DOCUMENT OF INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

Not For Public Use

Report No. P-1213--PH

REPORT AND RECOMMENDATION

OF THE

PRESIDENT

TO THE

EXECUTIVE DIRECTORS

ON A

PROPOSED LOAN

TO THE REPUBLIC OF THE PHILIPPINES

FOR A

FISHERIES CREDIT PROJECT

May 2, 1973

This report was prepared for official use only by the Bank Group. It may not be published, quotedor cited without Bank Group authorization. The Bank Group does not accept responsibility for theaccuracy or completeness of the report.

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CURRENCY EQUIVALENTS

US$ 1.00 Pesos 6.78

Pesos 1,000 US$ 147.49

Pesos 1 million Us$ 147,493

FISCAL YEAR

In the Philippines the Fiscal Year covers the period

July 1 to June 30.

REPORT AND RECOMMENDATION OF THE PRESIDENTTO THE EXECUTIVE DIRECTORS

ON A PROPOSED LOAN TO THE PHILIPPINESFOR A FIaHERIES CREDIT PROJECT

I submit the following report and recommendation on a proposed loanto the Republic of the Philippines for the equivalent of $11.6 million tohelp finance a project for providing medium- and long-term credit for thedevelopment of the fisheries sector. The loan would have a term of 17years, including six years of grace, with interest at 7.25 percent perannum.

PART I - THE ECONOMY

2. A report entitled ICurrent Economic Position and Prospects of theP:ilippines (78-PH dated April 20, 1973) was circulated to the ExecutiveDirectors on May 2, 1973. Since the previous economic report in May 197.2,the Philippines has suffered one of the worst floods of the century in theCentral Luzon area, President Marcos has imposed martial law, and a newconstitution, establishing a parliamentary system of government, has beenpromulgated. The President has announced that martial law will continueunder the new constitution and that elections for a national assembly willbe postponed for six or seven years. The President is undertaking socialand economic reforms in the country and has announced that aside from lawand order, implementation of an agrarian reform program is a high priorit-yin the Philippine development program for the immediate future. In additionto decrees on agrarian reform, the President has promulgated decrees on taxreform and on a number of bills which had been awaiting Congressionalapproval, including the customs and tariff bill and the government reorgani-zation bili.

3. In the past three years the authorities have pursued policies ofmonetary and fiscal restraint and have succeeded in improving substantiallythe maturity structure of the external public debt. In spite of this, theperformance of the Philippine_economy hasg been somewhat disa ppinting, withreal GNP increasing by about 5 percent a year. Expansion in the economyhas been hampered by a combination of factors. First, a series of disruptionsto agricultural output since 1970 that was capped by the severe floods in July1972, have seriously retarded the growth of food, and in particular riceproduction. Second, there has been little improvement in export prices since1970. At the same time, import prices have increased substantially, and theresult has been a 30 percent deterioration in the external terms of trade.Because of this decline real gross national income per capita has been stationaryat about $200 since 1970. Third, the economy has experienced a period of rapidinflation with consumer prices rising by more than 50 percent during the threeyears 1970-72 due to the combined effects of devaluation, imported inflationand shortfalls in domestic food production. These adverse trends have beenespecially serious for the wage earning group. There has been a 20 percentfall in real wages and a further rise in unemployment. However, in recent

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months the rate of inflation has been reduced substantially and there hasbeen some recovery in the growth of real wages.

4. The floods in July, which caused extensive damage, made the economicsituation in the Philippines more difficult. Plublic infrastructure, inparticular, roads, flood control dikes, irrigation works and schools, weredamaged. Together with production losses and damage to private property,the total cost of the flood damage was estimated at about $200 million.Because of the extensive damage to the rice crop, the Philippines' riceimports will be about 500,000 tons in FYI.973/74. This will furthler strainthe balance of payments. In response to the flood disaster the Philippinesreceived about $76 million in assistance from foreign governments andinternational agencies.

5. The administrative, fiscal and monetary reforms that the Marcosadministration has begun to -implement under martial law could lead toimproved economic performance in the years ahead. There can be littlequestion that the Philippines has the resources - both physical andhuman - to achieve broadly based economic improvements, given the rightpolicies and adequate suipport for development within the country and fromoutside. The main elem.ents of the Government's development strategyinclude: (a) improvement of agriculture and other rural conditions;(b) faster industrial and mineral development, including a large increasein manufactured exports; (c) an investment program that complements thesector development programs by balancing the allocation of resourcesbetween agriculture, industry and infrastructure; (d) financial manage-ment to encourage exports, limit inflation and its aggravation of incomemaldistribution, and furt;her improve the maturity pattern of the externaldebt; and (e) more adequate gover-nent revenue program and better publicsector managemen't.

6. Capital formation in the Philippines is quite high, and the problemwill be to ensure that investrment outlays are more effective in future.lThis would involve better use of industrial capacity than was achievedduring the sixties and sharply accelerated public development outlays ifbottlenecks in production are to be avoided and if the deterioration insocial services is to be reversed. Public investment spending in FY 1972/73is expected to be about I.5 billion pesos, compar-ed with 0.9 billion pesosin the previous year. Expenditures for rehabilitation, which are expectedto reach about 500 million pesos in FY 1972/73, account for a large portioncf 1i increase. During 1973-77 the total public investment program isexpected to be about 10 billion pesos. Ou-tlays would rise from about 1.7percent of GNP in 1968-72 to about 2.6 percent in 1973-77. About 4opercent of the program would be for transportation, and 20 percent for power.Irrigation would account for about 14 percent.

7. Substantial additional taxation will be needed to finance the proposedpublic investment program. Public savings during 1970-72 were about 2 percentof GNP. A disappointing level of tax revenues was at the root of the problem.The tax reforms introduced since martial law have resulted in a substantialincrease in revenue collections, wiith real revenues projected to grow byabout 8 percent this financial year, despi-te the real GNP growth rate ofonly about 4 percent. A further rapid growth in revenues is expected

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again in FY74 But if the Government is to undertake its ambitious develop-ment program successfully, real revenues would have to expand by about 8 perce;ita year during 1973-77, which in turn means that the Government's fiscaleffort will have to be intensified further.

8. If both economic policy and sectora:L growth evolve as described,incomes, employment and the balance of payments should ail improve. Even,however, with rather optimistic assumptions about improvements within thecountry and support from outside, the international payments position andimport capability will be tight. Merchandise exports are projected to growat about 8 percent a year during 1973-77, including a 3 percent increasein prices. Provided rice imports can be reduced after FY73/74 and imparts ofother consumer goods kept at about current levels, imports of raw materials.intermediate goods and capital goods could be allowed to rise at about o-7percent a year. This may be sufficient to provide for a 6-8 percent growthin GNP, without resulting in the balance of payments deteriorating.

9. The foreign capital inflow to be met from transfers, direct invest-ment and loan capital would need to be about $2,990 million, or about$660 million a year, during 1973-77. Grants and private remittances wouLdprovide about $850 million and net direct investment about $60 m-_lionduring 1973-77. Gross disbursements of medium- and long-term loan capi-talwoul-d have to be about $2,090 million during 1973-77, or about $420 milliona year. Disbursements of commercial loans are estimated at about $1.1billion during 1973-77. The balance of disbursements during 1973-77 ofabout $1 billion would have to come in the form of official development loansfrom bil-ateral and multilateral sources. During 1973-77 total disbursementsof project assistance could amount to about $550 million. The balance ofabout $X40 mllion would be needed in the f'orm of quick disbursing commodityassistance. There would be need for official commodity aid disbursementsof abou't $100 million a year over the next two years, at least, when thecapacity to absorb project assistance would still be quite limited. ThePhilippines has received substantial amounts of commodity aid over the lasttwo years. The Consultative Group, which last met in June 1972, hasaccepted that such aid will continue to be needed and has indicated amountswhich do not fall far short of these levels. Disbursements of commodityassistance at these levels would help ensure a flow of raw materials thatshould be sufficient for a smooth expansion of the economy, and that wouldserve to avoid the potentially disruptive effects on output and employrmentthat follow from raw material shortages ind'oced by a lack of foreignexchange.

10. Provided imports can, in fact, be contained as indicated above, andprovided the projected levels of official aid for commodity imports andproject assistance are forthcoming, management of the Philippines' externaldebt and debt servicing, while difficult, would not present serious problems.The level of external medium- and long-term debt would rise from $1.8 billionat the end of 1972 to about $2.1 billion by 1977. The level of debt servicewould rise from about $410 miillion in 1973 to about $520 million in 1977,while the debt service ratio on public and private debt would decline from27 percent in 1973 to about 25 percent by 1977. Even with the projected

official assistance program total service paymen-t would exceed the inflow of

medium- and long-term loan capital by about $250 million during 1973-77.

The heavy debt service will clearly be a handicap to the Philippine develop-ment in this period and it will require continued close scrutiny over foreign

borrowing patterns to further improve the maturity structure of the debt.

11. The Philippine development program will continue to require resourcesin excess of expected local savings and of the foreign capital which willbecome available for financing the import component of development projects.

Part of' these resources will be provided from commodity assistance. In

addition some financing of local currency expenditures will be justified

especially for projects of economic and social importance which need only

limited amounts of foreign exchange.

PART II - BANK GROUP OPERATIONS IN THE PHILIPPINES

12. The Philippines has received 17 Bank loans and two IDA creditstotalling $290 million, net of cancellations. A little over half of theBank Group's lending,about $t150 million, has been for priority infrastructure

projects in power, transportation, water supply and education. The remainder

has been divided about equally between agriculture and industry. About

$75 million of this has been for irrigation, livestock, rice processing and

rural credit and about $65 million for industry in three loans to thePrivate Development Corporation of the Philippines.

13. Of total Bank/IDA lending for the Philippines of $290 million, two

loans and two credits totalling $52.2 million were made since the beginning of 1972

Disbursement on three of these havre Just begun while the fourth became

effective on April 11, 1973. Of the remaining $238 million, the undisbursed

balance on March 31, 1973 was about $47.2 million, almost all of which was

accolnted for by five loans made since the beginning of 1969. Disbursements

on three of these, all credit projects, are behind schedule due in part

to the general economic slowdown in the Philippines following the February

1970 devaluation and the subsequent stabilization program. However,

disbursements on these loans began to pick up last year, although the

closing dates of two loans have recently been postponed. Annex II gives

the status of Bank Group operations.

14. Future Bank/IDA lending will continue to concentrate on public

infrastructure and agriculture. The Bank Group will also continue to

help industry and provide more assistance for projects in the social sector.

The Government is giving top priority to rural development and land reform.

A recent Bank Agricultural Sector Study noted that expanding and improving

irrigation was essential to support land reform and to permit agricultural

production and rural incomes to increase. The Upper Pampanga project,

at present under way, will make a vital contribution in the heavily tenanted

areas of Central Luzon. Several additional irrigation projects are being

prepared, the first of which will probably be ready for approval in FY 1974.

The Government is formulating a rural development project and a number of

settlement projects within land reform areas which may be developed into

proposals suitable for Bank Group financing. Further loans are also

likely to be made over the next two or three years for rural credit andlivestock.

15. Bank/iDA infrastructure lending will continue to emphasizetransportation and power projects. A second port project. was appraisedlast December and is expected to be presented to the Executive Directorsfor approval in early FY1974. Further projects for highways, ports, ship-ping and power are being prepared for Bank/IDA financing, In the socialsectors an IDA credit was signed in Januariy 1973 for a oecond educationproject and a proposed population project is being prepared.

16. With an increased number of possible lending operations in sight,I expect Bank Group lending to rise substantially above present levelsprovided that the econoim is managed reasonably well and that the Philippinescontinules to improve its capacity to prepare and implement projects.

17. IFC has made comnitments -in the Philippines totalling $64.5 millionfor Investments in nine coTpanies in the fie:Ld of developmant banking,power, telecommunications, ceramic tiles, paper, petroleum products, nickelmining and refining, and chemicals. Of these investments, as of February 28,1973, $17.8 million have been sold, $0.4 million cancelled and $1.1 millionrepaid, leaving a net portfolio of $43 million. On the same date $17.8million were undisbursed. Preliminary proposals have been received for analuminum smelter and other projects in the pulp and paper, dinnerware,metal alloys and shipbuilding fields.

PART III - THE SECTOR

18. Although the fisheries sector presently contributes only L percentto GNP, it has considerable economic potential. The arc hipelago with over7,000 islands provides excellent access to fishing grounds and thecoastline with its many estuarine areas is ideal for brackish water fishfarming. Fisheries employ directly about 700,000 persons (about 5.5percent of total labor force) mainly in the traditional sector and fishproduction is estimated to be about 1 million tons a year. Further,fish is a staple in the Filipino diet and provides about half of animalprotein intake - more than milk, eggs and meat combined. Exportsconsist of shrimp and tuna and amounted to $5.4 million in 1971 whileannual fish imports for human consumption, mainly canned mackeral fromJapan, stood at a value of about $18 million. Domestic demand formarine products is growing rapidly and the Government proposes to giveadditional emphasis to fisheries development over the next several years.There is scope for productive investment in the commercial fishing fleet.It contains about 2,200 vessels, mostly small. However, the number oflarger and more specialized vessels (over 70 GT) has increased in recentyears to a level of about 500. The fleet is mainly based in the Manilaarea and around the Visayan Sea. In 1971 the commercial fleet caught380,000 tons, representing only about 40 percent of the estimated potential.Inland fisheries also offer promising avenues for development. The annualproduction from fishponds is estimated at about 100,000 tons from about170,000 ha (1971). Annual average yield of these ponds is about 570 kg/ha,which compares to 300 kg/ha in Indonesia and 1,700 kg/ha in Taiwan.

There is scope to increase both the area under fishponds and the yields.

19. While no specialized fishing port is yet in operation in thePhilippines, Navotas (near Manila) is being developed into a fishingport with the financial assistance of the Asian Development Bank. Theproject, to be completed in 1975, will greatly improve marketing in theManila area where a large proportion of total fish consumption takes place.While projected fish landings may not justify investments in specialized fishingport facilities at places other than Navotas, there is a growing need forimproved marketing and distribution facilities to handle increased fishproduction throughout the Philippines.

20. There are about 33 shipyards in the country, mostly located nearManila. About eight of these are capable of constructing steel vesselsup to a size of 1,000 tons. The rest mainly build and repair woodenvessels. Repair and maintenance facilities for the fishing fleet aroundManila are adequate.

21. Institutional sources for fisheries credit are commercial banks,rural banks and the Development Bank of the Philippines (DBP). Creditfrom non-institutional sources such as traders, equipment suppliers, etc.,has become very scarce because of the tight credit situation. Commercialbanks are a source of Liort-term loans mainly for marine fisheries. Therural banks are a source of credit for inland fisheries but have limitedthemselves mostly to short-term financing. DBP is the only major sourceof medium- and long-term credit for fisheries development. Up to mid-1972 DBP's fisheries loans totalled some $20 million equivalent. Theseloans accounted for about 13 percent of DBP's total loans for agriculture.However, during the past three years, DBP's loans to this sector havesubstantially declined because of lack of funds.

22. In November 1972, a Presidential decree was promulgated creatinga Fisheries Industry Development Council under the chairmanship of theSecretary of Agriculture to formulate development policies in this field.The Department of Agr-iculture coordinates overall policy and the Bureau ofFisheries (BOF) implements it. The present policy aim is to be selfsufficient in fish products. This means not only more and better equippedvessels and fishponds. It also means more supporting infrastructure andimproved extension services. The proposed project would help meet theseneeds.

PART IV - THE PROJECT

Background

23. The proposed project was prepared with assistance of a missionof the FAO/IBRD Cooperative Program which visited the Philippines inJanuary/February 1972 and was appraised by a Bank mission in November.Loan negotiations were held in Washington from April 16 to 18, 1973. Theleader of the Government's negotiating team was Ambassador Eduardo Z. Romualdez.

7-

The appraisal report (No. 105a-PH dated April 23, 1973) is being distributedseparately to the Executive Directors.

24. The proposed loan would be the Bank Group's first operation in thePhilippines exclusively for fisheries.

Description of the Project

25. The project would assist the Government in carrying out itsprogram of increasing fish production for domestic consumption by pro-vidingsupervised credit to be administered by DBP. It would provide credit toindividuals and companies, over a four-year investment period, to financemarine fisheries including the construction of fishing vessels, ice-makingfacilities and slipways and the purchase of fish carriers and equipment.The project would also help develop inland fisheries by financing theconstruction, rehabilitation and improvement of fishponds. The projectincludes technical assistance by a marine specialist, a naval architectand a fish farming extension expert who would assist in implementing it.It also provides assistance in conducting studies needed to prepare futureprojects for fish marketing and smallholder fishponds.

26. The lending arrangments would be similar to those of the RiceProcessing Project (Loan No. 720-PH) and Livestock Project (Loan No. 823-PH).The Bank loan would be made to the Government which would bear the foreignexchange risk and relend the proceeds to DBP under a subsidiary loanagreement. DBP would onlend the Bank funds, supplemented with its ownresources, to sub-borrowers.

27. DBP, a wholly owned Government institution, has total resourcesof about $4 billion (us $596 million) making it the largest developmentbank in the Philippines and the most important source of finance foragriculture and industry. It has a professional staff of more than 700including about 200' agriculturalists and engineers and has a widerexperience in fisheries lending than any other institution in the Philippines.While DBP's overall financial position in the past has given cause forconcern, it came under new management in 1970 and since then its financialsituation has improved steadily. A loan of us$50 million to DBP from aninternational banking consortium,signed last year in London, will help torelieve the heavy pressure on DBP arising from debt service obligationsincurred as a result of its guaranteeing a large amount of private foreignborrowing in the late 1960's. After the peso devaluation of 1970, manyborrowers defaulted, leaving DBP to make good on its guarantees. Sincethen it has succeeded in collecting a substantial part of the loans indefault and has foreclosed on collateral in other cases.

28. The proposed project would assist DBP to expand its lending forfisheries development and would improve the technical and administrativeoperations of its Fisheries Group. DBP has agreed to appropriate changesin the organization and lending procedures of this Group. The Bureau ofFisheries through its extension services has agreed to assist with technical

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appraisal and to provide technical supervision and guidance to the sub-borrowers. In order to do this the Bureau has agreed to employ a fishfarming (aquaculture) extension and training specialist to train its ownand DBP's Dersonnel for extension and appraisal using the facilities ofthe University of the Philippines (Fisheries College).

I'ost and F'inancing of the Project

29. The total cost of the project is $18.5 million with an estimatedforeign exchange cost of about $8.4 million. The Bank loan of $11.6million would finance about 63 percent of total cost. It is estimatedthe loan would cover the full foreign exchange cost of the marine fisheriescomponent and technical assistance and 50 percent of the total cost of thefish-pond component which has an average foreign exchange component ofonly about 10 percent. Operators would finance on average approximately14 percent, of project cost from their ovm resources and th_ remainder wouldcome from DBP. The financing pattern is set out below:

SubItem Borrowers DBP Govt. IBYRD Total

($1,000)

Marine Fisheries 1,720 - 6,880 8,6oo

Inland Fishieries 810 3,210 - b,030 8,050

Technical Assistance - 70 70 310 45

Studies - - 60 380 440

Incremental WorkingCapital 100 860 - - 960

Total 2,630 4,140 130 11.600 18,500

Percent of Total 14 % 22 % 1 % 63 % 100 %

The 't3.2 million of local costs that the Bank will finance will be entirelythr fishpond development, which has great potential for increasing ruralincomes and for improving the diet of the population. It will also helpto reconstruct and improve fishponds damaged in the 1972 floods.

30. DBP would charge an interest rate of 12 percent on sub-loans. Thespread between DBP's lending rate and average cost of funds would be 4.5percent which would be adequate to cover overhead and administrative costs andleave a reasonable net income. Sub-loans would be committed over a four-yearperiod. Terms of sub-loans would be flexible and based on the needs ofindividual sub-projects. On average they would range from 5 to 13 yearsincluding grace periods of 1-3 years.

Project Execution

31. DBP's Fisheries Group would be responsible for implementing thecredit operations. The Group would be headed by a senior officer. Hisstaff would be strengthened by experienced technicians, a marine specialistand a naval architect employed under the technical assistance component.The Bureau of Fisheries would be responsible for the training program andthe Department of Agriculture and Natural Resources would be responsiblefor employing and supervising the consultants who would prepare the twofeasibility studies mentioned in para. 25.

Procurement

32. Sub-borrowers for vessels would mainly be operators who alreadyown several fishing boats. For this reason, the additional vessels mustbe equipped in a manner compatible with the owner's other vessels so as tominimize the costs of operating and maintaining the owner's total ileet.The hulls and the equipment would therefore be procured separately. Fishingvessels hulls would be acquired through local competitive bidding betweenprequalified local shipyards while engines, fishing gear and other equipmentto be installed in the hulls would be chosen by individual operators fromqualified suppliers represented or established in the Philippines. Suppliersnot yet established or represented in the Philippines would have an oppor-tunity to do so since DBP would advertise internationally its intention toprocure this equipment at least three months before quotations for theequipment were invited. Equipment for vessel improvements would be acquLredthrough normal trade channels because of the need to match and complementexisting equipment. Second-hand carriers would be procured from abroad byadvertising vessel specifications in potential supplier countries andallowing sub-borrowers to choose from lists containing surveyed and suitablecarriers.Turnkey contracts for construction of ice-making facilities andslipways would be awarded after international competitive bidding inaccordance with the Bank's guidelines. Competitive bidding for fishpondrehabilitation and development would not be appropriate because individualneeds vary, sites are scattered and the work would be mainly performed bymanual labor. Fishpond operators would therefore make arrangements,approved by DBP, for labor or contractors in their area to carry out thework.

Disbursement

33. The loan would be disbursed to meet the full amount of DMP sub-loans(equivalent to the estimated foreign exchange cost) for all items exceptfishponds where 56 percent of DBP sub-loans (equivalent to 50 percent ofsub-project cost) would be met. Disbursements would also cover the fullforeign exchange cost or 90 percent of the total cost of technical assistance.

Economic Justification

34. The project forms an important part of the Government's efforts toincrease fish production, the major source of animal protein in thePhilippines. At full development, i.e. within eight years, the projectwould have increased fish production by about h8,o00 tons a year, equal to

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about 5 percent of present fish production and valued at about US$13.2million. The economic rate of return is estimated at 34 percent with arate of 22 percent for the marine fisheries conmonent and 43 percent iorthe inland fisheries component. Financial rates of return (after taxes)would vary from 20 to 27 percent for new investments and from b6 to 82percent for supplementary investments, clearly high enough to create ademand for credit facilities under the project. The project would benefitabout 1,100 sub-borrowers and their dependents, provide about 2,400permanent positions for unskilled and semi-skilled fishermen and labor andemploy about 4,000 unskilled labor per annum during the 4-year investmentperiod. The project would also help the future development of fisheriesby increasing knowledge of marine resources, demonstrating the value ofimproved operations, training extension staff, promoting sound lendingpractices and preparing two further projec-ts.

PART V - LEGAL INSTRU"ENTS AND AUTHORITY

35. The draft Loan Agreement between the Republic of the Philippinesand the Bank, the Report of the Committee provided for in Article TII,

Section h (iii) of the ArticleS of Agreement and the text of a resolutionapproving the proposed loan are beirig distributed to the ExecutiveDirectors separately.

36. The draft Loan Agreement confozris to the pattern for previousloans for lending programs carried out through the Development Bank ofthe Philippines. A Subsidiary Loan Agreement, satisfactorv to the Bank,would be entered into between the Borrower and DBP, and the execution of tenSubsidiary Loan Agreement and the employment of a marine specialist and a navalarchitect are additional conditions of effectiveness of the Loan Agreement. Theoperating policies and procedures governing the onlending of the proceedsof the Loan are set forth in Schedule 5 to the draft Loan Agreement.

37. I am satisfied that the proposed loan would comply with theArticles of Agreement of the Bank.

PART V - RECOMMENDATION

38. I recommend that the Executive Directors approve the proposedloan,

Robert S. McNamarnPresident

Attachments

lay 2, 1973

Page 1 of 2 pages

COUNTRY DATA - PHILIPPINES

A-RE-A 2 POPULATION DENSITY

297,000 km million (mid-1972) 39.0 131 per kmRate of Growth: 3.0% (from 1960 to 1972) 1. per ho of Arabls lan.1

POPULA'ION CHARACTERISTICS (year) HEALTH (year)Cr:de Birth Rite (per 1,000) .6 Population per physician 2.819Crude Death Rate (per 1,000) 11.4 Population per bospitai bedInfant Mortality (per 1,000 live births) 65

INCOME DISlRIBUTION (year) DISTRIBUTION OF LAND OWNERSHIP (yearj7. of noational income, lowest quintile 3.6% 7. owned by top 10% of owners

highest quintile 54.0% 7. owned by smallest 10% of owners

ACCESS TO PITED WATER (year) ACCESS TO ELECTRICITY (year)7. ofpopulation - urban 20% % of population - urban

-rural ) 2%- rural

NUTRITION (year) EDUCATION (year)Calorie intake as % of requirements 85% Adult literacy rate 72% 1/Per capita protein intake(grams per day) 47 Primary school enrollment 119'

2/GNP PER CAPITA in 1972 US $ 192

CROSS NATIONAL PRODUCT IN 1972 ANNUAL RATE OF GROWTH (%. constai,t __r_--j

US v Mln. % 1960-65 1965-70 1971

GNP at Marke: Prices 8,468 100.0 5.5 5.7 6.s aGross Domestic Tnvestment 1,674 19.7 12.6 1.6 5.9 -.Gross National Saving 1,470 17.3 15.0 3.6 13.2 -'A.:Current Account Balance -75 0.9Exports of Goods, NFS 1,335 15.7 1.1.0 4.5 5.0Imports of Goods, NFS 1,410 16.6 7.3 7.2 5-,

OUTPLUI, LABOR FORCE DPRODUCTIVITY IN 1971-

14/Value Added Labor Force 'V. A. Per Worker

US$Mln. 7 Ml. % US _

Agriculture 1,332 32.4 6.4 48.5 2()8 18.2Industry 1,059 25.8 2.1 15.8 504 al,.2Services 1,717 41.8 4.0 30.0 429 37.6Unallocated n 7 -

Total/Average 4,108 100.0 13.2 100.0 311 1(JO. n

GOVERNMENT FINANCE 5/General Government Central Government

Mln.) 7. of GDP ( Peso Mln.) % of GDP197 197 196 -7 197 2 197 1 197,

Current Receipts 1,416 8.9 8.3Current Expenditure .4,033 8.0 7.6Current Surplus ** .- 33 09 0.7

Cspital Expenditures .. .. .. 86 051ExternaL Assistance (net) *- *- *- 374-' C76

1/ Includes overage students.2/ The Per Capita GNIP estimate is at 1970 ma at prices, calculated by the same conversion

technique as the 1972 World Atlas. All other conversions to dollars in this table areat the average exchange rate prevailing during the period covered.

3,' Constant 1967 prices.4/ Total labor force; unemployed are allocated to sector of their normal occupation. "Unallocated" consists

mainly of unemployed workers seeking their first job.5/ Based on 'Actual' figures from the'Cash Budget'. Data prior to 1971 are not available.t'/ Counterpart funds from external commodity aid.

not availablenot applicable

- zero entry

Page 2 of 2 pages

COmNTRm DATA - PHILIPPMS

MOSEY. CREDIPT anid PRICES L965 1969 1970 1972 _272(iMillion outstanding end period)

Money and Quasi Money 5,797 9,761 10,922 12,258 13,836-/3ank .Cred't to Public Sector 980 3,565 3,479 3,907 -A 7351/Bsan; Credit to Private Sector 8,223 13,139 15,396 18,010 21,9111_

(Percentages or Index Numbers)

Mjoney and Quasi Money 3a 7% of GDP 24.1 29.8 27.3 24.3 25.0General Price Index (1965 = 100) 100.0 111.4 137.7 159.3 175.3Annual percentage changes in:

General Price Index 2.2 1.3 23.6 15.7Bank credit to Public Sector ,, 27.9 -2.4 12.3 6.7Bank credit to Private Sector ,, 9.0 17.2 17.0 30.7

BALANCE OF PAYMENTS MERCHANDISE EXPORTS (AVERAGE 1370-72) 3S$ Mln

1970 1971 1972 Coconut products 230.3rMillions US $) Sugar prducts 211.3 tO

Forest products 264.6 Ps.E:ports of Goods, MiFS 1,331 1,397 1,418 Mineral products 217.3 O ;i-nports of Goods, NFS 1,349 1,422 1,460 Fruits and cther agricultural products 73.6 ` 7SP source Gao (deficit = -) -lo Z5 42 Other manufactures 93. 8.5

Interest Payments (net) -1o5 -76 -92 All other cotmmoditiesWorkers' Remittances - _ - Total 1,00.0 _Other Factor Payrents (net) -25 -24 -33 2/Net Transfers 119 134 188 EXTERNAL DEBT, DECEMBER 31. 1972-Rasance on Current Account -29 ±9 21

US ? N...Direct F.reign Investment -29 -1 -25Net MLT Borrowing Public Debt, incl. guaranteed ,7 .2

Di.sbursements 397 330 408 Non-Guaranteed Private Debt 983I.Amortization 263 302 249 Total outstanding & Disbursed 1 5Subtotal 134 36 1 31

Capita] Grancs ,l/ - - - DEBT SERVICE RATIO for 1972orher Capit.al (net)4 187 207 145 -7Other items n. i ., 5/ -147 z14 -133:i1crease in Reserves f/ -116 -1014 -167 Public Debt, incl. guaranteud 8.9

Non-Guaranteed Private Dei'. 13.9Gross Reserves (end yeerW 7' 251 376 549 Total outstanding & Disbursed 2Net Reserves (enzd year' t 9 112 347

RATE OP EX1iAlNGE IBRD/IDA LENDING, Februara 1973 (Million US$):

Th ra2jip4 -_1071 1962-69 1970-71 IBRD IDiUS $ i. 00 3.92 6.77 _

i U0 = s 0.26 0.16 Outstanding & Disbursed 156.4 0.'Findisbursed 79.7 22.6Since - 1'171 Outstanding incl. Undisbursed 236.1 22.7

US $ i . jo - Pe., 6.78Peso I.or) iS $ O.15

i Mission estimates.

/ Excludes saort-term debt and IMP standby credit and is on disbursement basis.I/ satio of Debt Service to Exports of Goods and Services.

4/ lncluaees, SDR's, short tert private loans and monetary sector net inflows.5/ Frrors and omissions.

Jentral Bank only.

7 Includes commrercial banks.

not available

not applicable

- zero entry

April 18, 1973

A 1N'F'K' T1IPage 1 of 4

THE STATIT3 DF BANK GROUJ JFERAPIONS

A. "5tatement of Bank Loans and IDA Credits to the Philinpines as of March_1 1'l73

Loan or -(S $ millions)*redit Amount Less CancellationsLmuber 'ear Borrower I-urpose Bank IDA Undisbursed

Eight loans i'ully disbursed 127.0

3" 3 -BH 1964l Republic of the Education (CollegeBhilippines of Agriculture) 6.0 0.1

491-i-H 1967 National PowerCorporation Power 12.0 1.3

607-FH 1969 Central B^nk ofthe Philippines Agriculture Credit 12.' 6.8

630-PHl 1969 PhilippineNational Bank D?: 23X.2 1.3

637-Ei 1969 Republic of the Irrigation 3..0 19.0Philippines

720-PH 1971 ReDublic of the Rice FProcessingP'hilippines and ,torage 1!4. 34.1

731-PH Republic of thePhilippines First Highway 8.o 4_"

809-PH 1972 National PowerCorporation Power 22.0 21.9

296-PH0! 1972 Republic of thePhilippines Tower - 10.0 9.8

023-PH 197L- Republic of thePhilippines Livestock 7.;' 7.-

349-IF-H 1973 Republic of the iecondPhilippines Second Education - 12.7 12.7

Total 267.'' 22.7 99.14

of which has been repaid )-'.t -

Potal now outstanding 223.0 22.7

Amount sold 12.6

L; which has been repaid 12.0 0.6 -

Total now held by Bank 222.4. 22.7

I'otal undisbursed 76.9 22.5 99___

-age 2 of 4

B. J,tatoment of IFC Investmeints in the Philippines as of Febraary 20, 1973

A seal Amount (US $ million)rear _C'op1any Loari Equity Total

l)o3 1')73 Private J:)evelopiment C,orporationof the ihilippines 1-.0 !S4 '-.-

19617 Manila Electric Compan,y 8.) - 3.0

-37 Meralco -ecurities Corp. i t.0 i[.*

197; l!Philippin- L.ong Distance Teleohoneompany.

S :l97 -IKariwasa -- lanufacturing Inc. .3 .l 1.

Paper InduLstries Corp. of thePhilippines - 2.2 2.2

-1)7 Philip)pne etroleum `oirpoiation 1., 1. rD

1(1; {IMarinduque ininirs and IndustrialCorporti *I 0 -4 .

To-tal lY.- 12.8 J'i.

T ~bIess so l, acquired by others,renaid or cancelle(i 12.o 6.7 P.3

Now helei 36.9 6.1 p.

UndistbrrSed i..1 1.3 -;

_n An0ril . 1i3, the "oard approved an inveitmen' of ;2.

:nillion o lict,orias Iherical -orinoration, Sllb';i3.JiarO

7ict Eria. -im;: 'Co-nlanr o:' t> c'LilppinoS

ANNE,' IIPage .3 of 4

1/. .rojects in Lxecution

Loani 4.l-H-1 - Fourth Power

This project was -to assist the National F'ower Corporation (NPC) infiinancing the construction of a 74-TT-P thermal plant on the '3ataan Peninsulaand a P)-'' addition to the Maria Christina THydroelectric 'lant in Mindanao.Ine e aria Christina addition was completed in 1970. The Rataan thermal unitlias scheduled for final acceptance in December 1972, about two years behindschedule. 'i'he delay was due initially to slow government approval of contractawards and subsequently to financial difficulties of the civil works contractorand mechanical failures. The undisbursed balance of l.3 mi]lion of the Bankloan represents the retention requirements for equipment su5pplLed under theproject. The Closing Date has been further postponed by 18 months to December 31,1')73.

Loan 6U7-PH - ,econd Rural Credit

The slow progress of the Project at first was mainly due to the steeprise in prices of farm machinery after the peso was allowed to float in1'ebruary 1970. The subsequent increases in prices of farm produce, togetherwith decentralization of loan sanctioning, strengthening of staff and promotion-al efforts, have helped improve the pace of disbursements. The Closing Date,originally March 31, 1973, has been postponed to June 30, 1974, when presentprojections indicate that the loan would be fully disbursed.

Loan 630-rH - Development Finance Company

The third loan in an amount of $25 million f)r the Private Develop-ment Corporation of the Philippines (PDCP) has been fully committed for sub-.rojects, but as of March 31, 1973, f1.3 million of the loan remained undisbursed.

The Closing Date has been further postponed from March 31, 1973 to September 30,1973. An unused balance of about $800,000 has been cancelled.

Loan 637-l'i - Irrigation

This project is to help finance the construction of a dam on the UpperPanmanga River in Central Luzon and the construction and rehabilitation ofirrigation facilities serving about 70,000 hectares. The project got off to agood start and is progressing sat-isfactorily.

Loan 720-PH - Rice Processing and Storage

This uroject was designed to provide long-term credit to the privatesector f'or setting up modern integrated rice processing and storage units.

_1/ These notes are designed to inform the EBcecutive Directors regarding theprogress of projects in execution, and in particular to report any problemswhich are being encountered, and the action being taken to remedy them. Theyshould be read in this sense, and with the understanding that they do notruroort to present a balanced evraluation of strengths and weaknesses inproject execution.

ANNEX IIPage a of 4

Disbursement has been very slow in part because of the deterioration in theinvestment climate following the peso devaluation. Another factor was the

detrilmental effect of poor weather, disease and reduced use of fertilizerdue to credi-t reslrictions, on the 1970/71 rice crops. There was consequentlya lower dem;and for investment in new integrated storage units. The projectwas substantially revised in accordance with the memorandum of the Presidentto the Executive Directors dated June 8, 1972 (R72-40) to allow for more

emphasis on lending for rehabilitation and improvement of existing facilities,and to simplify administrative arrangements and procedures. These changes

have produced a number of' Inew loan requests. However, a supervision missionwhich visited planila in February 1973 has reported that the project is still

moving slowly and discussions are continuing with the Philippine authorities

on measures to speed up disbursements. These measures include streamlinirng

procurement procedures and intensifying the promotional efforts of DBP.

Loan 731-PH - Highway

The project for the construction and improvement of the Cotabato-

Digos road (160 km) in Mindanao is in general progressing satisfactorily.Work was, however, suspended in March 1973 because of civil disturbances in

the Cotabato area, but the contractor has since resumed work from the Digos

end which is outside the area affected by the fighting. The project also

includes two components financed by UPDP: technical assistance to the

Bureau of Public Highways (BPH) for operational improvements and feasibilitystudies for future highway projects. Work on the technical assistance

component is progressing well and the feasibility studies have been completed.

Loan 809-PFH and Credit 296-PH - E fth Power

The project is helping the National Power Corporation (NPC) to

finance the construction of a second thermal unit of 150 MW at Bataan and

transmission facilities in Luzon. Tne project is behind schedule becauseprocurement has taken longer than expected. Further tariff increases areexpected in the first half of 1973 to achieve a rate of return of 8 percent

in FY74 and thereafter as required under the Loan Agreement. S-teps havealso been taken by the Government to coordinate the planning and implementa-

tioin of fuLure power development.

Loan 823-PH - Livestock

The project is assisting the Government in carrying out its livestock

development program through supervised credit by the Development Bank of the

Philippines with assistance of consultants. The loan became effective on

November 9, 1972. The project is progressing satisfactorily.

Credit 340-PH - Second Education

The credit was signed on January 5 and became ef'fective April 11,

1973. The project will assist improvements in such areas as educationplanning, management and curriculum development, science teacher training,training of technicians for industry and agriculture, and training of

skilled craftsmen and farmers.

ANNEX IIIpage 1 of 3

PHILIPPINES - FISHERIES CREDIT PROJECT

LOAN AND PROJECT SUMNURY

Borrower: Republic of the Philippines

Amount: $11.6 million equivalent. The proposed loan wouldcover the estimated foreign exchange cost of $8.4million and $3.2 million in local costs.

Terms: Payable in 17 years including n grace period ofsix years at an interest rate of 7.1/h percentper annum.

Relending Terms: The Government would relend the proceeds of theloan to the Development Bank of the Philippines(DBP) on the same terms as those of the Bank loan.DBP would onlend to beneficiaries at 12 percent;interest per annum on terms ranging from 5 to 13years including 1 to 3 years of grace.

Project. Description: To assist the Government in carrying out itsprogram of increasing fish production for domesticconsumption through supervised credit to beadministered by DBP. It would provide credit toindividuals and companies over a 4-year period todevelop (i) marine fisheries by financing theconstruction of fishing vessels, slipways, andice-making facilities and the purchase of fishcarriers and equipment; and (ii) inland fisheriesby financing the constniction, rehabilitation andimprovement of fish ponds. The project alsoincludes technical assistance to provide a marinespecialist, a naval architect and an aquacultureextension expert and to help prepare a fishmarketing study and a smallholder fish-pond project.

ANNEX IIIPage 2 of 3

($1,000)

Estizmated Cost: % foreignLocal Foreign Total exchange

Marine fisheries 1,480 5,870 7,350 80

Inland fisheries 6,300 660 6.960 9

Technical Assistance 110 260 btoo 65

Studies 50 350 400 88

Incremental workingcapital 820 - 820 -

Price contingencies 1,360 1,210 2,570 47

Total 10,150 8,350 :18,500 45%

Financing Plan:Sub ($1,000)Borrowers DBP Govt. IBRD Tota:l

Marine Fisheries 1,720 - - 6,880 8,600

Inland Fisheries 810 3,210 - 4,030 8,050

Technical Assistance - 70 70 310 450

Stud.ies - 60 380 4.ho

Incremental workingcapital 100 860 - - 960

Total 2,630 4,14o 130 i],600 18,500

Percent of Total lb % 22 % 1 % 63 ' 100 %

Estimated Disbursement: Calendar Year $ million

1974 *4

1975 1.9

1976 3.7

1977

1978 1.1

l1.6

ANNEX IIIPage 3 of 3

Procurement Arrangements: Fishing vessel hulls: local competitive biddingamong prequalified shipyards; fishing vesselequipment: to be chosen by individual operatorsfrom qualified suppliers; second-hand fishcarriers: to be procured abroad by advertisingvessel specifications in potential suppliercountries; turnkey contracts for slipways andice-making facilities: international competitivebidding; and fish pond development: local. laborand contractors approved hby DBP.

Consultants: i) A marine specialist and a naval. architect t,assist DBP in the review of sub-loan applicationsand in the design and procurement of fishingvessels, fish carriers and equipment.

ii) Local consultants to assist the beneficiari-+sto carry out investment projects for ice.-makingfacilities and slipways.

iii) An aquaculture extension expert to assistthe Departmnent of Agricul ture in upgrading itsextension services for iniand fisheries and intraining its extension st7-ff and DBP's appraisalstaff.

iv) Consultants to prepare a fish marketingstudy and a smallholder fishpond project.

Rate of Return: Economic rate of return estimated at 34 percent.Financial rates of return for beneficiaries rangefrom 20 to 27 percent for new investments andfrom 46 to 82 percent for supplementaryinvestments.

Appraisal Report: Report No. 105a-PH dated April 23, 1973.

16 11020' 1212' 1214 26'

I- ~ ~~~~~~~~~~~~~~PHILIPPINES

I ~~~~~FISHERIES CREDIT PROJECTI. CitY OF MANILA ~~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~A DBP He.adqurters

-20' U YO MNL DBP Branches - Project Areas20

22o~~~~~~~~ ~~~~~,,, I t~~~~~~~~~~~rawling Fishing Grounds

FISH PONDS:

7 I/,,~~~~~~~o12,0,0 ~ ~ ~ ~ ~ ~ ~ ~ Z•½Z ~~~Project Areas

I ,- I,-. Flood Damaged AreasO N-o"9 Major Roads

2 0o'o' 2,,on' -> ~~~~~~~~~~~~~~~~~~~~Rail[ways12 N-. ~ ~ ~ ~ ~ ~ ~ -- Jurisdictian Boundary

45' '0 CENTRAL LUZIIO j -i ~~~~~~~~~~~~~~~~~~~~~~~------District BoundariesIt

N 0....Oo~~~~~~~ I N ApoIrm I - - ~~~~~~~~Regional Boundariesis ,ops,g. - --- nternational BoundariesIt P'9 ,o,

I sOGTFER~~~~~ TAGALOG/ 291 Oe',I

* 2 LeoM

IJM',oolooo~~~~~~~~~~~~~~Fr.,,

2E.ASIOE I"A-

22- 51,122,1 I0ut IChino 50 50 M

52 U""2430 - 10b . 12ll -

14' I' Pacific3F. Pc-

420,22 Ocean~~~~~~~~~~~~~~n an .

2 116 004150 -

C N A G01~~pe N-)

50 So,Ige0 2000111 11 '~~~~~~~~~~~~~~~~~~~~~~~~~~~-le es S a -

53 24143311 5,, I / _ __~~~~~~~1

M8 AltA Y o I A/"'00C . III-do124l,126III N E IAlolg t1 o,

I