Document of

The World Bank

FOR OFFICIAL USE ONLY FILE COPY

Report No. P-2612-PA

REPORT AND RECOMENDATION

OF THE

PRESIDENT OF THE

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

TO THE

EXECUTIVE DIRECTORS

ON A

PROPOSED LOAN

TO THE

REPUBLIC OF PARAGUAY

FOR A

SECOND PREINVESTMENT STUDIES PROJECT

November 20, 1979

This document has a restricted distribution and may be used by recipients only in the performance oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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CURRENCY EQUIVALENTS

US$1.00 6 126¢ 1.00 US$0.008¢ 1,000 US$7.94¢ 1,000,000 US$7,937

GLOSSARY OF PRINCIPAL ABBREVIATIONS USED IN THIS REPORT

FOFIN-CUENCA - Fondo Financiero Para el Desarrollode la Cuenca del Plata

FP - Preinvestment Fund

ONP - National Projects Office

STP - Technical Secretariat for Planning

UNDP - United Nations Development Programme

GOVERNMENT OF PARAGUAY

FISCAL YEAR

January 1 - December 31

FOR OFFICIAL USE ONLY

PARAGUAY

SECOND PREINVESTMENT STUDIES PROJECT

Loan and Project Summary

BORROWER: Republic of Paraguay

BENEFICIARY: Preinvestment Fund, a special account in theCentral Bank of Paraguay

AMOUNT: US$5.0 million equivalent

TERMS: Repayable in 17 years, including 4 years of grace, at7.95% interest per annum

RELENDING TERMS: The proceeds of the Bank loan would be on-lent throughthe Preinvestment Fund to puiblic sector agencies forseven years, including two years of grace, at 6% perannum. The Preinvestment Fund would retain the repaymentthereby building up its capital.

PROJECTDESCRIPTION: The proposed project would: (a) through the Preinvestment

Fund and the National Projects Office, finance subloansto generate a pipeline of well-prepared public investmentprojects and to support institution-building and sectoranalysis efforts; (b) consolidate the preinvestment mechan-ism established under the first Preinvestment StudiesProject (Credit 587-PA of 1975) through technical assis-tance in project preparation to the National ProjectOffice, Ministry of Agriculture, Ministry of Public Worksand Communications, and National Development Bank; and(c) provide technical assistance to establish a multi-yearfinancial planning and programming mechanism within theMinistry of Finance that will incorporate in its forecaststhe financial implications of the investments generated bythe preinvestment studies.

BENEFITSAND RISKS: The project is expected to foster better resource alloca-

tion, improved budgeting and more effective coordinationof external financial assistance. All these combinedwould contribute to maximize the benefits derived from thepublic investment effort. The major risk under the projectwould be the degree of support that the project and itsobjectives would have among the Government agencies.However, the establishment of a high level Council for thePreinvestment Fund and the decision to set up a FinancialProgramming Unit in the Ministry of Finance signal

This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be disclosed without World Bank authorizatiork.

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the Government's commitment to support and streamline thepreinvestment process, which should help improve acceptanceof the Preinvestment Fund's activities among public sectoragencies.

Local /1 ForeignPROJECT COSTS: Components Costs Costs Total

(US$ Millions)Subloans for preinvestment

studies 3 7 10

Subloans for prefeasibilitystudies (sector analysisand institution-building) 1 1 2

Technical assistance toGovernment agencies 0.2 0.8 1

TOTAL 4.2 8.8 13

/1 The project is exempt from taxes and duties.

PROJECT FINANCING: Local Foreign(US$ Millions) Costs Costs Total

Preinvestment Fund 4.0 4.0Bank 5.0 5.0FOFIN-CUENCA 3.0 3.0UNDP 0.2 0.8 1.0

TOTAL 4.2 8.8 13.0

ESTIMATEDDISBURSEMENTS: FY 1980 1981 1982 1983 1984 1985(US$ Millions)

Annual 0.1 0.5 1.0 1.1 1.5 0.8Cumulative 0.1 0.6 1.6 2.7 4.2 5.0

ECONOMIC RATEOF RETURN: Not applicable

APPRAISAL REPORT: None

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

REPORT AND RECOMMENDATION OF THE PRESIDENTTO THE EXECUTIVE DIRECTORS ON A

PROPOSED LOAN TO THE REPUBLIC OF' PARAGUAY FOR ASECOND PREINVESTMENT STUDIES PROJECT

1. I submit the following report and recommendation on the proposedloan to the Republic of Paraguay for the equivalent of US$5.0 million toassist in financing the Second Preinvestment Studies Project. The loanwould have a term of 17 years including 4 years of grace, with interestat 7.95% per annum. The proceeds of the loan, to finance preinvestment andpre-feasibility studies, would be made available to the Preinvestment Fund(FP) on a non-reimbursable basis; FP would on-lend these proceeds to publicsector agencies for seven years, including two years of grace, at 6% perannum.

PART I - THE ECONOMY 1/

2. An economic mission visited Paraguay in October 1978 and the up-dating economic report, covering short- and medium-term developments, hasbeen distributed to the Executive Directors ("Economic Memorandum on Paraguay"(2461-PA), May 1979).

Economic Performance

3. Paraguay is endowed with vast areas of unutilized lands well-suitedfor agriculture or livestock, and has substantial hydroelectric potential.Despite these natural resources, progress has been held back by weak publicinstitutions in the development area, remoteness from foreign markets,scattered population, and a weak transport netuwork. The private sector stillconsists mainly of small traditional firms, and the role of the public sectorin the economy is limited. For many decades, per capita income and employmentgrew slowly and emigration served as an outlet for unemployed and under-employed manpower. More recently, however, the economy has been growingrapidly and many Paraguayans who had emigrated to neighboring countries havereturned, responding to the expanded employment opportunities associated withthe construction of the Itaipu dam. Furthermore, the expansion of the agri-cultural frontier has encouraged the immigration of farmers from abroad.Nevertheless, the country's population density remains very low in relationto agricultural land.

4. The economic potential of the country began to be more fullyrealized during the 1970's with the rapid expansion of land under cultivationand the beginning of the exploitation of the enormous hydroelectric potential

1/ Paragraphs 3-13 are substantially the same as the ones contained in thePresidents Report for the Sixth Highway Project (Report P-2576-PA ofJune 4, 1979).

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of the stretch of the Parana River along the country's border with Braziland Argentina. A rise in external demand and favorable prices were instru-mental in accelerating agricultural growth. The effective supply responseof Paraguayan agriculture has been assisted by improvements in transport andimplementation of a comprehensive set of programs designed to increase anddiversify agricultural exports. The agricultural growth of recent years hasbrought about an improvement in the real incomes of the rural population,which comprises about three-fifths of the total. A significant share ofproduction of tobacco, cotton, and soybeans, which account for most of therecent expansion, is grown by small farmers who have received land under theGovernment and privately sponsored colonization programs. Roughly 25% ofagricultural workers have benefitted from these land settlement efforts.Moreover, recently, rural wages have increased sharply in some areas wheredemand for agricultural labor has exceeded supply. Thus, the benefits ofagricultural progress have been fairly widely shared. This has reducedrural-urban migration. Per capita income grew at 5.2% per annum during1972-78 compared to the 1.2% averaged during the previous 30 years. Growthin per capita incomes has been accompanied by other improvements in thestandard of living as life expectancy and literacy have increased, and infantmortality has declined. Nutritional levels are comparable to those found incountries with higher per capita incomes. Furthermore, in recent years, theGovernment has started to carry out a series of programs aimed at extendingsocial and other back-up services, financial support, and technical assistanceto existing and new land settlements. These programs should help in spreadingthe benefits of growth even more effectively among the poorer segments of thepopulation.

5. Exploitation of the country's hydropower potential has been facil-itated by treaties signed with Brazil and Argentina to form two binationalauthorities for the construction and operation of two or more hydroelectricplants aggregating at least 17,000 MW. Construction of the Itaipu dam withBrazil, the largest ever built, has begun and is on schedule. Paraguay'seconomy is now in the midst of a rapid transformation spurred mainly byagricultural expansion and construction activity on the Itaipu dam. Therapid growth of agriculture has continued unabated in 1977-78, and, togetherwith the reactivation of agroindustrial activity in the wood and beef sectors,has resulted in acceleration of the GDP growth rate to over 9% in 1977-78(as compared to 6% in 1975-76). These developments have been accompanied byincreased foreign capital inflows, a notable expansion of investment levels,and an acceleration of economic growth.

6. Growth has been accompanied by relative price stability. The rateof inflation which reached 22% in 1974 decelerated to 8% in 1975 and 6% in1976 because of austere monetary and fiscal policies as well as the taperingoff of price increases for imports and exports. The rapid increase in themoney supply generated by large capital inflows associated with the con-struction of Itaipu dam and buoyant domestic demand resulted in a moderatelyhigher inflation rate of 7.9% in 1977 and about 12% in 1978. While con-tractionary fiscal policies have helped in easing inflationary pressures,these policies alone cannot be an effective instrument for this purpose given

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the relatively small role of the Central Government in the economy and theeffects of the expansive forces, including the effects of foreign inflation.Moreover, undue reliance on such a policy could jeopardize the implementationof important development projects and social services. In the circumstances,the authorities are relying on the openness of the Paraguayan economy, whichenables imports to act as an effective regulating mechanism to domestic demandpressures. However, there is little that a small, price-taking country likeParaguay can do to insulate itself from the effects of foreign inflation.

7. The buoyant economy and measures introduced to improve the effi-ciency of tax administration have reversed the declining trend in the ratioof Central Government revenues to GDP during 1974-76, raising the ratio from9.0% in 1976 to over 10% in 1978. The Government continued to maintain atight rein on expenditures, which have remained at about the same proportionof GDP during the last five years. Thus, Central Government savings increasedduring 1977/78. Several large projects initiated during 1974-76 were com-pleted so that public sector investment declined from its peak of 6.4% of GDPin 1976 to about 4.5% in 1978. Net external financing exceeded the reducedfinancing requirements allowing the Government to reduce its debt outstandingto the monetary authorities.

8. Despite substantially higher imports in 1977 (US$360 million, upfrom US$236 million in 1976 mainly as a result of importation of capital goodsimports), Paraguay's registered trade deficit increased from US$56 millionin 1976 to only US$81 million in 1977, since increased imports were largelycompensated by the rapid expansion of agricultural exports. The trade deficitis estimated to have widened further in 1978, as imports continued to grow ata rapid pace and the country suffered a 40% loss of the soybean crop due tobad weather. Although trading partner data suggest that these registeredfigures may be underestimated by as much as 50%, there is no question thatincreased public and private capital inflows, mainly associated with theconstruction of the hydroelectric project, have more than offset the currentaccount deficit and added to the level of reserves. Foreign exchange reserveshave thus increased from US$150 million at the end of 1976 to about US$440million by December 1978.

Economic Prospects

9. Given the availability of still abundant land resources, a favor-able investment climate, a relatively favorable price outlook for majoragricultural exports and the construction of the hydroelectric projects,Paraguay's prospects as regards the balance of payments and growth over theforeseeable future are good.

10. The country's development strategy aims at sustaining the growthmomentum of agriculture and agroindustry, giving high priority to land settle-ment and to the provision of transport infrastructure to facilitate the flowof goods to domestic and foreign markets. The Government is carrying out aprogram to assist farm settlers in increasing their productivity, and isexpanding credit for agriculture and agroindustries. In the case of smallfarmers, the emphasis is on the consolidation of existing colonization

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schemes and the establishment of some additional ones. Through foreignprivate investment and credit programs, the Government hopes to encouragethe concurrent development of industries, particularly those with highvalue-added and dependent on domestic primary production.

11. The authorities are aware that the on-going boom in private invest-ment and the prospect of continued high rates of GDP growth will call forgreater public investment in supporting infrastructure as well as increasedexpenditure for education, health, rural development and other development-related services. The needed acceleration of public capital formation willrequire new tax measures, pending substantial transfers from power exportearnings to the Central Government, to ensure the generation of the necessaryadditional internal resources. At the same time, higher current expendituresin the public sector will be required to improve effectiveness and broadenthe scope of public action in the social sectors.

12. The level and pattern of public investment that could be achievedduring the next five years will also depend on the technical and administra-tive capacity of the public sector to prepare and implement projects.Although improvements have been made in the planning mechanism in recentyears, a bigger public sector investment program would require a large numberof well-prepared projects. There is a need, therefore, for upgrading thetechnical aspects of project identification and preparation, and for devotingincreased attention to enhancing the administrative capacity of public sectorinstitutions. A broader investment effort will require streamlining anddecentralizing the decision-making process. Moreover, salaries of scarceprofessional staff need to be adjusted upwards to compete effectively withthe increased demands of the private sector and the binational power companiesfor their services. Given the institutional difficulties and the urgent needfor greater public investment to support higher levels of private economicactivity, substantial external technical assistance will be needed to bolsterthe institution-building process.

13. With the expected agricultural acreage expansion and continuedconstruction of the hydroelectric projects, the economy could grow at anaverage annual rate of about 10% during 1979-83. Because of agriculturalgrowth and favorable international prospects for cotton and soybeans, realexports are projected to grow at 13% a year during this period. Imports,mainly of intermediate and capital goods, are projected to grow at 12% peryear. The above trade projections combined with steadily increasing netfactor payments on public and private account would result in a widening ofthe current account deficit from an average of US$270 million during 1977-78to an annual average of US$400 million in 1979-83. Private sector borrowingand capital inflow related to construction of the hydroelectric projects,are expected to provide a substantial part of the gross capital requirementsand the rest would be borrowed on the public account. Bilateral and multi-lateral agencies are projected to supply a smaller share of external capitalrequirements than they had historically. Private financial institutions andsupplier's credits can be expected to provide the rest. As Itapu relatedcapital inflows decrease, to cover the current account deficit, public sectorborrowing is projected to rise from an average of US$150 million during1979-81 to US$280 million in 1982-83. Given the projected export performance,Paraguay is expected to maintain its current low debt service ratio andcreditworthiness for the amounts of external capital required to achieve theenvisaged output growth rates.

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PART II - BANK GROUP OPERATIONS IN PARAGUAY

14. Paraguay has received US$243.1 million (net of cancellations) ofBank loans and IDA credits. Of this amount, US$193.3 million has been inthe form of 16 Bank loans, and US$49.8 million for eight IDA credits. Asof September 30, 1979, the Bank and IDA held US$232.5 million, includingUS$147.4 million undisbursed. The amount held by the Bank and IDA as ofSeptember 30, 1979, was equivalent to about 20% of Paraguay's external debt,with a blend of about 24% IDA and 76% IBRD. The service on this debt amountedto 7% of total debt service in 1977 or about 1% of exports of goods and non-factor services. On a sectoral basis, Bank and IDA assistance to Paraguay hasbeen 43% for transportation, 39% for agriculture, 9% for education, 4% forindustry, 3% for water supply, and 2% for preinvestment studies in varioussectors. Execution of these projects has, on the whole, been satisfactory.

15. IFC has had one operation in Paraguay. In 1974, it financed awood processing project. Its participation, a US$5.4 million operation withFINAP, S.A., consisted of a US$4.0 million loan, an equity participation ofUS$1.0 million, and a contingent loan for the financing of cost overruns ofUS$0.4 million. The project has experienced critical financial and managerialproblems, and efforts to restructure it have not succeeded. Legal proceedingshave been initiated against FINAP by the NationaL Development Bank and IFC.Annex II contains a summary of Bank loans, IDA credits and the IFC investmentas of September 30, 1979, and notes on the execution of ongoing projects.

16. Bank Group lending to Paraguay in FY79 consisted of the US$25.0million loan for a livestock and agricultural development project and theUS$39.0 million loan for a sixth highway project. Preparation work is underwayon projects in: ports and inland waterways, rural development, area develop-ment (including watershed protection and rural development), and industrial andregional development.

17. In lending to Paraguay, the Bank Group tries to assist the Govern-ment in achieving four major objectives, which are interdependent and com-plementary. One objective is to spread the benefits of growth more widelythan before and, more particularly, to attack directly the problem of ruralpoverty. A second goal is to help Paraguay expand output, including exports,by supporting projects that directly or indirectly make large contributionsto production and employment. A third objective is to support programs thatwill bring about improvements in the management of the economy and, parti-cularly, that will help to strengthen public institutions and financialintermediaries. A fourth goal is to help the public sector to increase itsinvestments in support to the productive sectors and to expand perceptiblyinto the social sectors.

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18. While the last objective primarily influences the magnitude ofthe Bank Group's program in Paraguay, the other three jointly determine itscomposition. Naturally, many operations serve more than one of the endslisted and may, moreover, support more specific Government objectives. Thus,Bank Group assistance for education, rural development and rural water supplyis designed to help ease the rural poverty problem and to improve the livingstandards of the lowest 40% of the income distribution scale. Similarly, BankGroup lending for industry, agricultural development and livestock is aimed atincreasing value added and exports of agricultural products, and at expandingmarketing outlets, particularly for small farmers. Lastly, loans in thetransport sector are designed to help improve institutional structures andpolicies of the sector, which play a vital role in supporting the productionactivities of the agricultural and industrial sectors. As agriculture consti-tutes the backbone of the Paraguayan economy, these operations are designedto support either directly or indirectly the development of that sector, byunderpinning in particular the Government's efforts aimed at extending socialand other backup services, financial support and technical assistance toexisting and new agricultural settlements. Furthermore, in view of theincreasing development potential of the southeastern region (as a result ofthe expanding agricultural frontier and the impact of the construction of thelarge hydroelectric projects)--and the need to assure maximum possible results,the Bank lending program for Paraguay is to place increased emphasis onprojects in that region. Projects such as the proposed operation fit theBank's overall strategy in Paraguay aimed at supporting programs that helpovercome institutional constraints, in particular in planning, economicmanagement, and project preparation and execution. In this context, specialemphasis is placed on strengthening public institutions and financial inter-mediaries.

PART III - PUBLIC INVESTMENT AND PROJECT PREPARATION ACTIVITIES

Planning, Organization and Administration

19. The Technical Secretariat for Planning (STP), which reports to thePresident of the Republic, is responsible for preparing five-year economicdevelopment plans. However, planning is fundamentally of an indicativecharacter. The plans establish overall development strategy, economic growthand minimum investment targets as well as a tentative list of projects to becarried out by the public sector. This list represents mainly ideas aboutpossible projects; Government commitments to investment proposals are actuallymade at the time of the annual budget on the basis of the stage of readinessof each proposal. Approval of the main project investment proposals are givenby the National Economic Coordination Council, a ministerial-level decision-making body for economic and social matters, headed by the President of theRepublic. The budgetary process thus tends to favor the ministries and/oragencies that are most capable of preparing projects in that they receivethe bulk of resources, sometimes regardless of the priority ranking of theirinvestment projects from the vantage point of economic development.

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20. To overcome this problem in part, the Government established in1975 with Bank support a Preinvestment Fund (FP) in the form of a semi-autonomous account in Central Bank to increase the project preparation capacityof the public sector. FP is operated by a Management Committee consisting ofrepresentatives of the Ministry of Finance, STP and the Central Bank.

21. To assist FP in its endeavors, the National Projects Office (ONP),a department of STP, is acting as executing agency for preinvestment work.ONP has been the driving force behind FP. ONP's current organizational set-upappears to be satisfactory. It is headed by a Director appointed by thePresident of the Republic and has a staff of 16 professionals, of whom nineare involved in operations and the remaining seven in administration. ONP hastwo departments: a technical department responsible for subloan identification,processing and supervision; and a financial-administrative department respon-sible for budgeting and programming, as well as financial and overall administ--ration. The quality of ONP staff still needs to be upgraded. Up to thepresent, ONP has been unable to retain well-qualified staff because its salaryscale is too low when compared to that of semi-autonomous public and privateinstitutions. Although FP's regulations provide for financial support for ONP,this amount has so far been limited to 1.5% or 1/4 of the 6% interest accruedfrom subloans. This amount has been too small, especially in a period whenFP's portfolio has expanded slowly, to step up aLdequately the salaries of staff,which are otherwise fixed at the normal civil service rates. The current inter-national advisors--an agricultural economist and a transport specialist--haveprovided the necessary expertise to ONP for hanclling operations in theirrespective fields. However, the absence of proper counterpart personnel inexecuting ministries has limited their contribution to institution-building.In addition, weaknesses in project preparation capacity within most publicsector agencies has required more involvement of FP/ONP than is desirable froma financial intermediary in preparation of terms of reference and associatedwork.

22. The country's economic development strategy calls for heavy relianceon the private sector, and accordingly a limited role of the Government intotal investments. During 1973-77, the public sector investment accountedfor only about 24% of total investment and about 5% of GDP. The publicsector's role has been geared towards the provision of key infrastructure,as well as productive and social services. The Central Administration hasbeen responsible for about 35% of public sector investment and semi-autonomous enterprises about 55%, with the rest being spent by Municipalities.Public sector investment has concentrated on infrastructure (close to 70%of total public sector investment went to energy, transport and communica-tions), while investment in productive sectors has been small because theybenefit more from indirect investments through Government provision of credit.Public investments in social sectors has been comparatively small, as a resultof austere expenditure policies as well as weak project preparation andadministrative capacity.

23. In all, the improved economic situat:ion described above has madeit possible to think of an expanded level of public expenditures. This wouldenable the authorities to extend recent gains in managerial and physical

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capacity and, more importantly, sustain the growth process in the longer-run.This situation, however, heightens the need for increased capacity foridentifying, preparing and, later on, executing projects. Improved projectpreparation would assist the Government in undertaking appropriate investmentdecisions, reduce the possibilities of cost overruns and of costly delays inproject execution which lead, in turn, to postponements in project benefits.Given the investments required to realize the country's potential and thelimited resources available to the Government, efficient project preparationis expected to make a significant contribution to higher capital productivity.Moreover, well-prepared projects would enable the Government to negotiate thebest financial and technical terms for project implementation. Finally, astrengthened project preparation and execution capacity would realize theGovernment's objective of a higher level of public investment and its alteredallocation towards the social sector.

24. In 1975, IDA approved a credit for the equivalent of US$4.0 millionfor a Preinvestment Studies Project (Credit 587-PA). The project aimed at:(a) increasing the number of well-prepared public investment projects;(b) establishing an efficient preinvestment mechanism; and (c) improvingcoordination at the planning-budgeting level. The Credit funds are channeledthrough FP with the support of ONP. Although the project had some difficultbeginnings, the project's concept gradually gained acceptance amongst Govern-ment agencies in the course of implementation. The project has been instru-mental in transforming several ideas into concrete and viable proposals. Upto the present, the FP/ONP has approved 17 subloans(see Annex IV, Part I) fora total of about US$5.5 million (compared to an estimated total of US$6.0million at the time of appraisal). Five of these studies have been completedand the rest are at various stages of execution. As of now, FP's ManagementCommittee has approved subloans entailing US$4.0 million in Credit funds ofwhich US$2.7 million has been formally committed. Since the bulk have beencommitted over the last year, only about US$0.6 million have been disbursed sofar. In view of the existence of a comprehensive Transport Survey, the bulkof the studies financed have been in that sector as expected at the time ofappraisal. However, a review of rural development areas with support under thetechnical assistance component of the project (financed by UNDP) provided thebasis for preparation, currently underway, of a number of new rural developmentprojects. Most of these studies are related in one way or another to theBank's lending in Paraguay, although FP/ONP has now started to finance studiesthat might be associated with other sources of financing.

25. Hitherto, preinvestment financing has been limited to feasibilitystudies and final engineering, with the major part of the funds going into thelatter. In view of the fragmentary basis of knowledge prevailing in a numberof sectors, and the increasing demands that more numerous and complex projects--in particular those of a rural-development type--place on the public administra-tion, there is a need for pre-feasibility work, as well as for studies focusingon institutional improvements required to strengthen public sector capacitiesto execute the programs and projects in various sectors.

26. Institutional development has been limited except for the expertisegained to date by ONP, which is now able to assist Government agencies intransforming ideas into concrete project proposals. However, as mentioned

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in paragraph 21, ONP's activities have been hindered by budgetary limitations.The main bottleneck under the ongoing project has proved to be the relativelylong and cumbersome subloan approval process, in particular at the CentralGovernment level. Delays have been chiefly due to: (i) the relatively longperiod of time needed to obtain legally required guarantees from the Ministryof Finance for each subloan; (ii) the absence for decisionmaking purposes ofreliable information regarding the Government's financial strength and needsin the future, the relevance of the proposed studies to overall developmentobjectives and availability of financing for ensuing project implementation;(iii) the tendency of various Government agencies to attempt to seek their ownsources of financing, thereby avoiding the procedural and technical disciplinerequired by FP/ONP; and (iv) the tendency to tailor subloan agreements to eachparticular subproject. To overcome the shortcomings affecting the preinvest-ment process, the Government has agreed on the following set of key measures:

(a) High Level Council

27. A high level Council, composed of the Minister of Finance, thepresident of the Central Bank and the head of STP, has been establishedto oversee FP policy and approve lending programs, centralize preinvestmentwork in FP/ONP, and require that all major public sector investments are basedon feasibility studies. Under this arrangement, the day-to-day operations ofFP will be handled by FP's Management Committee, since there are many functionswhich realistically cannot be the responsibility of the high level Council, orfunctionally of ONP. The Council will instruct the Management Committee toundertake appropriate actions on matters decided in principle by the former.In particular, the Council would primarily be a policy-making body, whichwould approve FP's work programs; responsibility for approval of individualstudies would be vested in FP's Management Committee, which would have autho-rity to sign all relevant legal documents (Section 4.02(d) of the draft LoanAgreement). To assure that FP's Management Committee becomes the type ofexecutive body envisioned for this activity, ONP must be suitably representedin FP's operations and management. To this end, the Government has undertakenthat, as a condition of effectiveness for the proposed Loan, the head of ONPwould substitute the head of STP in the Management Committee (Section 7.01(b)of the draft Loan Agreement).

(b) Global Guarantee

28. The Government has agreed to provide, in the context of the LoanAgreement for the proposed project, a global guarantee for all subloans to becommitted under the project, thereby avoiding the need for specific Ministryof Finance subloan guarantees for each individual operation (Section 4.07 ofthe draft Loan Agreement). The Ministry would review proposals requiring FPfinancing through the work of the Management Committee, the high level Councilfor FP and the proposed Financial Programming Unit (paragraph 40).

(c) Merger of FP with ONP

29. The Government has, furthermore, decided that FP/ONP would eventuallyoperate as an autonomous entity, forming a single institution (as is the caseof pre-investment institutions in other countries). The Government has

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undertaken to complete this merger by June 30, 1981 which should providesufficient time to work out the legal and organizational aspects of the newentity (Section 5.03 of the draft Loan Agreement). Also, an earlier targetfor the merger may not be feasible, in view of the relatively undevelopedstage of feasibility work in Paraguay and the inter-agency implications, inparticular with respect to the control that such a mechanism could exert onresource allocation.

(d) Other Measures

30. FP/ONP have prepared standard forms of contract for subloan agree-ments which are satisfactory to the Bank, thereby avoiding ad hoc subloandocuments for each proposal. In the context of the proposed project, toimprove the preinvestment process, a Financial Programming Unit would beestablished in the Ministry of Finance to provide reliable informationon investment matters.

31. In order to improve ONP's salary structure and bring it up to thelevel of the Central Bank, the authorities agreed to allocate 1/3 of theinterest of subloans (Section 2.05(a)(iii) of the draft Project Agreement) toONP for salary adjustments. The Government has furthermore agreed that astructure of compensation levels satisfactory to the Bank would be establishedby June 30, 1980 (Section 5.04(c) of the draft Loan Agreement). Financialprojections for FP operations show that the above-mentioned salary structurecould be financed on the basis of current budgetary allocations includingthe margin mentioned above.

Technical Assistance

32. Paraguay has been receiving substantial amounts of technical assis-tance from bilateral and multilateral sources, mostly for general sectorstudies and institution building. This assistance has contributed to improvingthe general information base about the country, but has been insufficient forproject preparation in the public sector.

33. The main sources of technical assistance have been the Inter-AmericanDevelopment Bank (IDB), the United States Agency of International Development(USAID), the United Nations Development Programme (UNDP), the Organization ofAmerican States (OAS), and the Governments of Japan and the Federal Republicof Germany. IDB and USAID have been providing technical assistance to theMinistry of Agriculture to plan the execution of a series of rural development-type, and research and extension projects. The IDB has also recently assistedSTP in preparing general development plans for the areas of influence of thehydroelectric projects in Eastern Paraguay. IDB intends to provide technicalassistance to the Ministry of Industry in project preparation. OAS hasrecently completed a training program for ONP personnel in project evaluation,and is undertaking the preliminary steps for the preparation of a ruraldevelopment scheme in the minifundia-concentrated Department of Paraguari. TheUNDP program--which totals about US$7.5 million for the period 1977-1981--encompasses most sectors of the economy and is closely associated with theBank's lending program in Paraguay. In particular, it has provided thetechnical assistance required by ONP to execute the first Preinvestment StudiesProject, as well as technical assistance for the Small Farmer Credit and Rural

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Development Project (Credit 509-PA of 1974), Vocational Training Project (Loan1252-PA of 1976), Second Rural Development Project (Loan 1418-PA of 1977),Industrial Development Credit Project (Loan 1419-PA of 1977), and Livestockand Agricultural Development Project (Loan 1674-PA of 1979). UNDP has alsoprovided general assistance to STP to prepare the five-year plans and has, inconjunction with UNIDO, carried ouit a survey of industrial possibilities inParaguay, in particular those of an energy-intensive nature. UNDP intends tocontinue providing technical assistance in project preparation for the proposedproject; this participation helps ensure better coordination of activitieswith this major technical assistance agency. Bilateral sources of financehave, on the other hand, emphasized technical assistance required for theexecution of specific projects; in some instances they have includedfeasibility/detailed engineering as part of turn-key contracts.

34. The trend in technical assistance is to foster institutionaldevelopment and to improve general project preparation, regardless of thesource of financing of the ensuing investment projects. The recent initia-tives mentioned above, in the fields of agriculture and regional planning,fit this strategy. Similarly, the Bank's program in Paraguay has been aimedat supporting efforts that would lead to an appropriate sequence of projects.Such efforts include the carrying out of the review of rural developmentareas, which at present forms the basis for FP/ONP future program in the ruraldevelopment field; a study on "Regional Development in Eastern Paraguay"(1978) that forms the basis for project preparation and execution under wayin that area; technical assistance to the Ministry of Public Works andCommunications to strengthen overall transport planning. There is a growingrecognition among the Government, and multilateral and bilateral agencies ofthe benefits of working in a coordinated manner in Paraguay, in order to avoidduplication of efforts and foster compatible approaches, which could improvethe use of the relatively scarce local manpower resources. To this end, theFP/ONP system is increasingly being regarded, by both local and foreignagencies, as a useful tool to improve aid coordination.

PART IV - THE PROJECT

35. A Loan and Project Summary is placed at the front of this report.A Supplementary Project Data Sheet is appended as Annex III. Annex IVcontains a more detailed description of studies financed under the ongoingproject, a tentative list of studies to be financed under the proposed project,terms of reference of the Financial Programming Unit, costs of technicalassistance and financial projections of FP. The project was prepared betweenFebruary and April 1979, and was appraised in May 1979. Negotiations wereheld in Washington in September/October 1979; the Paraguayan delegation wasled by Dr. J.D. Samaniego, Secretary General of the Central Bank.

Project Objectives and General Description

36. Taking account of the experience gained under the first operation, theproposed project aims at overcoming the obstacles affecting the preinvestmentmechanism in Paraguay noted above. Thus, the main objectives of the proposed

- 12 -

project wouLd be to help: (a) generate a pipeline of well-prepared publicinvestment projects; (b) support institution-building and sector analysisefforts; (c) consolidate the preinvestment mechanism established under thefirst project; and (d) establish a multi-year financial planning and program-ming mechanism in the Ministry of Finance that will suitably link the country'sbudgetary process with the financial implications of the investments generatedthrough the preinvestment process. These objectives are complementary andwould contribute to improve the decision-making process in the area of publicinvestment and enhance resource allocation. Specifically, the project wouldinclude the following components:

(a) Preinvestment Studies

37. To meet the first objective--to generate public investment projects--the project would include a four-year lending program through FP/ONP, topublic sector institutions to finance the costs of hiring consultants toprepare and review specific preinvestment studies (i.e., feasibility anddetailed engineering studies). The studies to be carried out would be mainlyin transportation, agriculture, and in the social sectors. A number ofspecific studies have been identified as suitable for further consideration byFP/ONP and the Bank. In the agricultural sector, a number of rural developmentproject studies are anticipated, stemming from the recent UNDP/Bank-supportedstudy of rural development areas. In transportation, FP's study pipelineincludes a number of detailed engineering studies based on feasibility surveys,some of which have been undertaken with FP/ONP support. In many cases theroad studies are linked to agricultural projects that may also be preparedthrough FP/ONP. Work on industry is expected to cover mainly agro-industriesand energy-intensive schemes linked to the hydroelectric projects (see Annex IV,Part II for a fuller discussion of FP/ONP study pipeline).

(b) Pre-feasibility Studies

38. To meet the second objective--to support institution-building andsector analysis efforts--the project would include a similar program for under-taking sector and other pre-feasibility studies, through the FP/ONP, as wellas studies focusing on institutional improvements needed to strengthen publicsector agencies, to provide basic information on a number of sectors (whichshould facilitate project identification and preparation), to enhance theGovernment's planning and project execution capabilities. Of particularimportance would be studies on institutions linked to the agricultural sector.

(c) Institutional Development

39. To meet the third aim--to consolidate the preinvestment mechanism--the project would strengthen the Government's capacity to plan, organizeand review specific studies through: (i) technical assistance to support thework of Government agencies in the preparation of studies and (ii) the introduc-tion of new measures aimed at improving the preinvestment mechanism. Theproject would provide for the assignment of key advisors to public sectorentities likely to be the main borrowers from FP--rather than exclusivelywithin ONP as had been the case under the previous operation. The project

- 13 -

would provide for one advisor each in transport, agriculture and industrialproject promotion/evaluation in the Ministry of Public Works and Communications,Ministry of Agriculture and the National Development Bank, respectively (allfor two years each). In addition, IDB is planning to provide an expert inproject preparation within the Ministry of Industry. Since ONP itself wouldspecialize in coordinating preinvestment activities and assisting user-agenciesin processing preinvestment requests, and accordingly project identificationand preparation would take place within the user-agencies, the project wouldalso include a general-purpose project coordinator at ONP, for four years, toprovide assistance on the methods required and administrative matters, coor-dinate the project's technical assistance components, and help other agenciesin processing studies financed by FP. There would also be assistance to ONPto organize seminars (e.g., on preinvestment and on the consulting industry inParaguay) and train personnel abroad.

(d) Financial Programming Unit

40. To meet the last objective--to strengthen the capacity of theMinistry of Finance to undertake medium-term financial programming--technicalassistance would be provided for a Financial Programming Unit, the establish-ment of which, in a manner satisfactory to the Bank, would be a condition ofeffectiveness for the proposed Loan (Section 7.01(c) of the draft Loan Agree-ment). The Financial Programming Unit in the Ministry of Finance wouldprovide a link missing between the budgetary process and the project prepara-tion mechanism by: (i) working out the financial implications of the currentshort-term project lists; (ii) establishing medium-term development budgetsfor the public sector; and (iii) giving the Ministry of Finance effectivecontrol at the day-to-day management level by having the head of the Unitrepresent it on the FP Management Committee. Although the possibility ofestablishing the Unit within STP was considered by the Government and theBank, this option was discarded since the Unit's main responsibilities wouldbe functions hitherto solely vested in the Ministry of Finance. The head ofthe Financial Programming Unit would represent the Ministry of Finance in FP'sManagement Committee. This appointment would be made at the time of theestablishment of the Unit. For the Unit, the project would include one advisor,for two years, in organization and financial programming, and equipment. Twolocal professionals and three assistants, funded by the Government, wouldcomplete the Unit's staff (Schedule 5 of the draft Loan Agreement).

Project Cost and Financing Plan

41. To ensure a minimum reasonable scale, in particular to achieve theinstitution-building objectives described above, establish a solid projectpipeline and obtain maximum benefits from the technical assistance component,the Government and the Bank have agreed on a project involving a commitmentperiod of four years and disbursements of five years. This has led to aproject whose total cost is estimated at US$13.0 million equivalent, with aforeign exchange component of US$8.8 million. Of this US$10.0 million wouldbe for subloans for preinvestment studies, US$2.0 million for subloans forpre-feasibility studies, and US$1.0 million for technical assistance, withcosts of experts averaging about US$5,600 per man-month. These project costsare exempt from taxes and duties.

- 14 -

42. The Bank loan of US$5 million would finance part of the foreignexchange costs of the preinvestment and pre-feasibility studies components ofthe project. The Fondo Financiero para el Desarrollo de la Cuenca del Plata(FOFIN-CUENCA), a regional development financing institution based in Sucre,Bolivia (whose members are Argentina, Bolivia, Brazil, Paraguay and Uruguay)intends to provide a line of credit of US$3 million equiva'lent to finance theremainder of foreign exchange costs of the feasibility studies component.This line of credit would be made available primarily through parallel finan-cing with the Bank loan (however there may be, on an exceptional basis, someioint financing of studies, to be decided on a case by case basis; in suchcases the joint FOFIN-CUENCA/Bank contribution would finance the same overallpercentage of study costs as in the case of parallel financing - paragraph50). The FOFIN-CUENCA loan would have a term of ten years, including twoyears of grace, with interest at 6% per annum. This arrangement would enableFOFIN-CUENCA to make a substantial financing contribution to Paraguay, whileat the same time mitigating the following limitations on FOFIN-CUENCA'sresources: (i) at least 60% of the funds should be spent in currencies ofCuenca member countries; (ii) preference should be given, wherever possible,to consultants from member countries; and (iii) funds should be spent onproposals having regional implications, thereby excluding projects in sectorssuch as urbanization and education. The decision on which subprojects wouldbe funded by FOFIN-CUENCA would be taken on a project-by-project basis.Proposals meeting its requirements would be given preference to use FOFIN-CUENCA's resources until they are exhausted. The remainder of the feasibilitystudies would be allocated to the Bank loan. No major difficulties in utilizingFOFIN-CUENCA's funds are expected: under the previous operation, a greatnumber of studies--mostly in the field of highways--had been undertaken byconsultants from member countries. In addition, agriculture and transportstudies are considered by FOFIN-CUENCA as broadly fitting its regional concept.

43. The project's technical assistance would be financed by a UNDPgrant of US$1 million with the Bank acting as executing agency. The signingof relevant documentation concerning co-financing from UNDP and the effective-ness of the FOFIN-CUENCA Loan Agreement would be conditions of effectivenessfor the proposed Bank Loan (Sections 7.01(d) and (f) of the draft LoanAgreement). A Memorandum of Agreement would also be entered into betweenFOFIN-CUENCA and the Bank, governing the relationship between the two insti-tutions in the implementation of this project. According to the terms of theMemorandum, the Bank would (i) supervise the execution of all studies financedunder the project; (ii) advise FOFIN-CUENCA of its approval of expendituresincurred under studies financed by FOFIN-CUENCA, so that the latter can makepayments directly to the consultants; and (iii) maintain records of allpayments made by FOFIN-CUENCA, on the basis of information supplied by them(Part B.6 of the draft Memorandum of Agreement).

44. The following table provides a summary of the financial plan for theproject:

- 15 -

(US$ Millions)FOFIN-

Government Bank CUENCA UNDP Total

Subloans for preinvestmentstudies 3 4 3 10

Subloans for pre-feasibilitystudies 1 1 2

Technical assistance forpreinvestment work and

Financial Programming Unit 1 1

TOTAL 4 5 3 1 13

On-lending Arrangements and Financial Position of FP

45. Project beneficiaries would be public s,ector agencies. The 6%on-lending rate to be borne by FP subloans is designed .to encourage use ofpreinvestment resources while, at the same time, helping to establish asufficient degree of financial independence for FP/ONP activities. This rate,which compares with a weighted average cost of sources of funds (includingthe FP/Government and UNDP's contributions for which there are no financialcharges) for subloans of less than 5% and for project activities as a wholeof some 4%, is nonetheless lower than the 13% being charged in nominal termsfor lending to directly productive activities in the agricultural and indus-trial sectors under ongoing Bank-supported projects. As inflation in Paraguayin 1978 was about 13%, this implies a real negative rate of interest. Since,however, the rate of interest for FP subloans is not meant to perform atpresent an allocative role and there is still a need to promote the use offinancing for preinvestment activities, the 6% rate is considered acceptable.Of this 6% rate, 3% would stay with FP to help build up its capital base, 1%to help finance FP's administrative expenditures and 2% to supplement ONP'ssalaries.

46. The FP will have at its disposal the following resources: (a) theproceeds of the proposed loans from FOFIN-CUENCA and the Bank; (b) the rolloverfunds available to FP; (c) the net revenue accruiLng from the difference betweenits earnings on subloans and its operating expendlitures; and (d) funds madeavailable in the future by the Government and external sources. Assuranceshave been obtained from the Government that it would supplement FP's ownresources in case these are insufficient to cover the US$4 million localcontribution required for the project. These Government contributions, madethrough budgetary allocations, would be in the form of non-reimbursable funds.The decision as to whether Government support is needed would be made prior tothe beginning of each FP's fiscal year, on the basis of FP's yearly work programsand financial projections (Section 4.01(b) of the draft Loan Agreement). Thefunds made available under the previous Credit (587-PA) were provided to FPas permanent resources. The funds from the proposed Loan, as well as thoseprovided to FP by FOFIN-CUENCA would also be made available to FP on a non-reimbursable basis (Section 4.01 (c) of the draft Loan Agreement). This isthe practice that has been followed in the case of the preinvestment funds inother countries with which the Bank has been associated. The counterpartfunds generated through the repayments of the subloans would remain within FP

- 16 -

and would continue to be used for the purposes of the Loan. The proposedarrangements would enable FP to build up its working capital up to the mid-80s,and permit it to sustain a turnover of about US$4 million per year thereafterwith no further capital contributions.

47. The subloans made by FP would finance up to 100% of the cost ofstudies and would have a maximum term of seven years, including two years ofgrace (Section 2.03 of the draft Project Agreement). These terms are reason-able and in consonance with similar financing for pre-feasibility work inother countries where the Bank has associated itself with these types ofprojects. FP, by quoting its subloans in local currency, has insulated itsborrowers from foreign exchange risks. For the external contributions forthis operation, the Government would bear the exchange risk. A SubsidiaryAgreement, defining the relationship between the Government and FP (in parti-cular the transfer of funds), would be signed as a condition of Loan effective-ness (Section 7.01 (a) of the draft Loan Agreement).

Monitoring

48. The Government would furnish to, and exchange views with, the Bankon the yearly work programs for FP/ONP, including their costs and financingarrangements, as well as the results of actual execution of these programs(Section 4.08 of the draft Loan Agreement). To the extent possible, the Bankand ONP will develop cost effectiveness targets out of these reviews. Inany event, because of ONP's heavy promotional role, uncertainties regardinghow quickly ONP can disassociate itself from assisting in preparing termsof references, etc., these tests of financial and operational performancewill have to be mostly tailored to FP/ONP's experience and programs.

Procurement and Disbursements

49. The project's studies would be selected on the basis of the country'seconomic priorities, as embodied in FP/ONP's yearly work programs, and whichwould be prepared in close consultation with the relevant agencies concernedwith planning: National Economic Coordination Council, STP and FinancialProgramming Unit. The FP would submit all proposed subloans to the Bank forapproval, with the exception that subloans of less than US$200,000 (up to anaggregate of US$1.6 million for these subloans) would not require priorapproval. The submissions would be made at the various stages of the studycycle, and would include, as applicable, the subject of study, the estimatedcost and the terms of reference for the study, the draft subloan agreementbetween FP and the borrower, the short list of consultants invited to makeproposals, the name of the consultants finally selected, the rationale fortheir selection, and the draft contract between the borrower and consultants(Section 2.06 of the draft Project Agreement). The short list of consultantsthat ONP would draw up for each study proposal would normally include aninternational representation of three to five firms, with capability in theparticular field. Contracts for studies financed under the project would beawarded to consultants from member countries of the Bank and Switzerland, inaccordance with the provisions contained in FP's Regulations. Assurances havebeen obtained from the Government that it would arrange funding from sourcesother than FP of study proposals that are not eligible for financing under theexternal contributions but that have been approved by FP (Section 4.11 of the

- 17 -

Loan Agreement). In case equipment is financed with Bank funds, procurementwould be made on the basis of international competitive bidding procedures, inaccordance with the Bank's guidelines. However, contracts of less thanUS$100,000 (up to acumulative amount of US$1.0 million for these contracts)would be awarded on the basis of limited international tendering proceduresacceptable to the Bank (Schedule 4 of the draft Loan Agreement).

50. The proposed Bank loan would be disbursed (i) with FOFIN-CUENCA,for 70% of the cost of each preinvestment study; and (ii) for 50% of the costof each pre-feasibility study. Disbursements are expected to be completedby December 31, 1984 (Schedule 1 of the draft Loan Agreement).

Benefits and Risks

51. The strengthening of the preinvestment process and the establishmentof the Financial Programming Unit would help increase the number of well-prepared high priority projects in the public sector. This, in turn, willencourage better resource allocation, improved budgeting and effective coordi-nation of external financial assistance. All of these combined would contributeto maximize the benefits derived from the public investment effort. Althoughit would appear that these benefits would be substantial, it is not possibleto quantify them in a sufficiently precise manner to compute a meaningful rateof economic return. However, experience with other projects has shown thatsubstantial gains or savings can be realized (e.g., by avoiding over-investmentsor cost overruns) by undertaking suitable feasibility studies or detailedengineering studies.

52. There are no special risks in the proposed project beyond thatnormally associated with securing first rate experts in the preinvestmentfield. The presence of experts should help strengthen the capacity of ONPand key implementing agencies to prepare projects. The risks involved in therecruitment of suitable experts would be minimized by the appointment of theseby the Bank, acting as the executing agency for UNDP. The Financial Program-ming Unit should help streamline the preinvestment process and overcome pastproblems. The main risk is the degree of support that the project and itsobjectives would have among the Government agencies. However, the establish-ment of the high level Council for FP and the decision to set up the FinancialProgramming Unit in the Ministry of Finance have signaled the Government'scommitment to support and streamline the preinvestment process, which shouldhelp improve acceptance of FP's activities among public sector agencies.

PART V - LEGAL INSTRUMENTS AND AUTHORITY

53. The draft Loan Agreement between the Republic of Paraguay and theBank, draft Project Agreement between the Bank and the Central Bank (for thePreinvestment Fund), the draft Memorandum of Agreement between FOFIN-CUENCAand the Bank, and the Report and Recommendations of the Committee provided forin Article III, Section IV (iii) of the Bank's Articles of Agreement are beingdistributed to the Executive Directors separately.

- 18 -

54. Special conditions of the Loan are listed in Section III of AnnexIII. The following are the special conditions of effectiveness:

(a) that the Subsidiary Agreement between the Government andthe Central Bank has been signed;

(b) that the Loan Agreement between FOFIN-CUENCA and Paraguay hasbeen declared effective, and that the UNDP Project Docuimentfor the technical assistance component has been signed;

(c) that the Financial Programming Unit has been established; and

(d) that the head of ONP has replaced the head of STP in FP'sManagement Committee.

PART VI - RECOMMENDATION

55. I recommend that the Executive Directors approved the proposed loan.

Robert S. McNamaraPresident

November 20, 1979

Attachments

- 19 - ANNEX I

PARAGUAY - SOCIAL INDICATORS DATA SHEET

REeRENCE CROUPS (ADJUSTED AyjRACRsLAND AREA (THOUSEND SQ. G.)ARAAY - MOST RECENt ESTIMATE) -

TOTAL 406.8 SAME SAME SEXT RIGHERAGRICULTURAL 161.4 XQSTI RECENT GECGRAPHIC INCOME INCOME

1960 /b 1970 /b ESTIMATE /b REGION /c GROUP /d GROUP /e

GN PE9R CAPITA (US4) 230.0 360.0 850.0 1124.4 1097.7 1942.6

ENERGY CONSUN?TION PER CAPITA(KILOGRAMS OF COAL EQUIVALENT) 87.0 140.0 189.0 943.1 730.7 1646.7

POPULATION AND VITAL STATISTICSPOPULATION. MID-YEAR (MILLIONS) 1.8 2.3 2.8URBAW POPULATION (PERCENT OF TOTAL) 35.6 37.1 37.9 59.3 49.0 51.2

POPULATION PROJECTIONSPOPULATION 7N YEAR 2000 (MILLIONS) 5.0STATIONARY POPULATION (MILLIONS) 9.0TEAR STATIONARY POPULATION IS REACHED 2070

POPULATION DENSITYPER SQ. M!. 4.0 6.0 7.0 23.5 44.6 28.2PER SQ. CK. AGRICULTURAL LAND 12.0 15.0 17.0 80.5 140.7 100.5

POPULAT7ON AGE STRUCTURE (PERCENT)0-14 YRS. 46.0 46.1 44.6 40.9 41.3 35.4

15-64 nRS. 51.0 50.7 52.0 54.4 55.3 56.365 YRS. AND ABOVE 3.0 3.2 3.4 3.9 3.5 5.1

POPULATION CROVTH RATE (PERCNT)TOTAL 2.6 /h 2.6 /h 2.9 2.4 2.4 1.7U13AN 2.7 3.0 3.3 3.7 4.5 3.0

CRUDE 3IRTH RATE (PER THOUSAND) 43.0 41.0 39.0 32.3 31.1 27.5CRUDE DEATH RATE (PER THOUSAND) 13.0 9.0 9.0 8.5 9.2 9.1GROSS REPRODUCTION RATE .. 3.2 2.8 2.4 2.2 1.8FAMILY PLANNING

ACCEPTORS. ANNUAL (THOUSANDS) .. .. 26.0USERS (PERCENT OF MARRIED WOMEN) .. .. 16.0 17.7 34.7

FOOD AND NUTRItIONINDEX OF FOOD PRODUCTIONPER CAPITA (1969-71-100) 97.1 103.0 110.0 99.4 104.4 102.0

PER CAPtTA SUPPLY OFCALORIES (PERCENT OF

RMQUIREMENTS) 112.0 121.0 118.0 107.0 105.0 120.8PROTEINS (GRAMS PER DAY) 76.0 74.0 74.5 60.4 64.4 80.9

OF WHICH ANIMAL AND PULSE 40.0 /1 41.0 38.9 28.3 23.5 31.3

CHILD (AGES 1-4) MORTALITY RAn 16.0 10.0 8.0 6.7 8.6 5.1

KEALTHLIFE XPECTANCY AT BIRH (EARS) 54.4 61.0 63.0 63.6 60.2 65.6INFANT MORTALITY RATE (PERTHOUSAND) *- 64.0 .. 76.1 46.7 45.5

ACCESS TO SAFE WATER (PERCENT OFPOPULATION)

TOTAL 6.0 11.0 13.0 63.4 60.8 69.4URSBA .. 22.0 25.0 79.5 75.7 85.1RURAL .. 5.0 5.0 38.6 40.0 43.0

ACCESS TO EXCRETA DISPOSAL (PERCENTOF POPULATION)

TOTAL .. 6.0 10.0 58.8 46.0 70.1URBAN .. 16.0 28.0 77.8 46.0 88.3RURAL .. .. .. 24.5 Z2.5 33.2

POPULATlON PER PHYSICIAN 2300.0 2340.0/5 1190.0 1841.9 2262.4 1343.2POPULATION PER NURSING PERSON .. 2310.0 2250.0 933.7 1195.4 765.0POPULATION PER HOSPITAL SED

TOTAL 430.0 620.0 610.0/& 563.4 453.4 197.6URBAN .. 240.0 .. 279.4 253.1 260.2RURAL .. 5830.0 .. 1140.9 2732.4 1055.0

ADMISSIONS PER HOSPITAL BED .. .. .. 25.7 22.1 17.3

HOUSINGAVERAGE SIZE OF HOUSEHOLD

TOTAL 5.5/f - 5 5.0 5.3 4.7URBAN 5.37f .. 5.1 4.8 5.2 4.4RURAL 5.77? .. 5.a/g 5.3 5.4 5.1

AVERAGE NUE18ER OF PERSONS PER ROOMTOTAL 2.6/f .. 2.. 1.3 1.9 IURBAY 2.67f .. 1.7 1.3 i.6 4.2WRAL .. .. 3.1 1.5 2.5 1.2

ACCESS to -LEC-RICOTY (PERCENTOF DWELLINGS)

TOTAL 13.0/f .. 17. 54.3 50.0 66.0URBAN 33.27? .. 41., 80.1 71.7 85.1RURAL 1.27 1.2J 14.2 17.3

- 20 - N I-20- ~~~~~~~ANNEX_I

PARAGUAY - SOCIAL INDICATORS DATA SHEET

PARAGUAY REFERENCE GROUPS (ADJUSTED A7ERAGES

- MOST RECENT ESTIMATE) -

SAME SAKE NEXT HIGHERMOST RECENT GEOGRAPHIC lICOME INCOME

1960 /b 1970 /b ESTIMATE ib REGION /c GROUP Id GROUP /e

EDUCATIONADJUSTED ENROLLMENT RATIOS

PRIMARY: TOTAL 98.0 109.0 106.0 107.3 102.5 101.7MALE 105.0 115.0 110.0 109.1 108.6 110.0FEMALE 90.0 104.0 102.0 107.4 97.1 92.8

SECONDARY: TOTAL 11.0 17.0 2C.0 40.5 33.5 51.2KALE 11.0 17.0 20.0 40.4 38.4 56.4FEMALE 11.0 17.0 20.0 39.0 30.7 43.7

VOCATIONAL ENROL. (E OF SECONDARY) 7.0 6.0 5.0 18.5 11.5 18.3

PUPIL-TEACRER RATIOPRIMARY 28.0 32.0 28.0 37.1 35.8 27.1SECONDARY 8.0 9.0 10.0 17.9 22.9 25.3

ADULT LITERACY RATE (PERCENT) 75.0/f 79.0 80.0 77.4 64.0 86.1

CONSUMPTIONPASSENGER CARS PER THOUSAND

POPULATIOh 2.0 7.0 7.0 29.1 13.5 53.4RADIO RECEIVERS PER THOUSAND

POPULATION 83.0 71.0 68.0 172.1 122.7 225.9TV RECEIVERS PER THOUSAND

POPULATION .. 20.0 20.0 67.9 38.3 102.6NEWSPAPER ("DAILY GENERALINTEREST ) CIRCULATION PERTHOUSAND POPULATION .. 44.0 37.0 76.1 40.0 78.5CINEMA ANNUAL ATTENDANCE PER CAPITA .. .. .. 4.2 3.7 3.6

LABOR FORCETOTAL LABOR FORCE (THOUSANDS) 590.0 700.0 844.0

FEMALE (PERCENT) 21.7 21.4 22.5 21.5 25.0 24.5AGRICULTURE (PERCENT) 56.0 53.0 51.0 30.2 43.5 28.9INDUSTRY (PERCENT) 19.0 19.2 19.0 23.8 21.3 30.6

PARTICIPATION RATE (PERCENT)TOTAL 32.5 31.7 31.9 30.9 33.5 33.8MALE 51.7 50.0 49.6 47.3 48.0 51.3FEtALE 13.9 13.5 14.3 13.3 16.8 16.3

ECONOMIC DEPENDENCY RATIO 1.5 1.6 1.5 1.5 1.4 1.3

INCOME DISTRIBUTIONPERCENT OF PRIVATE INCOMERECEIVED BY

HIGHEST 5 PERCENT OF HOUSEHOLDS .. 30.0 * 23.7 20.8HIGHEST 20 PERCENT OF HOUSEHOLDS .. 62.0 .. 58.7 52.1 57.6LOWEST 20 PERCENT OF HOUSEHOLDS .. 4.0 .. 2.9 3.9 3.4LOWEST 40 PERCENT OF HOUSEHOLDS .. .. .. 9.9 12.6 11.0

POVERTY TARGET GROUPSESTIMATED ABSOLUTE POVERTY INCOMELEVEL (USS PER CAPITA)

URBAN .. .. .. 265.6 270.0RURAL .. .. .. 185.1 183.3

ESTIMATED RELATIVE POVERTY INCOMELEVEL (USS PER CAPITA)

URBAN .. .. 230.0 396.3 282.5 550.0RURAL .. 230.0 308.1 248.9 403.4

ESTIMATED POPULATION BELOW ABSOLUTEPOVERTY INCOME LEVEL (PERCENT)

URBAN .. .. .. 35.2 20.5 ..RURAL .. .. .. 46.6 35.3

.Not availableNor applicable.

NOTES

/a The adjusted group averages for esach indicator are population-weighted geometric means, excluding the extremevalues of the indicator and che most populated country in each group. Coverage of countries among theindicators depends on availability of data and is roc uniform.

;b Unless otherwise noted, data for 1960 refer to any year between 1959 and 1961; for 1970. between 1969and 1971; and for Most Recent satliate, between 1974 and 1977.

!c Latin America & Caribbean; /d Intermediate Middle Income (S551-1135 per capita, 1976); ,e UpperMiddle Income (51136-2500 per capita, 1976); /f 1962; a 1972; /h Due to emigration of Paraguayans toneignboring zountrtes (Argentina and Brazil), population growth rate Is lower than rare of natural increase;,'i 1961-63; /f Coverage of data unknown.

Most Recent Estimate of GNP per capita is for 1978.

August, 1979

-21 - ANNX I

DSIRITIONS OF 8OCIAL MICATOSP

Notes: AlthoUgh the data -r draso fro four.es generally judged the m-et authoritative and reliable, it sob-ld &Uo be noted,that they My not be interna-tionally coeparable because of the lack of standardized definition, and concepts used by different coutntries in collecting the data. The data are, nonetheless.,useful to drooribe orders of egnitude, indic.at trends, and oharaoterise certain major differences between ontrie..

The adlusted group n-erge for each indicator are population-weighted geometric meane, eacluding the eatrem value of the indicator and the most popuatedcoutry in each grouP. DUe to lack of dntn, grop averages of all indicators for Capital Surplus Oil Enqortsrs end of indicaItors of Access to Water and tnoretaDisposal, tous irg, moon Distribution and Povrty for other coutry groupe er pp0 lation-wighted ge-trio men withoot encusion of the entree value andthe cost populated coutry. Since the overege of countries among the indicators epends onaalabilit of data and is not unifom. osutioc must be exercisedto relating aveags of one indicator to another These -avrae. ere mostly usefu asa lon tons ofrepce" auswe coeparing the Values of oneindicator at a tin amog the coutry and reference groups.

LAiNS AME (thou.nsd sq.M.( Aoen t sorta Diee (pren fscsWt!o)-Ota,ob,anKua ToLtal- Total -ufaoe are coprising lend ares and inland waters. Is`ebtr'of people(9total urban en ur sre by snorts distposalaAgrIc.ultural - Mant recent estiaste of agricultural area used temporarily percentages of their respecti-e populations. ftcreta disposal say include

or permacetly for crop,, p.aturos, oskht and kitchen gardens or to the collection and disposal, with or citbout tret-et, of huma -urtelieIf.uli. and waste-eater by water-born ystem or the use of pit privies and s-ilar

GOP ER APiT (2d) iHPpercapta etbatoccc crret mrketpries, Pocointios per P5o'sician - Population divided by number of Doraticing physicianscalcuated yun coveocnthod an World HUan Atlas (1976-78 basis) ulfe rmamdcl cola nvriylvi

10,17,ed 1978 data. Ponulatlon pr NrigPerson - Population divided by number of practicing main

ENEBOY CIHUIsION PER CAPITA - Annual o-option of -onneoll energy an eaegaute nurss, practicalnrses, and assiotantnos.(ca ndlgit,ptrlu,natural gas nod hydro-, auolear end gec- cHnia ie - total. oe,and rura - PopultIon (total, urben,

thermalcictriciy nklgaoo oleuvaetprcpt;16 n ua pdivdd by their respective sombr of hospi tal beds avilable in1970, end 1976 data, public sad private general enO speiulicod hoipital end rehabkilitmtito. enes

Hospitals are .ostbliihenta peressently staffed by at leant coo physician.POPUIATION ADii VffAL STATIiTICD Entablishneata prosiding principally o-ntoddal cnare arnot included. Rural2

Total Poppltioc. Mid-YSIr knilliono( - Ao of July 1; 1960, 1970, and hoapitalo, however, include health end codical centers not perasnetly staffed1977 data, ~~~~~~~~~~~~by a phy.siian (but by andical assistant, nurse, aldaife, et.) ahInt offer

Urban Pouaion (pcr-et of total) - Rstic of orkan to tonal populatiu; in-patient aoumodatios and provids a llintad range of nedical facilatieo,difr definitio- of-rban arena any offoci coeparability of data Admissions per HoslPItal Bed - Total sunhr of adninstos to or disoIhergec from

amngconres; i960, 1970, and 1975 dtna. ho.ptalapdivided b7theousdber of beds.Puoulat ion Pro., cottoos

pbpulation it year 200 - furreot population proJeotiocs are beaed on HOUSINGA1975 total popoition by age and sec end their atalitty and fertility Avrgadc fosholId (persona per household) - total, urban and rura -rates. Pro.'_tion p-ramtern for mortality pates c-prico of tires AHoshl ossoo ru fidiiui h hr iigqatr nlbosh -ooing life eupoctancy at birth inor--ing sith cutry,a their maIn coal. A boarder or lodger ey or na not ho included in tinper capita 100000 leve, and female life I.eyotamy utbilli nin t household for sttlotio.1 purponen,775 yecru. The parmeer P o frt ility rate alec have thron level Avorae number of peruco per coon - total ban, and rura - Aierage cunb-raucumiug d-oline in fertility ecoordong to io--n level and past of persons Por rOiin all uriet, and rurl ucpied oce dt-cl clitugo,faml lnino porfoenoc Eahoutry to tics assigned one of tbece rep_eti_ely. Ne.I ng. ec]udmoos.-pc tm ot-uture and unoccpied parts.nine cobinations of iotaiy and fertIlity trends for proj-otion Acce.Ss to ileotridftl (psroet of dwellings) ota,t u,trban end rura - CIo-

purposes. ve~~~~~~~~~ntin.ni dweling,. ciielectricity In liin qurter no perentago ofSZtati-r pouaio In n ottio-sry population there I.n.s groom toa,uban andcre duelligs repectively.

si;nc tic birth rat e is squal to the douth rate, end also lbs agestruturereanino ~o-otant. Thin~ iu nohieved niy after fertility rates EDUCATIONHdeolior to the roplaconet 1o-e of unit set repr-dation rate, cies Adjusted E.rllnnt Rtionesoh generation of u-an repl-aco itself eoatly. The stationary pope- Primary schoor oa,ml and fecale -Grioc total, male end female euro-ifntPo Ice ens catlented on tie bmum of tie projectod oharactrioti-s meat of al gesath prisa-y leve a peroontagee of repective priasry

oftie poplatioc is tic year 2000, and the r-ic of decline of fortility n-h-l-ago popoai...oe; norcly isoludoasohildrco aged 6-11 yearo butrate to replace,net lev.adjusted foe differet lengths of primary oducation; for -nutriec sith

Yea atattoonr cpuPJlaioni- coe - Tho pea ohe utetti-ry population unorn ct-ocrlosn Wa .... eed 100 per-ct ior- 50cr puPilscioc hasbee reached are below or abe ti ffIil "oolage

Popultioi Denoity eodrysho total, male adfemale - C-oputed nsie; oeonodnry

Per sq. to. - Mid-pea population per squr .Ikilooite (IGO h-ctaren) of education ro te ci.loat four yearn f approved pnolnep o-trut-on;total arape-ide- general v-otio..nl, or toohec teaming inntroetiono for popils

Per no. lot.gioultural lan - CoepotId no aboc for agri-ulturl lend ucallyof12to f ers of age; o.rrc-poudvcneouru toe o_erllyonly. -uciudod.

Population Age Str...ure (erocnt) - Childe-n (0-i1yan,4 otn-g Vocational esrulnenet (peroent of ucond-r_) - Vonationl ti,tt;tutsooo inlsuc(i5-64, Yeara:, en retiee (5 year and over) no perentneo of mid-year teohnio-1, induatrial, or other progr-c shiot operato odepeod-only or aso

population; Ipo, 0970, ad1977 dam. departnntn of scondary isntltutions.Popuation Gr-thi date (percet) - total - Anau- -- 1grooth ratec of total mid- Pupil-teacher ratio -_ priaryIeand ue...darp - Ioa tuei 'I'd i

yea ouains for 1950-ho0, 17010-70, and 19170-77. prima~ry end -eeo,dary lovel diMdidcb -paber-tof teachers to the, -ere-Ponulation Orosbh Onto (-eroent)' -~ ubh - A.nugs.. couc rates of urban spondiag I.le-a

populations f r 1950-hO, 170-70, nod 197-75. Adult lieracy rte pret Lsterate adults (silo to rend and rnitc nC rodo Birth OsneI c thonuand( -A.nnu1 live birthn per thousad of mid- ap-eroetageof total adult popusinto aged 15 Ycnn and over.

poar population; 1 0, 1970, end 19~77 data.Crude tenth Onto (prtosn) - Annual dentin pop thor-ad of mid-peso CONDo10CIOR

Opopulation; i9iu, 1970, and 197dtt Paco- a- -n- (pcr snhosand rpulstioon- sdecr as-up-o out-ror_roo tpeodu_tios Rate -Aenenube of d-ughter a oa ill bea oeating lens the eight percuss;I ecldos mbulenoe, hoarao and cilitariin her normal eprod-etiee priod if hoe eup-rivoIv prent oge- ochioles.up_cific fertility m.Ien; ucually fie-pyar ne-sreg-s endiog in 1960, Rdo..i prthousand o piatnon.. All oyppe of reeoe- for m-dioi970, and 1975. broadonots to genee pulic per thousand of population; eolude- uni-oud

Panily Panning -Aooeptoca,J A.na (nioth-sods)i- Anoi nunhe of r-e.ee.aI...u.te-e end in p-ear uh rrglote-tion of 'Il,otou -tcounoeeptorsof biribounivol oeloc uder nuapee fs nationsI fenily effeot; data. for r--ct yonra nay not ho-. o ..nrbi s,LIc a,t _outrieu

pianciog pror.. ai.cblished liocoin._amlr Planni ng E sr torc of nurried -oo) -Pvrcetngc of caried fTV e-i-er (per thouand population) - TVro--ivrn for iro-dot no 9_uerawom en of child-bearin age (151b7par) ho our biti-cot-oI d-eioe public per thousad populatiut; eoldouniose teeieicutino all marrieId 0000 n caneg grop, end is yeaso hien egintr-tioc of TV .tot ass ineffeot

P201 ~~~~~~~~~~~~~~~~~~~~~~~~~ 8~~~~~~~N- -u Cir.or1.lti- (p- thousand tuiacio (- Shuns thin uvrago iro-ltionFOOD AND NUTRITION ~~~~~~~~~~~~f "daily g-real tnneret _esnpnpo,defined no u periodi-i pulintoaton

I.d- of Fnud Production pcr Capita (1969-71=1100 - Indso of per onpit'i devoted prienrily Co' reoodiog gener al neon Itluoonid-red to heduyannual p-od-otion of all food -oanditien. Prod-otio-c-1ude- .cc. and if it Pspears at least fou times asee.feed.and n on onleadar pyar baiu. Counditue- curr poi-ay good.ts Cinema Annual Atteodanoc per Capitn no Boa sIhtd cctieouio of tite

(g.sgernei ed of ugar) uhioh tee eible and ..oatnb nutrie.nto sid~ durig thie yenr, ino1udino ndnioi... to drIr-ic seasnod unh"Ie(e.g. codffe sa..d ton arc -oolued). ASgrogti production ofeob sry ut.Isbmod_ netio... Iaverage produoer pri-c -ightu.Per onita supply of-oaoioo (p-roct of re irectn( - Computed from I.,BORPOCh

e.nergy equie-lot of net food nupplie noiaheincutry Pee o-pita Total labor Puree (tho-ssuds) - E-o-moolly notove personn, -coldiod treedPer dp. do-ilablc -ppli- e -copri- do-etlo prod-otino, ipo-t Ieo foroec med un-pioped lot e h--igoocirro, ut-oto, Itcc. loflito-ocopurts, and ohages In stool. Bet uPppliI:cu-lude anc ed cd, in various -outroe arc not -oeparubI-quailtIne~ use Lu food proeiog, me d lose .in dstib.iitio. qoie- ZTlyp} ... ptcen t( - lfea lance, Coro-.n poeretage oI total lahr forc...

oencueeeticatod by Phi bned on pu.ioigi-al nredu for .o-Ine )gll.oj.5 r~ - Labo foc iv fariog, forestry, hunting andcoieo ad elth conoider..g oni- nents1 teopersture, body ceoghto, fishing as percentage of total Ib-o fooce.

age nod-c iutr ibution s of populat-r, and allo-ing it percent for Industry (percent) - Labor force in mining, o-totroioo, oof-oturing vola uso~~~~~~~te at houshold Icsl clcrt,ut-r and gs-a ps-tentge of total labor forc.

Pe nossply of protein (gr-n per day) - Protcin ountect of hr Particcatio Rate (ocoot: -tt _l.male. and female- P-t-oipation oo-pita. net vupply of food Pee da. Bet spply of food in deli-rd so atioity eaten are on puted no tntal, male, and femole lube forc as per-aJoe. Reqoirementn for nil coutriot established by USDA per-ide for a etog-n of total, mole and femal population of oil ngeu epctlecly;cinienm alluu-c of 60 gr-n of otntl protein Per day and 20 gr-n of ilyi, '1970, and 19.75 da'sn. These n-e IOlo partocipution -tea reflecting

anonal and pulse rotoin, of uhlen 0 7gr5 should hotniai -Iprotein. nge-ssntr-turee~foth popuintion, and Iong toetrend. A fes estimatesItco candrds ar loser than those of -7 ron f ttal Peunein and nre from notional --u-e

1 rc of animal protein usso-rngo foe tin soId, propo,od bip PAO pouin Decedenoy Patio - Rato of populatioc nde- i and 05 -di 00c t02ogo O -tie ThinrWorl P -o uvy.tnlbrf ago group of i5-6b yecro

Per -pcits protein -upply fro anicai nod pulse - Prot mm aupply of fooddcrived fro nml adple.i rn e dy. fINCOME DISThRUTION

Child (ages 1-I) Mrtly I R'to nrthousand) - icnl 1destho pop thousand Peroelat otf PRivate Inoome. .ltoni Ishos and kind)- R.-oi-od. by riohostin nge gecup 1-i yearn, to childenr In thu~ ng group for nost dovel- 5 prnet, riobhat 20 PeIoen,poret 20 Percent, nd Po.r-ut 4C peroantping -- tnri-s Oats de-i-d Coon life tnhIc- of househo1do.

HEALTH0 POVERTY TARGET GPOUPSLife Iopotany at Birth (po--n - A,enge nber of yeas of life EsItimtd Absolute P-erty Ioone level (seecpt)-ob ad rural

roninin at birth; 1900, 1970, and 1977. data. Absolute poverty iccne level is that income leve eon -chi n stoicalInfant M-otality Onto (pee thousand) - An-ua1 deatb of iCfnot undor one uutritIoally adesunte diet pl-.s enetin1 nun-food roqirenesi iono.t

Y.-r of eg pcr tiho-ani lIve biotto. affordable

Aoeoto Safe Waer (Percet of population -oa,ura,ad cr-al - E.intIated OnlatiVe Poet io evl(m per capita) - urban and ruralNoeber of people ttl ubn rn nei ih reas..ahlc aceec to Oua catv oety incom level In ore-third of aecrge per capitaI'felaIcruo pply (i-olud- trstod nufa- untarn or unCreted but personal in-uce of the coutry. Urban lene 1In dented fine the rural levelucooentiouted -te- -ho so thot Cfeon protected b.horoo-, upriogs, dit adjostaet foe higher cos t of living in urban arean.and _aitary weIll) an peroentage- of their respective populations. In Patimated PopuIatioci Beloo Aboniute PovertyIneom "Iron1 )ere...et - urban and

a. urban oec a pulhe founain or tandpoot 1-utcd non core than rura - Pervet of pultIon (uin and r_l)sinar 'aslt ur..2Ouoters C- ruohouse Imy 'b-cnidered an being within -easenabie

noesof that nov. I ual arsun reosonable a-ceu -nld inPyltint theIht-_o Ce or nonbr- of tic bou..chold do not bate to spend a Pcoaoio and Su-ia1 Data ldiviniudinpr-portlonte part of tIe day -r fetching the Cf-ily's watr... neds C__iom nAolYoic and Proiectin- Pepn-tmet

August 1970

- 22 -

ANNEX IECONOMIC DEVELOPMENT DATA

(Asounts in millions of U.S. dollars)

Actual Est. Projected 1970- 1974- 1978-1974 1977 1§7i 1979 1980 1983 1974 1978 1983 1974 1977 1983

NATIONAL ACCOUNTSConstant 1977 Prices Average Annual Growth Rates As Percent of GDY

Gross Domestic Product 1656.5 2092.2 2298.6 2561.0 2848.5 3654.5 6.4 8.5 9.7 102.3 100.0 100.3Gains from Terms of Trade (+) -37.0 - -21.4 -19.8 -22.0 -11.3 -2.3 - _ .3Gross Domertic Income 1619.5 2082.2 2277.2 2541.2 2826.5 3643.2 6.5 8.9 9.9 10.O 100.0 100.0

Import (incl.NFS)* 350.1 683.2 701.5 789.7 879.0 1D82.9 9.8 19.0 9.1 21.6 32.7 29.7Exports " (import capacity)* -280.6 -444.6 -435.3 -513.6 -590.9 -830.5 1.5 11.6 13.8 -17.3 -21.3 -22.8Resource Gap 69.5 238.6 266.2 276.1 288.1 252.5 4.3 11.4 6.9

Co-nsmption Expenditures 1366.1 1814.4 1985.8 2187.5 2424.5 3133.5 5.9 9.8 9.5 84.4 86.7 86.0Investment " (icl. stocks) 322.9 516.4 557.6 629.8 690.1 762.3 16.8 12.5 6.5 19.9 24.7 20.9

Domestic Savings 253.4 277.8 291.4 353.7 402.0 509.9 16.7 3.5 11.8 15.6 13.3 14.0National Savings 244.5 263.0 283.8 327.7 368.1 452.9 16.7 3.8 9.8 15.1 12.3 12.4

MERCUANDISE TRADE Annual Data at Current Prices As Percent of Total

ImportsFood 14.4 12.7 10.4 10.4 10.8 14.5 23.0 -7.8 6.9 5.6 2.2 1.1Other cons-m-er goods 33.6 48;1 64.2 76.7 91.9 148.6 24.5 17.6 18.3 13.1 8.4 11.7Intermediate goods 32.3 49.9 59.8 73.5 89.1 139.4 14.2 16.6 18.5 12.6 8.7 11.0Fuels aud lobrtcants 41.9 42.6 47.1 57.4 67.9 96.5 61.2 3.0 15.4 16.4 7.5 7.6Capital goods 49.2 102.2 123.3 150.0 175.9 234.9 28.2 25.8 13.8 19.2 17.9 18.4Unregistered imports 84.7 316.6 309.8 372.2 439.7 639.6 61.0 38.2 15.6 33.1 55.4 50.2Total merchandise imports 256.1 572.0 614.6 740.2 875.3 1273,5 35.2 24.4 15.7 100.0 100.0 100.0

ExportsWood 24.7 19.9 19.5 22.7 29.1 53.6 18.6 -5.8 22.3 12.0 5.0 5.0Beef 40.5 28.1 25.8 34.6 40.5 56.7 . 22.6 -10.7 17.1 19.7 7.0 5.2Soybeans 20.4 58.8 41.5 61.5 72.8 141.0 90.5 19.4 27.7 9.9 14.6 13.0Cotton 16.5 80.5 105.7 137.6 180.2 313.1 42.3 59.1 24.2 8.0 20.0 28.9Other conseodities 67.7 91.6 101.4 110.8 136.7 219.8 24.5 10.6 16.7 32.9 22.8 20.3Unregistered exports 36.1 123.0 118.3 148.2 181.5 297.8 133.0 34.0 20.2 17.5 30.6 27.5Total merchandise exports (fob) 205.9 401.9 412.2 523.4 642.7 1082.1 33.2 19.0 21.3 100.0 100.0 100.0

Merchandise Trade Indices Average 1977 - 100Export Price Index 76.2 100.0 101.2 109.1 116.0 141.4 7.4 6.9Import Price Index 88.3 100.0 106.2 113.3 120.3 143.3 3.8 6.2Terms of Trade Index 86.3 100.0 95.3 96.3 96.4 98.7Expor-t Volu-e Inden 51.2 100.0 102.6 130.2 159.9 269.2

VALUE ADDED BY SECTOR Annual Data at 1977 Prices and Exchange Rates Average Annual Growth Rates As Percent of Total

Agriculture 580.4 713.7 777.7 847.7 924.0 1185.6 5.8 7.6 8.8 35.0 34.1 32.4Industry and Mining 345.7 482.8 495.1 564.4 637.8 818.1 8.4 9.4 10.6 20.9 23.1 22.4Services 730.4 895.7 1025.8 1148.9 1286.7 1651.0 6.0 8.9 9.9 44.1 42.8 45.2Total 1656.5 2092.2 2298.6 2561.0 2848.5 3654.5 6.4 8.5 9.7 100.0 100.0 100.0

ActualE Est. Projected As Percent of GDPPUBLIC FINANCE (Current Prices) 1974 1977 1978 1979 1980 1983(Central Administration)

Current Receipts 128.4 209.4 261.9 291.0 343.3 524.6 9.6 50.0 10.0Current Expenditures 103.0 148.4 174.6 216.4 251.3 365.9 7.7 7.1 7.0Budgetary Savings 25.4 61.0 87.3 74.6 92.0 138.7 1.9 2.9 3.0

CURRENT EXPENDITURE DETAILS DETAIL ON PUBLIC SECTOR 1979-83(As % Total Ctrrent Expend.) INVESTMENT PROGRAM US$ aillions 7 of TotalGoods and Services 22.7 22.6 21.5 22.5 25.0 Infrastructure 589.5 33.2Wages and Salaries 43.2 45.6 43.3 46.0 48.0 Productive Sectors 750.2 42.3Transfer Payments 19.6 24.5 22.7 23.0 17.0 Social Sectors 270.4 15.3Other 14.5 7.3 12.4 8.5 10.0 General Services 162.9 9.2Total Current Expenditures 100.0 100.0 100.0 100.0 100.0 Total Expenditure 1773.0 100.0

SELECTED INDICATORS 1974-78 1978-83 FINANCING

Average ICOR 2.6 2.5 Public Sector Savings 1006.3 56.7Import Elasticity 2.2 1.0 External Financing 766.7 43.3Marginal Domestic Savings Rate 0.06 0.16 Internal Borrowing - -Marginal National Savings Rate 0.07 0.12 Total Financing 1773.0 100.0

LABR FORCE AND Economically Active Population Employment SharesOUTPUT PER WORKER I Proj. 1962-74 1974-76 1976-80 (in percentages)

1962 1974 1976 1980 Growth Rate Growth Rate Growth Rate 1962 1974 1976 1980

Agriculture 321,333 425,633 451,554 514,170 2.4 3.0 2.6 56.1 52.1 52.4 53.0Industry 107,588 162,974 168,474 193,461 3.5 1.6 3.8 18.8 20.0 20.5 22.0Services 143.966 227.617 242,884 26&.44 3.9 3.3 2.6 25.1 27.9 27.1 25.0Total 572,887 816,224 862,912 97S,715 3.0 2.8 3.2 100.0 100.0 100.0 100.0

* Includes unregistered merchandise.I Includes financial in-estmest in agriculture and industry.

.not applicable e staff estimatesot available - nil or negligiblenot available separately -- less than half thebut included in total smallest unit shown

- 23 -ANNEX I

BALANCE OF PAYMENTS, EXTERNAL ASSISTANCE AND DEBT(amounts in millions of U.S. dollars at current prices)

Actral Estimated Proiected

1974 1976 1977 T 1979 1980 1983

SUMMARY BALANCE OF PAYMENTS

Exports (inl. NFS) 238.8 287.6 444.6 462.4 582.2 711.4 1191.0

Importe (incl. NFS) 309.1 459.6 683.2 745.2 895.2 1058.2 1533.0

Resource Balance (X-M) -70.3 -172.0 -238.6 -282.8 -313.0 -346.8 -362.0

Net Factor Payments -12.7 -15.1 -15.6 -32.2 -34.0 -45.7 -88.3.

Currezit Transfers (net) 6.9 24.2 23.1 4.0 4.4 4.8 6.4

Balance on Current Accounts -76.1 -162.9 -231.1 -311.0 -342.5 -387.7 -444.0

Private Medium andLong Term Capital 53.7 75.0 86.3 99,2 114.1 158.7

Net Capital from BinationalEntities 1.5 149.0 240.0 180.0 200.0 85.0

Public M&LT LoansDisbursements 24.7 58.7 106.6 133.3 129,3 147.9 296.9

-Repayments 10.5 11.7 16.1 52.5 46,9 141.4 230.5

Net Disbursements 14.2 47.0 90.5 80.8 82.4 126,3 66.4

Short Term Capital Flowsand Errors and Omissions 47.7 18.0 25.5 34.0 - - -

Change in Net Reserves -41.0 -5D.1 -108.9 -130.0 -19.1 -32.9 -30.3

(- = increase)GRANT AND LOAN COMMITMENTS DEBT AND DEBT SERVICE 1974 1976 1977

Official Grants & Grant-like Public Debt Out. & Disbursed 149.3 221.5 317.1

Public M&LT Loans Interest on Public Debt 5.5 7.3 10.0

IBRD 24.5 12.0 38.0 Repayments on Public Debt 10.5 11.8 16.1

IDA 11.0 4.0 - Total Public Debt Service - 16.0 19.1 26.1

IDB 11.5 2.3 11.0Governments 6.6 11.0 17.0 Burden on Export Earrings (%)

Suppliers 16.3 10.1 13.4 Public Debt Service 6.7 6.6 5.9

Financial Institutions 27.0 3.7 16.0Total Public M&LT Loans 96.9 43.1 95.4 Term Structure of Public Debt Commitments

Average Interest (C) 6.1 6.5 6.8

Actual Debt Outstanding on Dec. 31. 1977 Average Maturity (years) 23.1 18.4 16.7

EXTERNAL DEBT Disbursed only Percent Average Grace (years) 4.8 4.2 4.1

World Bank 28.0 8.8 Grant Element (7.) 28.5 23.3 18.9

IDA 33.8 10.7IDB 21.4 6.8 IBRD Debt Out. & Disbursed 15.0 21.7 28.0

Governments 123.3 38.9 as % Public Debt: O&D 10.0 9.8 8.8

Suppliers 28.4 8.9 as % Public Debt Service 9.3 10.8 9.7

Financial Institutions 82.1 25.9

Total Public H&LT Debt 317.0 100.0 IDA Debt Out. & Disbljrsed 25.5 28.7 33.8as % Public Debt O&D 17.1 12.9 10.7as 7. Public Debt Service 1.9 2.1 1.6

.not applicable e staff estimatenot available - nil or negligible

... not available separately -- less than half thebut included in total smallest unit shown

- 24 -ANNEX IIPage 1

STATUS OF BANK GROUP OPERATIONS IN PARAGUAY

A. Statement of Bank Loans and IDA Credits (September 30, 1979)

-- (US$ million)-------Loan or Amount (less cancellations)Credit No. Year Borrower Purpose Bank IDA Undisbursed

Six loans and four credits fully disbursed 21.8 25.7 1/ -

347 1972 Paraguay Secondary Education - 5.1 0.11037 1974 Paraguay Livestock IV 10.0 - 0.3

509 1974 Paraguay Small Farmer Credit andRural Development - 11.0 2.4

1059 1974 Paraguay Highways IV 14.5 - 2.7587 1975 Paraguay Preinvestment Studies' - 4.0 3.41252 1976 Paraguay Vocational Training 4.0 - 1.31346 1976 Paraguay Rural Education 8.0 - 8.0667 1976 Paraguay Rural Education - 4.0 1.61418 1977 Paraguay Rural Development II 22.0 - 20.01419 1977 Paraguay Industrial Credit 10.0 - 5.81502 1977 Paraguay Rural Water Supply 6.0 - 5.81529 1978 Paraguay Highways V 33.0 - 32.01674 2/ 1979 Paraguay Livestock and

AgriculturalDevelopment 25.0 - 25.0

1736 3/ 1979 Paraguay Highways VI 39.0 - 39.0

Total (net of cancellations) 193.3 49.8of which has been repaid 8.6 1.0

Total now outstanding 184.7 48.8

Amount sold 1.3of which has been repaid 0.3 1.0

Total now held by Bank/IDA 183.7 48.8

Total undisbursed 147.4

1/ Includes exchange adjustment.

2/ Loan was declared effective November 20, 1979.

3/ Approved by the Executive Directors on June 21, 1979; loan signed on July13, 1979 but is not effective yet.

- 25 -ANNEX IIPage 2

B. Statement of IFC Investments - September 30, 1979

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

1974 FINAP, S.A. Wood Processing 4.4 1.0 5.4

Total gross commitments lesscancellations, terminations,repayments and sales 4.4 1.0 5.4

Total undisbursed _ - _

- 26 -ANNEX IIPage 3

C. PROJECTS IN EXECUTION 1/

Credit 347-PA First Education Project, US$5.1 million, December 22, 1972;(Date of Effectiveness: October 30, 1973; Closing Date:December 31, 1979).

Project implementation is proceeding in a satisfactory manner.Of the nine project institutions, seven are completed and the remaining twoare almost completed. All completed schools are fully equipped and furnished,and the equipment for the remaining two schools is being purchased. Imple-mentation of the technical assistance component was satisfactorily completedin 1978. Total project cost is expected to exceed the appraisal estimateby about 16%, but no difficulty in provision of the required counterpart fundsis foreseen. The whole project is expected to be completed by the originalclosing date of December 31, 1979.

Loan 1037-PA Fourth Livestock Project, US$10.0 million, September 6, 1974;(Date of Effectiveness: February 21, 1975; Closing Date:August 31, 1979).

Disbursements of the loan proceeds have been in line withappraisal projections, but project induced production, productivity increasesand ranchers' income are likely to remain substantially below appraisal expec-tations due to a prolonged period of unfavorable beef prices and prevalence ofextensive herd and ranch management practices. Over the last year, progresswas made in improving technical services to ranchers and in debt collection(increasing the recovery rate from 76% in 1976 to 85% in 1977). A part-timeconsultant to train the executing agency's staff in project monitoring andsubloan evaluation was recently employed; to permit making final payments tothis consultant, the loan's closing date has been extended from February 28,1979 to August 31, 1979. Other final disbursements for subloans are now beingmade.

Credit 509-PA Small Farmer Credit and Rural Development Project, US$11.0million, September 6, 1974; (Date of Effectiveness: April 14,1975; Closing Date: June 30, 1980).

The project credit component is proceeding satisfactorily withmedium- and long-term lending in line with appraisal estimates. Lending ofshort-term funds, after the transfer of US$1,000,000 from Category 4 (shortterm) to Category 3 (medium and long term) of Schedule 1 of the Credit Agree-ment is now completed. Land titling also continues to be satisfactory, withabout 2,000 titles distributed. Efforts to help strengthen BNF's Agricultural

1/ These notes are designed to inform the Executive Directors regarding theprogress of projects in execution, and in particular to report any prob-lems which are being encountered, and the action being taken to remedythem. They should be read in this sense, and with the understanding thatthey do not purport to present a balanced evaluation of strengths andweaknesses in project execution.

- 27 -ANNEX IIPage 4

and Livestock Department are continuing. The 18 schools planned are nowconstructed, furnished, staffed and fully operating. The three health centersconstructed under the project have been supplied with medical equipment andare fully operational; and the three community centers have been built andhave been handed over to the Ministry of Agriculture for administration. Earthroad construction is now 85% completed (40 km) and all-weather road construc-tion is 22% completed (8 km). The closing date has been extended fromJune 30, 1979 until June 30, 1980 to permit completion of pending activitiesand finalize disbursements.

Loan 1059-PA Fourth Highway Project, US$14.5 million, December 12, 1974;(Date of Effectiveness: March 11, 1975; Closing Date: June 30,1980).

Work on one project road (Mbocayaty-Colonia Independencia) wascompleted in July 1978 or about ten months behind schedule; progress ofworks on the other project road (Encarnacion-Pirapo) is about 73% against thescheduled 100%; completion is now scheduled for March 1980--this has requiredan extension of the closing date from June 30, 1S979 to June 30, 1980. Delayswere caused by poor management and insufficient equipment; corrective measureswere taken. The consulting firm engaged for assisting in highway maintenanceand for preparing a study on maintenance needs has completed its task. Thelatter study was the basis for the subsequent highway loan (Fifth HighwayProject - Loan 1529-PA).

Credit 587-PA Preinvestment Studies Project, US$'4.0 million, October 17, 1975;(Date of Effectiveness: April 15, 1976; Closing Date:December 31, 1980).

Although the entire amount of the credit is now virtuallycommitted, progress on the institution building side is still slow. TheGovernment is attempting to simplify the formalities involved in processingsubprojects, and although the execution of the latter is now speedier, thisaspect will require continued attention during the disbursement phase.

Loan 1252-T-PA Vocational Training Project, US$4.0 million, May 13, 1976;(Date of Effectiveness: August 26, 1976;Closing Date: June 30, 1980).

Project implementation is on schedule. Construction of fourof the six institutions has started. The designs for the other two are beingprepared. Furniture contracts for two institutions and all equipment contractshave been signed. The technical assistance program is satisfactory and runningsmoothly. Project cost estimates are within appraisal estimates, so far.

Loan 1346/ Third Education Project, US$4.0 million Credit and US$8.0Credit 667-PA million Loan, December 22, 1976; (Date of Effectiveness:

March 4, 1977; Closing Date: June 30, 1981).

Project implementation is about six months behind schedule dueto initial lack of counterpart funds. However, under a revised implementationschedule the project is expected to he completed by the present closing date

- 28 -

ANNEX IIPage 5

of June 30, 1981. About 10 associated rural primary schools are completed.Construction of 43 new rural primary schools as well as of five lower secon-dary schools has been contracted. Satisfactory progress has been made incontracting technical assistance specialists and in implementing the textbookproduction and in-service teacher training programs. With regard to totalproject cost, at this time no cost overrun is foreseen.

Loan 1418-PA Second Rural Development Project, US$22.0 million, May 18, 1977;(Date of Effectiveness: January 17, 1978; Closing Date:December 31, 1981).

Lending under the project has reached US$1,350,000, or about47% of appraisal estimates. Land titling is also progressing slowly, with 600titles distributed, or 50% of appraisal estimates. Engineering consultantsfor roads and community centers have started work. Engineering for healthcenters and posts has started and construction will begin shortly. A newproject coordinator has been appointed, and the deputy project coordinator isnow operating from the project area. Also, the project document for thesupporting UNDP-financed program of technical assistance, for which the Bankwill act as executing agency, has been signed and a chief technical adviserand an agronomist are already operating in the project area. Cofinancingarrangements with the Federal Republic of Germany are being finalized.

Loan 1419-PA Industrial Credit Project, US$10.0 million, May 18, 1977;(Date of Effectiveness: January 17, 1978; Closing Date:September 30, 1982).

One of the main objectives of the Project was BNF's financialand institutional rehabilitation. Satisfactory progress has been madetowards meeting this objective, with BNF obtaining operating profits (¢ 155million in 1977 and 0 159 in 1978) for the first time since 1972. This wasachieved in part due to a reduction in operating costs, a higher financialspread, and a capital contribution of 0 1.3 billion that the Government madeunder the Loan. BNF's debt recovery efforts, however, have not yet beensufficiently effective in decreasing the level of arrears. To accelerate theinstitutional improvements, on the other hand, the UNDP-financed technicalassistance program has been expanded by incorporating experts in agriculturalprogramming, portfolio management and electronic data processing systems.Regarding the financing of industrial projects under the Loan, BNF has submit-ted to the Bank more than 30 subprojects with small-scale enterprises account-ing for most of them. Disbursements, however, were running somewhat behindschedule. Since BNF has already met the conditions for releasing the pendingamounts under the Loan's second tranche (US$6.0 million), an additional US$4.0million has been made available to finance subprojects.

- 29 -

ANNEX IIPage 6

Loan 1502-PA Rural Water Supply Project, US$6.0 million, December 16, 1977;(Date of Effectiveness: July 13, 1978; Closing Date:June 30, 1982).

The project is delayed six months due to longer than forecastedtime to fulfill effectiveness conditions (approval by the Paraguayan Congressof the Legal Documents and signature of the agreement for technical assistancebetween PAHO and SENASA, the executing agency), but implementation is proceedingat a good pace. Engineering, including bidding documents, for 43% of projectcommunities, is completed. The condition of disbursement for equipment pur-chases has been met on the basis of the signing of contracts between SENASAand 10 communities and the preparation of a satisfactory purchase program.

Loan 1529-PA Fifth Highway Project, US$33.0 million, March 17, 1978;(Date of Effectiveness: December 5, 1978; Closing Date:June 30, 1983).

Effectiveness of the Loan Agreement had been delayed by Govern-ment legal procedures to approve the cofinancing documents. The Borroweris contracting the two civil works elements and has initiated execution ofthe technical assistance component, and for procurement of road maintenanceequipment.

Loan 1674-PA Livestock and Agricultural Development Project, US$25.0 million,April 6, 1979; (Closing Date: June 30, 1984).

This loan was declared effective on November 20, 1979.

Loan 1736-PA Sixth Highway Project, US$39.0 million, July 13, 1979;(Closing Date: June 30, 1985).

This loan has not yet become effective.

- 30 -

ANNEX IIIPage 1

PARAGUAY

SECOND PREINVESTMENT STUDIES PROJECT

Supplementary Project Data Sheet

Section I - Timetable of Key Events

(a) Time taken to prepare project: About six months

(b) Preparation by: National Projects Office and a UNDP evaluation mission(February 1979)

(c) First Presentation to the Bank: September 1978

(d) First Bank Mission: February 1979

(e) Appraisal Mission Departure: May 1979

(f) Negotiations: September-October 1979

(g) Planned Date of Effectiveness: February 1980

Section II - Special Bank Implementing Action

The high level Council for the Preinvestment Fund has been estab-lished. Standard forms of contract for subloan agreement were reviewedduring negotiations and were found satisfactory to the Bank.

Section III - Special Conditions of Bank Loan

(a) Special conditions of effectiveness would be:

(i) that the head of the National Projects Office has replaced thehead of the Technical Secretariat for Planning in the Preinvest-ment Fund's Management Committee (paragraph 27);

(ii) that the Financial Programming Unit has been established in theMinistry of Finance (paragraph 40);

(iii) that the Loan Agreement between FOFIN-CUENCA and Paraguay hasbeen declared effective (paragraph 42);

(iv) that Paraguay has obtained the grant from UNDP for thetechnical assistance component (paragraph 42); and

(v) that the Subsidiary Agreement between the Governmentand the Central Bank has been signed (paragraph 47).

- 31 -ANNEX IIIPage 2

(b) The Government would provide a global guarantee for all subloans to becommitted under the project (paragraph 28).

(c) The Preinvestment Fund and the National Projects Office would merge byJune 30, 1981 forming a single autonomous institution (paragraph 29).

(d) The funds (from the Government, FOFIN-CUENCA, and the Bank) madeavailable to the Preinvestment Fund under this project would be sub-scribed by the Government to the Preinvestment Fund as capital(paragraph 44).

(e) The Government would fund, at the same terms and conditions as thecorresponding subloans, study proposals that are not eligible forfinancing under the external contributions for the project (FOFIN-CUENCA, and the Bank) (paragraph 49).

ANNEX IV

- 32 -

PARAGUAY - SECOND PREINVESTHENT STUDIES PROJECT

PART I. STUDIES APPROVED FOR PREINVE:STMENT FUND FINANCING UNDER IDA CREDIT 587-PA

COST L/(subloanamounts)

NO. STUDY NAME SECTOR TYPE BORROWER STAT1S INVESTMENT PROJECT (US$1,000)

1 internal Airports Transport Feasibility Ministry of Completed --- 508National Defense

2 Coronel Oviedo- Trauisport Detailed Ministry of Comupleted Fifth Highway Project 442San Esranislao Road Engineering Public Works (Loan 1529-PA)

3 Third Education Education Preparation Ministry of Completed Third Education Project 30Project Education (Loan 1346)

4 Resealing of Transport Detailed Ministry of Completed Fifth Highway Project 59Paraguari-Encarnacion Engineering Public Works (Loan 1529-PA)Road

5 Hydrogeologic Study Rural Water Preparation National Ongoing __ 580Supply Environmental

Health Service

6 Itapua Health Health/Rural Detailed Ministry of Ongoing Second Rural Development 56Centers Development Engineering Health Project (Loan 1418-PA)

7 Itapua Rural Roads Transport/ Detailed Ministry of Ongoing Second Rural DevelopmentRural Dev. Engineering Public Works Project (Loan 1418-PA) 563

8 Tacuara-Santa Rosa Transport Detailed Ministry of Not started -- 600Road Engineering Public Works

9 Concepcion-yby-yau Transport Detailed Ministry of Ongoing --- 153Road Engineering National Defense

10 Itapua Community Rural Detailed Ministry of Not started Second RuTsl Development 40Centers Development Engineering Public Works Project (Loan 1418-PA)

11 Pirapo-Route VII Transport Feasibility Ministry of Completed Sixth Highway Project 52Road Public Works (Loan 1736-PA)

12 Mbutuy-Saltos del Transport Feasibility Ministry of Not started -- 375Guaira Road Public Works

13 San Juan Bautista- Transport Feasibility Ministry of Not started -- 310Pilar-Itapiru Road Public Works

14 Asuncion Wholesale Agricultural Detailed Municipality of Ongoing Livestock and Agricultural 45Market Marketing Engineering Asuncion Development Project

(Loan 1674-PA)

15 Third Rural Rural Preparation Ministry of Ongoing -- 312Development Project Developmrent Agriculture(Eje Norte)

16 Area Development Rural Preparation Ministry of Ongoing -- 1,100Project (Caazapa) Development Agriculture

and Ecology

17 Asuncion/Villeta Transport Feasibility National Ports Ongoing -- 280Port Development Administration

5,505

Source: National Proiects Office and bank Data

USE OF FUNDS UNDER CREDIT 587-PA(US$ million)

Cumulative Amounts

End of Fiscal Year Approved Cotmmitted Disbursed2/ I/

79 3.8 1.3 0.680 4.0 4.0 2.581 4.0 4.0 4.0

I/ Approved in principle by FP's Management Committee; equivalent to 707. of subloan amounts.

2/ To date, US$2.7 million have been committed; (the whole credit is due to be committedby November 30, 1979).

Source bank data

- 33 -ANNEX IV

PARAGUAY

PART II. SECOND PREINVESTMENT STUDIES PROJECT

1. Enclosed is a tentative list of studies which would be the basis todesign the Preinvestment Fund's (FP) future lending program. This list hasbeen prepared by the National Projects Office (ONP), in consultation with theTechnical Secretariat for Planning and relevant Government agencies.

2. According to FP/ONP's indicative projections, FP/ONP could considerover the next four years proposals from a US$17.6 million list of studies,with the following sectoral distribution: 34% for agriculture/rural services,50% for transport/urban development, 2% for education and 7% each for publicutilities and industry. Although the study list is to be treated with cautionand its resulting magnitude is most likely beyond the various agencies' absorp-tive capacity, from the sectoral point of view the distribution of the costsinvolved is in line with Paraguay's public investment trends. On the basisof an analysis of this list and the experience of the first PreinvestmentStudies Project, a total cost of US$12.0 million (including (i) US$10.0 millionfor preinvestment studies, with a foreign exchange component of US$7.0 million;and (ii) US$2.0 million for pre-feasibility studies, with a foreign exchangecomponent of US$1.0 million) was arrived at, and was the basis for determiningthe foreign participation in the financing of ithis operation.

3. Agriculture

In view of the limited absorptive capacity of the agencies involvecdand the increasing number of development projects (coupled with the fragmentaryknowledge of conditions in the sector) the project studies would have to bebased on sectoral work, which could be financed by FP/ONP. For instance, moreeffective policies and strategies for the sector will have to be developed, iLnparticular with a view toward finding ways to compatibilize approaches andenhance the efficient use of scarce manpower resources. Sector institutionalwork will have to emphasize assistance to improve the agencies engaged inrural development activities to help them both strengthen and expand the landsettlement and settlement consolidation program. Recent Bank work undertakenin the agricultural extension, training and research sectors could lead tofurther studies to better coordinate use of resources in these fields.

4. Concerning specific project studies, land settlement and settlementconsolidation schemes are estimated to require continued support. A number ofRural Development proposals were reviewed in the context of a recent UNDP/Bank-supported study of rural development areas and have been included forfurther study in the FP/ONP list. The projects would be located in thefollowing areas: (i) Southern part of the Alto Parana Department (theidentification/preparation of which has already started with Bank support

- 34 -ANNEX IV

and is likely to lead to a Bank-financed investment project); (ii) Concepcion(which has already been studied in a preliminary way by OAS and is likely tolead to an IDB-supported investment project); (iii) San Estanislao-CoronelOviedo; (iv) Mbutuy-Saltos del Guaira; and (v) Paraguari (where the OAS iscurrently carrying out some further identification work). The Paraguariproposal calls for the improvement of already settled minifundia areas.Another area requiring consideration is agricultural mechanization in view ofthe seasonal manpower shortages. Proposals for marketing are likely to leadto projects financed by IDB and are seen as closely linked to improvement inthe marketing systems in urban centers like Asuncion (where the Bank, throughLoan 1674-PA, is financing the completion of the city's wholesale market).

5. Transportation

The list of detailed engineering studies is based on feasibilitystudies undertaken previously, or underway, in many cases with FP/ONP financialsupport. However, in most cases as far as roads are concerned, the feasibilitystudies have shown that there would be a need to associate the projects withfurther agricultural development in this area of influence of the roads:rural development in the Concepcion area for the Santa Rosa-Yby Yau road; andrural development between Mbutuy-Saltos del Guaira road for this road. Prelim-inary indications concerning the improvement of Route No. 2 (San Lorenzo-Eusebio Ayala) have shown that further work on this road could be economicallywarranted. Since feasibility studies for the San Juan Bautista-Pilar-ItapiruRoad have not started yet, it is not possible at this stage to ascertainwhether the relevant detailed engineering for this road will take place in thenear future. The remaining roads have either been indicated as candidatesfor feasibility studies in earlier sector studies or have been suggestedby the Ministry of Public Works and Communications. The specific airports tobe studied have been identified in the report from consultants financedunder the previous credit. Lastly, the ports projects have been identifiedin previous UNDP studies.

6. Given the long distances and relatively little traffic prevailingin Paraguay, to reduce costs and therefore improve the viability of road con-struction, new low-cost construction techniques are being investigated as partof the "Survey of locally available road construction and maintenance materials"currently being financed under Loan 1736-PA. It is thus possible that on thebasis of this study, detailed engineering will be carried out for roads thathitherto were found not economically viable.

7. Other Sectors

Assumptions for industry take into account the fact that the role ofthe Government will remain limited. The public sector is expected to sponsora number of ventures related to cement production and energy-intensive indus-tries (e.g., fertilizer, aluminum and pulp and paper) or to be directlyinvolved in providing assistance to regional industrial schemes in the areasof influence of the hydroelectric projects on the Parana River.

- 35 -ANNEX IV

8. Estimates for the social sector take into account a fourth Bank-supported education project, which has been identified by the UNESCO/IBRDCooperative Program, and needs for education, training and health services inthe rural areas, in particular those related to rural settlement schemes.

9. Concerning public utilities, it is expected that the activities ofthe Sanitation Works Corporation will continue to expand in the cities of theinterior, with possible IDB assistance (which has already provided support tothe Corporation).

-36 - ANNEX IV

SECOND PSWVEk . STUDIES PROJECT

Tentative List of Studies to be Consideredby the Preinvestment Fund/National Projects Office for Future Financing

STUDY NAI!E TYPE BORROWER STUDY COST(US$1,000)

AGRICULTUREIRIURAL SERVICES

1. Destumping program Feasibility Ministry of Agriculture/ 450National Development Bank

2. Marketing program for small farmers Feasibility Minietry of Agriculture! 800National Development Bank/Small Farmer Credit Agency

3. New fields of agricultural researcb!strengthening Feasibility Ministry of Agricuiture 360of two research stations

4. Agricultural mechanization Feasibility Ministry of AgricultureaNational Development Bank 800

5. Silos at Concepci6n and Antequera Feasibility Ministry of Agriculture 500

6. Rural insurance Feasibility National Development Bank! 260Small Farmer Credit Agency

7. Agricultural information Feasibility Ministry of Agriculture 120

8. Marketing of fruits and vegetables Feasibility Ministry of Agriculture 300

9. Rural development South of Route VII (Alto Parana) Feasibility Ministry of Agriculture/ 500Rural Welfare Institute

10. Fourth rural development proj ect (Concepcion) Feasibility Ministry of Agriculture/ 250Rural Welfare Institute

11. Rural development along San Estanislao- Feasibility Ministry of Agriculture/ 350CDronel Oviedo road Rural Welfare Inatitute

12. Rural development-Paraguari Feasibility Ministry of Agriculture/ 350Rural Welfare Institute

13. Rural development along Mbutuy-Saltos del Guaira Feasibility Ministry of Agriculture/ 330Rural Welfare Institute

14. Milk production/marketing Feasibility Ministry of Agriculture 270

15. Improvement of rural institutions Institutional Ministry of Agriculture/ 400study National Council for

Social Progress

16. Expansion of rural health services Feasibility Ministry of Health 200

Sub-total 6,240

TRANSPORTJ1RBAN DEVYELOPMENT

17. Rosario-San Estanislao road Detailed Ministry of Public Works 375Engineering

18. Santa Rosa-Yhy-yau road Detailed Ministry of Public Works 525Engineering

19. Mbutuy-Saltos del GuairO Detailed Ministry of Public Works 1,350Engineering

20. San Juan Bautista-Pilar-Ita Firu Detailed Ministry of Public Works 900Engineering

21. Puerto Militar-Transchaco-Paraguay River Bridge Feasibility Ministry of Public Works 230

22. Villeta-Pilar road Feasibility Ministry of Public Works 300

23. Improvement Route no. 2 (San Lorenzo-Eusebio Ayala) Final design Ministry of Public Works 200

24. Concepcion airport Final design Ministpy of National Defense 500

25. Encarnaci6n airport Final design Ministry of National Defense 500

26. Pedro Juan Caballero airport Final design Ministry of National Defense 500

27. Pabla Negra airport Final design Ministry of National Defenae 500

28. Ciudad Presidente Stroessner international airport Final design Ministry of National Defense 1,000

29.FL1MERE5 shipyard improvement Feasihility State Merchant Fleet Agency 60

30. Nueva Palmira port (Uruguay Free Trade Zone) Feasibility National Ports Administration 90

ANNEX IV

-37-

STUDY NAIE TYPE BORROWER STUDY COST(US$1,000)

31. Improvement Asunci6n traffic system Feasibility Municipality of Asunci6n 300

32. Urban development: Asunci6n, Ciudad Presidente Planning Municipalities of Asunci6n, 900Stroessner, and Encarnacion Ciudad Presidente Stroessner

and Encarnacion

33. Asuncion metropolitan area electric transport Feasibility Ministry of Public Works 200development

34. Asuncion beltway Feasibility Municipality of Asunci6n 500

Sub-total 8.930

EDUCATION

35. Fourth education project Final design Ministry of Education 100

36. Expansion vocational training Preparation National Vocational Training Service 200

Sub-total 300

PUBLIC UTILITIES

37. Sewerage in 8 cities of the interior Feasibility Sanitation Works Corporation 250

38. Water supply in 20 cities of the interior Feasibility Sanitation Works Corporatioin 600

39. Waste disposal in AsunciSn Feasibility Municipality of Asunci6n 280

Sub-total 1.130

INDUSTRY

40. Energy intensive industries Sector study Technical Secretariat for Planning 700

41. Cement industry Feasibility/ Ministry of Industry 300DetailedEngineering Sub-total 1,000

GRAND TOTAL 17-600

Source: National Projects Office.

- 38 -

ANNEX IV

PARAGUAY

PART III. SECOND PREINVESTMENT STUDIES PROJECT

Establishment of a Financial Programming Unit in the Ministry of Finance

1. Purpose

The rapid economic development of Paraguay and the prospect ofaccelerated growth in the years ahead represent a major challenge for thecountry's public sector, which will have to meet a growing demand for goodsand services, both those of a social nature designed to raise the livingstandard and those of a more purely economic character intended to fosterprivate activity. Also to be considered is the constant concern of theauthorities that the public finances be managed within reasonable margins sothat they will not cause domestic inflationary pressures--a concern that hasbeen demonstrated by sustained efforts over recent years.

However, in view of the general dynamism of the economy, Paraguay'spublic sector must also seek to make appropriate dispositions for the future,which implies that the management of the public finances must establish medium-term financial forecasts that are technically structured and incorporate areasonable safety margin in order to allow the Government and the Ministry ofFinance, in particular, to make the right day-to-day decisions while alsoknowing what the medium-term impact of such decisions will be. A study,prompted by the Ministry and the Bank, led to the proposal that a specializedunit be established for these purposes. The characteristics and functions ofthis unit and the program for its implementation are set forth in the followingparagraphs.

2. Functions of the Financial Programming Unit

(a) To make available continually updated financial projections coveringthe entire public sector for the medium term, in line with the general goals ofthe development plan and the guidelines fixed by the fiscal policy for finan-cing and public expenditure.

(b) To establish the technical links of the major public sector financialaggregates (total expenditure, level and make-up of financing, investment,among others) with the monetary program, balance of payments and the short-termeconomic plan. Also, within this general economic framework, to lay the founda-tions for the annual formulation of the budget at the institution level.

(c) To analyze the applications from the different public agencies withregard to domestic and external borrowing, verifying the existence of theprojects concerned and paying special attention to the financial commitmentsthat would be entailed, both in the execution stage (national counterpartfunds required) and with regard to the service of the relevant debts in thefuture; it would have to draw the authorities' attention to the need toprovide for these financial impacts in the national budget for the fiscal year

- 39 -ANNEX IV

or years concerned (the duration of the project execution period and of thelife of the debt) and make the estimates of the financial commitments andtentative scheduling of the servicing payments on the borrowings envisaged.

(d) To keep the Minister and the Ministry staff permanently informed

regarding the status of negotiations concerning the abovementioned operations.

(e) To inform the Minister and the Assistant Secretary regardingpublic sector agency borrowings for which the guarantee of the Ministry wouldbe required, drawing attention to their implications in terms of financialcommitments (budgetary impact) in both the short and the medium term. Inparticular, it should report periodically on the use of preinvestment fundsand submit for their consideration any applications for guarantees from publicagencies for studies not included in the project, once the borrowing inquestion has been approved by the Management Committee of the PreinvestmentFund.

(f) To maintain close liaison with the pertinent technical agencies--Central Bank, Technical Secretariat for Planning, National Projects Officeand the Directorate-General of the Budget of the Ministry of Finance--toensure proper coordination of the work and to prevent any duplication.

3. Resources Required

(a) Staffing

A specialized unit such as that proposed would require a small buthighly qualified staff. Accordingly, a level of remuneration would have to beset that would make it possible to attract and retain high caliber staff.

To begin, two experts with extensive experience in public sectorfinancial administration (at least three years) and three technical assistantswith professional training in the financial area, but not necessarily with any

previous experience, would be hired; at least one of them should have sometraining in computer programming.

In addition, the unit would be provided with suitable secretarialand support staff.

(b) Equipment

The unit would need a full complement of calculating machines, atleast three of which should have statistical ftmction programs and the othertwo financial functions.

The unit would utilize the computer facilities recently taken intouse by the Directorate-General of the Budget, the feasibility of using acomputer terminal directly in the unit would have to be studied later.

- 40 -

ANNEX IV

4. Technical Assistance

The Ministry of Finance would need technical assistance to specifythe functions of the unit and to define the technical procedures which itshould use.

For this purpose, it is estimated that the unit would require servicesof an expert with extensive experience in financial programming and publicbudgeting, plus sound training in statistics and economics, for a period oftwo years.

5. Location

The unit would work in close coordination with the AssistantSecretary in view of the Minister's involvement in the operations of thePreinvestment Fund. However, the unit would also have to be linked to theDirectorate-General of the Budget since the latter is a main source of inform-ation and data systematization. In addition, through being functionallyintegrated with a technical group that is highly specialized and deals withrelated problems, it would gain significant advantages for its technicaldevelopment.

- 41 -

ANNEX IV

PARAGUAY

PART IV. SECOND PREINVESTMENT STUDIES PROJECT

Costs of Technical Assistance Requirements

(US$)

1 Economist/general coordinator for ONP (for 4 years) 260,0001 Civil Engineer for the Ministry of Public Works and

Communication (for 2 years) 130,0001 Agronomist for the Ministry of Agriculture (for 2 years) 130,0001 Economist for the National Development Bank (for 2 years) 130,0001 Planner for the Financial Programming Unit (for 2 years) 160,000Fellowships for ONP and Financial Programming Unit personnel

(for 4 years) 10,000Annual seminar at ONP (for 4 years) 20,000Computer equipment for the Financial Programming Unit

(for 4 years) 50,000Contingencies 110,000

Total 1,000,000

(foreign exchange: US$800,000)

PARAGUAY

SECOND PREINVEESTMET STUDIES PROJECT

Financial Projections of Preinveatment Fund (Years ending December 31)

(US$'000)

1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 TOTAL

CASH FLOWSCash Inflow

IBRD Loan - - 270 820 1,000 1,270 1,640 5,000Fondo del Plata - - 180 480 600 780 960 - - - - - 3,000

Subloan Repayment -

On-Going Project- Principal 2/ 193 208 737 1,101 1,101 908 893 364 - - - - 5,505

- Interest and Commission 60 78 284 230 164 103 49 11 - - - - 979

New Project- Principal - - - - 144 528 1,008 1,632 2,400 3,116 3,592 3,972 16,392

- Interest and Commission 2/ - - 4 53 170 310 468 641 801 915 986 1,029 5,377

On-going Project Financing 824 4,342 - - - - - 5.166

Total Inflow 1,077 4,628 1,475 2,684 3.179 3.899 5.018 2.648 3.Z01 4.031 4.578 5.001 41,419

Cash OutflowSub-loan disbursement

On-going Project 824 4,342 - - - - - - - - - - 5.166New Project 3/ - - 720 1,920 2,400 3,120 3,840 4,000 4,000 4,000 4,000 4,000 32,000

Administrative Expeaaes - 17 19 21 23 25 27 30 33 36 40 44 48 363

Commission to Central Bank 41 15 20 71 65 67 75 87 106 130 149 161 168 1,114

Commission to ONP 5/ 15 20 71 72 93 124 162 209 260 298 322 336 1,982

Total Outflow 871 4,401 883 2,080 2.585 3,346 4.119 4,348 4,426 4,487 4,527 4,552 40,625 a-

Cash Surplus (Deficit)Annual Surplus 206 227 592 604 594 553 899 (1,700) (1,225) (456) 51 449 794

Accumulated Surplus 266 493 1,085 1,689 2,283 2,836 3,735 2,035 810 354 405 854

BALANCE SHEETAssets

Bank Deposit 266 493 1,085 1,689 2,283 2,836 3,735 2,035 810 354 405 854

Outstanding SubloansOn-going Project 970 5,104 4,367 3,266 2,165 1,257 364 - - - -

New Project - - 720 2.640 4,896 7.488 10.320 12,688 14,288 15,232 15.760 15.968

Total Assets 1.236 5.597 6,172 7.595 9.344 11.581 14,419 14,723 15.098 15.586 16,165 16.8Z2

Liabilities and EquityCapitalized Loans 1,191 5,533 5,983 7,283 8,883 10,933 13,533 13,533 13,533 13,533 13,533 13,533

Cumulative Surplus 45 64 189 312 461 648 886 1,190 1.565 2.053 ,632 3.289i

Total Liabilities andEquity 1,236 5.597 6.172 7.595 9.344 11,581 14.419 14.723 15,098 15.586 16.165 16.822

1/ Six years repayment period including one year grace period with equal payment of capital2/ Six percent interest and one half percent commission at disbursement

3/ Asstming an increase of 107% p.a.

4/ 1.5, for on-going project and 17. for new project5/ 1.57. for on-going project and 2% for new project

October 17, 1979

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