 1973 [90( (Ce-nt-ral-Governemet)- Current Receipts Current ~xenditures Other Public sector Public Sector Fixed Investment CENTRAL GOVERNKENT DETAIL ON TOTAL EXPENDITuRE DETAILS Actual PeinayPUBLIC SECTOR As Percent As of Total % Tota Exenitre 7 FIXED Educ atio INVIEST Exedtre 1975 r6ocial Sectors13. Other -3- Social Services Economic 125Arclue1.3 Services oe Other 39.3 J Transport and coommunications Total Expenditures 1 I" rf.i Other M GT_Expenditur s IExpenditures 5 LABOR FORCE AND Total Labor Force Value A92dded er orker at Factor Cost (Current Prices) OUTPUT PER WORKER In Thousands ~ pti InerrentDoflarsr MT-= 7 -Ttll Growth Rtate -fi Agriculture , Induatry ,2148 2, Services Total 1T" i5m- TM TM not applicable.

26 COSTA RICA Annex 1 Page 4 of 4 BALANCE OF PAY!!ENTS, EXTEIRNIAL ASSISTAZICE A;3L DEBT (In millions of US dollars at current nrices) A c t u a 1 Preliminary Proiected S3AI RY BALANCE OF PAYMENTS Exports (including NFS) D Imports (includimg NFSj o 1, ,478.0 Actl Prir 1r esrcbalance (X-M) T DEBT AND DEBT SERVICE 197C Interest (net) o Public Debt Out. & Disbursed lO Direct Investment Income h (end of year) Workers' Remittance Interest on?ublic Debt Current Transfers (net) o Repayment on Public Debt 2D.6 h0.5 us.5 Balance on Current Accounts Iotal Public Debt Service 27.7 S Private Direct Investment Burden on Export Earnings (%) Official Capital Grants o Public Debt Service ?DS+Direct Investment Inc ) 13.8 Public M&LT Loans Disbursements lhl o Average Terms of Public Debt -Repayments Int. as d Prior Year DO&D S.0 Met Disbursements _77 h O T Amort. as % Prior Year DO&D Capital Transactions n.e.i IBRD Debt Out. & Disbursed Change in Net Reserves (-=increase) as % Public Debt O&D / as % Public Debt Service LOAN CO!R4ITMENTS IDA Debt Out. & Disbursed L Public M&LT Loans as % Public Debt O&D 3.h IBRD " as I Public Debt Service 0.1 ) IDA IDB ) Other Multilateral S 21;.2 3U Actual Debt Outstanding as of Dec. 31, 1975 Governments EXTERNAL DEBT Disbursed Only Percent Suppliers Wlorld Bank Financial Institutions IDA ' Bonds Other ;'ultilateral Public Loans n.e.i Sovernments Total Public M&LT Loans h uppliers Financial Institutions Bonds Public Debts n.e.i. ' Total Public M&LT Debt / Exclude loans repayable in local currency.

27 ANNEX II Page 1 of 3 THE STATUS OF BANK GROUP OPERATIONS IN COSTA RICA A. STATEMENT OF BANK LOANS AND IDA CREDITS (as of January 31, 1977) Loan or US$ Million Credit 1/ Number Year Borrower Purpose Bank IDA- Undisbursed Eleven loans and credits fully disbursed Costa Rica Roads ICE: Power ICE Telecommunications Banco Central Agriculture Costa Rica Roads Costa Rica Education o ICE Telecommunications ICE Power Costa Rica Highways Total of which has been repaid Total now outstanding Amount sold 7.5 of which has been repaid Total now held by Bank and IDA / Excluding exchange adjustments B. STATEMENT OF IFC INVESTMENTS (as of December 31, 1976) Amount in US$ Million Year Obligor Type of Business Loan Equity Total 1976 Productos de Concreto S.A. Concrete products 0.6 0o.6 Total gross commitments less cancellations, terminations, repayments and sales o.6 Total now held by IFC, fully disbursed _

28 ANNEX II Page 2 of 3 C. PROJECTS IN EXECUTION 1/ Loan 664 Siguirres-Limon Highway Project: US$15.7 Million Loan of April 2, 1970; Effective Date: June 17, 1970; Closing Date: December 31, The project was completed in December ten months behind the original schedule. The final costs are expected to exceed the original estimate by about 20 percent. The Government has financed the additional costs out of its own resources. A contractor's claim is pending in the Costa Rican courts and is not expected to be resolved for several years; the loan will therefore be closed shortly. The Government is prepared to pay the enlire cost of any settlement (which may amount to as much as US$1-1.5 million). Loan 800 Fourth Power Project: US$6.5 Million Loan of February 24, 1972: Effective Date: June 2, 1972; Closing Date: June 30, This project has been completed, and the loan will be closed shortly. Some minor cost overruns on the transmission component are being financed under loan 1126-CR. Loan 801 Third Telecommunication Project: US$17.5 Million Loan of February 24, 1972: Effective Date: June 2, 1972; Closing Date: June 30, After some delays attributable to revisions of the project scope and late deliveries, the project is now progressing satisfactorily and is expected to be completed shortly. An estimated 18 percent overrun in total project costs is expected, mainly due to increases in local cost elements, and this will be financed by the borrower, ICE. Loan 827 Second Agricultural Credit Project: US$9.0 Million Loan of June 5, 1972: Effective Date: January 25, 1973; Closing Date: September 30, This project is discussed in paragraphs of this report. Loan 872 Highway Studies Project: US$1.4 Million Loan of December 28, 1972: Effective Date: June 29, 1973; Closing Date: December 31, This project has been completed and the loan is now being closed. 1/ These notes are designed to inform the Executive Directors regarding the progress of projects in execution, and in particular to report any problems which are being encountered, and the action being taken to remedy them. These 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.

29 ANNEX II Page 3 of 3 Loan 915 Education Project: US$6.2 Mlillion Loan of June 25, 1973: Effective Date: December 27, 1973; Closing Date: December 31, The project is about 20 months behind schedule -- partly because of the delay in Congressional ratification of tihe Loan Agreement and partly because of difficulties encountered in the organization and functioning of the Project Unit. Some improvement lhas been noted in the operation of the Project Unit, although close supervision is still required, and a revised and accelerated implementation schedule has been developed. There may be some reductions in project scope, resulting prinarily from rapidly increasing construction costs. Loan 1006 Fourth Telecommunications Project: US$23.5 Million Loan of June 14, 1974: Effective Date: November 19, 1974; Closing Date: December 31, The project is progressing satisfactorily, and no cost overruns or delays in implementation are envisaged at this time. Loan 1126 Fifth Power Project: US$41.0 Million Loan of June 16, 1975: Effective Date: December 16, 1976; Closing Date June 30, Effectiveness of the loan was delayed by legal and administrative difficulties, but the project is now in execution and progress is satisfactory. Loan 1187 Fourth Highway Project: US$39.0 Million Loan of January 14, 1976: Effective Date: July 30, 1976; Closing Date: October 32, There was a 12 month delay in the award and signing of the construction contract for the project highway because of appeals on the award filed by some losing contractors. This has been resolved and construction is expected to begin this month.