AY

PROJECT PAPER SUPPLEMENT

Peru Loan 527-W-057

RURAL ENTERPRISES DEVELOPMENT

The purpose of this supplement is to present the details associated withthe request to amend the Loan Authorization of the Rural EnterprisesDevelopment project Peru Loan 527-W-057 This amendment will change the scope of the project in that loan funds uncommitted as of January 31 1977 will be transferred from ORDEZA management to the Rural EnterprisesDevelopment Fund administered by the Industrial Bank As a result projectactivity will terminate in the Earthquake Zone and Fund operations will expand to four new sierra departments

Background

The subject loan of $10 million was authorized June 28 1974 and executedNovember 25 1974 Initial CPs were met on April 23 1975 The currentTCD is January 31 1977 and the TDD is July 31 1977 27 months from the date of compliance with initial CPs The purpose of the project is to provide credit and technical assistance under reasonable terms and condishytions to enterprises located in selected rural areas of Peru

As originally designed ORDEZA was to continue its activities in the Earthquake Zone initiated tinder AID Loan No 527-L-052 (CommunityDevelopment) and No 527-L-053 (CRECR Fund - Small Business) with up to$4 million of loan proceeds which included $300000 for TA as countershypart the GOP would assume all administrative costs valued at $1 million

The balance of the Loan or $6 million was allocated to the Industrial Bank of Peru to establish a Rural Enterprises Development Fund forlendingin four souLhern departments (Ayacucho Cuzco Junin and Puno) with the exception of $300000 which was reserved for TA these lOan proceeds were to be used together with a GOP counterpart contribution of $4 million tocapitalize the Fund Pursuant to the Loan Agreement reflows under subshyloans made by ORDEZA with loan funds would be channelled into the Fund for future re-lending by the Industrial Bank

2-

Financial Plan (In US$000)

Industrial Bank ORDEZA

AID GOP AI GOP

Sub-lending 5700 4000 3700 -

TA 300 - 300 -

Administration - 500 - 1000

Total 6000 4500 4000 1000

Due to changes of key personnel in ORDEZA beginning in January 1975which brought critical policy changes the ORDEZA portion of the projectwas plagued with delays and administrative problems from the startORDEZA submitted its Operations Plan in June 1975 which after significantrevision AID approved in September 1975 fulfilling subsequent conshyditions precedent to disbursement (Section 303) Since then persistentshortages of personnel and transportation intra-agency dissension andpoor management have resulted in very little performance To date afterfifteen months ORDEZA has committed only S135 million (roughly$200000) to two approved sub-projects and has made no disbursementsAn additional six sub-projects totalling S808 million (roughly$11 million) have been prepared by ORDEZA for USAID review Two ofthese have been approved conditioned on the extension of the TDD threemore have been submitted to USAID and are under review and one is expectedto be submitted this month The Mission has decided to permit the currentTCD to lapse leaving at least approximately $26 million and possibly morein uncommitted Loan funds

The Industrial Bank also demonstrated poor performance in the initialphases of the project It submitted an Operations Plan in May 1975 whichAID approved in June 1975 fulfilling subsequent CPs (Sectiin 302)Shortly thereafter the Bank underwent a major internal re-organizationwhich occasioned key personnel shifts Little attention was given tothe Fund largely because of general confusion regarding allocation ofresponsibilities for Fund administration within the Ban] There was nosub-lending until November 1975 and the rate of activity remained lowthrough June 1976 By that date 12 months after meeting subsequentCPs the Bank had committed funds to 143 sub-loans totallingS38486000 (roughly $855000)

After consolidation of the re-organized Bank management the newBank Manager became actively involved personally in the project and took

at S70 = US$1 at S45 = US$1

3shy

decisive action to clarify administrative responsibilities to promote Fund activity in the branch offices and to arrange for technical assistshyance to accelerate sub-loan identification and study In July 1976 in the course of a Mission review of the Bank portion of the project pershyformance targets were established for Juiy August and September USAID consideration of an extension of the terminal dates was explicitly conshyditioned on the Bank meeting these targets These targets were met and exceeded and in a formal review with the Bank in early November it was concluded that USAID would seek an extension of the terminal dates to permit full utilization of the balance of the loan allocation to the Fund (See Annex I for detailed documentation)

In the six months from July 1976 through December 1976 an estimated S160000000 (roughly $25 million) was committed to approved sub-loans this total is an increase of 400 over sub-loan commitments in the preceeding twelve-month period (Please refer to Annex II which shows monthly and cmnulative sub-lending activity from project initiation) Moreover the existing backlog of sub-projects under study will peLmit the Bank to fully commit by January 31 1978 the balance of the Funds existing capital within the four original departments (See Annex IIi showing the Banks projected schedule of sub-loan commitments of original Fund capital)

Simultaneously the Bank has effectively institutionalized Fund operations Arn office for management of the Fund has been established within the Banks Division of Studies and Development this office is headed by the Fund Coordinator who has direct lines of communication with the Financial and General Managers of the Bank A Fund promotor in each branch office participates (as a non-voting member) in all meetings of the branchs credit committee in its pre-qualification of sub-borrowers and approval of sub-loans Sub-loans requiring approval at the rincipal office in Lima are presented by the Chief of the Branch Office

A major step in institutionalizing the Fund in the Bank and which accounts for much of the recent progress in Fund operations was the General Managers decision to sign umbrella contracts with several private consultants to provide required technical assistance Under these agreeshyments separate contracts have been signed to identify investment possibilities to develop potential sub-projects to analyze their feasibility and to provide on-going technical supervision of sub-project implementation To date contracts have been signed for 77 project possibilities covering a potential Fund investment in sub-loans totalling approximately S402 million The great majority of these are for investshyment possibilities in rural associative enterprises which for lack of funds and entrepreneurial experience are unable to develop projects on their own

at S65 = US$1

4-

Given the excellent progress and active interest shown by the Bankand the poor performance of ORDEZA the Mission began considering in its October review a transfer of ORDEZAs uncommitted loan resources to theFund for investment by the Bank This possibility has been discussed with the Bank and the Ministry of Economy and Finance the Borrower underthe loan After extensive discussion and careful study of preliminarydata the Mission has developed this proposal for consideration by the Bureau

Discussion

The Mission proposal comprises the following actions first theextension of the TDD under the ORDEZA portion to permit implementationof only those sub-projects approved prior to the current TCD of January31 1977 second the extension of the TCD and TDD under the Bank portionof the loan by eighteen months third the re-allocation of up to $3 million of loan funds originally intended for sub-lending in the Earthquake Zone by ORDEZA unconitted as of the current TCD to the Fund in the Industrial Bank fourth the extension of Fund operationsinto the sierra departments of Apurimac Huancavelica Huanuco and Cajamarca and fifth the negotiation with the GOP of additional countershypart financing to maintain the current 6040 proportion of AID and GOP contributions to the Fund

With respect to the ORDEZA portion of the project the Mission hasconcluded that ORDEZAs past performance and present prospects offered no justification to consider an extension of the TCD Therefore the current TCD will lapse leaving approximately $26 million in loan fundsuncommitted if the Mission approves the six remaining sub-projects preshypared by ORDEZA for loan financing The Mission wishes to extend the TDD to permit the orderly implementation of several sub-projects which have been fully developed and analyzed which are ready for executionbut which require a disbursement period exceeding the six-month periodremaining prior to the TDD (See Annex IV for a list of sub-projectswhich have been developed by ORDEZA for USAID review prior to the TCD)Furthermore an extension is justified in view of the fact that the existing disbursement period is nine months short of the normal periodprescribed under PD-57 (ie 36 months from the date of compliance with initial CPs)

With respect to the Industrial Bank portion of the project theMission has concluded that an extension of the TCD and TDD is both required and justified and that the Bank could effectively utilize upto $3 million of loan funds uncommitted by ORDEZA These conclusions are based on the Banks demonstrated interest in the loan and its inshystitutional capacity to execute it as designed The extension request

Moreover a recent GOP decision reducing the area under ORDEZA jurisdiction limits ORDEZAs ability to invest Fund resources in the future

is further justified also by the nine-month shortfall in the existingdisbursement period The Bank estimates that the current balance of Fund resources (ie the original $6 million in AID loan funds and $4 million in GOP counterpart) will be fully committed by January 31 1978 Additional time is requested to permit commitment of new resources transferred to the Fund from ORDEZA and provided as GOP counterpart

It is not clear at this time how much loan money will be available for transfer to the Bank since the TCD has not yet passed and since commitments to several ORDEZA sub-projects approved by USAID prior to the TCD must await AIDW decision on a TDD extension The minimum amount available for transfer would be $26 million if all pending ORDEZA subshyprojects and associated technical assistance costs are approved as loan commitments If none of these are approved the uncommitted balance of ORDEZA funds would total $38 million However the Mission proposes to transfer no more than $3 million to the Bank It is possible thereshyfore that a balance of the original ORDEZA allocation may be de-obligatedBelow are shown the two extreme cases of alternative allocation of the currently uncommitted balance of ORDEZA funds

Case I Maximum ORDEZA Commitments Case II Minimum ORDEZA Commitments

Allocation $4000000 Allocation $4000000

Commitments to date 200000 Commitments to date 200000

Potential Commitments 1200000

Minimum uncommitted Maximum uncommitted balance $2600000 balance $3800000

Transfer to Bank $2600000 Transfer to Bank $3000000

De-obligation $ 800000

Including total value of pending sub-loans and supporting technical assistance costs

5a

In essence the Missions proposal to transfer loan funds for utilizashytion by the Bank is an alternative to the de-obligation of much-needed financing for development of the rural sierra of Peru The potential development impact of this proposal is major and fully consistent with the Congressional Mandate of generatingincome and employment for the rural poor Rural enterprises development is the sierras only realistic alternative to a subsistence agricultural economy which is inadequate to support a growing rural population In order to exploit this alternative financial and technical assistance is desperately needed for investment in new and existing enterprises in small-scale rural industry services and commerce The traditional banking system both state and private does not provide investment credit on terms and conditions appropriate to finance inexperienced or marginal entrepreneurs located in depressed sierra departments nor the required technical assistance to identify study and supervise sub-loan investments

A recent shift in GOP policy favoring the private sector provides an excellent climate for giving additional support to the operations and objectives of the Fund Fiscal and monetary measures are being designed to encourage private investment in all economic sectors Coupled with this is a continued concern with generating rural income and employment opportunities to redress regional economic imbalances and to stem the tide of urban migration an investment promotion program entitled GEAR (Generaci6n de Empleo en Areas Rurales) was launched a few months ago

6shy

under the auspices of the Ministry of Industry and Tourism The Fund fits exceedingly well into the pattern of these initiatives In such a climAte of increased GOP support the development impact of additional resources for the Fund would be considerable

Moreover the Missions proposal offers leverage to negotiate additional GOP counterpart to be devoted to activities endorsed by the Congressional Mandate The Mission proposes to condition the transfer of additional AID loan funds to the Bank on the provision of GOP financing required to maintain the current 6040 proportion of AID and GOP contributions to the Fund This financing would be made available from the Banks operating profits and would therefore not have to compete for exceedingly scarce GOP 1977-78 budgetary funds This would represent a net increase in new GOP counterpart financing of up to $2 million since no cash counterpart for sub-lending was required under the ORDEZA portion of the Loan

The Bank has proven itself to be an effective and appropriate institution to administer the Fund as designed Since administrative issues were resolved by June 1976 the performance of the Bank in operating the Fund and designing a program to meet the projects TA requirements has been excellent Recent USAID visits to the four branch offices confirmed that sub-lending operations have conformed to Fund criteria and that Fund objectives and procedures are wellshyestablished and accepted

Moreover the Fund has received maximum support at the highest levels of Bank management particularly from the General Manager Under his leadership and with his continued support of the Fund Coordinator all Fund-related matters are given priority attention recent examples are changes and increases in branch office personnel greater autonomy at the branch level and increasea authority for the Fund Coordinator Underlying this interest is the commitment of Bank management to the importance of the Funds replicability throughout the sierra and eventualshyly on a national scale The Fund is viewed as a valuable opportunity to demonstrate the feasibility and effectiveness of alternative banking methods such as the substitution of feasibility analysis and c6ntracted technical supervision of sub-projects for traditional commercial guarantees and a more aggressive approach by branch offices to lep4ing to new clients in rural areas

While recognizing the need for a Loan Authorization amendment the Mission considers its proposal to expand the Fund into additional sierra departments te be consistent with the original concept of the project as presented in the Capital Assistance Paper First the departments originally designated as target areas under the Bank portion of the project were selected on the basis of relative poverty adequacy of physical and institutional infrastructure and lack of sufficient developshyment credit (See p45 of the CAP) Apart from meeting these criteria

7shy

there were no unique features about any of the original departmentswhich would restrict the project to those four The inclusion of the Earthquake Zone was based on estimates of unsatisfied demand under loans 052 and 053 and the prior existence of ORDEZAs administrative framework for extending such credit Unfortunately such a favorable institutional basis no longer exists

Second it is clear from the original project design that the medium-term purpose of the project is to institutionalize the Rural Enterprises Development Fund in the Industrial Bank Both the CAP (p119) and the Loan Agreement provide for the repayment of sub-loans and all interest under the ORDEZA portion to the Fund in the Bank This provision indicates that sub-lending by ORDEZA was conceived as an interim measure while the Bank acquired sufficient experience to manage additional Fund capitalization

In effect then the Missions proposal does not deviate from the project purpose which as presented in the CAP is to institutionalize an integrated program of financial and technical assistance to assist existing and new rural enterprises and to consolidate that program under the Fund established in the Bank

The selection of the departments for expanding Fund operations was made in collaboration with the Bank on the basis of the same criteria used in the selection of the original four departments In this selection process both USAID and the Bank gave careful consideration to retaining the Earthquake Zone as a target area under the projectbut ultimately rejected it for reasons of administrative sensitivities The Banks reluctance to operate the Fund in the Earthquake Zone stems from a justifiable fear that it would have to overcome a poor imageand negative expectations currently attached to the project in the area owing to its history under ORDEZA Moreover ORDEZAs jurisdictionalsensitivities and understandable resentment over losing its share of loan resources might give rise to obstruction of Bank activities if the Bank were to assume project responsibilities in the Zone Besidesprincipal reflows and interest payments under 052 and 053 continue to be a source of concessional credit for future rural-enterprisedevelopment in the Zone approximately S303 million (roughly $430000)in reflows remain uncommitted to date

Having rejected the possibility of operating in the Earthquake Zone the Bank proposed in the following order of priority the departmentsof Huanuco Cajamarca Apurimac and Huancavelica All of these meet the original criteria stated in the CAP Huanuco and Cajamarca are ranked 17th and 18th among 23 departments on a scale of socio-economic marginality falling into the fourth quintile of relative poverty

at S70 = USS1 Based on a USAID-financed study of poverty in Peru which used

1971 census data

8shy

and Huancavelica and Apurimac are ranked 21st and 23rd respectivelyfalling into the fift4 or lowest quintile (See Annex V for a summary description of these four department)

The extension of Fund operations into Huancavelicaand Apurimacwould complete the coverage of the mancha india of southern Peru and would permit a ccnsolidation of the Funds jurisdiction throughoutthe poorest -gion of the country While these departments are served by agencie of the amp which do not have the staff and autonomyof a branch they fall vithin the jurisdiction of the branches of Junin and Ciizco where Fund operations are already well-established While each of these two Bank agencies would require a Fund promotorassigned full-time to the project additional staff assistance in subshyloan study and approvals would be readily available from the neighboringbranch office In a preliminary evaluation of investment possibilitiesin these two departments the Bank has identified sub-projects totalling S43 million in Huancavelica In Apurimac S657 million in potentialsub-projects have been identified in the province of Abancay alone the province of Andahuaylas for which data have not been collected is expected to offer greater investment potential (See Annex IV for a detailed listing of investment possibilities)

The inclusion of Huanuco and Cajamarca in the Funds jurisdictionwould represent a logical next step in extending Fund operationsthroughout the sierra These two departments are ranked among the National Planning Institutes priority areas for future investment Operating the Fund in Cajamarca has the additioaladvantage of complementing the sierra irrigation loan project the Bank expects to promote industrialization of dairy products with Fund resources in that zone which would provide an assured market for livestock production increases realized through irrigation Both these departshyments are served b y fully staffed Bank branch offices but would nevertheless rcquire the assignment of one full-time promotor for each branch Since these departments have greater physical and institutional infrastructure they offer significantly greater investment potentialthan the southern departments In Huanuco the Bank has identified sub-projects valued at S1218 million and an additional S1566million in investment possibilities have been identified by the regionalplanning office (These figures do not include existing proposals wbich do not have preliminary cost estimates See Annex VI) Fund investment potential in Cajamarca has not been quantified for lack of detailed data but based on Fund experience in the original four departments a minimum of S50 million could be committed to eligible sub-projects

Where sub-lending under the Fund since January 1976 almost doubled the level cf branch office disbursements prior to active operation of the Fund

9-

Based on these preliminary data a conservative estimate of credit demand demonstrates that additional Fund resources can be readily committed Assuming a maximum transfer of $3 million of AID loan funds and a negotiated 40 counterpart totalling$2 million the amount of additional Fund resources would total $5 million or approximately S350 million of which approximately S330million would be available for sub-lending A cursoryreview of investment potential in these four additional departmentsproduced a list of potential sub-projects representing a total Fund investment of S4371 million plus many more proposals which do not yet have cost estimates More in-depth study bycontracted consultants would certainly reveal additional investment opportunities Additional demand for Fund credit is expected to continue in the original four departments as well However this figure is an assurance that additional fund resources could be committed within the expanded area of Fund operation in the time allowed by an extension of the terminal dates (See Annex VII for a schedule of projected sub-loan commitments of transferred funds through July 1978)

Reflows to the Fund of interest and principal from outstandingsub-loans are not expected to be significant enough to meet even a minor share of the immediate credit demand Thq cumulative total of reflows is expected to be on the order of $500ObO by the end of CY 1977 reaching approximately $1 million by mid-CY 1978 Delayedinitiation of sub-lending by both the Bank and ORDEZA and extended maturity periods required in ORDEZAs livestock sub-projects have retarded the rate of capital reflow into the Fund An injection of new capital to the Fund at this time will permit the Fund to carry on a significant level of sub-lending activity during this period of low sub-lan reflows

Recommendations

1 That AIDW approve the Missions request to extend the terminal dates under the subject loan by eighteen months establishing a new TCD of July 31 1978 and a new TDD of January 31 1979

2 That AIDW approve the Missions request to amend the gubjectLoan Authorization (i)to transfer up to $3 million from ORDEZA manageshyment in the Earthquake Zone to the Rurol Enterprises Development Fund in the Industrial Bank and (ii) to expand the jurisdiction of the Fund to include the departments of Apurimac Cajamarca Huancavelica and Huanuco and

Of which up to $300000 would be reserved for TA per original allocation of ORDEZAs portion of the loan

At S70 = US$11 future devaluation of the sol will be compensated for by periodic price increases

10shy3 That the Mission be delegated authority to negotiate with theGOP a Loan Agreement Amendment consIstent with the terms and conditions of the amended Loan Authorization

ANNEX I Background Documents Relating to Mission Proposal

A Letter to Industrial Bank Establishing Performance Targets

B Mission Monitoring Plan

C Project Committee Recommendations

ANNEX II Past Sub-lending Activity by Industrial Bank

ANNEX III Projected Sub-loan Commitments of Balance of Original Fund Capital

ANNEX IV Sub-projects Prepared by ORDEZA for Loan Financing

ANNEX V Summary Description of Additional Sierra Departments

ANNEX VI Fund Investment Potential in Additional Sierra Departments

ANNEX VII Projected Sub-loan Commitments of Additional Fund Capital

ANNEX VIII Project Performance Tracking Network

ANNEX I - A

July 30r 19716

Ur iiC-3rdO Vlenzel PO=4dMs Goxeral Ibayer 11l1nco lnUstria dol Parti

Lim~a

Dear Eiujr IWhfll1

ampUIJE1z AID Loanx 11-27-11-OS7 Pl-V al jnorpieu Daelo1C2Xent

In rm~ent wek repre~entrttiv~a o AIJ) a-A thie IndustrialBank hiavt dcur-ac-d subloan coq-ztnnnt targatas for tha upoui-rigm~onths thircgh 3Jinuxiry 31 1977 thie Loans tmrrtnax1 cawntnxtdzate W~e niote with sati~sfacton reocunt erlcort-i by the Lvnk tospeed-up tho ckve1op~ient of projects Lnclu~ingq the nogotiaionof a-r4ents with Cov~ultin9 fizav The not two to thraeo raontjhawLU J~e criticali n damptcrining whathex the Accelerate riorthlysub-loan cavmaibaent figuras propxcd for tho next ni-x Lxnui pxriodwill bj attainable Accordixngly the targeta Vicli we ho willbe able to be maet as of Scra-bor~ 30 11376 are an followat

1 Bl10 million in sub-loantu approvr4 by tho Industrial DankdurinQ Au~usti

2 S15 implusmnili in suJb-16jtns approvod during Septenbwtr

3 S125~ millimi in aub-loar4 prendiruj approval for vhiohstudies liavo been cmontad aand uub-borrownrs pro-pali-iedl

4 signed contracts vith conaultante to develop and study projactdwhose astita value anounts to no less than S100 muilliona andwhose devolouant schedule calla for vub-loam review by the Zwnkprio~r to Deca~dbex 31 19769

2-

Financial Plan (In US$000)

Industrial Bank ORDEZA

AID GOP AI GOP

Sub-lending 5700 4000 3700 -

TA 300 - 300 -

Administration - 500 - 1000

Total 6000 4500 4000 1000

Due to changes of key personnel in ORDEZA beginning in January 1975which brought critical policy changes the ORDEZA portion of the projectwas plagued with delays and administrative problems from the startORDEZA submitted its Operations Plan in June 1975 which after significantrevision AID approved in September 1975 fulfilling subsequent conshyditions precedent to disbursement (Section 303) Since then persistentshortages of personnel and transportation intra-agency dissension andpoor management have resulted in very little performance To date afterfifteen months ORDEZA has committed only S135 million (roughly$200000) to two approved sub-projects and has made no disbursementsAn additional six sub-projects totalling S808 million (roughly$11 million) have been prepared by ORDEZA for USAID review Two ofthese have been approved conditioned on the extension of the TDD threemore have been submitted to USAID and are under review and one is expectedto be submitted this month The Mission has decided to permit the currentTCD to lapse leaving at least approximately $26 million and possibly morein uncommitted Loan funds

The Industrial Bank also demonstrated poor performance in the initialphases of the project It submitted an Operations Plan in May 1975 whichAID approved in June 1975 fulfilling subsequent CPs (Sectiin 302)Shortly thereafter the Bank underwent a major internal re-organizationwhich occasioned key personnel shifts Little attention was given tothe Fund largely because of general confusion regarding allocation ofresponsibilities for Fund administration within the Ban] There was nosub-lending until November 1975 and the rate of activity remained lowthrough June 1976 By that date 12 months after meeting subsequentCPs the Bank had committed funds to 143 sub-loans totallingS38486000 (roughly $855000)

After consolidation of the re-organized Bank management the newBank Manager became actively involved personally in the project and took

at S70 = US$1 at S45 = US$1

3shy

decisive action to clarify administrative responsibilities to promote Fund activity in the branch offices and to arrange for technical assistshyance to accelerate sub-loan identification and study In July 1976 in the course of a Mission review of the Bank portion of the project pershyformance targets were established for Juiy August and September USAID consideration of an extension of the terminal dates was explicitly conshyditioned on the Bank meeting these targets These targets were met and exceeded and in a formal review with the Bank in early November it was concluded that USAID would seek an extension of the terminal dates to permit full utilization of the balance of the loan allocation to the Fund (See Annex I for detailed documentation)

In the six months from July 1976 through December 1976 an estimated S160000000 (roughly $25 million) was committed to approved sub-loans this total is an increase of 400 over sub-loan commitments in the preceeding twelve-month period (Please refer to Annex II which shows monthly and cmnulative sub-lending activity from project initiation) Moreover the existing backlog of sub-projects under study will peLmit the Bank to fully commit by January 31 1978 the balance of the Funds existing capital within the four original departments (See Annex IIi showing the Banks projected schedule of sub-loan commitments of original Fund capital)

Simultaneously the Bank has effectively institutionalized Fund operations Arn office for management of the Fund has been established within the Banks Division of Studies and Development this office is headed by the Fund Coordinator who has direct lines of communication with the Financial and General Managers of the Bank A Fund promotor in each branch office participates (as a non-voting member) in all meetings of the branchs credit committee in its pre-qualification of sub-borrowers and approval of sub-loans Sub-loans requiring approval at the rincipal office in Lima are presented by the Chief of the Branch Office

A major step in institutionalizing the Fund in the Bank and which accounts for much of the recent progress in Fund operations was the General Managers decision to sign umbrella contracts with several private consultants to provide required technical assistance Under these agreeshyments separate contracts have been signed to identify investment possibilities to develop potential sub-projects to analyze their feasibility and to provide on-going technical supervision of sub-project implementation To date contracts have been signed for 77 project possibilities covering a potential Fund investment in sub-loans totalling approximately S402 million The great majority of these are for investshyment possibilities in rural associative enterprises which for lack of funds and entrepreneurial experience are unable to develop projects on their own

at S65 = US$1

4-

Given the excellent progress and active interest shown by the Bankand the poor performance of ORDEZA the Mission began considering in its October review a transfer of ORDEZAs uncommitted loan resources to theFund for investment by the Bank This possibility has been discussed with the Bank and the Ministry of Economy and Finance the Borrower underthe loan After extensive discussion and careful study of preliminarydata the Mission has developed this proposal for consideration by the Bureau

Discussion

The Mission proposal comprises the following actions first theextension of the TDD under the ORDEZA portion to permit implementationof only those sub-projects approved prior to the current TCD of January31 1977 second the extension of the TCD and TDD under the Bank portionof the loan by eighteen months third the re-allocation of up to $3 million of loan funds originally intended for sub-lending in the Earthquake Zone by ORDEZA unconitted as of the current TCD to the Fund in the Industrial Bank fourth the extension of Fund operationsinto the sierra departments of Apurimac Huancavelica Huanuco and Cajamarca and fifth the negotiation with the GOP of additional countershypart financing to maintain the current 6040 proportion of AID and GOP contributions to the Fund

With respect to the ORDEZA portion of the project the Mission hasconcluded that ORDEZAs past performance and present prospects offered no justification to consider an extension of the TCD Therefore the current TCD will lapse leaving approximately $26 million in loan fundsuncommitted if the Mission approves the six remaining sub-projects preshypared by ORDEZA for loan financing The Mission wishes to extend the TDD to permit the orderly implementation of several sub-projects which have been fully developed and analyzed which are ready for executionbut which require a disbursement period exceeding the six-month periodremaining prior to the TDD (See Annex IV for a list of sub-projectswhich have been developed by ORDEZA for USAID review prior to the TCD)Furthermore an extension is justified in view of the fact that the existing disbursement period is nine months short of the normal periodprescribed under PD-57 (ie 36 months from the date of compliance with initial CPs)

With respect to the Industrial Bank portion of the project theMission has concluded that an extension of the TCD and TDD is both required and justified and that the Bank could effectively utilize upto $3 million of loan funds uncommitted by ORDEZA These conclusions are based on the Banks demonstrated interest in the loan and its inshystitutional capacity to execute it as designed The extension request

Moreover a recent GOP decision reducing the area under ORDEZA jurisdiction limits ORDEZAs ability to invest Fund resources in the future

is further justified also by the nine-month shortfall in the existingdisbursement period The Bank estimates that the current balance of Fund resources (ie the original $6 million in AID loan funds and $4 million in GOP counterpart) will be fully committed by January 31 1978 Additional time is requested to permit commitment of new resources transferred to the Fund from ORDEZA and provided as GOP counterpart

It is not clear at this time how much loan money will be available for transfer to the Bank since the TCD has not yet passed and since commitments to several ORDEZA sub-projects approved by USAID prior to the TCD must await AIDW decision on a TDD extension The minimum amount available for transfer would be $26 million if all pending ORDEZA subshyprojects and associated technical assistance costs are approved as loan commitments If none of these are approved the uncommitted balance of ORDEZA funds would total $38 million However the Mission proposes to transfer no more than $3 million to the Bank It is possible thereshyfore that a balance of the original ORDEZA allocation may be de-obligatedBelow are shown the two extreme cases of alternative allocation of the currently uncommitted balance of ORDEZA funds

Case I Maximum ORDEZA Commitments Case II Minimum ORDEZA Commitments

Allocation $4000000 Allocation $4000000

Commitments to date 200000 Commitments to date 200000

Potential Commitments 1200000

Minimum uncommitted Maximum uncommitted balance $2600000 balance $3800000

Transfer to Bank $2600000 Transfer to Bank $3000000

De-obligation $ 800000

Including total value of pending sub-loans and supporting technical assistance costs

5a

In essence the Missions proposal to transfer loan funds for utilizashytion by the Bank is an alternative to the de-obligation of much-needed financing for development of the rural sierra of Peru The potential development impact of this proposal is major and fully consistent with the Congressional Mandate of generatingincome and employment for the rural poor Rural enterprises development is the sierras only realistic alternative to a subsistence agricultural economy which is inadequate to support a growing rural population In order to exploit this alternative financial and technical assistance is desperately needed for investment in new and existing enterprises in small-scale rural industry services and commerce The traditional banking system both state and private does not provide investment credit on terms and conditions appropriate to finance inexperienced or marginal entrepreneurs located in depressed sierra departments nor the required technical assistance to identify study and supervise sub-loan investments

A recent shift in GOP policy favoring the private sector provides an excellent climate for giving additional support to the operations and objectives of the Fund Fiscal and monetary measures are being designed to encourage private investment in all economic sectors Coupled with this is a continued concern with generating rural income and employment opportunities to redress regional economic imbalances and to stem the tide of urban migration an investment promotion program entitled GEAR (Generaci6n de Empleo en Areas Rurales) was launched a few months ago

6shy

under the auspices of the Ministry of Industry and Tourism The Fund fits exceedingly well into the pattern of these initiatives In such a climAte of increased GOP support the development impact of additional resources for the Fund would be considerable

Moreover the Missions proposal offers leverage to negotiate additional GOP counterpart to be devoted to activities endorsed by the Congressional Mandate The Mission proposes to condition the transfer of additional AID loan funds to the Bank on the provision of GOP financing required to maintain the current 6040 proportion of AID and GOP contributions to the Fund This financing would be made available from the Banks operating profits and would therefore not have to compete for exceedingly scarce GOP 1977-78 budgetary funds This would represent a net increase in new GOP counterpart financing of up to $2 million since no cash counterpart for sub-lending was required under the ORDEZA portion of the Loan

The Bank has proven itself to be an effective and appropriate institution to administer the Fund as designed Since administrative issues were resolved by June 1976 the performance of the Bank in operating the Fund and designing a program to meet the projects TA requirements has been excellent Recent USAID visits to the four branch offices confirmed that sub-lending operations have conformed to Fund criteria and that Fund objectives and procedures are wellshyestablished and accepted

Moreover the Fund has received maximum support at the highest levels of Bank management particularly from the General Manager Under his leadership and with his continued support of the Fund Coordinator all Fund-related matters are given priority attention recent examples are changes and increases in branch office personnel greater autonomy at the branch level and increasea authority for the Fund Coordinator Underlying this interest is the commitment of Bank management to the importance of the Funds replicability throughout the sierra and eventualshyly on a national scale The Fund is viewed as a valuable opportunity to demonstrate the feasibility and effectiveness of alternative banking methods such as the substitution of feasibility analysis and c6ntracted technical supervision of sub-projects for traditional commercial guarantees and a more aggressive approach by branch offices to lep4ing to new clients in rural areas

While recognizing the need for a Loan Authorization amendment the Mission considers its proposal to expand the Fund into additional sierra departments te be consistent with the original concept of the project as presented in the Capital Assistance Paper First the departments originally designated as target areas under the Bank portion of the project were selected on the basis of relative poverty adequacy of physical and institutional infrastructure and lack of sufficient developshyment credit (See p45 of the CAP) Apart from meeting these criteria

7shy

there were no unique features about any of the original departmentswhich would restrict the project to those four The inclusion of the Earthquake Zone was based on estimates of unsatisfied demand under loans 052 and 053 and the prior existence of ORDEZAs administrative framework for extending such credit Unfortunately such a favorable institutional basis no longer exists

Second it is clear from the original project design that the medium-term purpose of the project is to institutionalize the Rural Enterprises Development Fund in the Industrial Bank Both the CAP (p119) and the Loan Agreement provide for the repayment of sub-loans and all interest under the ORDEZA portion to the Fund in the Bank This provision indicates that sub-lending by ORDEZA was conceived as an interim measure while the Bank acquired sufficient experience to manage additional Fund capitalization

In effect then the Missions proposal does not deviate from the project purpose which as presented in the CAP is to institutionalize an integrated program of financial and technical assistance to assist existing and new rural enterprises and to consolidate that program under the Fund established in the Bank

The selection of the departments for expanding Fund operations was made in collaboration with the Bank on the basis of the same criteria used in the selection of the original four departments In this selection process both USAID and the Bank gave careful consideration to retaining the Earthquake Zone as a target area under the projectbut ultimately rejected it for reasons of administrative sensitivities The Banks reluctance to operate the Fund in the Earthquake Zone stems from a justifiable fear that it would have to overcome a poor imageand negative expectations currently attached to the project in the area owing to its history under ORDEZA Moreover ORDEZAs jurisdictionalsensitivities and understandable resentment over losing its share of loan resources might give rise to obstruction of Bank activities if the Bank were to assume project responsibilities in the Zone Besidesprincipal reflows and interest payments under 052 and 053 continue to be a source of concessional credit for future rural-enterprisedevelopment in the Zone approximately S303 million (roughly $430000)in reflows remain uncommitted to date

Having rejected the possibility of operating in the Earthquake Zone the Bank proposed in the following order of priority the departmentsof Huanuco Cajamarca Apurimac and Huancavelica All of these meet the original criteria stated in the CAP Huanuco and Cajamarca are ranked 17th and 18th among 23 departments on a scale of socio-economic marginality falling into the fourth quintile of relative poverty

at S70 = USS1 Based on a USAID-financed study of poverty in Peru which used

1971 census data

8shy

and Huancavelica and Apurimac are ranked 21st and 23rd respectivelyfalling into the fift4 or lowest quintile (See Annex V for a summary description of these four department)

The extension of Fund operations into Huancavelicaand Apurimacwould complete the coverage of the mancha india of southern Peru and would permit a ccnsolidation of the Funds jurisdiction throughoutthe poorest -gion of the country While these departments are served by agencie of the amp which do not have the staff and autonomyof a branch they fall vithin the jurisdiction of the branches of Junin and Ciizco where Fund operations are already well-established While each of these two Bank agencies would require a Fund promotorassigned full-time to the project additional staff assistance in subshyloan study and approvals would be readily available from the neighboringbranch office In a preliminary evaluation of investment possibilitiesin these two departments the Bank has identified sub-projects totalling S43 million in Huancavelica In Apurimac S657 million in potentialsub-projects have been identified in the province of Abancay alone the province of Andahuaylas for which data have not been collected is expected to offer greater investment potential (See Annex IV for a detailed listing of investment possibilities)

The inclusion of Huanuco and Cajamarca in the Funds jurisdictionwould represent a logical next step in extending Fund operationsthroughout the sierra These two departments are ranked among the National Planning Institutes priority areas for future investment Operating the Fund in Cajamarca has the additioaladvantage of complementing the sierra irrigation loan project the Bank expects to promote industrialization of dairy products with Fund resources in that zone which would provide an assured market for livestock production increases realized through irrigation Both these departshyments are served b y fully staffed Bank branch offices but would nevertheless rcquire the assignment of one full-time promotor for each branch Since these departments have greater physical and institutional infrastructure they offer significantly greater investment potentialthan the southern departments In Huanuco the Bank has identified sub-projects valued at S1218 million and an additional S1566million in investment possibilities have been identified by the regionalplanning office (These figures do not include existing proposals wbich do not have preliminary cost estimates See Annex VI) Fund investment potential in Cajamarca has not been quantified for lack of detailed data but based on Fund experience in the original four departments a minimum of S50 million could be committed to eligible sub-projects

Where sub-lending under the Fund since January 1976 almost doubled the level cf branch office disbursements prior to active operation of the Fund

9-

Based on these preliminary data a conservative estimate of credit demand demonstrates that additional Fund resources can be readily committed Assuming a maximum transfer of $3 million of AID loan funds and a negotiated 40 counterpart totalling$2 million the amount of additional Fund resources would total $5 million or approximately S350 million of which approximately S330million would be available for sub-lending A cursoryreview of investment potential in these four additional departmentsproduced a list of potential sub-projects representing a total Fund investment of S4371 million plus many more proposals which do not yet have cost estimates More in-depth study bycontracted consultants would certainly reveal additional investment opportunities Additional demand for Fund credit is expected to continue in the original four departments as well However this figure is an assurance that additional fund resources could be committed within the expanded area of Fund operation in the time allowed by an extension of the terminal dates (See Annex VII for a schedule of projected sub-loan commitments of transferred funds through July 1978)

Reflows to the Fund of interest and principal from outstandingsub-loans are not expected to be significant enough to meet even a minor share of the immediate credit demand Thq cumulative total of reflows is expected to be on the order of $500ObO by the end of CY 1977 reaching approximately $1 million by mid-CY 1978 Delayedinitiation of sub-lending by both the Bank and ORDEZA and extended maturity periods required in ORDEZAs livestock sub-projects have retarded the rate of capital reflow into the Fund An injection of new capital to the Fund at this time will permit the Fund to carry on a significant level of sub-lending activity during this period of low sub-lan reflows

Recommendations

1 That AIDW approve the Missions request to extend the terminal dates under the subject loan by eighteen months establishing a new TCD of July 31 1978 and a new TDD of January 31 1979

2 That AIDW approve the Missions request to amend the gubjectLoan Authorization (i)to transfer up to $3 million from ORDEZA manageshyment in the Earthquake Zone to the Rurol Enterprises Development Fund in the Industrial Bank and (ii) to expand the jurisdiction of the Fund to include the departments of Apurimac Cajamarca Huancavelica and Huanuco and

Of which up to $300000 would be reserved for TA per original allocation of ORDEZAs portion of the loan

At S70 = US$11 future devaluation of the sol will be compensated for by periodic price increases

10shy3 That the Mission be delegated authority to negotiate with theGOP a Loan Agreement Amendment consIstent with the terms and conditions of the amended Loan Authorization

ANNEX I Background Documents Relating to Mission Proposal

A Letter to Industrial Bank Establishing Performance Targets

B Mission Monitoring Plan

C Project Committee Recommendations

ANNEX II Past Sub-lending Activity by Industrial Bank

ANNEX III Projected Sub-loan Commitments of Balance of Original Fund Capital

ANNEX IV Sub-projects Prepared by ORDEZA for Loan Financing

ANNEX V Summary Description of Additional Sierra Departments

ANNEX VI Fund Investment Potential in Additional Sierra Departments

ANNEX VII Projected Sub-loan Commitments of Additional Fund Capital

ANNEX VIII Project Performance Tracking Network

ANNEX I - A

July 30r 19716

Ur iiC-3rdO Vlenzel PO=4dMs Goxeral Ibayer 11l1nco lnUstria dol Parti

Lim~a

Dear Eiujr IWhfll1

ampUIJE1z AID Loanx 11-27-11-OS7 Pl-V al jnorpieu Daelo1C2Xent

In rm~ent wek repre~entrttiv~a o AIJ) a-A thie IndustrialBank hiavt dcur-ac-d subloan coq-ztnnnt targatas for tha upoui-rigm~onths thircgh 3Jinuxiry 31 1977 thie Loans tmrrtnax1 cawntnxtdzate W~e niote with sati~sfacton reocunt erlcort-i by the Lvnk tospeed-up tho ckve1op~ient of projects Lnclu~ingq the nogotiaionof a-r4ents with Cov~ultin9 fizav The not two to thraeo raontjhawLU J~e criticali n damptcrining whathex the Accelerate riorthlysub-loan cavmaibaent figuras propxcd for tho next ni-x Lxnui pxriodwill bj attainable Accordixngly the targeta Vicli we ho willbe able to be maet as of Scra-bor~ 30 11376 are an followat

1 Bl10 million in sub-loantu approvr4 by tho Industrial DankdurinQ Au~usti

2 S15 implusmnili in suJb-16jtns approvod during Septenbwtr

3 S125~ millimi in aub-loar4 prendiruj approval for vhiohstudies liavo been cmontad aand uub-borrownrs pro-pali-iedl

4 signed contracts vith conaultante to develop and study projactdwhose astita value anounts to no less than S100 muilliona andwhose devolouant schedule calla for vub-loam review by the Zwnkprio~r to Deca~dbex 31 19769

3shy

decisive action to clarify administrative responsibilities to promote Fund activity in the branch offices and to arrange for technical assistshyance to accelerate sub-loan identification and study In July 1976 in the course of a Mission review of the Bank portion of the project pershyformance targets were established for Juiy August and September USAID consideration of an extension of the terminal dates was explicitly conshyditioned on the Bank meeting these targets These targets were met and exceeded and in a formal review with the Bank in early November it was concluded that USAID would seek an extension of the terminal dates to permit full utilization of the balance of the loan allocation to the Fund (See Annex I for detailed documentation)

In the six months from July 1976 through December 1976 an estimated S160000000 (roughly $25 million) was committed to approved sub-loans this total is an increase of 400 over sub-loan commitments in the preceeding twelve-month period (Please refer to Annex II which shows monthly and cmnulative sub-lending activity from project initiation) Moreover the existing backlog of sub-projects under study will peLmit the Bank to fully commit by January 31 1978 the balance of the Funds existing capital within the four original departments (See Annex IIi showing the Banks projected schedule of sub-loan commitments of original Fund capital)

Simultaneously the Bank has effectively institutionalized Fund operations Arn office for management of the Fund has been established within the Banks Division of Studies and Development this office is headed by the Fund Coordinator who has direct lines of communication with the Financial and General Managers of the Bank A Fund promotor in each branch office participates (as a non-voting member) in all meetings of the branchs credit committee in its pre-qualification of sub-borrowers and approval of sub-loans Sub-loans requiring approval at the rincipal office in Lima are presented by the Chief of the Branch Office

A major step in institutionalizing the Fund in the Bank and which accounts for much of the recent progress in Fund operations was the General Managers decision to sign umbrella contracts with several private consultants to provide required technical assistance Under these agreeshyments separate contracts have been signed to identify investment possibilities to develop potential sub-projects to analyze their feasibility and to provide on-going technical supervision of sub-project implementation To date contracts have been signed for 77 project possibilities covering a potential Fund investment in sub-loans totalling approximately S402 million The great majority of these are for investshyment possibilities in rural associative enterprises which for lack of funds and entrepreneurial experience are unable to develop projects on their own

at S65 = US$1

4-

Given the excellent progress and active interest shown by the Bankand the poor performance of ORDEZA the Mission began considering in its October review a transfer of ORDEZAs uncommitted loan resources to theFund for investment by the Bank This possibility has been discussed with the Bank and the Ministry of Economy and Finance the Borrower underthe loan After extensive discussion and careful study of preliminarydata the Mission has developed this proposal for consideration by the Bureau

Discussion

The Mission proposal comprises the following actions first theextension of the TDD under the ORDEZA portion to permit implementationof only those sub-projects approved prior to the current TCD of January31 1977 second the extension of the TCD and TDD under the Bank portionof the loan by eighteen months third the re-allocation of up to $3 million of loan funds originally intended for sub-lending in the Earthquake Zone by ORDEZA unconitted as of the current TCD to the Fund in the Industrial Bank fourth the extension of Fund operationsinto the sierra departments of Apurimac Huancavelica Huanuco and Cajamarca and fifth the negotiation with the GOP of additional countershypart financing to maintain the current 6040 proportion of AID and GOP contributions to the Fund

With respect to the ORDEZA portion of the project the Mission hasconcluded that ORDEZAs past performance and present prospects offered no justification to consider an extension of the TCD Therefore the current TCD will lapse leaving approximately $26 million in loan fundsuncommitted if the Mission approves the six remaining sub-projects preshypared by ORDEZA for loan financing The Mission wishes to extend the TDD to permit the orderly implementation of several sub-projects which have been fully developed and analyzed which are ready for executionbut which require a disbursement period exceeding the six-month periodremaining prior to the TDD (See Annex IV for a list of sub-projectswhich have been developed by ORDEZA for USAID review prior to the TCD)Furthermore an extension is justified in view of the fact that the existing disbursement period is nine months short of the normal periodprescribed under PD-57 (ie 36 months from the date of compliance with initial CPs)

With respect to the Industrial Bank portion of the project theMission has concluded that an extension of the TCD and TDD is both required and justified and that the Bank could effectively utilize upto $3 million of loan funds uncommitted by ORDEZA These conclusions are based on the Banks demonstrated interest in the loan and its inshystitutional capacity to execute it as designed The extension request

Moreover a recent GOP decision reducing the area under ORDEZA jurisdiction limits ORDEZAs ability to invest Fund resources in the future

is further justified also by the nine-month shortfall in the existingdisbursement period The Bank estimates that the current balance of Fund resources (ie the original $6 million in AID loan funds and $4 million in GOP counterpart) will be fully committed by January 31 1978 Additional time is requested to permit commitment of new resources transferred to the Fund from ORDEZA and provided as GOP counterpart

It is not clear at this time how much loan money will be available for transfer to the Bank since the TCD has not yet passed and since commitments to several ORDEZA sub-projects approved by USAID prior to the TCD must await AIDW decision on a TDD extension The minimum amount available for transfer would be $26 million if all pending ORDEZA subshyprojects and associated technical assistance costs are approved as loan commitments If none of these are approved the uncommitted balance of ORDEZA funds would total $38 million However the Mission proposes to transfer no more than $3 million to the Bank It is possible thereshyfore that a balance of the original ORDEZA allocation may be de-obligatedBelow are shown the two extreme cases of alternative allocation of the currently uncommitted balance of ORDEZA funds

Case I Maximum ORDEZA Commitments Case II Minimum ORDEZA Commitments

Allocation $4000000 Allocation $4000000

Commitments to date 200000 Commitments to date 200000

Potential Commitments 1200000

Minimum uncommitted Maximum uncommitted balance $2600000 balance $3800000

Transfer to Bank $2600000 Transfer to Bank $3000000

De-obligation $ 800000

Including total value of pending sub-loans and supporting technical assistance costs

5a

In essence the Missions proposal to transfer loan funds for utilizashytion by the Bank is an alternative to the de-obligation of much-needed financing for development of the rural sierra of Peru The potential development impact of this proposal is major and fully consistent with the Congressional Mandate of generatingincome and employment for the rural poor Rural enterprises development is the sierras only realistic alternative to a subsistence agricultural economy which is inadequate to support a growing rural population In order to exploit this alternative financial and technical assistance is desperately needed for investment in new and existing enterprises in small-scale rural industry services and commerce The traditional banking system both state and private does not provide investment credit on terms and conditions appropriate to finance inexperienced or marginal entrepreneurs located in depressed sierra departments nor the required technical assistance to identify study and supervise sub-loan investments

A recent shift in GOP policy favoring the private sector provides an excellent climate for giving additional support to the operations and objectives of the Fund Fiscal and monetary measures are being designed to encourage private investment in all economic sectors Coupled with this is a continued concern with generating rural income and employment opportunities to redress regional economic imbalances and to stem the tide of urban migration an investment promotion program entitled GEAR (Generaci6n de Empleo en Areas Rurales) was launched a few months ago

6shy

under the auspices of the Ministry of Industry and Tourism The Fund fits exceedingly well into the pattern of these initiatives In such a climAte of increased GOP support the development impact of additional resources for the Fund would be considerable

Moreover the Missions proposal offers leverage to negotiate additional GOP counterpart to be devoted to activities endorsed by the Congressional Mandate The Mission proposes to condition the transfer of additional AID loan funds to the Bank on the provision of GOP financing required to maintain the current 6040 proportion of AID and GOP contributions to the Fund This financing would be made available from the Banks operating profits and would therefore not have to compete for exceedingly scarce GOP 1977-78 budgetary funds This would represent a net increase in new GOP counterpart financing of up to $2 million since no cash counterpart for sub-lending was required under the ORDEZA portion of the Loan

The Bank has proven itself to be an effective and appropriate institution to administer the Fund as designed Since administrative issues were resolved by June 1976 the performance of the Bank in operating the Fund and designing a program to meet the projects TA requirements has been excellent Recent USAID visits to the four branch offices confirmed that sub-lending operations have conformed to Fund criteria and that Fund objectives and procedures are wellshyestablished and accepted

Moreover the Fund has received maximum support at the highest levels of Bank management particularly from the General Manager Under his leadership and with his continued support of the Fund Coordinator all Fund-related matters are given priority attention recent examples are changes and increases in branch office personnel greater autonomy at the branch level and increasea authority for the Fund Coordinator Underlying this interest is the commitment of Bank management to the importance of the Funds replicability throughout the sierra and eventualshyly on a national scale The Fund is viewed as a valuable opportunity to demonstrate the feasibility and effectiveness of alternative banking methods such as the substitution of feasibility analysis and c6ntracted technical supervision of sub-projects for traditional commercial guarantees and a more aggressive approach by branch offices to lep4ing to new clients in rural areas

While recognizing the need for a Loan Authorization amendment the Mission considers its proposal to expand the Fund into additional sierra departments te be consistent with the original concept of the project as presented in the Capital Assistance Paper First the departments originally designated as target areas under the Bank portion of the project were selected on the basis of relative poverty adequacy of physical and institutional infrastructure and lack of sufficient developshyment credit (See p45 of the CAP) Apart from meeting these criteria

7shy

there were no unique features about any of the original departmentswhich would restrict the project to those four The inclusion of the Earthquake Zone was based on estimates of unsatisfied demand under loans 052 and 053 and the prior existence of ORDEZAs administrative framework for extending such credit Unfortunately such a favorable institutional basis no longer exists

Second it is clear from the original project design that the medium-term purpose of the project is to institutionalize the Rural Enterprises Development Fund in the Industrial Bank Both the CAP (p119) and the Loan Agreement provide for the repayment of sub-loans and all interest under the ORDEZA portion to the Fund in the Bank This provision indicates that sub-lending by ORDEZA was conceived as an interim measure while the Bank acquired sufficient experience to manage additional Fund capitalization

In effect then the Missions proposal does not deviate from the project purpose which as presented in the CAP is to institutionalize an integrated program of financial and technical assistance to assist existing and new rural enterprises and to consolidate that program under the Fund established in the Bank

The selection of the departments for expanding Fund operations was made in collaboration with the Bank on the basis of the same criteria used in the selection of the original four departments In this selection process both USAID and the Bank gave careful consideration to retaining the Earthquake Zone as a target area under the projectbut ultimately rejected it for reasons of administrative sensitivities The Banks reluctance to operate the Fund in the Earthquake Zone stems from a justifiable fear that it would have to overcome a poor imageand negative expectations currently attached to the project in the area owing to its history under ORDEZA Moreover ORDEZAs jurisdictionalsensitivities and understandable resentment over losing its share of loan resources might give rise to obstruction of Bank activities if the Bank were to assume project responsibilities in the Zone Besidesprincipal reflows and interest payments under 052 and 053 continue to be a source of concessional credit for future rural-enterprisedevelopment in the Zone approximately S303 million (roughly $430000)in reflows remain uncommitted to date

Having rejected the possibility of operating in the Earthquake Zone the Bank proposed in the following order of priority the departmentsof Huanuco Cajamarca Apurimac and Huancavelica All of these meet the original criteria stated in the CAP Huanuco and Cajamarca are ranked 17th and 18th among 23 departments on a scale of socio-economic marginality falling into the fourth quintile of relative poverty

at S70 = USS1 Based on a USAID-financed study of poverty in Peru which used

1971 census data

8shy

and Huancavelica and Apurimac are ranked 21st and 23rd respectivelyfalling into the fift4 or lowest quintile (See Annex V for a summary description of these four department)

The extension of Fund operations into Huancavelicaand Apurimacwould complete the coverage of the mancha india of southern Peru and would permit a ccnsolidation of the Funds jurisdiction throughoutthe poorest -gion of the country While these departments are served by agencie of the amp which do not have the staff and autonomyof a branch they fall vithin the jurisdiction of the branches of Junin and Ciizco where Fund operations are already well-established While each of these two Bank agencies would require a Fund promotorassigned full-time to the project additional staff assistance in subshyloan study and approvals would be readily available from the neighboringbranch office In a preliminary evaluation of investment possibilitiesin these two departments the Bank has identified sub-projects totalling S43 million in Huancavelica In Apurimac S657 million in potentialsub-projects have been identified in the province of Abancay alone the province of Andahuaylas for which data have not been collected is expected to offer greater investment potential (See Annex IV for a detailed listing of investment possibilities)

The inclusion of Huanuco and Cajamarca in the Funds jurisdictionwould represent a logical next step in extending Fund operationsthroughout the sierra These two departments are ranked among the National Planning Institutes priority areas for future investment Operating the Fund in Cajamarca has the additioaladvantage of complementing the sierra irrigation loan project the Bank expects to promote industrialization of dairy products with Fund resources in that zone which would provide an assured market for livestock production increases realized through irrigation Both these departshyments are served b y fully staffed Bank branch offices but would nevertheless rcquire the assignment of one full-time promotor for each branch Since these departments have greater physical and institutional infrastructure they offer significantly greater investment potentialthan the southern departments In Huanuco the Bank has identified sub-projects valued at S1218 million and an additional S1566million in investment possibilities have been identified by the regionalplanning office (These figures do not include existing proposals wbich do not have preliminary cost estimates See Annex VI) Fund investment potential in Cajamarca has not been quantified for lack of detailed data but based on Fund experience in the original four departments a minimum of S50 million could be committed to eligible sub-projects

Where sub-lending under the Fund since January 1976 almost doubled the level cf branch office disbursements prior to active operation of the Fund

9-

Based on these preliminary data a conservative estimate of credit demand demonstrates that additional Fund resources can be readily committed Assuming a maximum transfer of $3 million of AID loan funds and a negotiated 40 counterpart totalling$2 million the amount of additional Fund resources would total $5 million or approximately S350 million of which approximately S330million would be available for sub-lending A cursoryreview of investment potential in these four additional departmentsproduced a list of potential sub-projects representing a total Fund investment of S4371 million plus many more proposals which do not yet have cost estimates More in-depth study bycontracted consultants would certainly reveal additional investment opportunities Additional demand for Fund credit is expected to continue in the original four departments as well However this figure is an assurance that additional fund resources could be committed within the expanded area of Fund operation in the time allowed by an extension of the terminal dates (See Annex VII for a schedule of projected sub-loan commitments of transferred funds through July 1978)

Reflows to the Fund of interest and principal from outstandingsub-loans are not expected to be significant enough to meet even a minor share of the immediate credit demand Thq cumulative total of reflows is expected to be on the order of $500ObO by the end of CY 1977 reaching approximately $1 million by mid-CY 1978 Delayedinitiation of sub-lending by both the Bank and ORDEZA and extended maturity periods required in ORDEZAs livestock sub-projects have retarded the rate of capital reflow into the Fund An injection of new capital to the Fund at this time will permit the Fund to carry on a significant level of sub-lending activity during this period of low sub-lan reflows

Recommendations

1 That AIDW approve the Missions request to extend the terminal dates under the subject loan by eighteen months establishing a new TCD of July 31 1978 and a new TDD of January 31 1979

2 That AIDW approve the Missions request to amend the gubjectLoan Authorization (i)to transfer up to $3 million from ORDEZA manageshyment in the Earthquake Zone to the Rurol Enterprises Development Fund in the Industrial Bank and (ii) to expand the jurisdiction of the Fund to include the departments of Apurimac Cajamarca Huancavelica and Huanuco and

Of which up to $300000 would be reserved for TA per original allocation of ORDEZAs portion of the loan

At S70 = US$11 future devaluation of the sol will be compensated for by periodic price increases

10shy3 That the Mission be delegated authority to negotiate with theGOP a Loan Agreement Amendment consIstent with the terms and conditions of the amended Loan Authorization

ANNEX I Background Documents Relating to Mission Proposal

A Letter to Industrial Bank Establishing Performance Targets

B Mission Monitoring Plan

C Project Committee Recommendations

ANNEX II Past Sub-lending Activity by Industrial Bank

ANNEX III Projected Sub-loan Commitments of Balance of Original Fund Capital

ANNEX IV Sub-projects Prepared by ORDEZA for Loan Financing

ANNEX V Summary Description of Additional Sierra Departments

ANNEX VI Fund Investment Potential in Additional Sierra Departments

ANNEX VII Projected Sub-loan Commitments of Additional Fund Capital

ANNEX VIII Project Performance Tracking Network

ANNEX I - A

July 30r 19716

Ur iiC-3rdO Vlenzel PO=4dMs Goxeral Ibayer 11l1nco lnUstria dol Parti

Lim~a

Dear Eiujr IWhfll1

ampUIJE1z AID Loanx 11-27-11-OS7 Pl-V al jnorpieu Daelo1C2Xent

In rm~ent wek repre~entrttiv~a o AIJ) a-A thie IndustrialBank hiavt dcur-ac-d subloan coq-ztnnnt targatas for tha upoui-rigm~onths thircgh 3Jinuxiry 31 1977 thie Loans tmrrtnax1 cawntnxtdzate W~e niote with sati~sfacton reocunt erlcort-i by the Lvnk tospeed-up tho ckve1op~ient of projects Lnclu~ingq the nogotiaionof a-r4ents with Cov~ultin9 fizav The not two to thraeo raontjhawLU J~e criticali n damptcrining whathex the Accelerate riorthlysub-loan cavmaibaent figuras propxcd for tho next ni-x Lxnui pxriodwill bj attainable Accordixngly the targeta Vicli we ho willbe able to be maet as of Scra-bor~ 30 11376 are an followat

1 Bl10 million in sub-loantu approvr4 by tho Industrial DankdurinQ Au~usti

2 S15 implusmnili in suJb-16jtns approvod during Septenbwtr

3 S125~ millimi in aub-loar4 prendiruj approval for vhiohstudies liavo been cmontad aand uub-borrownrs pro-pali-iedl

4 signed contracts vith conaultante to develop and study projactdwhose astita value anounts to no less than S100 muilliona andwhose devolouant schedule calla for vub-loam review by the Zwnkprio~r to Deca~dbex 31 19769

4-

Given the excellent progress and active interest shown by the Bankand the poor performance of ORDEZA the Mission began considering in its October review a transfer of ORDEZAs uncommitted loan resources to theFund for investment by the Bank This possibility has been discussed with the Bank and the Ministry of Economy and Finance the Borrower underthe loan After extensive discussion and careful study of preliminarydata the Mission has developed this proposal for consideration by the Bureau

Discussion

The Mission proposal comprises the following actions first theextension of the TDD under the ORDEZA portion to permit implementationof only those sub-projects approved prior to the current TCD of January31 1977 second the extension of the TCD and TDD under the Bank portionof the loan by eighteen months third the re-allocation of up to $3 million of loan funds originally intended for sub-lending in the Earthquake Zone by ORDEZA unconitted as of the current TCD to the Fund in the Industrial Bank fourth the extension of Fund operationsinto the sierra departments of Apurimac Huancavelica Huanuco and Cajamarca and fifth the negotiation with the GOP of additional countershypart financing to maintain the current 6040 proportion of AID and GOP contributions to the Fund

With respect to the ORDEZA portion of the project the Mission hasconcluded that ORDEZAs past performance and present prospects offered no justification to consider an extension of the TCD Therefore the current TCD will lapse leaving approximately $26 million in loan fundsuncommitted if the Mission approves the six remaining sub-projects preshypared by ORDEZA for loan financing The Mission wishes to extend the TDD to permit the orderly implementation of several sub-projects which have been fully developed and analyzed which are ready for executionbut which require a disbursement period exceeding the six-month periodremaining prior to the TDD (See Annex IV for a list of sub-projectswhich have been developed by ORDEZA for USAID review prior to the TCD)Furthermore an extension is justified in view of the fact that the existing disbursement period is nine months short of the normal periodprescribed under PD-57 (ie 36 months from the date of compliance with initial CPs)

With respect to the Industrial Bank portion of the project theMission has concluded that an extension of the TCD and TDD is both required and justified and that the Bank could effectively utilize upto $3 million of loan funds uncommitted by ORDEZA These conclusions are based on the Banks demonstrated interest in the loan and its inshystitutional capacity to execute it as designed The extension request

Moreover a recent GOP decision reducing the area under ORDEZA jurisdiction limits ORDEZAs ability to invest Fund resources in the future

is further justified also by the nine-month shortfall in the existingdisbursement period The Bank estimates that the current balance of Fund resources (ie the original $6 million in AID loan funds and $4 million in GOP counterpart) will be fully committed by January 31 1978 Additional time is requested to permit commitment of new resources transferred to the Fund from ORDEZA and provided as GOP counterpart

It is not clear at this time how much loan money will be available for transfer to the Bank since the TCD has not yet passed and since commitments to several ORDEZA sub-projects approved by USAID prior to the TCD must await AIDW decision on a TDD extension The minimum amount available for transfer would be $26 million if all pending ORDEZA subshyprojects and associated technical assistance costs are approved as loan commitments If none of these are approved the uncommitted balance of ORDEZA funds would total $38 million However the Mission proposes to transfer no more than $3 million to the Bank It is possible thereshyfore that a balance of the original ORDEZA allocation may be de-obligatedBelow are shown the two extreme cases of alternative allocation of the currently uncommitted balance of ORDEZA funds

Case I Maximum ORDEZA Commitments Case II Minimum ORDEZA Commitments

Allocation $4000000 Allocation $4000000

Commitments to date 200000 Commitments to date 200000

Potential Commitments 1200000

Minimum uncommitted Maximum uncommitted balance $2600000 balance $3800000

Transfer to Bank $2600000 Transfer to Bank $3000000

De-obligation $ 800000

Including total value of pending sub-loans and supporting technical assistance costs

5a

In essence the Missions proposal to transfer loan funds for utilizashytion by the Bank is an alternative to the de-obligation of much-needed financing for development of the rural sierra of Peru The potential development impact of this proposal is major and fully consistent with the Congressional Mandate of generatingincome and employment for the rural poor Rural enterprises development is the sierras only realistic alternative to a subsistence agricultural economy which is inadequate to support a growing rural population In order to exploit this alternative financial and technical assistance is desperately needed for investment in new and existing enterprises in small-scale rural industry services and commerce The traditional banking system both state and private does not provide investment credit on terms and conditions appropriate to finance inexperienced or marginal entrepreneurs located in depressed sierra departments nor the required technical assistance to identify study and supervise sub-loan investments

A recent shift in GOP policy favoring the private sector provides an excellent climate for giving additional support to the operations and objectives of the Fund Fiscal and monetary measures are being designed to encourage private investment in all economic sectors Coupled with this is a continued concern with generating rural income and employment opportunities to redress regional economic imbalances and to stem the tide of urban migration an investment promotion program entitled GEAR (Generaci6n de Empleo en Areas Rurales) was launched a few months ago

6shy

under the auspices of the Ministry of Industry and Tourism The Fund fits exceedingly well into the pattern of these initiatives In such a climAte of increased GOP support the development impact of additional resources for the Fund would be considerable

Moreover the Missions proposal offers leverage to negotiate additional GOP counterpart to be devoted to activities endorsed by the Congressional Mandate The Mission proposes to condition the transfer of additional AID loan funds to the Bank on the provision of GOP financing required to maintain the current 6040 proportion of AID and GOP contributions to the Fund This financing would be made available from the Banks operating profits and would therefore not have to compete for exceedingly scarce GOP 1977-78 budgetary funds This would represent a net increase in new GOP counterpart financing of up to $2 million since no cash counterpart for sub-lending was required under the ORDEZA portion of the Loan

The Bank has proven itself to be an effective and appropriate institution to administer the Fund as designed Since administrative issues were resolved by June 1976 the performance of the Bank in operating the Fund and designing a program to meet the projects TA requirements has been excellent Recent USAID visits to the four branch offices confirmed that sub-lending operations have conformed to Fund criteria and that Fund objectives and procedures are wellshyestablished and accepted

Moreover the Fund has received maximum support at the highest levels of Bank management particularly from the General Manager Under his leadership and with his continued support of the Fund Coordinator all Fund-related matters are given priority attention recent examples are changes and increases in branch office personnel greater autonomy at the branch level and increasea authority for the Fund Coordinator Underlying this interest is the commitment of Bank management to the importance of the Funds replicability throughout the sierra and eventualshyly on a national scale The Fund is viewed as a valuable opportunity to demonstrate the feasibility and effectiveness of alternative banking methods such as the substitution of feasibility analysis and c6ntracted technical supervision of sub-projects for traditional commercial guarantees and a more aggressive approach by branch offices to lep4ing to new clients in rural areas

While recognizing the need for a Loan Authorization amendment the Mission considers its proposal to expand the Fund into additional sierra departments te be consistent with the original concept of the project as presented in the Capital Assistance Paper First the departments originally designated as target areas under the Bank portion of the project were selected on the basis of relative poverty adequacy of physical and institutional infrastructure and lack of sufficient developshyment credit (See p45 of the CAP) Apart from meeting these criteria

7shy

there were no unique features about any of the original departmentswhich would restrict the project to those four The inclusion of the Earthquake Zone was based on estimates of unsatisfied demand under loans 052 and 053 and the prior existence of ORDEZAs administrative framework for extending such credit Unfortunately such a favorable institutional basis no longer exists

Second it is clear from the original project design that the medium-term purpose of the project is to institutionalize the Rural Enterprises Development Fund in the Industrial Bank Both the CAP (p119) and the Loan Agreement provide for the repayment of sub-loans and all interest under the ORDEZA portion to the Fund in the Bank This provision indicates that sub-lending by ORDEZA was conceived as an interim measure while the Bank acquired sufficient experience to manage additional Fund capitalization

In effect then the Missions proposal does not deviate from the project purpose which as presented in the CAP is to institutionalize an integrated program of financial and technical assistance to assist existing and new rural enterprises and to consolidate that program under the Fund established in the Bank

The selection of the departments for expanding Fund operations was made in collaboration with the Bank on the basis of the same criteria used in the selection of the original four departments In this selection process both USAID and the Bank gave careful consideration to retaining the Earthquake Zone as a target area under the projectbut ultimately rejected it for reasons of administrative sensitivities The Banks reluctance to operate the Fund in the Earthquake Zone stems from a justifiable fear that it would have to overcome a poor imageand negative expectations currently attached to the project in the area owing to its history under ORDEZA Moreover ORDEZAs jurisdictionalsensitivities and understandable resentment over losing its share of loan resources might give rise to obstruction of Bank activities if the Bank were to assume project responsibilities in the Zone Besidesprincipal reflows and interest payments under 052 and 053 continue to be a source of concessional credit for future rural-enterprisedevelopment in the Zone approximately S303 million (roughly $430000)in reflows remain uncommitted to date

Having rejected the possibility of operating in the Earthquake Zone the Bank proposed in the following order of priority the departmentsof Huanuco Cajamarca Apurimac and Huancavelica All of these meet the original criteria stated in the CAP Huanuco and Cajamarca are ranked 17th and 18th among 23 departments on a scale of socio-economic marginality falling into the fourth quintile of relative poverty

at S70 = USS1 Based on a USAID-financed study of poverty in Peru which used

1971 census data

8shy

and Huancavelica and Apurimac are ranked 21st and 23rd respectivelyfalling into the fift4 or lowest quintile (See Annex V for a summary description of these four department)

The extension of Fund operations into Huancavelicaand Apurimacwould complete the coverage of the mancha india of southern Peru and would permit a ccnsolidation of the Funds jurisdiction throughoutthe poorest -gion of the country While these departments are served by agencie of the amp which do not have the staff and autonomyof a branch they fall vithin the jurisdiction of the branches of Junin and Ciizco where Fund operations are already well-established While each of these two Bank agencies would require a Fund promotorassigned full-time to the project additional staff assistance in subshyloan study and approvals would be readily available from the neighboringbranch office In a preliminary evaluation of investment possibilitiesin these two departments the Bank has identified sub-projects totalling S43 million in Huancavelica In Apurimac S657 million in potentialsub-projects have been identified in the province of Abancay alone the province of Andahuaylas for which data have not been collected is expected to offer greater investment potential (See Annex IV for a detailed listing of investment possibilities)

The inclusion of Huanuco and Cajamarca in the Funds jurisdictionwould represent a logical next step in extending Fund operationsthroughout the sierra These two departments are ranked among the National Planning Institutes priority areas for future investment Operating the Fund in Cajamarca has the additioaladvantage of complementing the sierra irrigation loan project the Bank expects to promote industrialization of dairy products with Fund resources in that zone which would provide an assured market for livestock production increases realized through irrigation Both these departshyments are served b y fully staffed Bank branch offices but would nevertheless rcquire the assignment of one full-time promotor for each branch Since these departments have greater physical and institutional infrastructure they offer significantly greater investment potentialthan the southern departments In Huanuco the Bank has identified sub-projects valued at S1218 million and an additional S1566million in investment possibilities have been identified by the regionalplanning office (These figures do not include existing proposals wbich do not have preliminary cost estimates See Annex VI) Fund investment potential in Cajamarca has not been quantified for lack of detailed data but based on Fund experience in the original four departments a minimum of S50 million could be committed to eligible sub-projects

Where sub-lending under the Fund since January 1976 almost doubled the level cf branch office disbursements prior to active operation of the Fund

9-

Based on these preliminary data a conservative estimate of credit demand demonstrates that additional Fund resources can be readily committed Assuming a maximum transfer of $3 million of AID loan funds and a negotiated 40 counterpart totalling$2 million the amount of additional Fund resources would total $5 million or approximately S350 million of which approximately S330million would be available for sub-lending A cursoryreview of investment potential in these four additional departmentsproduced a list of potential sub-projects representing a total Fund investment of S4371 million plus many more proposals which do not yet have cost estimates More in-depth study bycontracted consultants would certainly reveal additional investment opportunities Additional demand for Fund credit is expected to continue in the original four departments as well However this figure is an assurance that additional fund resources could be committed within the expanded area of Fund operation in the time allowed by an extension of the terminal dates (See Annex VII for a schedule of projected sub-loan commitments of transferred funds through July 1978)

Reflows to the Fund of interest and principal from outstandingsub-loans are not expected to be significant enough to meet even a minor share of the immediate credit demand Thq cumulative total of reflows is expected to be on the order of $500ObO by the end of CY 1977 reaching approximately $1 million by mid-CY 1978 Delayedinitiation of sub-lending by both the Bank and ORDEZA and extended maturity periods required in ORDEZAs livestock sub-projects have retarded the rate of capital reflow into the Fund An injection of new capital to the Fund at this time will permit the Fund to carry on a significant level of sub-lending activity during this period of low sub-lan reflows

Recommendations

1 That AIDW approve the Missions request to extend the terminal dates under the subject loan by eighteen months establishing a new TCD of July 31 1978 and a new TDD of January 31 1979

2 That AIDW approve the Missions request to amend the gubjectLoan Authorization (i)to transfer up to $3 million from ORDEZA manageshyment in the Earthquake Zone to the Rurol Enterprises Development Fund in the Industrial Bank and (ii) to expand the jurisdiction of the Fund to include the departments of Apurimac Cajamarca Huancavelica and Huanuco and

Of which up to $300000 would be reserved for TA per original allocation of ORDEZAs portion of the loan

At S70 = US$11 future devaluation of the sol will be compensated for by periodic price increases

10shy3 That the Mission be delegated authority to negotiate with theGOP a Loan Agreement Amendment consIstent with the terms and conditions of the amended Loan Authorization

ANNEX I Background Documents Relating to Mission Proposal

A Letter to Industrial Bank Establishing Performance Targets

B Mission Monitoring Plan

C Project Committee Recommendations

ANNEX II Past Sub-lending Activity by Industrial Bank

ANNEX III Projected Sub-loan Commitments of Balance of Original Fund Capital

ANNEX IV Sub-projects Prepared by ORDEZA for Loan Financing

ANNEX V Summary Description of Additional Sierra Departments

ANNEX VI Fund Investment Potential in Additional Sierra Departments

ANNEX VII Projected Sub-loan Commitments of Additional Fund Capital

ANNEX VIII Project Performance Tracking Network

ANNEX I - A

July 30r 19716

Ur iiC-3rdO Vlenzel PO=4dMs Goxeral Ibayer 11l1nco lnUstria dol Parti

Lim~a

Dear Eiujr IWhfll1

ampUIJE1z AID Loanx 11-27-11-OS7 Pl-V al jnorpieu Daelo1C2Xent

In rm~ent wek repre~entrttiv~a o AIJ) a-A thie IndustrialBank hiavt dcur-ac-d subloan coq-ztnnnt targatas for tha upoui-rigm~onths thircgh 3Jinuxiry 31 1977 thie Loans tmrrtnax1 cawntnxtdzate W~e niote with sati~sfacton reocunt erlcort-i by the Lvnk tospeed-up tho ckve1op~ient of projects Lnclu~ingq the nogotiaionof a-r4ents with Cov~ultin9 fizav The not two to thraeo raontjhawLU J~e criticali n damptcrining whathex the Accelerate riorthlysub-loan cavmaibaent figuras propxcd for tho next ni-x Lxnui pxriodwill bj attainable Accordixngly the targeta Vicli we ho willbe able to be maet as of Scra-bor~ 30 11376 are an followat

1 Bl10 million in sub-loantu approvr4 by tho Industrial DankdurinQ Au~usti

2 S15 implusmnili in suJb-16jtns approvod during Septenbwtr

3 S125~ millimi in aub-loar4 prendiruj approval for vhiohstudies liavo been cmontad aand uub-borrownrs pro-pali-iedl

4 signed contracts vith conaultante to develop and study projactdwhose astita value anounts to no less than S100 muilliona andwhose devolouant schedule calla for vub-loam review by the Zwnkprio~r to Deca~dbex 31 19769

is further justified also by the nine-month shortfall in the existingdisbursement period The Bank estimates that the current balance of Fund resources (ie the original $6 million in AID loan funds and $4 million in GOP counterpart) will be fully committed by January 31 1978 Additional time is requested to permit commitment of new resources transferred to the Fund from ORDEZA and provided as GOP counterpart

It is not clear at this time how much loan money will be available for transfer to the Bank since the TCD has not yet passed and since commitments to several ORDEZA sub-projects approved by USAID prior to the TCD must await AIDW decision on a TDD extension The minimum amount available for transfer would be $26 million if all pending ORDEZA subshyprojects and associated technical assistance costs are approved as loan commitments If none of these are approved the uncommitted balance of ORDEZA funds would total $38 million However the Mission proposes to transfer no more than $3 million to the Bank It is possible thereshyfore that a balance of the original ORDEZA allocation may be de-obligatedBelow are shown the two extreme cases of alternative allocation of the currently uncommitted balance of ORDEZA funds

Case I Maximum ORDEZA Commitments Case II Minimum ORDEZA Commitments

Allocation $4000000 Allocation $4000000

Commitments to date 200000 Commitments to date 200000

Potential Commitments 1200000

Minimum uncommitted Maximum uncommitted balance $2600000 balance $3800000

Transfer to Bank $2600000 Transfer to Bank $3000000

De-obligation $ 800000

Including total value of pending sub-loans and supporting technical assistance costs

5a

In essence the Missions proposal to transfer loan funds for utilizashytion by the Bank is an alternative to the de-obligation of much-needed financing for development of the rural sierra of Peru The potential development impact of this proposal is major and fully consistent with the Congressional Mandate of generatingincome and employment for the rural poor Rural enterprises development is the sierras only realistic alternative to a subsistence agricultural economy which is inadequate to support a growing rural population In order to exploit this alternative financial and technical assistance is desperately needed for investment in new and existing enterprises in small-scale rural industry services and commerce The traditional banking system both state and private does not provide investment credit on terms and conditions appropriate to finance inexperienced or marginal entrepreneurs located in depressed sierra departments nor the required technical assistance to identify study and supervise sub-loan investments

A recent shift in GOP policy favoring the private sector provides an excellent climate for giving additional support to the operations and objectives of the Fund Fiscal and monetary measures are being designed to encourage private investment in all economic sectors Coupled with this is a continued concern with generating rural income and employment opportunities to redress regional economic imbalances and to stem the tide of urban migration an investment promotion program entitled GEAR (Generaci6n de Empleo en Areas Rurales) was launched a few months ago

6shy

under the auspices of the Ministry of Industry and Tourism The Fund fits exceedingly well into the pattern of these initiatives In such a climAte of increased GOP support the development impact of additional resources for the Fund would be considerable

Moreover the Missions proposal offers leverage to negotiate additional GOP counterpart to be devoted to activities endorsed by the Congressional Mandate The Mission proposes to condition the transfer of additional AID loan funds to the Bank on the provision of GOP financing required to maintain the current 6040 proportion of AID and GOP contributions to the Fund This financing would be made available from the Banks operating profits and would therefore not have to compete for exceedingly scarce GOP 1977-78 budgetary funds This would represent a net increase in new GOP counterpart financing of up to $2 million since no cash counterpart for sub-lending was required under the ORDEZA portion of the Loan

The Bank has proven itself to be an effective and appropriate institution to administer the Fund as designed Since administrative issues were resolved by June 1976 the performance of the Bank in operating the Fund and designing a program to meet the projects TA requirements has been excellent Recent USAID visits to the four branch offices confirmed that sub-lending operations have conformed to Fund criteria and that Fund objectives and procedures are wellshyestablished and accepted

Moreover the Fund has received maximum support at the highest levels of Bank management particularly from the General Manager Under his leadership and with his continued support of the Fund Coordinator all Fund-related matters are given priority attention recent examples are changes and increases in branch office personnel greater autonomy at the branch level and increasea authority for the Fund Coordinator Underlying this interest is the commitment of Bank management to the importance of the Funds replicability throughout the sierra and eventualshyly on a national scale The Fund is viewed as a valuable opportunity to demonstrate the feasibility and effectiveness of alternative banking methods such as the substitution of feasibility analysis and c6ntracted technical supervision of sub-projects for traditional commercial guarantees and a more aggressive approach by branch offices to lep4ing to new clients in rural areas

While recognizing the need for a Loan Authorization amendment the Mission considers its proposal to expand the Fund into additional sierra departments te be consistent with the original concept of the project as presented in the Capital Assistance Paper First the departments originally designated as target areas under the Bank portion of the project were selected on the basis of relative poverty adequacy of physical and institutional infrastructure and lack of sufficient developshyment credit (See p45 of the CAP) Apart from meeting these criteria

7shy

there were no unique features about any of the original departmentswhich would restrict the project to those four The inclusion of the Earthquake Zone was based on estimates of unsatisfied demand under loans 052 and 053 and the prior existence of ORDEZAs administrative framework for extending such credit Unfortunately such a favorable institutional basis no longer exists

Second it is clear from the original project design that the medium-term purpose of the project is to institutionalize the Rural Enterprises Development Fund in the Industrial Bank Both the CAP (p119) and the Loan Agreement provide for the repayment of sub-loans and all interest under the ORDEZA portion to the Fund in the Bank This provision indicates that sub-lending by ORDEZA was conceived as an interim measure while the Bank acquired sufficient experience to manage additional Fund capitalization

In effect then the Missions proposal does not deviate from the project purpose which as presented in the CAP is to institutionalize an integrated program of financial and technical assistance to assist existing and new rural enterprises and to consolidate that program under the Fund established in the Bank

The selection of the departments for expanding Fund operations was made in collaboration with the Bank on the basis of the same criteria used in the selection of the original four departments In this selection process both USAID and the Bank gave careful consideration to retaining the Earthquake Zone as a target area under the projectbut ultimately rejected it for reasons of administrative sensitivities The Banks reluctance to operate the Fund in the Earthquake Zone stems from a justifiable fear that it would have to overcome a poor imageand negative expectations currently attached to the project in the area owing to its history under ORDEZA Moreover ORDEZAs jurisdictionalsensitivities and understandable resentment over losing its share of loan resources might give rise to obstruction of Bank activities if the Bank were to assume project responsibilities in the Zone Besidesprincipal reflows and interest payments under 052 and 053 continue to be a source of concessional credit for future rural-enterprisedevelopment in the Zone approximately S303 million (roughly $430000)in reflows remain uncommitted to date

Having rejected the possibility of operating in the Earthquake Zone the Bank proposed in the following order of priority the departmentsof Huanuco Cajamarca Apurimac and Huancavelica All of these meet the original criteria stated in the CAP Huanuco and Cajamarca are ranked 17th and 18th among 23 departments on a scale of socio-economic marginality falling into the fourth quintile of relative poverty

at S70 = USS1 Based on a USAID-financed study of poverty in Peru which used

1971 census data

8shy

and Huancavelica and Apurimac are ranked 21st and 23rd respectivelyfalling into the fift4 or lowest quintile (See Annex V for a summary description of these four department)

The extension of Fund operations into Huancavelicaand Apurimacwould complete the coverage of the mancha india of southern Peru and would permit a ccnsolidation of the Funds jurisdiction throughoutthe poorest -gion of the country While these departments are served by agencie of the amp which do not have the staff and autonomyof a branch they fall vithin the jurisdiction of the branches of Junin and Ciizco where Fund operations are already well-established While each of these two Bank agencies would require a Fund promotorassigned full-time to the project additional staff assistance in subshyloan study and approvals would be readily available from the neighboringbranch office In a preliminary evaluation of investment possibilitiesin these two departments the Bank has identified sub-projects totalling S43 million in Huancavelica In Apurimac S657 million in potentialsub-projects have been identified in the province of Abancay alone the province of Andahuaylas for which data have not been collected is expected to offer greater investment potential (See Annex IV for a detailed listing of investment possibilities)

The inclusion of Huanuco and Cajamarca in the Funds jurisdictionwould represent a logical next step in extending Fund operationsthroughout the sierra These two departments are ranked among the National Planning Institutes priority areas for future investment Operating the Fund in Cajamarca has the additioaladvantage of complementing the sierra irrigation loan project the Bank expects to promote industrialization of dairy products with Fund resources in that zone which would provide an assured market for livestock production increases realized through irrigation Both these departshyments are served b y fully staffed Bank branch offices but would nevertheless rcquire the assignment of one full-time promotor for each branch Since these departments have greater physical and institutional infrastructure they offer significantly greater investment potentialthan the southern departments In Huanuco the Bank has identified sub-projects valued at S1218 million and an additional S1566million in investment possibilities have been identified by the regionalplanning office (These figures do not include existing proposals wbich do not have preliminary cost estimates See Annex VI) Fund investment potential in Cajamarca has not been quantified for lack of detailed data but based on Fund experience in the original four departments a minimum of S50 million could be committed to eligible sub-projects

Where sub-lending under the Fund since January 1976 almost doubled the level cf branch office disbursements prior to active operation of the Fund

9-

Based on these preliminary data a conservative estimate of credit demand demonstrates that additional Fund resources can be readily committed Assuming a maximum transfer of $3 million of AID loan funds and a negotiated 40 counterpart totalling$2 million the amount of additional Fund resources would total $5 million or approximately S350 million of which approximately S330million would be available for sub-lending A cursoryreview of investment potential in these four additional departmentsproduced a list of potential sub-projects representing a total Fund investment of S4371 million plus many more proposals which do not yet have cost estimates More in-depth study bycontracted consultants would certainly reveal additional investment opportunities Additional demand for Fund credit is expected to continue in the original four departments as well However this figure is an assurance that additional fund resources could be committed within the expanded area of Fund operation in the time allowed by an extension of the terminal dates (See Annex VII for a schedule of projected sub-loan commitments of transferred funds through July 1978)

Reflows to the Fund of interest and principal from outstandingsub-loans are not expected to be significant enough to meet even a minor share of the immediate credit demand Thq cumulative total of reflows is expected to be on the order of $500ObO by the end of CY 1977 reaching approximately $1 million by mid-CY 1978 Delayedinitiation of sub-lending by both the Bank and ORDEZA and extended maturity periods required in ORDEZAs livestock sub-projects have retarded the rate of capital reflow into the Fund An injection of new capital to the Fund at this time will permit the Fund to carry on a significant level of sub-lending activity during this period of low sub-lan reflows

Recommendations

1 That AIDW approve the Missions request to extend the terminal dates under the subject loan by eighteen months establishing a new TCD of July 31 1978 and a new TDD of January 31 1979

2 That AIDW approve the Missions request to amend the gubjectLoan Authorization (i)to transfer up to $3 million from ORDEZA manageshyment in the Earthquake Zone to the Rurol Enterprises Development Fund in the Industrial Bank and (ii) to expand the jurisdiction of the Fund to include the departments of Apurimac Cajamarca Huancavelica and Huanuco and

Of which up to $300000 would be reserved for TA per original allocation of ORDEZAs portion of the loan

At S70 = US$11 future devaluation of the sol will be compensated for by periodic price increases

10shy3 That the Mission be delegated authority to negotiate with theGOP a Loan Agreement Amendment consIstent with the terms and conditions of the amended Loan Authorization

ANNEX I Background Documents Relating to Mission Proposal

A Letter to Industrial Bank Establishing Performance Targets

B Mission Monitoring Plan

C Project Committee Recommendations

ANNEX II Past Sub-lending Activity by Industrial Bank

ANNEX III Projected Sub-loan Commitments of Balance of Original Fund Capital

ANNEX IV Sub-projects Prepared by ORDEZA for Loan Financing

ANNEX V Summary Description of Additional Sierra Departments

ANNEX VI Fund Investment Potential in Additional Sierra Departments

ANNEX VII Projected Sub-loan Commitments of Additional Fund Capital

ANNEX VIII Project Performance Tracking Network

ANNEX I - A

July 30r 19716

Ur iiC-3rdO Vlenzel PO=4dMs Goxeral Ibayer 11l1nco lnUstria dol Parti

Lim~a

Dear Eiujr IWhfll1

ampUIJE1z AID Loanx 11-27-11-OS7 Pl-V al jnorpieu Daelo1C2Xent

In rm~ent wek repre~entrttiv~a o AIJ) a-A thie IndustrialBank hiavt dcur-ac-d subloan coq-ztnnnt targatas for tha upoui-rigm~onths thircgh 3Jinuxiry 31 1977 thie Loans tmrrtnax1 cawntnxtdzate W~e niote with sati~sfacton reocunt erlcort-i by the Lvnk tospeed-up tho ckve1op~ient of projects Lnclu~ingq the nogotiaionof a-r4ents with Cov~ultin9 fizav The not two to thraeo raontjhawLU J~e criticali n damptcrining whathex the Accelerate riorthlysub-loan cavmaibaent figuras propxcd for tho next ni-x Lxnui pxriodwill bj attainable Accordixngly the targeta Vicli we ho willbe able to be maet as of Scra-bor~ 30 11376 are an followat

1 Bl10 million in sub-loantu approvr4 by tho Industrial DankdurinQ Au~usti

2 S15 implusmnili in suJb-16jtns approvod during Septenbwtr

3 S125~ millimi in aub-loar4 prendiruj approval for vhiohstudies liavo been cmontad aand uub-borrownrs pro-pali-iedl

4 signed contracts vith conaultante to develop and study projactdwhose astita value anounts to no less than S100 muilliona andwhose devolouant schedule calla for vub-loam review by the Zwnkprio~r to Deca~dbex 31 19769

5a

In essence the Missions proposal to transfer loan funds for utilizashytion by the Bank is an alternative to the de-obligation of much-needed financing for development of the rural sierra of Peru The potential development impact of this proposal is major and fully consistent with the Congressional Mandate of generatingincome and employment for the rural poor Rural enterprises development is the sierras only realistic alternative to a subsistence agricultural economy which is inadequate to support a growing rural population In order to exploit this alternative financial and technical assistance is desperately needed for investment in new and existing enterprises in small-scale rural industry services and commerce The traditional banking system both state and private does not provide investment credit on terms and conditions appropriate to finance inexperienced or marginal entrepreneurs located in depressed sierra departments nor the required technical assistance to identify study and supervise sub-loan investments

A recent shift in GOP policy favoring the private sector provides an excellent climate for giving additional support to the operations and objectives of the Fund Fiscal and monetary measures are being designed to encourage private investment in all economic sectors Coupled with this is a continued concern with generating rural income and employment opportunities to redress regional economic imbalances and to stem the tide of urban migration an investment promotion program entitled GEAR (Generaci6n de Empleo en Areas Rurales) was launched a few months ago

6shy

under the auspices of the Ministry of Industry and Tourism The Fund fits exceedingly well into the pattern of these initiatives In such a climAte of increased GOP support the development impact of additional resources for the Fund would be considerable

Moreover the Missions proposal offers leverage to negotiate additional GOP counterpart to be devoted to activities endorsed by the Congressional Mandate The Mission proposes to condition the transfer of additional AID loan funds to the Bank on the provision of GOP financing required to maintain the current 6040 proportion of AID and GOP contributions to the Fund This financing would be made available from the Banks operating profits and would therefore not have to compete for exceedingly scarce GOP 1977-78 budgetary funds This would represent a net increase in new GOP counterpart financing of up to $2 million since no cash counterpart for sub-lending was required under the ORDEZA portion of the Loan

The Bank has proven itself to be an effective and appropriate institution to administer the Fund as designed Since administrative issues were resolved by June 1976 the performance of the Bank in operating the Fund and designing a program to meet the projects TA requirements has been excellent Recent USAID visits to the four branch offices confirmed that sub-lending operations have conformed to Fund criteria and that Fund objectives and procedures are wellshyestablished and accepted

Moreover the Fund has received maximum support at the highest levels of Bank management particularly from the General Manager Under his leadership and with his continued support of the Fund Coordinator all Fund-related matters are given priority attention recent examples are changes and increases in branch office personnel greater autonomy at the branch level and increasea authority for the Fund Coordinator Underlying this interest is the commitment of Bank management to the importance of the Funds replicability throughout the sierra and eventualshyly on a national scale The Fund is viewed as a valuable opportunity to demonstrate the feasibility and effectiveness of alternative banking methods such as the substitution of feasibility analysis and c6ntracted technical supervision of sub-projects for traditional commercial guarantees and a more aggressive approach by branch offices to lep4ing to new clients in rural areas

While recognizing the need for a Loan Authorization amendment the Mission considers its proposal to expand the Fund into additional sierra departments te be consistent with the original concept of the project as presented in the Capital Assistance Paper First the departments originally designated as target areas under the Bank portion of the project were selected on the basis of relative poverty adequacy of physical and institutional infrastructure and lack of sufficient developshyment credit (See p45 of the CAP) Apart from meeting these criteria

7shy

there were no unique features about any of the original departmentswhich would restrict the project to those four The inclusion of the Earthquake Zone was based on estimates of unsatisfied demand under loans 052 and 053 and the prior existence of ORDEZAs administrative framework for extending such credit Unfortunately such a favorable institutional basis no longer exists

Second it is clear from the original project design that the medium-term purpose of the project is to institutionalize the Rural Enterprises Development Fund in the Industrial Bank Both the CAP (p119) and the Loan Agreement provide for the repayment of sub-loans and all interest under the ORDEZA portion to the Fund in the Bank This provision indicates that sub-lending by ORDEZA was conceived as an interim measure while the Bank acquired sufficient experience to manage additional Fund capitalization

In effect then the Missions proposal does not deviate from the project purpose which as presented in the CAP is to institutionalize an integrated program of financial and technical assistance to assist existing and new rural enterprises and to consolidate that program under the Fund established in the Bank

The selection of the departments for expanding Fund operations was made in collaboration with the Bank on the basis of the same criteria used in the selection of the original four departments In this selection process both USAID and the Bank gave careful consideration to retaining the Earthquake Zone as a target area under the projectbut ultimately rejected it for reasons of administrative sensitivities The Banks reluctance to operate the Fund in the Earthquake Zone stems from a justifiable fear that it would have to overcome a poor imageand negative expectations currently attached to the project in the area owing to its history under ORDEZA Moreover ORDEZAs jurisdictionalsensitivities and understandable resentment over losing its share of loan resources might give rise to obstruction of Bank activities if the Bank were to assume project responsibilities in the Zone Besidesprincipal reflows and interest payments under 052 and 053 continue to be a source of concessional credit for future rural-enterprisedevelopment in the Zone approximately S303 million (roughly $430000)in reflows remain uncommitted to date

Having rejected the possibility of operating in the Earthquake Zone the Bank proposed in the following order of priority the departmentsof Huanuco Cajamarca Apurimac and Huancavelica All of these meet the original criteria stated in the CAP Huanuco and Cajamarca are ranked 17th and 18th among 23 departments on a scale of socio-economic marginality falling into the fourth quintile of relative poverty

at S70 = USS1 Based on a USAID-financed study of poverty in Peru which used

1971 census data

8shy

and Huancavelica and Apurimac are ranked 21st and 23rd respectivelyfalling into the fift4 or lowest quintile (See Annex V for a summary description of these four department)

The extension of Fund operations into Huancavelicaand Apurimacwould complete the coverage of the mancha india of southern Peru and would permit a ccnsolidation of the Funds jurisdiction throughoutthe poorest -gion of the country While these departments are served by agencie of the amp which do not have the staff and autonomyof a branch they fall vithin the jurisdiction of the branches of Junin and Ciizco where Fund operations are already well-established While each of these two Bank agencies would require a Fund promotorassigned full-time to the project additional staff assistance in subshyloan study and approvals would be readily available from the neighboringbranch office In a preliminary evaluation of investment possibilitiesin these two departments the Bank has identified sub-projects totalling S43 million in Huancavelica In Apurimac S657 million in potentialsub-projects have been identified in the province of Abancay alone the province of Andahuaylas for which data have not been collected is expected to offer greater investment potential (See Annex IV for a detailed listing of investment possibilities)

The inclusion of Huanuco and Cajamarca in the Funds jurisdictionwould represent a logical next step in extending Fund operationsthroughout the sierra These two departments are ranked among the National Planning Institutes priority areas for future investment Operating the Fund in Cajamarca has the additioaladvantage of complementing the sierra irrigation loan project the Bank expects to promote industrialization of dairy products with Fund resources in that zone which would provide an assured market for livestock production increases realized through irrigation Both these departshyments are served b y fully staffed Bank branch offices but would nevertheless rcquire the assignment of one full-time promotor for each branch Since these departments have greater physical and institutional infrastructure they offer significantly greater investment potentialthan the southern departments In Huanuco the Bank has identified sub-projects valued at S1218 million and an additional S1566million in investment possibilities have been identified by the regionalplanning office (These figures do not include existing proposals wbich do not have preliminary cost estimates See Annex VI) Fund investment potential in Cajamarca has not been quantified for lack of detailed data but based on Fund experience in the original four departments a minimum of S50 million could be committed to eligible sub-projects

Where sub-lending under the Fund since January 1976 almost doubled the level cf branch office disbursements prior to active operation of the Fund

9-

Based on these preliminary data a conservative estimate of credit demand demonstrates that additional Fund resources can be readily committed Assuming a maximum transfer of $3 million of AID loan funds and a negotiated 40 counterpart totalling$2 million the amount of additional Fund resources would total $5 million or approximately S350 million of which approximately S330million would be available for sub-lending A cursoryreview of investment potential in these four additional departmentsproduced a list of potential sub-projects representing a total Fund investment of S4371 million plus many more proposals which do not yet have cost estimates More in-depth study bycontracted consultants would certainly reveal additional investment opportunities Additional demand for Fund credit is expected to continue in the original four departments as well However this figure is an assurance that additional fund resources could be committed within the expanded area of Fund operation in the time allowed by an extension of the terminal dates (See Annex VII for a schedule of projected sub-loan commitments of transferred funds through July 1978)

Reflows to the Fund of interest and principal from outstandingsub-loans are not expected to be significant enough to meet even a minor share of the immediate credit demand Thq cumulative total of reflows is expected to be on the order of $500ObO by the end of CY 1977 reaching approximately $1 million by mid-CY 1978 Delayedinitiation of sub-lending by both the Bank and ORDEZA and extended maturity periods required in ORDEZAs livestock sub-projects have retarded the rate of capital reflow into the Fund An injection of new capital to the Fund at this time will permit the Fund to carry on a significant level of sub-lending activity during this period of low sub-lan reflows

Recommendations

1 That AIDW approve the Missions request to extend the terminal dates under the subject loan by eighteen months establishing a new TCD of July 31 1978 and a new TDD of January 31 1979

2 That AIDW approve the Missions request to amend the gubjectLoan Authorization (i)to transfer up to $3 million from ORDEZA manageshyment in the Earthquake Zone to the Rurol Enterprises Development Fund in the Industrial Bank and (ii) to expand the jurisdiction of the Fund to include the departments of Apurimac Cajamarca Huancavelica and Huanuco and

Of which up to $300000 would be reserved for TA per original allocation of ORDEZAs portion of the loan

At S70 = US$11 future devaluation of the sol will be compensated for by periodic price increases

10shy3 That the Mission be delegated authority to negotiate with theGOP a Loan Agreement Amendment consIstent with the terms and conditions of the amended Loan Authorization

ANNEX I Background Documents Relating to Mission Proposal

A Letter to Industrial Bank Establishing Performance Targets

B Mission Monitoring Plan

C Project Committee Recommendations

ANNEX II Past Sub-lending Activity by Industrial Bank

ANNEX III Projected Sub-loan Commitments of Balance of Original Fund Capital

ANNEX IV Sub-projects Prepared by ORDEZA for Loan Financing

ANNEX V Summary Description of Additional Sierra Departments

ANNEX VI Fund Investment Potential in Additional Sierra Departments

ANNEX VII Projected Sub-loan Commitments of Additional Fund Capital

ANNEX VIII Project Performance Tracking Network

ANNEX I - A

July 30r 19716

Ur iiC-3rdO Vlenzel PO=4dMs Goxeral Ibayer 11l1nco lnUstria dol Parti

Lim~a

Dear Eiujr IWhfll1

ampUIJE1z AID Loanx 11-27-11-OS7 Pl-V al jnorpieu Daelo1C2Xent

In rm~ent wek repre~entrttiv~a o AIJ) a-A thie IndustrialBank hiavt dcur-ac-d subloan coq-ztnnnt targatas for tha upoui-rigm~onths thircgh 3Jinuxiry 31 1977 thie Loans tmrrtnax1 cawntnxtdzate W~e niote with sati~sfacton reocunt erlcort-i by the Lvnk tospeed-up tho ckve1op~ient of projects Lnclu~ingq the nogotiaionof a-r4ents with Cov~ultin9 fizav The not two to thraeo raontjhawLU J~e criticali n damptcrining whathex the Accelerate riorthlysub-loan cavmaibaent figuras propxcd for tho next ni-x Lxnui pxriodwill bj attainable Accordixngly the targeta Vicli we ho willbe able to be maet as of Scra-bor~ 30 11376 are an followat

1 Bl10 million in sub-loantu approvr4 by tho Industrial DankdurinQ Au~usti

2 S15 implusmnili in suJb-16jtns approvod during Septenbwtr

3 S125~ millimi in aub-loar4 prendiruj approval for vhiohstudies liavo been cmontad aand uub-borrownrs pro-pali-iedl

4 signed contracts vith conaultante to develop and study projactdwhose astita value anounts to no less than S100 muilliona andwhose devolouant schedule calla for vub-loam review by the Zwnkprio~r to Deca~dbex 31 19769

6shy

under the auspices of the Ministry of Industry and Tourism The Fund fits exceedingly well into the pattern of these initiatives In such a climAte of increased GOP support the development impact of additional resources for the Fund would be considerable

Moreover the Missions proposal offers leverage to negotiate additional GOP counterpart to be devoted to activities endorsed by the Congressional Mandate The Mission proposes to condition the transfer of additional AID loan funds to the Bank on the provision of GOP financing required to maintain the current 6040 proportion of AID and GOP contributions to the Fund This financing would be made available from the Banks operating profits and would therefore not have to compete for exceedingly scarce GOP 1977-78 budgetary funds This would represent a net increase in new GOP counterpart financing of up to $2 million since no cash counterpart for sub-lending was required under the ORDEZA portion of the Loan

The Bank has proven itself to be an effective and appropriate institution to administer the Fund as designed Since administrative issues were resolved by June 1976 the performance of the Bank in operating the Fund and designing a program to meet the projects TA requirements has been excellent Recent USAID visits to the four branch offices confirmed that sub-lending operations have conformed to Fund criteria and that Fund objectives and procedures are wellshyestablished and accepted

Moreover the Fund has received maximum support at the highest levels of Bank management particularly from the General Manager Under his leadership and with his continued support of the Fund Coordinator all Fund-related matters are given priority attention recent examples are changes and increases in branch office personnel greater autonomy at the branch level and increasea authority for the Fund Coordinator Underlying this interest is the commitment of Bank management to the importance of the Funds replicability throughout the sierra and eventualshyly on a national scale The Fund is viewed as a valuable opportunity to demonstrate the feasibility and effectiveness of alternative banking methods such as the substitution of feasibility analysis and c6ntracted technical supervision of sub-projects for traditional commercial guarantees and a more aggressive approach by branch offices to lep4ing to new clients in rural areas

While recognizing the need for a Loan Authorization amendment the Mission considers its proposal to expand the Fund into additional sierra departments te be consistent with the original concept of the project as presented in the Capital Assistance Paper First the departments originally designated as target areas under the Bank portion of the project were selected on the basis of relative poverty adequacy of physical and institutional infrastructure and lack of sufficient developshyment credit (See p45 of the CAP) Apart from meeting these criteria

7shy

there were no unique features about any of the original departmentswhich would restrict the project to those four The inclusion of the Earthquake Zone was based on estimates of unsatisfied demand under loans 052 and 053 and the prior existence of ORDEZAs administrative framework for extending such credit Unfortunately such a favorable institutional basis no longer exists

Second it is clear from the original project design that the medium-term purpose of the project is to institutionalize the Rural Enterprises Development Fund in the Industrial Bank Both the CAP (p119) and the Loan Agreement provide for the repayment of sub-loans and all interest under the ORDEZA portion to the Fund in the Bank This provision indicates that sub-lending by ORDEZA was conceived as an interim measure while the Bank acquired sufficient experience to manage additional Fund capitalization

In effect then the Missions proposal does not deviate from the project purpose which as presented in the CAP is to institutionalize an integrated program of financial and technical assistance to assist existing and new rural enterprises and to consolidate that program under the Fund established in the Bank

The selection of the departments for expanding Fund operations was made in collaboration with the Bank on the basis of the same criteria used in the selection of the original four departments In this selection process both USAID and the Bank gave careful consideration to retaining the Earthquake Zone as a target area under the projectbut ultimately rejected it for reasons of administrative sensitivities The Banks reluctance to operate the Fund in the Earthquake Zone stems from a justifiable fear that it would have to overcome a poor imageand negative expectations currently attached to the project in the area owing to its history under ORDEZA Moreover ORDEZAs jurisdictionalsensitivities and understandable resentment over losing its share of loan resources might give rise to obstruction of Bank activities if the Bank were to assume project responsibilities in the Zone Besidesprincipal reflows and interest payments under 052 and 053 continue to be a source of concessional credit for future rural-enterprisedevelopment in the Zone approximately S303 million (roughly $430000)in reflows remain uncommitted to date

Having rejected the possibility of operating in the Earthquake Zone the Bank proposed in the following order of priority the departmentsof Huanuco Cajamarca Apurimac and Huancavelica All of these meet the original criteria stated in the CAP Huanuco and Cajamarca are ranked 17th and 18th among 23 departments on a scale of socio-economic marginality falling into the fourth quintile of relative poverty

at S70 = USS1 Based on a USAID-financed study of poverty in Peru which used

1971 census data

8shy

and Huancavelica and Apurimac are ranked 21st and 23rd respectivelyfalling into the fift4 or lowest quintile (See Annex V for a summary description of these four department)

The extension of Fund operations into Huancavelicaand Apurimacwould complete the coverage of the mancha india of southern Peru and would permit a ccnsolidation of the Funds jurisdiction throughoutthe poorest -gion of the country While these departments are served by agencie of the amp which do not have the staff and autonomyof a branch they fall vithin the jurisdiction of the branches of Junin and Ciizco where Fund operations are already well-established While each of these two Bank agencies would require a Fund promotorassigned full-time to the project additional staff assistance in subshyloan study and approvals would be readily available from the neighboringbranch office In a preliminary evaluation of investment possibilitiesin these two departments the Bank has identified sub-projects totalling S43 million in Huancavelica In Apurimac S657 million in potentialsub-projects have been identified in the province of Abancay alone the province of Andahuaylas for which data have not been collected is expected to offer greater investment potential (See Annex IV for a detailed listing of investment possibilities)

The inclusion of Huanuco and Cajamarca in the Funds jurisdictionwould represent a logical next step in extending Fund operationsthroughout the sierra These two departments are ranked among the National Planning Institutes priority areas for future investment Operating the Fund in Cajamarca has the additioaladvantage of complementing the sierra irrigation loan project the Bank expects to promote industrialization of dairy products with Fund resources in that zone which would provide an assured market for livestock production increases realized through irrigation Both these departshyments are served b y fully staffed Bank branch offices but would nevertheless rcquire the assignment of one full-time promotor for each branch Since these departments have greater physical and institutional infrastructure they offer significantly greater investment potentialthan the southern departments In Huanuco the Bank has identified sub-projects valued at S1218 million and an additional S1566million in investment possibilities have been identified by the regionalplanning office (These figures do not include existing proposals wbich do not have preliminary cost estimates See Annex VI) Fund investment potential in Cajamarca has not been quantified for lack of detailed data but based on Fund experience in the original four departments a minimum of S50 million could be committed to eligible sub-projects

Where sub-lending under the Fund since January 1976 almost doubled the level cf branch office disbursements prior to active operation of the Fund

9-

Based on these preliminary data a conservative estimate of credit demand demonstrates that additional Fund resources can be readily committed Assuming a maximum transfer of $3 million of AID loan funds and a negotiated 40 counterpart totalling$2 million the amount of additional Fund resources would total $5 million or approximately S350 million of which approximately S330million would be available for sub-lending A cursoryreview of investment potential in these four additional departmentsproduced a list of potential sub-projects representing a total Fund investment of S4371 million plus many more proposals which do not yet have cost estimates More in-depth study bycontracted consultants would certainly reveal additional investment opportunities Additional demand for Fund credit is expected to continue in the original four departments as well However this figure is an assurance that additional fund resources could be committed within the expanded area of Fund operation in the time allowed by an extension of the terminal dates (See Annex VII for a schedule of projected sub-loan commitments of transferred funds through July 1978)

Reflows to the Fund of interest and principal from outstandingsub-loans are not expected to be significant enough to meet even a minor share of the immediate credit demand Thq cumulative total of reflows is expected to be on the order of $500ObO by the end of CY 1977 reaching approximately $1 million by mid-CY 1978 Delayedinitiation of sub-lending by both the Bank and ORDEZA and extended maturity periods required in ORDEZAs livestock sub-projects have retarded the rate of capital reflow into the Fund An injection of new capital to the Fund at this time will permit the Fund to carry on a significant level of sub-lending activity during this period of low sub-lan reflows

Recommendations

1 That AIDW approve the Missions request to extend the terminal dates under the subject loan by eighteen months establishing a new TCD of July 31 1978 and a new TDD of January 31 1979

2 That AIDW approve the Missions request to amend the gubjectLoan Authorization (i)to transfer up to $3 million from ORDEZA manageshyment in the Earthquake Zone to the Rurol Enterprises Development Fund in the Industrial Bank and (ii) to expand the jurisdiction of the Fund to include the departments of Apurimac Cajamarca Huancavelica and Huanuco and

Of which up to $300000 would be reserved for TA per original allocation of ORDEZAs portion of the loan

At S70 = US$11 future devaluation of the sol will be compensated for by periodic price increases

10shy3 That the Mission be delegated authority to negotiate with theGOP a Loan Agreement Amendment consIstent with the terms and conditions of the amended Loan Authorization

ANNEX I Background Documents Relating to Mission Proposal

A Letter to Industrial Bank Establishing Performance Targets

B Mission Monitoring Plan

C Project Committee Recommendations

ANNEX II Past Sub-lending Activity by Industrial Bank

ANNEX III Projected Sub-loan Commitments of Balance of Original Fund Capital

ANNEX IV Sub-projects Prepared by ORDEZA for Loan Financing

ANNEX V Summary Description of Additional Sierra Departments

ANNEX VI Fund Investment Potential in Additional Sierra Departments

ANNEX VII Projected Sub-loan Commitments of Additional Fund Capital

ANNEX VIII Project Performance Tracking Network

ANNEX I - A

July 30r 19716

Ur iiC-3rdO Vlenzel PO=4dMs Goxeral Ibayer 11l1nco lnUstria dol Parti

Lim~a

Dear Eiujr IWhfll1

ampUIJE1z AID Loanx 11-27-11-OS7 Pl-V al jnorpieu Daelo1C2Xent

In rm~ent wek repre~entrttiv~a o AIJ) a-A thie IndustrialBank hiavt dcur-ac-d subloan coq-ztnnnt targatas for tha upoui-rigm~onths thircgh 3Jinuxiry 31 1977 thie Loans tmrrtnax1 cawntnxtdzate W~e niote with sati~sfacton reocunt erlcort-i by the Lvnk tospeed-up tho ckve1op~ient of projects Lnclu~ingq the nogotiaionof a-r4ents with Cov~ultin9 fizav The not two to thraeo raontjhawLU J~e criticali n damptcrining whathex the Accelerate riorthlysub-loan cavmaibaent figuras propxcd for tho next ni-x Lxnui pxriodwill bj attainable Accordixngly the targeta Vicli we ho willbe able to be maet as of Scra-bor~ 30 11376 are an followat

1 Bl10 million in sub-loantu approvr4 by tho Industrial DankdurinQ Au~usti

2 S15 implusmnili in suJb-16jtns approvod during Septenbwtr

3 S125~ millimi in aub-loar4 prendiruj approval for vhiohstudies liavo been cmontad aand uub-borrownrs pro-pali-iedl

4 signed contracts vith conaultante to develop and study projactdwhose astita value anounts to no less than S100 muilliona andwhose devolouant schedule calla for vub-loam review by the Zwnkprio~r to Deca~dbex 31 19769

7shy

there were no unique features about any of the original departmentswhich would restrict the project to those four The inclusion of the Earthquake Zone was based on estimates of unsatisfied demand under loans 052 and 053 and the prior existence of ORDEZAs administrative framework for extending such credit Unfortunately such a favorable institutional basis no longer exists

Second it is clear from the original project design that the medium-term purpose of the project is to institutionalize the Rural Enterprises Development Fund in the Industrial Bank Both the CAP (p119) and the Loan Agreement provide for the repayment of sub-loans and all interest under the ORDEZA portion to the Fund in the Bank This provision indicates that sub-lending by ORDEZA was conceived as an interim measure while the Bank acquired sufficient experience to manage additional Fund capitalization

In effect then the Missions proposal does not deviate from the project purpose which as presented in the CAP is to institutionalize an integrated program of financial and technical assistance to assist existing and new rural enterprises and to consolidate that program under the Fund established in the Bank

The selection of the departments for expanding Fund operations was made in collaboration with the Bank on the basis of the same criteria used in the selection of the original four departments In this selection process both USAID and the Bank gave careful consideration to retaining the Earthquake Zone as a target area under the projectbut ultimately rejected it for reasons of administrative sensitivities The Banks reluctance to operate the Fund in the Earthquake Zone stems from a justifiable fear that it would have to overcome a poor imageand negative expectations currently attached to the project in the area owing to its history under ORDEZA Moreover ORDEZAs jurisdictionalsensitivities and understandable resentment over losing its share of loan resources might give rise to obstruction of Bank activities if the Bank were to assume project responsibilities in the Zone Besidesprincipal reflows and interest payments under 052 and 053 continue to be a source of concessional credit for future rural-enterprisedevelopment in the Zone approximately S303 million (roughly $430000)in reflows remain uncommitted to date

Having rejected the possibility of operating in the Earthquake Zone the Bank proposed in the following order of priority the departmentsof Huanuco Cajamarca Apurimac and Huancavelica All of these meet the original criteria stated in the CAP Huanuco and Cajamarca are ranked 17th and 18th among 23 departments on a scale of socio-economic marginality falling into the fourth quintile of relative poverty

at S70 = USS1 Based on a USAID-financed study of poverty in Peru which used

1971 census data

8shy

and Huancavelica and Apurimac are ranked 21st and 23rd respectivelyfalling into the fift4 or lowest quintile (See Annex V for a summary description of these four department)

The extension of Fund operations into Huancavelicaand Apurimacwould complete the coverage of the mancha india of southern Peru and would permit a ccnsolidation of the Funds jurisdiction throughoutthe poorest -gion of the country While these departments are served by agencie of the amp which do not have the staff and autonomyof a branch they fall vithin the jurisdiction of the branches of Junin and Ciizco where Fund operations are already well-established While each of these two Bank agencies would require a Fund promotorassigned full-time to the project additional staff assistance in subshyloan study and approvals would be readily available from the neighboringbranch office In a preliminary evaluation of investment possibilitiesin these two departments the Bank has identified sub-projects totalling S43 million in Huancavelica In Apurimac S657 million in potentialsub-projects have been identified in the province of Abancay alone the province of Andahuaylas for which data have not been collected is expected to offer greater investment potential (See Annex IV for a detailed listing of investment possibilities)

The inclusion of Huanuco and Cajamarca in the Funds jurisdictionwould represent a logical next step in extending Fund operationsthroughout the sierra These two departments are ranked among the National Planning Institutes priority areas for future investment Operating the Fund in Cajamarca has the additioaladvantage of complementing the sierra irrigation loan project the Bank expects to promote industrialization of dairy products with Fund resources in that zone which would provide an assured market for livestock production increases realized through irrigation Both these departshyments are served b y fully staffed Bank branch offices but would nevertheless rcquire the assignment of one full-time promotor for each branch Since these departments have greater physical and institutional infrastructure they offer significantly greater investment potentialthan the southern departments In Huanuco the Bank has identified sub-projects valued at S1218 million and an additional S1566million in investment possibilities have been identified by the regionalplanning office (These figures do not include existing proposals wbich do not have preliminary cost estimates See Annex VI) Fund investment potential in Cajamarca has not been quantified for lack of detailed data but based on Fund experience in the original four departments a minimum of S50 million could be committed to eligible sub-projects

Where sub-lending under the Fund since January 1976 almost doubled the level cf branch office disbursements prior to active operation of the Fund

9-

Based on these preliminary data a conservative estimate of credit demand demonstrates that additional Fund resources can be readily committed Assuming a maximum transfer of $3 million of AID loan funds and a negotiated 40 counterpart totalling$2 million the amount of additional Fund resources would total $5 million or approximately S350 million of which approximately S330million would be available for sub-lending A cursoryreview of investment potential in these four additional departmentsproduced a list of potential sub-projects representing a total Fund investment of S4371 million plus many more proposals which do not yet have cost estimates More in-depth study bycontracted consultants would certainly reveal additional investment opportunities Additional demand for Fund credit is expected to continue in the original four departments as well However this figure is an assurance that additional fund resources could be committed within the expanded area of Fund operation in the time allowed by an extension of the terminal dates (See Annex VII for a schedule of projected sub-loan commitments of transferred funds through July 1978)

Reflows to the Fund of interest and principal from outstandingsub-loans are not expected to be significant enough to meet even a minor share of the immediate credit demand Thq cumulative total of reflows is expected to be on the order of $500ObO by the end of CY 1977 reaching approximately $1 million by mid-CY 1978 Delayedinitiation of sub-lending by both the Bank and ORDEZA and extended maturity periods required in ORDEZAs livestock sub-projects have retarded the rate of capital reflow into the Fund An injection of new capital to the Fund at this time will permit the Fund to carry on a significant level of sub-lending activity during this period of low sub-lan reflows

Recommendations

1 That AIDW approve the Missions request to extend the terminal dates under the subject loan by eighteen months establishing a new TCD of July 31 1978 and a new TDD of January 31 1979

2 That AIDW approve the Missions request to amend the gubjectLoan Authorization (i)to transfer up to $3 million from ORDEZA manageshyment in the Earthquake Zone to the Rurol Enterprises Development Fund in the Industrial Bank and (ii) to expand the jurisdiction of the Fund to include the departments of Apurimac Cajamarca Huancavelica and Huanuco and

Of which up to $300000 would be reserved for TA per original allocation of ORDEZAs portion of the loan

At S70 = US$11 future devaluation of the sol will be compensated for by periodic price increases

10shy3 That the Mission be delegated authority to negotiate with theGOP a Loan Agreement Amendment consIstent with the terms and conditions of the amended Loan Authorization

ANNEX I Background Documents Relating to Mission Proposal

A Letter to Industrial Bank Establishing Performance Targets

B Mission Monitoring Plan

C Project Committee Recommendations

ANNEX II Past Sub-lending Activity by Industrial Bank

ANNEX III Projected Sub-loan Commitments of Balance of Original Fund Capital

ANNEX IV Sub-projects Prepared by ORDEZA for Loan Financing

ANNEX V Summary Description of Additional Sierra Departments

ANNEX VI Fund Investment Potential in Additional Sierra Departments

ANNEX VII Projected Sub-loan Commitments of Additional Fund Capital

ANNEX VIII Project Performance Tracking Network

ANNEX I - A

July 30r 19716

Ur iiC-3rdO Vlenzel PO=4dMs Goxeral Ibayer 11l1nco lnUstria dol Parti

Lim~a

Dear Eiujr IWhfll1

ampUIJE1z AID Loanx 11-27-11-OS7 Pl-V al jnorpieu Daelo1C2Xent

In rm~ent wek repre~entrttiv~a o AIJ) a-A thie IndustrialBank hiavt dcur-ac-d subloan coq-ztnnnt targatas for tha upoui-rigm~onths thircgh 3Jinuxiry 31 1977 thie Loans tmrrtnax1 cawntnxtdzate W~e niote with sati~sfacton reocunt erlcort-i by the Lvnk tospeed-up tho ckve1op~ient of projects Lnclu~ingq the nogotiaionof a-r4ents with Cov~ultin9 fizav The not two to thraeo raontjhawLU J~e criticali n damptcrining whathex the Accelerate riorthlysub-loan cavmaibaent figuras propxcd for tho next ni-x Lxnui pxriodwill bj attainable Accordixngly the targeta Vicli we ho willbe able to be maet as of Scra-bor~ 30 11376 are an followat

1 Bl10 million in sub-loantu approvr4 by tho Industrial DankdurinQ Au~usti

2 S15 implusmnili in suJb-16jtns approvod during Septenbwtr

3 S125~ millimi in aub-loar4 prendiruj approval for vhiohstudies liavo been cmontad aand uub-borrownrs pro-pali-iedl

4 signed contracts vith conaultante to develop and study projactdwhose astita value anounts to no less than S100 muilliona andwhose devolouant schedule calla for vub-loam review by the Zwnkprio~r to Deca~dbex 31 19769

8shy

and Huancavelica and Apurimac are ranked 21st and 23rd respectivelyfalling into the fift4 or lowest quintile (See Annex V for a summary description of these four department)

The extension of Fund operations into Huancavelicaand Apurimacwould complete the coverage of the mancha india of southern Peru and would permit a ccnsolidation of the Funds jurisdiction throughoutthe poorest -gion of the country While these departments are served by agencie of the amp which do not have the staff and autonomyof a branch they fall vithin the jurisdiction of the branches of Junin and Ciizco where Fund operations are already well-established While each of these two Bank agencies would require a Fund promotorassigned full-time to the project additional staff assistance in subshyloan study and approvals would be readily available from the neighboringbranch office In a preliminary evaluation of investment possibilitiesin these two departments the Bank has identified sub-projects totalling S43 million in Huancavelica In Apurimac S657 million in potentialsub-projects have been identified in the province of Abancay alone the province of Andahuaylas for which data have not been collected is expected to offer greater investment potential (See Annex IV for a detailed listing of investment possibilities)

The inclusion of Huanuco and Cajamarca in the Funds jurisdictionwould represent a logical next step in extending Fund operationsthroughout the sierra These two departments are ranked among the National Planning Institutes priority areas for future investment Operating the Fund in Cajamarca has the additioaladvantage of complementing the sierra irrigation loan project the Bank expects to promote industrialization of dairy products with Fund resources in that zone which would provide an assured market for livestock production increases realized through irrigation Both these departshyments are served b y fully staffed Bank branch offices but would nevertheless rcquire the assignment of one full-time promotor for each branch Since these departments have greater physical and institutional infrastructure they offer significantly greater investment potentialthan the southern departments In Huanuco the Bank has identified sub-projects valued at S1218 million and an additional S1566million in investment possibilities have been identified by the regionalplanning office (These figures do not include existing proposals wbich do not have preliminary cost estimates See Annex VI) Fund investment potential in Cajamarca has not been quantified for lack of detailed data but based on Fund experience in the original four departments a minimum of S50 million could be committed to eligible sub-projects

Where sub-lending under the Fund since January 1976 almost doubled the level cf branch office disbursements prior to active operation of the Fund

9-

Based on these preliminary data a conservative estimate of credit demand demonstrates that additional Fund resources can be readily committed Assuming a maximum transfer of $3 million of AID loan funds and a negotiated 40 counterpart totalling$2 million the amount of additional Fund resources would total $5 million or approximately S350 million of which approximately S330million would be available for sub-lending A cursoryreview of investment potential in these four additional departmentsproduced a list of potential sub-projects representing a total Fund investment of S4371 million plus many more proposals which do not yet have cost estimates More in-depth study bycontracted consultants would certainly reveal additional investment opportunities Additional demand for Fund credit is expected to continue in the original four departments as well However this figure is an assurance that additional fund resources could be committed within the expanded area of Fund operation in the time allowed by an extension of the terminal dates (See Annex VII for a schedule of projected sub-loan commitments of transferred funds through July 1978)

Reflows to the Fund of interest and principal from outstandingsub-loans are not expected to be significant enough to meet even a minor share of the immediate credit demand Thq cumulative total of reflows is expected to be on the order of $500ObO by the end of CY 1977 reaching approximately $1 million by mid-CY 1978 Delayedinitiation of sub-lending by both the Bank and ORDEZA and extended maturity periods required in ORDEZAs livestock sub-projects have retarded the rate of capital reflow into the Fund An injection of new capital to the Fund at this time will permit the Fund to carry on a significant level of sub-lending activity during this period of low sub-lan reflows

Recommendations

1 That AIDW approve the Missions request to extend the terminal dates under the subject loan by eighteen months establishing a new TCD of July 31 1978 and a new TDD of January 31 1979

2 That AIDW approve the Missions request to amend the gubjectLoan Authorization (i)to transfer up to $3 million from ORDEZA manageshyment in the Earthquake Zone to the Rurol Enterprises Development Fund in the Industrial Bank and (ii) to expand the jurisdiction of the Fund to include the departments of Apurimac Cajamarca Huancavelica and Huanuco and

Of which up to $300000 would be reserved for TA per original allocation of ORDEZAs portion of the loan

At S70 = US$11 future devaluation of the sol will be compensated for by periodic price increases

10shy3 That the Mission be delegated authority to negotiate with theGOP a Loan Agreement Amendment consIstent with the terms and conditions of the amended Loan Authorization

ANNEX I Background Documents Relating to Mission Proposal

A Letter to Industrial Bank Establishing Performance Targets

B Mission Monitoring Plan

C Project Committee Recommendations

ANNEX II Past Sub-lending Activity by Industrial Bank

ANNEX III Projected Sub-loan Commitments of Balance of Original Fund Capital

ANNEX IV Sub-projects Prepared by ORDEZA for Loan Financing

ANNEX V Summary Description of Additional Sierra Departments

ANNEX VI Fund Investment Potential in Additional Sierra Departments

ANNEX VII Projected Sub-loan Commitments of Additional Fund Capital

ANNEX VIII Project Performance Tracking Network

ANNEX I - A

July 30r 19716

Ur iiC-3rdO Vlenzel PO=4dMs Goxeral Ibayer 11l1nco lnUstria dol Parti

Lim~a

Dear Eiujr IWhfll1

ampUIJE1z AID Loanx 11-27-11-OS7 Pl-V al jnorpieu Daelo1C2Xent

In rm~ent wek repre~entrttiv~a o AIJ) a-A thie IndustrialBank hiavt dcur-ac-d subloan coq-ztnnnt targatas for tha upoui-rigm~onths thircgh 3Jinuxiry 31 1977 thie Loans tmrrtnax1 cawntnxtdzate W~e niote with sati~sfacton reocunt erlcort-i by the Lvnk tospeed-up tho ckve1op~ient of projects Lnclu~ingq the nogotiaionof a-r4ents with Cov~ultin9 fizav The not two to thraeo raontjhawLU J~e criticali n damptcrining whathex the Accelerate riorthlysub-loan cavmaibaent figuras propxcd for tho next ni-x Lxnui pxriodwill bj attainable Accordixngly the targeta Vicli we ho willbe able to be maet as of Scra-bor~ 30 11376 are an followat

1 Bl10 million in sub-loantu approvr4 by tho Industrial DankdurinQ Au~usti

2 S15 implusmnili in suJb-16jtns approvod during Septenbwtr

3 S125~ millimi in aub-loar4 prendiruj approval for vhiohstudies liavo been cmontad aand uub-borrownrs pro-pali-iedl

4 signed contracts vith conaultante to develop and study projactdwhose astita value anounts to no less than S100 muilliona andwhose devolouant schedule calla for vub-loam review by the Zwnkprio~r to Deca~dbex 31 19769

9-

Based on these preliminary data a conservative estimate of credit demand demonstrates that additional Fund resources can be readily committed Assuming a maximum transfer of $3 million of AID loan funds and a negotiated 40 counterpart totalling$2 million the amount of additional Fund resources would total $5 million or approximately S350 million of which approximately S330million would be available for sub-lending A cursoryreview of investment potential in these four additional departmentsproduced a list of potential sub-projects representing a total Fund investment of S4371 million plus many more proposals which do not yet have cost estimates More in-depth study bycontracted consultants would certainly reveal additional investment opportunities Additional demand for Fund credit is expected to continue in the original four departments as well However this figure is an assurance that additional fund resources could be committed within the expanded area of Fund operation in the time allowed by an extension of the terminal dates (See Annex VII for a schedule of projected sub-loan commitments of transferred funds through July 1978)

Reflows to the Fund of interest and principal from outstandingsub-loans are not expected to be significant enough to meet even a minor share of the immediate credit demand Thq cumulative total of reflows is expected to be on the order of $500ObO by the end of CY 1977 reaching approximately $1 million by mid-CY 1978 Delayedinitiation of sub-lending by both the Bank and ORDEZA and extended maturity periods required in ORDEZAs livestock sub-projects have retarded the rate of capital reflow into the Fund An injection of new capital to the Fund at this time will permit the Fund to carry on a significant level of sub-lending activity during this period of low sub-lan reflows

Recommendations

1 That AIDW approve the Missions request to extend the terminal dates under the subject loan by eighteen months establishing a new TCD of July 31 1978 and a new TDD of January 31 1979

2 That AIDW approve the Missions request to amend the gubjectLoan Authorization (i)to transfer up to $3 million from ORDEZA manageshyment in the Earthquake Zone to the Rurol Enterprises Development Fund in the Industrial Bank and (ii) to expand the jurisdiction of the Fund to include the departments of Apurimac Cajamarca Huancavelica and Huanuco and

Of which up to $300000 would be reserved for TA per original allocation of ORDEZAs portion of the loan

At S70 = US$11 future devaluation of the sol will be compensated for by periodic price increases

10shy3 That the Mission be delegated authority to negotiate with theGOP a Loan Agreement Amendment consIstent with the terms and conditions of the amended Loan Authorization

ANNEX I Background Documents Relating to Mission Proposal

A Letter to Industrial Bank Establishing Performance Targets

B Mission Monitoring Plan

C Project Committee Recommendations

ANNEX II Past Sub-lending Activity by Industrial Bank

ANNEX III Projected Sub-loan Commitments of Balance of Original Fund Capital

ANNEX IV Sub-projects Prepared by ORDEZA for Loan Financing

ANNEX V Summary Description of Additional Sierra Departments

ANNEX VI Fund Investment Potential in Additional Sierra Departments

ANNEX VII Projected Sub-loan Commitments of Additional Fund Capital

ANNEX VIII Project Performance Tracking Network

ANNEX I - A

July 30r 19716

Ur iiC-3rdO Vlenzel PO=4dMs Goxeral Ibayer 11l1nco lnUstria dol Parti

Lim~a

Dear Eiujr IWhfll1

ampUIJE1z AID Loanx 11-27-11-OS7 Pl-V al jnorpieu Daelo1C2Xent

In rm~ent wek repre~entrttiv~a o AIJ) a-A thie IndustrialBank hiavt dcur-ac-d subloan coq-ztnnnt targatas for tha upoui-rigm~onths thircgh 3Jinuxiry 31 1977 thie Loans tmrrtnax1 cawntnxtdzate W~e niote with sati~sfacton reocunt erlcort-i by the Lvnk tospeed-up tho ckve1op~ient of projects Lnclu~ingq the nogotiaionof a-r4ents with Cov~ultin9 fizav The not two to thraeo raontjhawLU J~e criticali n damptcrining whathex the Accelerate riorthlysub-loan cavmaibaent figuras propxcd for tho next ni-x Lxnui pxriodwill bj attainable Accordixngly the targeta Vicli we ho willbe able to be maet as of Scra-bor~ 30 11376 are an followat

1 Bl10 million in sub-loantu approvr4 by tho Industrial DankdurinQ Au~usti

2 S15 implusmnili in suJb-16jtns approvod during Septenbwtr

3 S125~ millimi in aub-loar4 prendiruj approval for vhiohstudies liavo been cmontad aand uub-borrownrs pro-pali-iedl

4 signed contracts vith conaultante to develop and study projactdwhose astita value anounts to no less than S100 muilliona andwhose devolouant schedule calla for vub-loam review by the Zwnkprio~r to Deca~dbex 31 19769

10shy3 That the Mission be delegated authority to negotiate with theGOP a Loan Agreement Amendment consIstent with the terms and conditions of the amended Loan Authorization

ANNEX I Background Documents Relating to Mission Proposal

A Letter to Industrial Bank Establishing Performance Targets

B Mission Monitoring Plan

C Project Committee Recommendations

ANNEX II Past Sub-lending Activity by Industrial Bank

ANNEX III Projected Sub-loan Commitments of Balance of Original Fund Capital

ANNEX IV Sub-projects Prepared by ORDEZA for Loan Financing

ANNEX V Summary Description of Additional Sierra Departments

ANNEX VI Fund Investment Potential in Additional Sierra Departments

ANNEX VII Projected Sub-loan Commitments of Additional Fund Capital

ANNEX VIII Project Performance Tracking Network

ANNEX I - A

July 30r 19716

Ur iiC-3rdO Vlenzel PO=4dMs Goxeral Ibayer 11l1nco lnUstria dol Parti

Lim~a

Dear Eiujr IWhfll1

ampUIJE1z AID Loanx 11-27-11-OS7 Pl-V al jnorpieu Daelo1C2Xent

In rm~ent wek repre~entrttiv~a o AIJ) a-A thie IndustrialBank hiavt dcur-ac-d subloan coq-ztnnnt targatas for tha upoui-rigm~onths thircgh 3Jinuxiry 31 1977 thie Loans tmrrtnax1 cawntnxtdzate W~e niote with sati~sfacton reocunt erlcort-i by the Lvnk tospeed-up tho ckve1op~ient of projects Lnclu~ingq the nogotiaionof a-r4ents with Cov~ultin9 fizav The not two to thraeo raontjhawLU J~e criticali n damptcrining whathex the Accelerate riorthlysub-loan cavmaibaent figuras propxcd for tho next ni-x Lxnui pxriodwill bj attainable Accordixngly the targeta Vicli we ho willbe able to be maet as of Scra-bor~ 30 11376 are an followat

1 Bl10 million in sub-loantu approvr4 by tho Industrial DankdurinQ Au~usti

2 S15 implusmnili in suJb-16jtns approvod during Septenbwtr

3 S125~ millimi in aub-loar4 prendiruj approval for vhiohstudies liavo been cmontad aand uub-borrownrs pro-pali-iedl

4 signed contracts vith conaultante to develop and study projactdwhose astita value anounts to no less than S100 muilliona andwhose devolouant schedule calla for vub-loam review by the Zwnkprio~r to Deca~dbex 31 19769

ANNEX I Background Documents Relating to Mission Proposal

A Letter to Industrial Bank Establishing Performance Targets

B Mission Monitoring Plan

C Project Committee Recommendations

ANNEX II Past Sub-lending Activity by Industrial Bank

ANNEX III Projected Sub-loan Commitments of Balance of Original Fund Capital

ANNEX IV Sub-projects Prepared by ORDEZA for Loan Financing

ANNEX V Summary Description of Additional Sierra Departments

ANNEX VI Fund Investment Potential in Additional Sierra Departments

ANNEX VII Projected Sub-loan Commitments of Additional Fund Capital

ANNEX VIII Project Performance Tracking Network

ANNEX I - A

July 30r 19716

Ur iiC-3rdO Vlenzel PO=4dMs Goxeral Ibayer 11l1nco lnUstria dol Parti

Lim~a

Dear Eiujr IWhfll1

ampUIJE1z AID Loanx 11-27-11-OS7 Pl-V al jnorpieu Daelo1C2Xent

In rm~ent wek repre~entrttiv~a o AIJ) a-A thie IndustrialBank hiavt dcur-ac-d subloan coq-ztnnnt targatas for tha upoui-rigm~onths thircgh 3Jinuxiry 31 1977 thie Loans tmrrtnax1 cawntnxtdzate W~e niote with sati~sfacton reocunt erlcort-i by the Lvnk tospeed-up tho ckve1op~ient of projects Lnclu~ingq the nogotiaionof a-r4ents with Cov~ultin9 fizav The not two to thraeo raontjhawLU J~e criticali n damptcrining whathex the Accelerate riorthlysub-loan cavmaibaent figuras propxcd for tho next ni-x Lxnui pxriodwill bj attainable Accordixngly the targeta Vicli we ho willbe able to be maet as of Scra-bor~ 30 11376 are an followat

1 Bl10 million in sub-loantu approvr4 by tho Industrial DankdurinQ Au~usti

2 S15 implusmnili in suJb-16jtns approvod during Septenbwtr

3 S125~ millimi in aub-loar4 prendiruj approval for vhiohstudies liavo been cmontad aand uub-borrownrs pro-pali-iedl

4 signed contracts vith conaultante to develop and study projactdwhose astita value anounts to no less than S100 muilliona andwhose devolouant schedule calla for vub-loam review by the Zwnkprio~r to Deca~dbex 31 19769

ANNEX I - A

July 30r 19716

Ur iiC-3rdO Vlenzel PO=4dMs Goxeral Ibayer 11l1nco lnUstria dol Parti

Lim~a

Dear Eiujr IWhfll1

ampUIJE1z AID Loanx 11-27-11-OS7 Pl-V al jnorpieu Daelo1C2Xent

In rm~ent wek repre~entrttiv~a o AIJ) a-A thie IndustrialBank hiavt dcur-ac-d subloan coq-ztnnnt targatas for tha upoui-rigm~onths thircgh 3Jinuxiry 31 1977 thie Loans tmrrtnax1 cawntnxtdzate W~e niote with sati~sfacton reocunt erlcort-i by the Lvnk tospeed-up tho ckve1op~ient of projects Lnclu~ingq the nogotiaionof a-r4ents with Cov~ultin9 fizav The not two to thraeo raontjhawLU J~e criticali n damptcrining whathex the Accelerate riorthlysub-loan cavmaibaent figuras propxcd for tho next ni-x Lxnui pxriodwill bj attainable Accordixngly the targeta Vicli we ho willbe able to be maet as of Scra-bor~ 30 11376 are an followat

1 Bl10 million in sub-loantu approvr4 by tho Industrial DankdurinQ Au~usti

2 S15 implusmnili in suJb-16jtns approvod during Septenbwtr

3 S125~ millimi in aub-loar4 prendiruj approval for vhiohstudies liavo been cmontad aand uub-borrownrs pro-pali-iedl

4 signed contracts vith conaultante to develop and study projactdwhose astita value anounts to no less than S100 muilliona andwhose devolouant schedule calla for vub-loam review by the Zwnkprio~r to Deca~dbex 31 19769

14r RMc-rd o tqeao3 rredam 2-

WO prCT1om hat a jOint rOview Of iplarientation progrss b n heldprior to ect4ar is 1976 t ovaluate porformance against thes

ltnlyetn i nd to cutite the utilliztion of Lon fundu in the ror--

Eially we have notod the Bais intention to see an expansionof thn tut1 iterpris Dnvea1rment Fund to includ two newdopzitrrnntO As stuatd in r-y letter of Juno 9 1576 on thistopic such en erpansion wculd raruire a foxr al loan agreementond~ linteu coatinuQ to believe that the best ccx a t prese ntis to focus on meeting tha current demnd for cre-dit which existsin the tvr original partvants iltlticigh wo wiould ba hIrlpy to reshyexartino ed2 isee duting the Gcte Joint reviw proponed iihove

Plsne tccept the aszuxcnnces of may highest consideration

Jiicorely

Dona1d R Finb-rg Director

cc Dr Fernando Reus Salinas Director General of Public Credit Ministry of Economy and F1rnance Lima

Clearance ADLYeC draft)p(in

CAPC a ddsnbull73076

4UA~~1

NMI

bythatd Ji~it WL

t-) coln- lt 321 S frolvj h ae 1~aopcs

-I 4 1 by CR tVwA1 rem ii uricrai- c xiiA~~ a~r enue apshy

1nLlIrs 1

Ngn mu_ a upon anv pv -tr ~ tk tti e re C~1jw ~i tgari t iO Ft of the

Th -I cptvi I cv3 lde5nt~- J by the Vxoeo o~ite

C)satif jtn V afli to ~iontG I OZQEt~r Lonr UC~eSUf9 th I ItTDD Of Juc

cxfMic 7 oxurooti

s4 u 0 1 I3r 1 4t3-n O O

r 2-

VAc l- to vtencd jo ente JICF) atA the3 IVh) for a pmod from~ 1-1c j ur scek3 to dc-cbligatc lrnsserr~ct~h Ir tao oncuu-erincu a

pciUo f Loin~ Lnampi tii- not be tizo nthe revisc3 tire J-witta-- Th wr53io~aij of this 0ptbmi wMit be subjoct tc

dstZCtO ~~~~~~4 PcPen141 cIT-projecta ta thec t and c2 ~~)Yz1~tampzjpt3 wigtll (1LZA Trc TCD wctiid be

~trr1cmZo a oc1i nlot -1o o2nCe(d one ye~ar recrazScd to daml1p a-id rma~lyaze thc identiied ruly-poject3 hatever V)ortin -of tlio ishy

~q~v~~e~ Loan t1IWcc- ner uti~d in thii inawingr of those lr4O spa e-LFe stil-t eojnctii wouldi b- ire-aligaedi

CV-c-0- K- go acec ncwsnca~~e fico tlho I with notifkoation to TmiD11 Ao On plusmnu t prtiil do-oblAJation and to L3Nterci both thr SCD and TDD on tlin Lo~ln baXIlnoe by cne yeasr in the event thakt 0WMER mrecet- UI~e tgj~sintly astabliihed with UiSAID for cnritshy

aoc y -h cb-Lc-nt D ~-i Couytdtte conicir3ex it cad 0 raz--ia a c the oL-A-e rig 00OOrr

3 L )lJic-i Ly the TCU tA3 I splusmno wcCd zceek to etamd the ICD i-nd TD)i I-A permit utM2-ic4io oL tho S1 TfillioA hen --erraii1 unshy

tte6 19 tiiose t js aj~e not mat AYD will d-campbligatee all find ainr~ nO~jitt-7- as of the W-1C) ~X~19~lo etia

~Ig~~til cvtin ez i-- Option T~ wokil~l ha~ve to be bamed on the oE Zw 34Iitiplusmn1 and -udy of protentialV ~elihccr2 the zIt tinWf m

p-jc~ ~~~~~~~ad12~ cwj2lii tha antablihmant ot pe2ictc pef

RUmV- As an l-ev-t to 6C--ClA3igtionp to txansfer a gitvon aivuntof Lomrn lcirxd-3 -hih ruiot bo W3liz-c by ORDiEZA by thurut CZcent 11CE to thc Rnai L usils

-- i~e~ be ii- accirclance lfithckt~w~i~tnrcould iliva~tpdp eU~n~~u~irc ilatixrr~ Rat~nraerivi Zc-ner in liheaOx dpatshy

riim- wl-Jrh it atru tiyo~t c- i acx6itivia~l flepax-tients to kb n - thet urlislitLozn oi Tis optionlnyccx oxto into the I1und -wuI dc w- rnnd on ui1 or -Ei by t 1ce5oax jI v 1ea3 ond zucc a per -- n -e Xncmtx~ ina~ii~ i tlic auampj curmcnly vvilampble A trcinfer

2 02r ke~t~ o-of fil~d3 worJA S ~ to thi Authourzamption and Loall iLgracrndnt au vell o aralvou3 GOP pmacur~e

C J ISCUSM

here are t(io majrr uxgrzients in rmport of ~gtin1

r~i f Ixst cgf thnm - is CAKDjr a qeatltoable admnistxative caparity to amp-malopna linr1-unt arkli donal Emb-projct even in an extended

UplusmnThe PCrACtd It ~int rat is Ixrne rAut byh04ecent history -of this atnd octe YZ- prio-Jc~ i po-r quality of the~ twO sib-rxoJ cit

1 WtJOA 1LO Cu nvtd Tor eJw anL the prouaxshy1 id wU d~xdsrtw o~iz3 u2f L~ fi~ncupoJ~

~undnx 052 wh aeva~ laY to Ou ktinda of invastm -outVQ1 WZ)rZ As ie8 n to ntik~ VSdth- 057 fu1in ther in~ vlc4 of persisant S1otig3 of jronlf Lind tr~nriportat e- ist r -acny dissenionOpand rurvor of hih-1c~vo1 piymnzranuel ihhmn the rovpr f o i~f tcant plusmn Izlewent in ~ C~ ia lgm~~apa remopOjCQit

Eecvndlyg the-le is Fl~d W p l~peatlYc 1181101Vaaec Libshy

projects wM-ch m rqhc 1-o re-5y anayrd d epp rva4 for ftnanar if (121M w0=0 ai~t rZ=od adtzo ne 1011 dalayas~ inFndplusmnrg 0l-iJg4Ae Sub-projctn to cpcethe oipcratAAe mib-rrojeata undier 033 zmn the S213 rilion a~u of Mrie 30 1976 ina xeflows (primvial znd itte-oet) tull-n 05Z apparx tor~X tha kuliefL thnlt thcieL a-re fa -pprcnpia- e tcru inetiin tho Ea Ohqunke zone

11u-o ad t~o CQition1 it3 adstnUwja is thet It ol ofr the pwsibilitjr of tinanjira projects In a6c314on -to the nine cur-rntly being Sthud ovtiow lerer a some prooJ of e~dganuo oZ addituo1 pct projectt and on rnc-UnIlg P-i~OdO taxget- for sub-loafl ztudy d This opIL-ion may heant~ ir~picnnaLlon

ju~fiJ1 nplusmnr o t1T ZfZct thiit by zlirion overaight the diabu3eeshylent perirsa Se by tl~e 1irent tcrampaJ c~tr in eirjht innnthn rahcrt of the poricd allcoscL3e under PD-57 nd planned for in the GI luxtharmrnre ruch ofC the delay e ertezc1ercd to date Tia boon a corr-shynieqtcence o~f (D zz Is ae~init-satv -h mid cxgauizational conshyiunion if the mftf on can b- ooriviTICeC tl-tt tho current adninirltrashytivc arrauge)its arec adsouanto and bbe a vae may exist for an oxtcnaion bad on t kp-LMUpz~i of Wn couts (in termse Of effort time arzd p -tt nco on th ptt 09 both tIDl arid CMDEZA) lolmrayr as mant3oed ajbovec it eaunli~zely thart the proj ct administration can stabilize =1n daonstrate aiAetnate irap)cvemer~t in the mediun-term

The advantaga of 7~t7f 11- that it ferve4 nlotice to CREZAi andto AOoW that t1k no to the LiIi longev wiilling accept zece of prcject yerfom-L- in linht of the erxdstaiwe of altezshyriative more proluctiie useai fmr cciarca AID Loan Siunds At the

~an~ tit~ proi~d~ =A pithta final to d2inonsixatei chance willirngn3s and capacity to iiUeLoan fundu in addition to the S1215 mil2lion p rgra-acff fr rintr by 0161 TLD U01dVev tUie Option would nu t considenbe przis~aire ou both ICIOZA and USAID to approvme sb-p-oj(I1e which may~ not be -rufficiantly devolcfpo8 CS techaically jud 1i id Litt haver ibozn submnitted in an attemt oflt the cornrhxnt trrget by the IXCD

UplusmnThe PCrACtd It ~int rat is Ixrne rAut byh04ecent history -of this atnd octe YZ- prio-Jc~ i po-r quality of the~ twO sib-rxoJ cit

1 WtJOA 1LO Cu nvtd Tor eJw anL the prouaxshy1 id wU d~xdsrtw o~iz3 u2f L~ fi~ncupoJ~

~undnx 052 wh aeva~ laY to Ou ktinda of invastm -outVQ1 WZ)rZ As ie8 n to ntik~ VSdth- 057 fu1in ther in~ vlc4 of persisant S1otig3 of jronlf Lind tr~nriportat e- ist r -acny dissenionOpand rurvor of hih-1c~vo1 piymnzranuel ihhmn the rovpr f o i~f tcant plusmn Izlewent in ~ C~ ia lgm~~apa remopOjCQit

Eecvndlyg the-le is Fl~d W p l~peatlYc 1181101Vaaec Libshy

projects wM-ch m rqhc 1-o re-5y anayrd d epp rva4 for ftnanar if (121M w0=0 ai~t rZ=od adtzo ne 1011 dalayas~ inFndplusmnrg 0l-iJg4Ae Sub-projctn to cpcethe oipcratAAe mib-rrojeata undier 033 zmn the S213 rilion a~u of Mrie 30 1976 ina xeflows (primvial znd itte-oet) tull-n 05Z apparx tor~X tha kuliefL thnlt thcieL a-re fa -pprcnpia- e tcru inetiin tho Ea Ohqunke zone

11u-o ad t~o CQition1 it3 adstnUwja is thet It ol ofr the pwsibilitjr of tinanjira projects In a6c314on -to the nine cur-rntly being Sthud ovtiow lerer a some prooJ of e~dganuo oZ addituo1 pct projectt and on rnc-UnIlg P-i~OdO taxget- for sub-loafl ztudy d This opIL-ion may heant~ ir~picnnaLlon

ju~fiJ1 nplusmnr o t1T ZfZct thiit by zlirion overaight the diabu3eeshylent perirsa Se by tl~e 1irent tcrampaJ c~tr in eirjht innnthn rahcrt of the poricd allcoscL3e under PD-57 nd planned for in the GI luxtharmrnre ruch ofC the delay e ertezc1ercd to date Tia boon a corr-shynieqtcence o~f (D zz Is ae~init-satv -h mid cxgauizational conshyiunion if the mftf on can b- ooriviTICeC tl-tt tho current adninirltrashytivc arrauge)its arec adsouanto and bbe a vae may exist for an oxtcnaion bad on t kp-LMUpz~i of Wn couts (in termse Of effort time arzd p -tt nco on th ptt 09 both tIDl arid CMDEZA) lolmrayr as mant3oed ajbovec it eaunli~zely thart the proj ct administration can stabilize =1n daonstrate aiAetnate irap)cvemer~t in the mediun-term

The advantaga of 7~t7f 11- that it ferve4 nlotice to CREZAi andto AOoW that t1k no to the LiIi longev wiilling accept zece of prcject yerfom-L- in linht of the erxdstaiwe of altezshyriative more proluctiie useai fmr cciarca AID Loan Siunds At the

~an~ tit~ proi~d~ =A pithta final to d2inonsixatei chance willirngn3s and capacity to iiUeLoan fundu in addition to the S1215 mil2lion p rgra-acff fr rintr by 0161 TLD U01dVev tUie Option would nu t considenbe przis~aire ou both ICIOZA and USAID to approvme sb-p-oj(I1e which may~ not be -rufficiantly devolcfpo8 CS techaically jud 1i id Litt haver ibozn submnitted in an attemt oflt the cornrhxnt trrget by the IXCD

Crton IV is eAboi pr~t iRCy -A-om the- point )f V Of roshy-a~ol I~c~aiwc Zc~x Invex71at 3noil 19 ell- Ind~ustial

I a~~Ai ~o71~c ~tg~tar I ranceainn its~ pio~jected rate of fW)-1QYL cc ientE tNuqhi Janutxy n~ of-CAL=R-s funds1 to

the Iurat EIntS--XtSCS D-VYcp t Jund would rFeward the Bma s doneshyountr3ted 1r~tezet in L~)oi~an u ita institzutional oapzlcatry to oxIite it as lnin- Xt mud alr lo entiraly 0~Mustent with the ong-texrn d-j-v of Um Eroject which is to inutittioiializ~e tho

11und e-1a miC-loans index tho Ct37A portioni axe to beel irom chianellaa into ehe 2zmts Fusnd

A cuZ3re-~ 2ilt midbe itk ju-Aticalon rwmch nddtional iina1T 111 010deen~~ti of the rd- ju-i~rdctIonwcn3d

Thl- I ben repc32J~Iak on th- possibiitiea of ectoeingI- 3

the Cye xtions Of to othor A Pez)optha P x moaiet3nutabl~y

A sipi-efcat i FtiIfactor~ ze~pxaing Qt1-V iin thue 3ioieitable bureaticat- ~ nau~d Ett-andLat crlwa Ci the AXl- Sideg

natixe Scction 1 02 zrc Tmxt ol the Loain Agecerncnt wauld have to be

~Lfld~~ ~rv~n~ oti~irF~with the MEJ and Hi EBanc andi =ft ~ ~ ~cc~ ~Dcace La-A The s[afi 3ane Involved im

tahcs~ T udiazt-z be -ori-bwhUe only if the px(posed trpanmfer in~e~~~i~~nbc tcrtl Of tile

pound)epitv 73gta~~c~ and np to3 nivO ol~ic clearanrces

o~n tb~e d- tPiQ~thL tht lr-mid~ L~ir crvec ca~n cr-ably be _tL~vv in iVaPzic r~1o in~ erorlic per oimance taygetsd

h~n~~exe ~ th 3- ~v e Tih~gar auto-iatic de-

Xn a -uting On Cwutcr- 7 the pr-hc-t cavaqtte3 conIAized the - 4 n Arpb o~~u~th~ C~ ~ paltforflance

orfpatn jrtamp~u which am antoriJ6O qioe j il t~a~t toy suoTh mquerst voild the efore be assiuming f-rJ~jof u3tihtv-te do--v~i~qaticn

and futcire o red n on to base

Basc-d oi tci corclusic M~Ciitterv ol-gru the following ~O~lQ~C~JeLfor consideVatplusmnCn by the Dirvor

1 Th-it thi3 Mia4Acn no~t (consir= arv extensio of the W~D under~ the On)mil portion co-r fthe Lo~an -nd perTmit the curert 7M~ to~ la e lI-mitLg the tfinez availale to

~~uJ~ ~ ja ni~j~0f

~~ L 1li

to ~n ~ c~ sau5Ve2Y L U5

ti ~ dJ~g~ ~ns he Dnk o plusmn4S

2 ~ 1~~ ~4ig el n i o

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MALY1LI 1)SIT

$ rpm(aCVa) M--

UNIEi) STATES GOVLiMENT

ANNEX I-BMemorandum TO

FROM

SUBJECT

Project Committee Members DATE July 26 1976

Ms Wendy A Stickel~ (fLoan Officer - CAP 1 t Monitoring Plan July - September 1976

AID Loan 527-W-057 -- Industrial Bank

I Objectives for the Monitoring Period

1 To establish targets which will serve as a basis for an evaluashytion of prospective loan fund utilization at the end of the period

2 to assure that steps are taken to provide for outside technical services required to assist in the feasibility analysis of pending sub-loan applications

3 to monitor routine sub-project identification analysis and approval procedures for compliance with the Loan Agreement by making regular visits to field offices

4 to collect necessary data to evaluate progress toward established targets by early October

5 to prepare by mid-October recoimnendationsfor the Director on deshyobligation andor request for TCD extension and

6 to follow-up on pending procurement and financial matters (see III

B and C)

II Sub-lending Commitment Targets

In coordination with the Bank staff and based in large part on their own projections targets have been established which will both demonstrate the Banks commitment to substantially improve sub-lending performance and provide a basis to assume that levels projected for subsequent months could reasonably be achieved These targets to be met as of September 30 have been co-municated unofficially to the Bank and will be formalized in a letter to the Bank General Manager and to the MEF and are as follows

1 S10 million in sub-loans approved during August 2 S15 million in sub-loans approved during September 3 S25 million in sub-loans pending approval for which

studies have been completed and sub-borrowers pre-qualified 4 signed contracts with consultants to develop and study projects

whose estimated value mnounts to no less than S100 million to be prepared for sub-loan review by the Bank by December 31 1976

en the Payrol Savings PlanBuy US Saving Bouds Regularly av Fa fsno-wyel I

Memo to Project Committe Members - Loan 057 2-

With the exception of target 1 these are based entirely on the Banks own projections for sub-loan approvals during the period (see the attached tables) Target 1 however is considerably higher than the Banks-projection for August This single deviation is considered justified as a means to motivate the Bank to demonstrate immediate results moreover the projections for August are considered unduly low given past performance levels and the backlog of sub-loan applications

III Implementaticn Assignments

A Monitoring Targets and Evaluation of Performance

1 CAP to draft letter to Bank and to MEF formally establishing targets and proposing joint review of performance in mid-October by July 31

2 CAP to coordinate a working-level meeting of USAID Bank and MEF to review problems and actions programmed as follow-up to SAR and establishment of targets by August 31

3 CAP CON and AGR to travel as necessary to Branch offices to monitor sub-loan approvals and to compile data required for performance evaluation see III D

4 CAP and CON to prepare analysis of sub-lending progress and prospects based on July-September performance early October

5 Project Committee to review analysis and to prepare reconuaendashytions for the Director by mid-October

B Procuiement Matters

1 CAP and CON to review a minimum of four Loan-financed TA contracts between the Bank and consultants estjinated by August 31

2 CAP to meet with Bank Operations Department to finalize proshycedures for imported procurement by sub-borrowers as follow-up to preliminary meeting held on June 6 by August 31

3 CAP to meet with Bank implementation working-level staff on notification and procurenent regulations as follow-up to Implementation Letter No12 by August 31

C Financial Matters

1 The Bank to request USAID to issue disbursement to replenish Fund estimated by August 31

--

Memo To Project Committee Members - Loan 057 3shy

2 CON to follow-up with Bank regarding the failure of the Banks accounting to reflect Loan-financed TA expenditures

3 CAP to coordinate with Bank to normalize reporting of monthly

financial data

D Trips

Field trips to Branch offices by CAP CON and AGR staff will be scheduled for the following purposes

-- to consult when desirable or upon request by the Bank on specific project possibilities

-- to monitor the work of the consultant$

-- to compile dataon sub-lending performance

to monitor routine Branch office sub-loan identification study and approval procedures to assure compliance with Loan Agreement criteria

Given these objectives it is expected that the great proportionof Branch office visits will be made during late August and September once the consultants are in the field and the rate of review and approvalof sub-loan applications increases The Branch offices in Cuzco and Junin should each be visited twice during the period given the relatively greatersize of their operations Puno and Ayacucho have not been visited in over six months and should be visited at least once during the period A proposed schedule of visits and travel participants will be prepared in coordination with the Bank by mid-August

BEST AVAILABLE COPY - i

___

_______(i

I75 D

Past Su)-Leding ActivitY] Sub-Loan Avrova~jt (N l~crvnj kcout)

SeC0)

l1

c[ihurc-ent rov

9 74

ir 975-nJry 1977

-- O tl k

N D

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A

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4

420

5520j3f550

5 5345

1069

1

510

525

3 1075

165

28 1285

246

0

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40

5 4105

134

2 5P2Z60

760

3

I110 0

572

1796

375

531520

1194

6

2Afl300

7-49

2 ZOO

146

3395

449

3

330

120

22 520

211

3770

910

4

2570

765

5 7410

884

3750

1029

70

1 05

32 3

4

762

2069

233630

2074

29t~f99

2 2050

427

313-100

29

18585

535

9

510

739

1383959

569701

66

92 -

1 9Zgt z

7

4

5 6 3 2

13 1Z00

1650 1747

f

5568

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P-31Z

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40 4670

3613

59

15635

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N

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19 1P60

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D 2701 716 1843 2337 71 3 3 i I 3 3 - 7466 1611SO 577

artial figure

Projected disbursement totls r c-c1)c inot availablk poundoi Cuzo and JUllill Pa2iCft-shy

Iox Lr 1j7S-3jnLary 177

6

7023

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31

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[__ _ _ _

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TOTAL

311 33916

77

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05

23

-419

2Zq

412 19 19

6 55610 55 8 I 3 I 59_

v]635 i 2578Z 8 i 15000

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762 2io~o 1o I 10 4

I 1 914

8 28690

76 66185 25000

3 427____ 739_6 14 6 11000 4749 ___ 19471

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177 12 39

680 746

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i

2

s5

42

12 4

0

73737

16

2669

16 64 7

19 510 4 1

0 14

000

-shyjshy5 o

c iol C uzo und Jun~in P- f fcent

AN=E xII

P-ojeacto Sub-Lozin Cc rnitmcnts of Dalance of Original Fund Caital

February 1977 - January 1978

(S million)

F M A 1 J J A S 0 N D J T TAL

A y A C 7 9 9 7 6 6 6 5 4 3 2 2 66 U C

H 0

C u K Z 17 13 13 12 11 Ii 10 10 8 7 5 4 121 C

0

J

N 16 16 15 11 11 10 9 8 8 6 5 4 119

p

U 0 9 6 5 4 483 1 12 56

0 50

__ 47 43 35 33 31 29 T27 231

Enterprise

CAP Zanja

SAIS 3 de Octubre

Comunidad Cabana

Comunidad Conchucos

SAIS Revoluci6n

SAIS Vallejo

SAIS San I-artin

CAS Pariacoto

ANNTEX IV

Sub-Projects Prepared By ORDEZA For Loan Financing

Activitv Sub-Loan Size Status

(in SMillion)

Livestock 30 Approved by USAID

to 105 of i of

of 59 USAID approval pending TDD Extension

to 80

217 Submitted 1230 under USAID review 138

94

Balanced feed plant 220 Submission expected in 177

TOTAL INVEST NT 943

Cox-itted to approved sub-projects 135

pending cornunitment 8O -8

ANNEX V

Summary Description of Additional Sierra Departments

APURIMAC

1 iGeography and Population

The 1972 Census gave the population of the Department of Apurimac as 308613 of which 756 (233525) lived in areas classified as rural

The principal city of the Department is Abancay with a populashytion estimated at 12000 inhabitants the next largest urban center is Andahuaylas with a population of approximately 2000 in the city itself and serving an extensive rural population The majority of Department inhabitants live in dispersedrural areas or in small urban concentrations of 250 inhabitants or less

Over 90 of the Department is classified as sierra with a small portion of the eastern area sloping down to the high jungle area bordering on the Apurimac River (a tributary of the Amazon) Commushynications networks are extremely deficient with one major road connectshying Abancay with Huancayo and Cuzco (the trip from Huancayo to Cuzco using this route is approximately 50 hours)

2 Economic Activity

The 1972 Census gives the following breakdown of occupationalcategories for the Department of Apurimac

Economic Activity Persons Employed of Total

Agriculture (farming and livestock) 55467 780

Fishing 5

Mining 112 01

Industry 3803 53

Utilities 89 01

Construction 904 13

Commerce (inc banking) 2460 35

Transport 559 08

Services 5267 74

Other 2523 35 TOTAL 71189 1000

ANNEX V

Agriculture as carried out in the Department is practically entirely of a subsistance nature with little surplus sold to regional markets Very few associative enterprises operate in the zone since

there were few privately-owned haciendas in the area prior to the

Agrarian Reform and those few associative enterprises which have been

created are almost exclusively service cooperatives which group together private landholders in order to achieve economies of scale in

the purchasing of agro-inputs and marketing of whatever surplus is

produced Seven such service cooperatives have been identified and several have shown interest in possible investments in small industries

What little industry exists is of the home-industry variety -- small

producers of leather candies and breads and bottled soft drinks The

major non-farm activity in the area is the service sector which has

grown up as a result of the increasing road traffic between Cuzco and

the coast -- small family-operated restaurants and boarding houses

auto mechanics shops and similar services which are offered to truckers

busses and individuals making the overland journey

The economic potential of the zone is not particularly bright given problems of extremely high altitude poor soil conditions lack of mineral resources and a lack of internal savings which is considered

to be the lowest in the country Nonetheless the Industrial Bank has identified a series of small enterprise possibilities which should help

to alleviate the conditions of extreme rural poverty which prevail in the

area These include the production of livestock (cuy swine chickens) and related activities (slaughterhouses production of milk and cheese

balanced feed mills) which are particularly appropriate to the Andashy

huaylas area which is geographically located at a lower altitude than

most of the Department The introduction of fish farming in higher

sierra areas is aJso considered to be a potentially profitable venture

along with a re-introduction of the silk industry (which at one time

was a highly profitable industry ineigenous to the region) and creashy

tion of small service industries xestaurants and commercial entershy

prises

CAJAMARCA

1 Geography and Population

The 1972 Census gives the population of the Department of Cajamarca

as 919161 making it the most populous of Perus predominantly sierra

departments Of this total 759095 (83) are classified as living in

rural areas The major city Cajamarca is located in more or less the

geographic center of the Department and has an estimated population of

32000 following the city of Cajamarca in size and importance are Cajabamba and Chota with populations of about 6000 inhabitants each

- -

ANNEXV

The rest of the population living in areas classified as urban are generally found in small communitie3 primarily agricultural in orientation of 500 persons or less

The geography of the Department is characteristic of the northern Sierra -- broad river-fed valleys interspersed among peaks ranging up to 18000 feet above sea level Transportation routes within the Department are relatively well developed An all-weather road connects the city of Cajamarca with the Pan American highway on the coast and trucks and busses can easily make the journey from Cajamarca to the important coastal cities of Chiclayo and Trujillo in seven hours Cajamarca is also connected to Chiclayo Trujillo and Lima by air service From Cajamarca to other interior points of the Departmenthowever road travel is difficult and while roads are passable during9 or 10 months of the year passage is difficult and vehicle maintenance costs are extremely high

2 Economic Activity

According to the Census the economically active population of the Department is broken down as follows

Economic Activity Persons Employed of Total

Agriculture (farming livestock) 172998 760

Fishing 34

Mining 1061 06

Industry 20842 91

Utilities 92 01

Construction 2591 11

Commerce banking 6865 30

Transport 1670 07

Services 13703 60

Others 7821 34

TOTIL 227677 1000

Agriculture the predominant economic activity is characterized by extremely low levels of technology relying on primitive agriculshytural techniques which -- when combined with the small amount of land available per farm family -- results in very little surplus available for sale after immediate family requirements are met The scarcity

ANNEX V

of all-weather roads and great distances which separate the widely scattered productive valleys contribute to continued low level of production and inadequate dissemination of GOP provided technical assistance through Agrarian Zonal offices and the Agrarian Bank The Agrarian Reform has been active in the -=ea and over 50 of land has been adjudicated in the form of indigerous campesino comshymunities agrarian production cooperatives and individual title to small farms The bulk of farms fall into the latter category and it has been estimated that 98 of the physical extension of the Department is currently farmed in land holdings fallirg between 5 and 25 hectares

91 of the economically active population is engaged in small industry -- chiefly activities associated with dairy farming (Perulac an affiliate of Nestle operates an evaporated milk factory in the city of Cajamarca and there are many small producers of cheese in the central part of the Department) There is additionally a growing market for artisan goods produced in the Cajamarca area although this is not yet an important source of incomeemployment

The service industry of the Department is centered around the growshying importance of Cajamarca as a tourist center While tourist facilishyties are deficient (there is one State-run hotel catering almost exshyclusively to foreign visitors) the GOP has plans to upgrade existing facilities and give incentives to private interests to invest in tourism

The totirist potential of the area combined with Cajamarcas natural advantage for the exploitation of its dairy industry make the area attractive to potential investors Cajamarca cheeses are highly valued throughout Peru but since they are produced on a very small scale they rarely find their way to potential markets on the coast Manjarblanco another mouth-watering treat favored by travellers to the area is another dairy-related industry which could be expanded with ready markets on the coast

ANNEX V

HUANCAVELICA

1 Geography and Population

The population of the Department of Huancavelica in 1972 was331629 of which 76 (252001) were classified as living in ruralareas There is only one significant urban area the city ofHuancavelica with a population of approximately 15000 The restof the population is highly dispersed with little social oreconomic access to the Departmental capital Of the 24 of thepopulation living in areas which the Census classified as urbanthe vast majority live in population centers of less than 500 inhabitants

The Department is classified as Sierra with a small portionto the west sloping down to the coast The topography is ruggedthere are few all-weather transitable roads and there is a raillink with Huancayo in the adjacent Department of Junin

2 Economic Activity

The 1972 Census gives the following occupational breakdown bycategory of employment

Economic Activity Persons Employed of Total

Agriculture (farminglivestock) 55979 703Fishing 4Mining 4236 53Manufacturing 3875 48Utilities 226 02Construction Commerce (inc banking)

3142 39 3625 45Transport 665 08Services 4427 55Others 3773 47

TOTAL 79952 1000

With over 70 of the active labor force engaged in agriculturethe areas economy is based on the production of high-altitudefoodstuffs (potatoes yuca corn etc) and the GOP has been givingpriority to developing sheep ranching and building up alpaca andllama herds The soil conditions are extremely poor there islittle attention given to crop rotation or experimentation withimproved seeds and population pressures on the land are among the

ANNEX V

most extreme in Peru (an estimated 07 hectares of arable land perfam family) As a result of these factors production has droppedin absolute terms during the past ten years and more and morefarm families are being forced to leave the land The problem reshymains however that there are few off-farm jobs available in the area forcing outmigration to adjacent cities such as Huancayo in the Sierra and Ica on the coast or to Lima Mining in Huancavelica continues to be an important source of revenue but the capitalintensive mines of CentroMin in the area can only absorb a handful of new laborers every year -- and most of these are the sons of miners who have worked previously with the companies The famous mercury mines of Santa Barbara and Huancavelica discovered duringthe colonial period at one time enployed almost the entire adultpopulation of the area but are now depleted or uneconomical

Industry in the area is generally carried out on an extremelysmall scale --there are a few bottling plants producing for the area market and some small leather and woodworking companiesUnder the direction of the local SINAMOS office a DevelopmentProgram for 1977 and 1978 has been prepared calling for significantinvestment in small industry in an attempt to divert outmigrationinto productive activity within the Department Among investment possibilities SINAMOS has identified industrialization of alpacaand sheep fiber the development of small fishfarms and eventual production of smoked trout the manufacture of food dyes a small factory to produce fertilizers using mineral traces of the zoneand the development of a milk butter and cheese industry

7hese and other small industries would be carried out at thelevel of established associative enterprises in the zone At presshyent there is one SAIS in the area covering a physical extension of 83000 hectares with over 5000 members and some 10 productioncooperatives created as a result of the Agrarian Reform Vhe bulk of the rural population however remain in indigenous campesinocommunities or work individually-owned small plots of land

HUANUCO

1 Geography and Population

According to the 1972 Census the population of the Departmentof Huanuco was 414468 with 734 (304385) living in areas classified as rural The capital of the Department Huanuco isthe largest urban concentration with an estimated population of30000 inhabitants The majority of other urban dwellers are concenshytrated in mining camps and small commercially-oriented towns which

ANNEX V

provide services to transport traffic using the Lima to Pucallpa highway

The Department contains three distinct geographic zones -shythe high sierra in the eastern part of the Department the ceja de selva and finally the jungle on the western extreme bordering the Department of Loreto The ceja de selva or high jungle has long been signalled as an area of vast potential for Peru but up to the present physical infrastructure and needed financial reshysources have been lacking It is an area which offers potential in both agriculture and livestock expansion as well as small industries using the agricultural and mineral resources of the zone

The Lima-Pucallpa highway traverses much of the Department of Huanuco and while the increasing traffic between coast and jungle has put severe strains on the highway -- especially the La Oroya to Lima section which crosses over the high Andes -- it is noneshytheless possible to make the overland trip from the city of Huanuco to Lima in about 12 hours Additionally the secondary road network is fairly well developed a result of the many small mining ventures in the area which have built roads from their industrial complexes to the highway There is scheduled air traffic from Huanuco to Lima and Pucallpa

2 Economic Activity

The occupational breakdown of the Department of Huanuco according to the 1972 Census is as follows

Economic Activity Persons Employed of Total

Agriculture (farming livestock) 72711 707 Fishing 31 Mining 1542 15 Industry 5392 52 Utilities 53 01

2423Construction 24 Commerce banking 6060 59 Transport 1794 17 Services 8597 84 Other 4260 41 TOTAL 102863 1000

ANNEX V

Agriculture is characterized by minifundia (individually farmedplots averaging two to three hectares) and associative enterprisescreated as a result of the Agrarian Reform An Industrial Banksurvey found that 20 associative enterprises were currentlyfunctioning in the area -- mostly in the area below Huanuco in thehigh jungle The basic productive pattern has traditionally beengarden crops for home consumption and sale of surplus in areamarkets but recently the GOP has been promoting increased cultivashytion of soybeans and fruits which can be consumed fresh or processedfor the coastal or export market

Industry employs 52 of the Department work force The bulkof industry is located in and around the city of Huanuco and isbasically oriented towards the production of consumer goods Fewlinks exist between the agricultural and mining base of the areaand the industries which have grown up there

The Industrial Bank has identified a large number of potentialsub-projects in the area which would help to establish linkagesbetween agricultural and mining output and new industry -- theseinclude the manufacture of auto parts mechnical equipment metalworking a sausage processing plant and other livestock-related industries

Mining while only employing 15 of the economically activepopulation is nonetheless an extremely important activity fromthe national point of view Important zinc and lead deposits arefound in the higher sierra regions including the Milpo andAtacocha mining complexes located an hour above the city ofHuanuco Since capital intensive mine exploitation is practicedin the area there is little possibility that new employmentincome will be generated through increased mining activity

ANNEX VI

Fund Investment Potential In Additional

Sierra Departments

The following is a list of sub-project possibilities for Fund investment in the departments of Huanuco Apurimac and Huancavelica These sub-projects were identified in the course of two-day visits by Bank personnel to the Bank Offices on each department where they interviewed local Bank staff regional planning office personnel managers of associative enterprises and local entrepreneurs Prosshypective sub-borrower or promotors exist for each sub-project except as indicated

HUAhUCO

Sub-Project Activity Estimated Sub-Loan Size (In S1000)

Dairy Products 4000 Chicken Production 2000 Printing Industry 2000 Marketing of Pharmaceutical Products 4000 Gas Station 10000 Milk Processing Plant 4000 Sausage Processing Plant 10000 Auto Spare Parts 10000 Tourism 500 Brick Factory 1000 Saw Mill 2000 Swine Processing Plant 4500 Swine Processing Plant 4500 Industiial Parts Production 300 Livestock Production and Processing 3000 Metal-Working 8000 Hotel 2000 Carpentry Shop 500 Recreation Center 1000 Bakery 500 Rabbit Meat Processing 1000 Bread and Candy Shop 1500 Jewelry and Jewelry Repair Shop 2000 Photo Studio 600 Ice-Cream Shop 1000 Sea-Food Restaurant 285 Local Crafts 2000 Local Crafts 2000 Local Crafts 1000

ANNEX VI

Sub-Project Activity Estimated Sub-Loan Size (In So00)

Cattle Raisiny and related activities 500 Industrialization of Tubers 500 Dairy Processing Plaster Factory Hotel Grain Mill 1600 Meat Packing Center Hog Fattenin 9 Center Sausage Plant Rabbit Meat Processing Local Crafts Sla y hterhouse Leather Crafts Leather Crafts Dairy and Leather Industry

Cement Plant Grain ill Starch Processing and Dried Potato Plant Miscellaneous Supply Store Miscellaneous Supply Store Papaya Canning Plant Juice Cannery Cornstarch Production Dried Potato Prcduction Dairy Plant 2900 Tuber IndustryAseveral small plants on local scale) 72000 Leather and Shoe Shop 1000 Warehouses and Silos 12000 Slaughterhouse 16000 Balanced feed plant 10000 Coristruction liaterials 18000 Pig and Poultry Centers 7000 Fish Farm 10000 Cereal Industry 6000 Tourist Lodging Wiring and Silver Welding Marketing Centers

Local Crafts Non Traditional Crafts Packing Center Warehouse and Market Place Industry 5000 Mechanicamp Industry 3000 Reconstruction and Services Center 5000

AWEX VI

Shb-Project Activity Estimated Sub-Loan Size (In S1000)

Marketing 700 McX keting 500 Markcting 2000 Industry 1500 Marketing 2000 Farm 1000 Marketing 2000 Marketing 2000 Marketing 4000 Marketing 4000 Farm 1000 Marketing 2000 Industry 1000

Potato Industry Potato Industry

Idea stage only with no identified sub-borrower

Total Sub-loan investment in projects with cost estimates S278000000

($3978357 at S70 = USl)

APURIMLAC (Abancay province only)

Sub-Project Activity Estimated Sub-Loan Size (In S000)

Slaughterhouse 15000 Anisette production 2000 Honey processing 1500 Hostels (2 projects) 4500 Balanced feed plant 3000 Guinea pig farms (3 projects 2100 Pig farms (3 projects) 8000 Flour Mill 500 Chicken farm (3 projects) 1800 Brick factory 800 Plaster factories (2 projects) 1000 Leather tannery 2000 Dairy processing 1500 Beverages (2 projects) 3100 Straw bags 500 Perfume factory 500 Noodles factory 2000 Troat farm -1000 Sawnill 1500

ANNEX VI

Sub-Project Activity Estimated Sub-Loan Size

(In S000)

Metal Furniture Production 400 Spice Mill 300 Bikery 500 Restaurant 150 Ice Cream Factory 100 Candy Factory 100 Food retail 300 Silk processing 10000 Plaster factory 500 Brick factory 500 Flour Mill 500

Idea Stage only with no identified sub-borrower

Total Sub-Loan investment in projects with cost estimates S65650000

$ Y37857 at S70 = US$1)

HUANCAVELICA

Sub-Project Activity Estimated Sub-Loan Size

(In (S000)

Alpaca and Sheep wool processing 25000 Fish farms (5 projects) 15000 Leather Tannery Dairy processing Dye factory Tourist restaurant 500 Fertilizer plant Brick and tile factory 500 Sawmill 2000 Meat Conservation Fattening Centers

Idea stage only with no identified sub-borrower

Total Sub-Loan investment in projects with cost estimates S43000000

($ 614286 at S70 = USS1)

ANNEX VII

Projected Sub-loan Commitments of Additional PandCaital

The projections shown below are based on the Banks estimates of the additional departments capacity to absorb Fund credit as follows Apurimac - S80 million Cajamarca - S60 million Huanshycavelica - S60 million and Huanuco - S150 million totallingS350 million These estimates assume slightly higher sub-lendingfigures for Apurimac Cajamarca and Huancavelica than supported bythe Banks totals of potential sub-project investments in these departments in order to provide for additional investment in subshyprojects currently lacking cost estimates and in new sub-projectopportunities to be identified by contracted consultants

This schedule of sub-loan approvals reflects an initial start-up periodof low activity to allow for the hiring of promotors orientation of branch office staff promotion campaigns and the contracting of conshysultants for sub-project identification and study Assuming that the Mission receives authorization to proceed with the proposal to transfer funds and expand the Fund into these departments by March 1 and proshyviding for a start-up period of approximately three months full subshylending operations will begin by June

Projccted ub-Loan Coditrc--ts of 7(2-ional Fund Capital A1MEY VUl March l977

(in S - Jlv 1V8rlillicn)

___-euro - rr-C----- --- VIA S5 --)- J F M J F J I Apurimac so

Apz0 a02 I

I 15 9

49 54 54 6474 82 82 86 86 0 I j il

CaC3ra Gajama ra

I 0 4 2 5

-

3 4

I--I 4 5

~ 1 5

-

6 7

-

71 71

Huancavelica [ 02 1 04 1 1 16 1 6 2 2 5 3

I 4

I 4 5 j 5 67

67 71 71

llic 0 2 i3 3 6 1 10 F

12 13 13 15 16 16 17

__ 7 5--Z 7-7 77__ 3 7 214 124 264 304 366 376 398 378

ANNX VIII VA-c IjEc 0OJECT TITLE DATE Ifi1ORIGINAL jAPPROWOD

77ntermrisc - 1 Dvopaert 1677 REVISION V

977 CY 1978 CY 1979

- -4

4 4-- 0i w W r- v4

4 UsM

14I

0 12 24 36

LPOW

2cr--ato to extenrd $60 million of AID Loan

1 l a--s conitted by Industrial Bank

Inc Aure-r aion

Fcur promotors hird 2-2-

tc-Ln A-reeent 6

Full amount of -7 AID Loan fully disbursed

A= --d ed AID Loan cotmmitted

0-0Z S CRITICAL PERFORMANCE INDICATOR (CP NETWORK

COiTAY ROJECT NC PROjECT TiTLE DATE 527--057 Airal rnterprises I Develooment ORIGINALAppoAOVEOj1677 ORIIONAL

PRCjECT PuRPCSE (FROM PRP FACESHEET)

To irstitutionalize an integrated program of financial and technical assistance to assist existing and new rural enterprises

vl OEscRIPTION

Action Agent Action Date

AIDW 1 Authorization to extend terminal dates Jan 31 1975

AIDW 2 Loan Authorization Mar 15 1977 amended

USAIDGOP 3 Loan Agreement May 1i1977

amended

Industrial Bank 4 Four promotors hired June 15 1977

Industrial Bank 5 $60 million of AID Jan 3] 1978 Loan committed by Industrial Bank

Industrial Bank 6 Full amount of AID July 31 1978 Loan committed

Industrial Bank 7 AID Loan fully Jan 3] 1979 ORDEZA disbursed

AID 102036 (6-76) CRITICAL PERFORMANCE INDICATOR (CPI) DESCRIPTION

MALY1LI 1)SIT

$ rpm(aCVa) M--

UNIEi) STATES GOVLiMENT

ANNEX I-BMemorandum TO

FROM

SUBJECT

Project Committee Members DATE July 26 1976

Ms Wendy A Stickel~ (fLoan Officer - CAP 1 t Monitoring Plan July - September 1976

AID Loan 527-W-057 -- Industrial Bank

I Objectives for the Monitoring Period

1 To establish targets which will serve as a basis for an evaluashytion of prospective loan fund utilization at the end of the period

2 to assure that steps are taken to provide for outside technical services required to assist in the feasibility analysis of pending sub-loan applications

3 to monitor routine sub-project identification analysis and approval procedures for compliance with the Loan Agreement by making regular visits to field offices

4 to collect necessary data to evaluate progress toward established targets by early October

5 to prepare by mid-October recoimnendationsfor the Director on deshyobligation andor request for TCD extension and

6 to follow-up on pending procurement and financial matters (see III

B and C)

II Sub-lending Commitment Targets

In coordination with the Bank staff and based in large part on their own projections targets have been established which will both demonstrate the Banks commitment to substantially improve sub-lending performance and provide a basis to assume that levels projected for subsequent months could reasonably be achieved These targets to be met as of September 30 have been co-municated unofficially to the Bank and will be formalized in a letter to the Bank General Manager and to the MEF and are as follows

1 S10 million in sub-loans approved during August 2 S15 million in sub-loans approved during September 3 S25 million in sub-loans pending approval for which

studies have been completed and sub-borrowers pre-qualified 4 signed contracts with consultants to develop and study projects

whose estimated value mnounts to no less than S100 million to be prepared for sub-loan review by the Bank by December 31 1976

en the Payrol Savings PlanBuy US Saving Bouds Regularly av Fa fsno-wyel I

Memo to Project Committe Members - Loan 057 2-

With the exception of target 1 these are based entirely on the Banks own projections for sub-loan approvals during the period (see the attached tables) Target 1 however is considerably higher than the Banks-projection for August This single deviation is considered justified as a means to motivate the Bank to demonstrate immediate results moreover the projections for August are considered unduly low given past performance levels and the backlog of sub-loan applications

III Implementaticn Assignments

A Monitoring Targets and Evaluation of Performance

1 CAP to draft letter to Bank and to MEF formally establishing targets and proposing joint review of performance in mid-October by July 31

2 CAP to coordinate a working-level meeting of USAID Bank and MEF to review problems and actions programmed as follow-up to SAR and establishment of targets by August 31

3 CAP CON and AGR to travel as necessary to Branch offices to monitor sub-loan approvals and to compile data required for performance evaluation see III D

4 CAP and CON to prepare analysis of sub-lending progress and prospects based on July-September performance early October

5 Project Committee to review analysis and to prepare reconuaendashytions for the Director by mid-October

B Procuiement Matters

1 CAP and CON to review a minimum of four Loan-financed TA contracts between the Bank and consultants estjinated by August 31

2 CAP to meet with Bank Operations Department to finalize proshycedures for imported procurement by sub-borrowers as follow-up to preliminary meeting held on June 6 by August 31

3 CAP to meet with Bank implementation working-level staff on notification and procurenent regulations as follow-up to Implementation Letter No12 by August 31

C Financial Matters

1 The Bank to request USAID to issue disbursement to replenish Fund estimated by August 31

--

Memo To Project Committee Members - Loan 057 3shy

2 CON to follow-up with Bank regarding the failure of the Banks accounting to reflect Loan-financed TA expenditures

3 CAP to coordinate with Bank to normalize reporting of monthly

financial data

D Trips

Field trips to Branch offices by CAP CON and AGR staff will be scheduled for the following purposes

-- to consult when desirable or upon request by the Bank on specific project possibilities

-- to monitor the work of the consultant$

-- to compile dataon sub-lending performance

to monitor routine Branch office sub-loan identification study and approval procedures to assure compliance with Loan Agreement criteria

Given these objectives it is expected that the great proportionof Branch office visits will be made during late August and September once the consultants are in the field and the rate of review and approvalof sub-loan applications increases The Branch offices in Cuzco and Junin should each be visited twice during the period given the relatively greatersize of their operations Puno and Ayacucho have not been visited in over six months and should be visited at least once during the period A proposed schedule of visits and travel participants will be prepared in coordination with the Bank by mid-August

BEST AVAILABLE COPY - i

___

_______(i

I75 D

Past Su)-Leding ActivitY] Sub-Loan Avrova~jt (N l~crvnj kcout)

SeC0)

l1

c[ihurc-ent rov

9 74

ir 975-nJry 1977

-- O tl k

N D

c

i

j

$ N

XA

D

C

A

D

N A

D

4

420

5520j3f550

5 5345

1069

1

510

525

3 1075

165

28 1285

246

0

1340cI

40

5 4105

134

2 5P2Z60

760

3

I110 0

572

1796

375

531520

1194

6

2Afl300

7-49

2 ZOO

146

3395

449

3

330

120

22 520

211

3770

910

4

2570

765

5 7410

884

3750

1029

70

1 05

32 3

4

762

2069

233630

2074

29t~f99

2 2050

427

313-100

29

18585

535

9

510

739

1383959

569701

66

92 -

1 9Zgt z

7

4

5 6 3 2

13 1Z00

1650 1747

f

5568

600

50

8

I 35

381Z

P-31Z

21

333

6Z19

13

S4326

I

40 4670

3613

59

15635

8

P

o

0

N

A

3

19 1P60

233i

3 80

9

A

3 540

9141

13

3 2-10

5 470

110-

7

14 140

5

3 D

0-

6 14 7n 4 475 5

244 1 S

1021239 1

6

7

516

13 27

336-

2100

I 4

Z124

1

D 2701 716 1843 2337 71 3 3 i I 3 3 - 7466 1611SO 577

artial figure

Projected disbursement totls r c-c1)c inot availablk poundoi Cuzo and JUllill Pa2iCft-shy

Iox Lr 1j7S-3jnLary 177

6

7023

A-

31

s

1

O

13

o200 I

[__ _ _ _

N

35 3812

_ _ _ _D

D

40 6 1

TOTAL

311 33916

77

7000

029 1 3-12 3613 23850

05

23

-419

2Zq

412 19 19

6 55610 55 8 I 3 I 59_

v]635 i 2578Z 8 i 15000

Z600 62 19 g45 80

762 2io~o 1o I 10 4

I 1 914

8 28690

76 66185 25000

3 427____ 739_6 14 6 11000 4749 ___ 19471

Z00 I70 4475

- - _12

-7 16- 17

13 8 7 i

-i 8c) - I04

7

-

-12

I Z

13 S814

- 2 f

177 12 39

680 746

2 0 0

0118450

i

2

s5

42

12 4

0

73737

16

2669

16 64 7

19 510 4 1

0 14

000

-shyjshy5 o

c iol C uzo und Jun~in P- f fcent

AN=E xII

P-ojeacto Sub-Lozin Cc rnitmcnts of Dalance of Original Fund Caital

February 1977 - January 1978

(S million)

F M A 1 J J A S 0 N D J T TAL

A y A C 7 9 9 7 6 6 6 5 4 3 2 2 66 U C

H 0

C u K Z 17 13 13 12 11 Ii 10 10 8 7 5 4 121 C

0

J

N 16 16 15 11 11 10 9 8 8 6 5 4 119

p

U 0 9 6 5 4 483 1 12 56

0 50

__ 47 43 35 33 31 29 T27 231

Enterprise

CAP Zanja

SAIS 3 de Octubre

Comunidad Cabana

Comunidad Conchucos

SAIS Revoluci6n

SAIS Vallejo

SAIS San I-artin

CAS Pariacoto

ANNTEX IV

Sub-Projects Prepared By ORDEZA For Loan Financing

Activitv Sub-Loan Size Status

(in SMillion)

Livestock 30 Approved by USAID

to 105 of i of

of 59 USAID approval pending TDD Extension

to 80

217 Submitted 1230 under USAID review 138

94

Balanced feed plant 220 Submission expected in 177

TOTAL INVEST NT 943

Cox-itted to approved sub-projects 135

pending cornunitment 8O -8

ANNEX V

Summary Description of Additional Sierra Departments

APURIMAC

1 iGeography and Population

The 1972 Census gave the population of the Department of Apurimac as 308613 of which 756 (233525) lived in areas classified as rural

The principal city of the Department is Abancay with a populashytion estimated at 12000 inhabitants the next largest urban center is Andahuaylas with a population of approximately 2000 in the city itself and serving an extensive rural population The majority of Department inhabitants live in dispersedrural areas or in small urban concentrations of 250 inhabitants or less

Over 90 of the Department is classified as sierra with a small portion of the eastern area sloping down to the high jungle area bordering on the Apurimac River (a tributary of the Amazon) Commushynications networks are extremely deficient with one major road connectshying Abancay with Huancayo and Cuzco (the trip from Huancayo to Cuzco using this route is approximately 50 hours)

2 Economic Activity

The 1972 Census gives the following breakdown of occupationalcategories for the Department of Apurimac

Economic Activity Persons Employed of Total

Agriculture (farming and livestock) 55467 780

Fishing 5

Mining 112 01

Industry 3803 53

Utilities 89 01

Construction 904 13

Commerce (inc banking) 2460 35

Transport 559 08

Services 5267 74

Other 2523 35 TOTAL 71189 1000

ANNEX V

Agriculture as carried out in the Department is practically entirely of a subsistance nature with little surplus sold to regional markets Very few associative enterprises operate in the zone since

there were few privately-owned haciendas in the area prior to the

Agrarian Reform and those few associative enterprises which have been

created are almost exclusively service cooperatives which group together private landholders in order to achieve economies of scale in

the purchasing of agro-inputs and marketing of whatever surplus is

produced Seven such service cooperatives have been identified and several have shown interest in possible investments in small industries

What little industry exists is of the home-industry variety -- small

producers of leather candies and breads and bottled soft drinks The

major non-farm activity in the area is the service sector which has

grown up as a result of the increasing road traffic between Cuzco and

the coast -- small family-operated restaurants and boarding houses

auto mechanics shops and similar services which are offered to truckers

busses and individuals making the overland journey

The economic potential of the zone is not particularly bright given problems of extremely high altitude poor soil conditions lack of mineral resources and a lack of internal savings which is considered

to be the lowest in the country Nonetheless the Industrial Bank has identified a series of small enterprise possibilities which should help

to alleviate the conditions of extreme rural poverty which prevail in the

area These include the production of livestock (cuy swine chickens) and related activities (slaughterhouses production of milk and cheese

balanced feed mills) which are particularly appropriate to the Andashy

huaylas area which is geographically located at a lower altitude than

most of the Department The introduction of fish farming in higher

sierra areas is aJso considered to be a potentially profitable venture

along with a re-introduction of the silk industry (which at one time

was a highly profitable industry ineigenous to the region) and creashy

tion of small service industries xestaurants and commercial entershy

prises

CAJAMARCA

1 Geography and Population

The 1972 Census gives the population of the Department of Cajamarca

as 919161 making it the most populous of Perus predominantly sierra

departments Of this total 759095 (83) are classified as living in

rural areas The major city Cajamarca is located in more or less the

geographic center of the Department and has an estimated population of

32000 following the city of Cajamarca in size and importance are Cajabamba and Chota with populations of about 6000 inhabitants each

- -

ANNEXV

The rest of the population living in areas classified as urban are generally found in small communitie3 primarily agricultural in orientation of 500 persons or less

The geography of the Department is characteristic of the northern Sierra -- broad river-fed valleys interspersed among peaks ranging up to 18000 feet above sea level Transportation routes within the Department are relatively well developed An all-weather road connects the city of Cajamarca with the Pan American highway on the coast and trucks and busses can easily make the journey from Cajamarca to the important coastal cities of Chiclayo and Trujillo in seven hours Cajamarca is also connected to Chiclayo Trujillo and Lima by air service From Cajamarca to other interior points of the Departmenthowever road travel is difficult and while roads are passable during9 or 10 months of the year passage is difficult and vehicle maintenance costs are extremely high

2 Economic Activity

According to the Census the economically active population of the Department is broken down as follows

Economic Activity Persons Employed of Total

Agriculture (farming livestock) 172998 760

Fishing 34

Mining 1061 06

Industry 20842 91

Utilities 92 01

Construction 2591 11

Commerce banking 6865 30

Transport 1670 07

Services 13703 60

Others 7821 34

TOTIL 227677 1000

Agriculture the predominant economic activity is characterized by extremely low levels of technology relying on primitive agriculshytural techniques which -- when combined with the small amount of land available per farm family -- results in very little surplus available for sale after immediate family requirements are met The scarcity

ANNEX V

of all-weather roads and great distances which separate the widely scattered productive valleys contribute to continued low level of production and inadequate dissemination of GOP provided technical assistance through Agrarian Zonal offices and the Agrarian Bank The Agrarian Reform has been active in the -=ea and over 50 of land has been adjudicated in the form of indigerous campesino comshymunities agrarian production cooperatives and individual title to small farms The bulk of farms fall into the latter category and it has been estimated that 98 of the physical extension of the Department is currently farmed in land holdings fallirg between 5 and 25 hectares

91 of the economically active population is engaged in small industry -- chiefly activities associated with dairy farming (Perulac an affiliate of Nestle operates an evaporated milk factory in the city of Cajamarca and there are many small producers of cheese in the central part of the Department) There is additionally a growing market for artisan goods produced in the Cajamarca area although this is not yet an important source of incomeemployment

The service industry of the Department is centered around the growshying importance of Cajamarca as a tourist center While tourist facilishyties are deficient (there is one State-run hotel catering almost exshyclusively to foreign visitors) the GOP has plans to upgrade existing facilities and give incentives to private interests to invest in tourism

The totirist potential of the area combined with Cajamarcas natural advantage for the exploitation of its dairy industry make the area attractive to potential investors Cajamarca cheeses are highly valued throughout Peru but since they are produced on a very small scale they rarely find their way to potential markets on the coast Manjarblanco another mouth-watering treat favored by travellers to the area is another dairy-related industry which could be expanded with ready markets on the coast

ANNEX V

HUANCAVELICA

1 Geography and Population

The population of the Department of Huancavelica in 1972 was331629 of which 76 (252001) were classified as living in ruralareas There is only one significant urban area the city ofHuancavelica with a population of approximately 15000 The restof the population is highly dispersed with little social oreconomic access to the Departmental capital Of the 24 of thepopulation living in areas which the Census classified as urbanthe vast majority live in population centers of less than 500 inhabitants

The Department is classified as Sierra with a small portionto the west sloping down to the coast The topography is ruggedthere are few all-weather transitable roads and there is a raillink with Huancayo in the adjacent Department of Junin

2 Economic Activity

The 1972 Census gives the following occupational breakdown bycategory of employment

Economic Activity Persons Employed of Total

Agriculture (farminglivestock) 55979 703Fishing 4Mining 4236 53Manufacturing 3875 48Utilities 226 02Construction Commerce (inc banking)

3142 39 3625 45Transport 665 08Services 4427 55Others 3773 47

TOTAL 79952 1000

With over 70 of the active labor force engaged in agriculturethe areas economy is based on the production of high-altitudefoodstuffs (potatoes yuca corn etc) and the GOP has been givingpriority to developing sheep ranching and building up alpaca andllama herds The soil conditions are extremely poor there islittle attention given to crop rotation or experimentation withimproved seeds and population pressures on the land are among the

ANNEX V

most extreme in Peru (an estimated 07 hectares of arable land perfam family) As a result of these factors production has droppedin absolute terms during the past ten years and more and morefarm families are being forced to leave the land The problem reshymains however that there are few off-farm jobs available in the area forcing outmigration to adjacent cities such as Huancayo in the Sierra and Ica on the coast or to Lima Mining in Huancavelica continues to be an important source of revenue but the capitalintensive mines of CentroMin in the area can only absorb a handful of new laborers every year -- and most of these are the sons of miners who have worked previously with the companies The famous mercury mines of Santa Barbara and Huancavelica discovered duringthe colonial period at one time enployed almost the entire adultpopulation of the area but are now depleted or uneconomical

Industry in the area is generally carried out on an extremelysmall scale --there are a few bottling plants producing for the area market and some small leather and woodworking companiesUnder the direction of the local SINAMOS office a DevelopmentProgram for 1977 and 1978 has been prepared calling for significantinvestment in small industry in an attempt to divert outmigrationinto productive activity within the Department Among investment possibilities SINAMOS has identified industrialization of alpacaand sheep fiber the development of small fishfarms and eventual production of smoked trout the manufacture of food dyes a small factory to produce fertilizers using mineral traces of the zoneand the development of a milk butter and cheese industry

7hese and other small industries would be carried out at thelevel of established associative enterprises in the zone At presshyent there is one SAIS in the area covering a physical extension of 83000 hectares with over 5000 members and some 10 productioncooperatives created as a result of the Agrarian Reform Vhe bulk of the rural population however remain in indigenous campesinocommunities or work individually-owned small plots of land

HUANUCO

1 Geography and Population

According to the 1972 Census the population of the Departmentof Huanuco was 414468 with 734 (304385) living in areas classified as rural The capital of the Department Huanuco isthe largest urban concentration with an estimated population of30000 inhabitants The majority of other urban dwellers are concenshytrated in mining camps and small commercially-oriented towns which

ANNEX V

provide services to transport traffic using the Lima to Pucallpa highway

The Department contains three distinct geographic zones -shythe high sierra in the eastern part of the Department the ceja de selva and finally the jungle on the western extreme bordering the Department of Loreto The ceja de selva or high jungle has long been signalled as an area of vast potential for Peru but up to the present physical infrastructure and needed financial reshysources have been lacking It is an area which offers potential in both agriculture and livestock expansion as well as small industries using the agricultural and mineral resources of the zone

The Lima-Pucallpa highway traverses much of the Department of Huanuco and while the increasing traffic between coast and jungle has put severe strains on the highway -- especially the La Oroya to Lima section which crosses over the high Andes -- it is noneshytheless possible to make the overland trip from the city of Huanuco to Lima in about 12 hours Additionally the secondary road network is fairly well developed a result of the many small mining ventures in the area which have built roads from their industrial complexes to the highway There is scheduled air traffic from Huanuco to Lima and Pucallpa

2 Economic Activity

The occupational breakdown of the Department of Huanuco according to the 1972 Census is as follows

Economic Activity Persons Employed of Total

Agriculture (farming livestock) 72711 707 Fishing 31 Mining 1542 15 Industry 5392 52 Utilities 53 01

2423Construction 24 Commerce banking 6060 59 Transport 1794 17 Services 8597 84 Other 4260 41 TOTAL 102863 1000

ANNEX V

Agriculture is characterized by minifundia (individually farmedplots averaging two to three hectares) and associative enterprisescreated as a result of the Agrarian Reform An Industrial Banksurvey found that 20 associative enterprises were currentlyfunctioning in the area -- mostly in the area below Huanuco in thehigh jungle The basic productive pattern has traditionally beengarden crops for home consumption and sale of surplus in areamarkets but recently the GOP has been promoting increased cultivashytion of soybeans and fruits which can be consumed fresh or processedfor the coastal or export market

Industry employs 52 of the Department work force The bulkof industry is located in and around the city of Huanuco and isbasically oriented towards the production of consumer goods Fewlinks exist between the agricultural and mining base of the areaand the industries which have grown up there

The Industrial Bank has identified a large number of potentialsub-projects in the area which would help to establish linkagesbetween agricultural and mining output and new industry -- theseinclude the manufacture of auto parts mechnical equipment metalworking a sausage processing plant and other livestock-related industries

Mining while only employing 15 of the economically activepopulation is nonetheless an extremely important activity fromthe national point of view Important zinc and lead deposits arefound in the higher sierra regions including the Milpo andAtacocha mining complexes located an hour above the city ofHuanuco Since capital intensive mine exploitation is practicedin the area there is little possibility that new employmentincome will be generated through increased mining activity

ANNEX VI

Fund Investment Potential In Additional

Sierra Departments

The following is a list of sub-project possibilities for Fund investment in the departments of Huanuco Apurimac and Huancavelica These sub-projects were identified in the course of two-day visits by Bank personnel to the Bank Offices on each department where they interviewed local Bank staff regional planning office personnel managers of associative enterprises and local entrepreneurs Prosshypective sub-borrower or promotors exist for each sub-project except as indicated

HUAhUCO

Sub-Project Activity Estimated Sub-Loan Size (In S1000)

Dairy Products 4000 Chicken Production 2000 Printing Industry 2000 Marketing of Pharmaceutical Products 4000 Gas Station 10000 Milk Processing Plant 4000 Sausage Processing Plant 10000 Auto Spare Parts 10000 Tourism 500 Brick Factory 1000 Saw Mill 2000 Swine Processing Plant 4500 Swine Processing Plant 4500 Industiial Parts Production 300 Livestock Production and Processing 3000 Metal-Working 8000 Hotel 2000 Carpentry Shop 500 Recreation Center 1000 Bakery 500 Rabbit Meat Processing 1000 Bread and Candy Shop 1500 Jewelry and Jewelry Repair Shop 2000 Photo Studio 600 Ice-Cream Shop 1000 Sea-Food Restaurant 285 Local Crafts 2000 Local Crafts 2000 Local Crafts 1000

ANNEX VI

Sub-Project Activity Estimated Sub-Loan Size (In So00)

Cattle Raisiny and related activities 500 Industrialization of Tubers 500 Dairy Processing Plaster Factory Hotel Grain Mill 1600 Meat Packing Center Hog Fattenin 9 Center Sausage Plant Rabbit Meat Processing Local Crafts Sla y hterhouse Leather Crafts Leather Crafts Dairy and Leather Industry

Cement Plant Grain ill Starch Processing and Dried Potato Plant Miscellaneous Supply Store Miscellaneous Supply Store Papaya Canning Plant Juice Cannery Cornstarch Production Dried Potato Prcduction Dairy Plant 2900 Tuber IndustryAseveral small plants on local scale) 72000 Leather and Shoe Shop 1000 Warehouses and Silos 12000 Slaughterhouse 16000 Balanced feed plant 10000 Coristruction liaterials 18000 Pig and Poultry Centers 7000 Fish Farm 10000 Cereal Industry 6000 Tourist Lodging Wiring and Silver Welding Marketing Centers

Local Crafts Non Traditional Crafts Packing Center Warehouse and Market Place Industry 5000 Mechanicamp Industry 3000 Reconstruction and Services Center 5000

AWEX VI

Shb-Project Activity Estimated Sub-Loan Size (In S1000)

Marketing 700 McX keting 500 Markcting 2000 Industry 1500 Marketing 2000 Farm 1000 Marketing 2000 Marketing 2000 Marketing 4000 Marketing 4000 Farm 1000 Marketing 2000 Industry 1000

Potato Industry Potato Industry

Idea stage only with no identified sub-borrower

Total Sub-loan investment in projects with cost estimates S278000000

($3978357 at S70 = USl)

APURIMLAC (Abancay province only)

Sub-Project Activity Estimated Sub-Loan Size (In S000)

Slaughterhouse 15000 Anisette production 2000 Honey processing 1500 Hostels (2 projects) 4500 Balanced feed plant 3000 Guinea pig farms (3 projects 2100 Pig farms (3 projects) 8000 Flour Mill 500 Chicken farm (3 projects) 1800 Brick factory 800 Plaster factories (2 projects) 1000 Leather tannery 2000 Dairy processing 1500 Beverages (2 projects) 3100 Straw bags 500 Perfume factory 500 Noodles factory 2000 Troat farm -1000 Sawnill 1500

ANNEX VI

Sub-Project Activity Estimated Sub-Loan Size

(In S000)

Metal Furniture Production 400 Spice Mill 300 Bikery 500 Restaurant 150 Ice Cream Factory 100 Candy Factory 100 Food retail 300 Silk processing 10000 Plaster factory 500 Brick factory 500 Flour Mill 500

Idea Stage only with no identified sub-borrower

Total Sub-Loan investment in projects with cost estimates S65650000

$ Y37857 at S70 = US$1)

HUANCAVELICA

Sub-Project Activity Estimated Sub-Loan Size

(In (S000)

Alpaca and Sheep wool processing 25000 Fish farms (5 projects) 15000 Leather Tannery Dairy processing Dye factory Tourist restaurant 500 Fertilizer plant Brick and tile factory 500 Sawmill 2000 Meat Conservation Fattening Centers

Idea stage only with no identified sub-borrower

Total Sub-Loan investment in projects with cost estimates S43000000

($ 614286 at S70 = USS1)

ANNEX VII

Projected Sub-loan Commitments of Additional PandCaital

The projections shown below are based on the Banks estimates of the additional departments capacity to absorb Fund credit as follows Apurimac - S80 million Cajamarca - S60 million Huanshycavelica - S60 million and Huanuco - S150 million totallingS350 million These estimates assume slightly higher sub-lendingfigures for Apurimac Cajamarca and Huancavelica than supported bythe Banks totals of potential sub-project investments in these departments in order to provide for additional investment in subshyprojects currently lacking cost estimates and in new sub-projectopportunities to be identified by contracted consultants

This schedule of sub-loan approvals reflects an initial start-up periodof low activity to allow for the hiring of promotors orientation of branch office staff promotion campaigns and the contracting of conshysultants for sub-project identification and study Assuming that the Mission receives authorization to proceed with the proposal to transfer funds and expand the Fund into these departments by March 1 and proshyviding for a start-up period of approximately three months full subshylending operations will begin by June

Projccted ub-Loan Coditrc--ts of 7(2-ional Fund Capital A1MEY VUl March l977

(in S - Jlv 1V8rlillicn)

___-euro - rr-C----- --- VIA S5 --)- J F M J F J I Apurimac so

Apz0 a02 I

I 15 9

49 54 54 6474 82 82 86 86 0 I j il

CaC3ra Gajama ra

I 0 4 2 5

-

3 4

I--I 4 5

~ 1 5

-

6 7

-

71 71

Huancavelica [ 02 1 04 1 1 16 1 6 2 2 5 3

I 4

I 4 5 j 5 67

67 71 71

llic 0 2 i3 3 6 1 10 F

12 13 13 15 16 16 17

__ 7 5--Z 7-7 77__ 3 7 214 124 264 304 366 376 398 378

ANNX VIII VA-c IjEc 0OJECT TITLE DATE Ifi1ORIGINAL jAPPROWOD

77ntermrisc - 1 Dvopaert 1677 REVISION V

977 CY 1978 CY 1979

- -4

4 4-- 0i w W r- v4

4 UsM

14I

0 12 24 36

LPOW

2cr--ato to extenrd $60 million of AID Loan

1 l a--s conitted by Industrial Bank

Inc Aure-r aion

Fcur promotors hird 2-2-

tc-Ln A-reeent 6

Full amount of -7 AID Loan fully disbursed

A= --d ed AID Loan cotmmitted

0-0Z S CRITICAL PERFORMANCE INDICATOR (CP NETWORK

COiTAY ROJECT NC PROjECT TiTLE DATE 527--057 Airal rnterprises I Develooment ORIGINALAppoAOVEOj1677 ORIIONAL

PRCjECT PuRPCSE (FROM PRP FACESHEET)

To irstitutionalize an integrated program of financial and technical assistance to assist existing and new rural enterprises

vl OEscRIPTION

Action Agent Action Date

AIDW 1 Authorization to extend terminal dates Jan 31 1975

AIDW 2 Loan Authorization Mar 15 1977 amended

USAIDGOP 3 Loan Agreement May 1i1977

amended

Industrial Bank 4 Four promotors hired June 15 1977

Industrial Bank 5 $60 million of AID Jan 3] 1978 Loan committed by Industrial Bank

Industrial Bank 6 Full amount of AID July 31 1978 Loan committed

Industrial Bank 7 AID Loan fully Jan 3] 1979 ORDEZA disbursed

AID 102036 (6-76) CRITICAL PERFORMANCE INDICATOR (CPI) DESCRIPTION

Memo to Project Committe Members - Loan 057 2-

With the exception of target 1 these are based entirely on the Banks own projections for sub-loan approvals during the period (see the attached tables) Target 1 however is considerably higher than the Banks-projection for August This single deviation is considered justified as a means to motivate the Bank to demonstrate immediate results moreover the projections for August are considered unduly low given past performance levels and the backlog of sub-loan applications

III Implementaticn Assignments

A Monitoring Targets and Evaluation of Performance

1 CAP to draft letter to Bank and to MEF formally establishing targets and proposing joint review of performance in mid-October by July 31

2 CAP to coordinate a working-level meeting of USAID Bank and MEF to review problems and actions programmed as follow-up to SAR and establishment of targets by August 31

3 CAP CON and AGR to travel as necessary to Branch offices to monitor sub-loan approvals and to compile data required for performance evaluation see III D

4 CAP and CON to prepare analysis of sub-lending progress and prospects based on July-September performance early October

5 Project Committee to review analysis and to prepare reconuaendashytions for the Director by mid-October

B Procuiement Matters

1 CAP and CON to review a minimum of four Loan-financed TA contracts between the Bank and consultants estjinated by August 31

2 CAP to meet with Bank Operations Department to finalize proshycedures for imported procurement by sub-borrowers as follow-up to preliminary meeting held on June 6 by August 31

3 CAP to meet with Bank implementation working-level staff on notification and procurenent regulations as follow-up to Implementation Letter No12 by August 31

C Financial Matters

1 The Bank to request USAID to issue disbursement to replenish Fund estimated by August 31

--

Memo To Project Committee Members - Loan 057 3shy

2 CON to follow-up with Bank regarding the failure of the Banks accounting to reflect Loan-financed TA expenditures

3 CAP to coordinate with Bank to normalize reporting of monthly

financial data

D Trips

Field trips to Branch offices by CAP CON and AGR staff will be scheduled for the following purposes

-- to consult when desirable or upon request by the Bank on specific project possibilities

-- to monitor the work of the consultant$

-- to compile dataon sub-lending performance

to monitor routine Branch office sub-loan identification study and approval procedures to assure compliance with Loan Agreement criteria

Given these objectives it is expected that the great proportionof Branch office visits will be made during late August and September once the consultants are in the field and the rate of review and approvalof sub-loan applications increases The Branch offices in Cuzco and Junin should each be visited twice during the period given the relatively greatersize of their operations Puno and Ayacucho have not been visited in over six months and should be visited at least once during the period A proposed schedule of visits and travel participants will be prepared in coordination with the Bank by mid-August

BEST AVAILABLE COPY - i

___

_______(i

I75 D

Past Su)-Leding ActivitY] Sub-Loan Avrova~jt (N l~crvnj kcout)

SeC0)

l1

c[ihurc-ent rov

9 74

ir 975-nJry 1977

-- O tl k

N D

c

i

j

$ N

XA

D

C

A

D

N A

D

4

420

5520j3f550

5 5345

1069

1

510

525

3 1075

165

28 1285

246

0

1340cI

40

5 4105

134

2 5P2Z60

760

3

I110 0

572

1796

375

531520

1194

6

2Afl300

7-49

2 ZOO

146

3395

449

3

330

120

22 520

211

3770

910

4

2570

765

5 7410

884

3750

1029

70

1 05

32 3

4

762

2069

233630

2074

29t~f99

2 2050

427

313-100

29

18585

535

9

510

739

1383959

569701

66

92 -

1 9Zgt z

7

4

5 6 3 2

13 1Z00

1650 1747

f

5568

600

50

8

I 35

381Z

P-31Z

21

333

6Z19

13

S4326

I

40 4670

3613

59

15635

8

P

o

0

N

A

3

19 1P60

233i

3 80

9

A

3 540

9141

13

3 2-10

5 470

110-

7

14 140

5

3 D

0-

6 14 7n 4 475 5

244 1 S

1021239 1

6

7

516

13 27

336-

2100

I 4

Z124

1

D 2701 716 1843 2337 71 3 3 i I 3 3 - 7466 1611SO 577

artial figure

Projected disbursement totls r c-c1)c inot availablk poundoi Cuzo and JUllill Pa2iCft-shy

Iox Lr 1j7S-3jnLary 177

6

7023

A-

31

s

1

O

13

o200 I

[__ _ _ _

N

35 3812

_ _ _ _D

D

40 6 1

TOTAL

311 33916

77

7000

029 1 3-12 3613 23850

05

23

-419

2Zq

412 19 19

6 55610 55 8 I 3 I 59_

v]635 i 2578Z 8 i 15000

Z600 62 19 g45 80

762 2io~o 1o I 10 4

I 1 914

8 28690

76 66185 25000

3 427____ 739_6 14 6 11000 4749 ___ 19471

Z00 I70 4475

- - _12

-7 16- 17

13 8 7 i

-i 8c) - I04

7

-

-12

I Z

13 S814

- 2 f

177 12 39

680 746

2 0 0

0118450

i

2

s5

42

12 4

0

73737

16

2669

16 64 7

19 510 4 1

0 14

000

-shyjshy5 o

c iol C uzo und Jun~in P- f fcent

AN=E xII

P-ojeacto Sub-Lozin Cc rnitmcnts of Dalance of Original Fund Caital

February 1977 - January 1978

(S million)

F M A 1 J J A S 0 N D J T TAL

A y A C 7 9 9 7 6 6 6 5 4 3 2 2 66 U C

H 0

C u K Z 17 13 13 12 11 Ii 10 10 8 7 5 4 121 C

0

J

N 16 16 15 11 11 10 9 8 8 6 5 4 119

p

U 0 9 6 5 4 483 1 12 56

0 50

__ 47 43 35 33 31 29 T27 231

Enterprise

CAP Zanja

SAIS 3 de Octubre

Comunidad Cabana

Comunidad Conchucos

SAIS Revoluci6n

SAIS Vallejo

SAIS San I-artin

CAS Pariacoto

ANNTEX IV

Sub-Projects Prepared By ORDEZA For Loan Financing

Activitv Sub-Loan Size Status

(in SMillion)

Livestock 30 Approved by USAID

to 105 of i of

of 59 USAID approval pending TDD Extension

to 80

217 Submitted 1230 under USAID review 138

94

Balanced feed plant 220 Submission expected in 177

TOTAL INVEST NT 943

Cox-itted to approved sub-projects 135

pending cornunitment 8O -8

ANNEX V

Summary Description of Additional Sierra Departments

APURIMAC

1 iGeography and Population

The 1972 Census gave the population of the Department of Apurimac as 308613 of which 756 (233525) lived in areas classified as rural

The principal city of the Department is Abancay with a populashytion estimated at 12000 inhabitants the next largest urban center is Andahuaylas with a population of approximately 2000 in the city itself and serving an extensive rural population The majority of Department inhabitants live in dispersedrural areas or in small urban concentrations of 250 inhabitants or less

Over 90 of the Department is classified as sierra with a small portion of the eastern area sloping down to the high jungle area bordering on the Apurimac River (a tributary of the Amazon) Commushynications networks are extremely deficient with one major road connectshying Abancay with Huancayo and Cuzco (the trip from Huancayo to Cuzco using this route is approximately 50 hours)

2 Economic Activity

The 1972 Census gives the following breakdown of occupationalcategories for the Department of Apurimac

Economic Activity Persons Employed of Total

Agriculture (farming and livestock) 55467 780

Fishing 5

Mining 112 01

Industry 3803 53

Utilities 89 01

Construction 904 13

Commerce (inc banking) 2460 35

Transport 559 08

Services 5267 74

Other 2523 35 TOTAL 71189 1000

ANNEX V

Agriculture as carried out in the Department is practically entirely of a subsistance nature with little surplus sold to regional markets Very few associative enterprises operate in the zone since

there were few privately-owned haciendas in the area prior to the

Agrarian Reform and those few associative enterprises which have been

created are almost exclusively service cooperatives which group together private landholders in order to achieve economies of scale in

the purchasing of agro-inputs and marketing of whatever surplus is

produced Seven such service cooperatives have been identified and several have shown interest in possible investments in small industries

What little industry exists is of the home-industry variety -- small

producers of leather candies and breads and bottled soft drinks The

major non-farm activity in the area is the service sector which has

grown up as a result of the increasing road traffic between Cuzco and

the coast -- small family-operated restaurants and boarding houses

auto mechanics shops and similar services which are offered to truckers

busses and individuals making the overland journey

The economic potential of the zone is not particularly bright given problems of extremely high altitude poor soil conditions lack of mineral resources and a lack of internal savings which is considered

to be the lowest in the country Nonetheless the Industrial Bank has identified a series of small enterprise possibilities which should help

to alleviate the conditions of extreme rural poverty which prevail in the

area These include the production of livestock (cuy swine chickens) and related activities (slaughterhouses production of milk and cheese

balanced feed mills) which are particularly appropriate to the Andashy

huaylas area which is geographically located at a lower altitude than

most of the Department The introduction of fish farming in higher

sierra areas is aJso considered to be a potentially profitable venture

along with a re-introduction of the silk industry (which at one time

was a highly profitable industry ineigenous to the region) and creashy

tion of small service industries xestaurants and commercial entershy

prises

CAJAMARCA

1 Geography and Population

The 1972 Census gives the population of the Department of Cajamarca

as 919161 making it the most populous of Perus predominantly sierra

departments Of this total 759095 (83) are classified as living in

rural areas The major city Cajamarca is located in more or less the

geographic center of the Department and has an estimated population of

32000 following the city of Cajamarca in size and importance are Cajabamba and Chota with populations of about 6000 inhabitants each

- -

ANNEXV

The rest of the population living in areas classified as urban are generally found in small communitie3 primarily agricultural in orientation of 500 persons or less

The geography of the Department is characteristic of the northern Sierra -- broad river-fed valleys interspersed among peaks ranging up to 18000 feet above sea level Transportation routes within the Department are relatively well developed An all-weather road connects the city of Cajamarca with the Pan American highway on the coast and trucks and busses can easily make the journey from Cajamarca to the important coastal cities of Chiclayo and Trujillo in seven hours Cajamarca is also connected to Chiclayo Trujillo and Lima by air service From Cajamarca to other interior points of the Departmenthowever road travel is difficult and while roads are passable during9 or 10 months of the year passage is difficult and vehicle maintenance costs are extremely high

2 Economic Activity

According to the Census the economically active population of the Department is broken down as follows

Economic Activity Persons Employed of Total

Agriculture (farming livestock) 172998 760

Fishing 34

Mining 1061 06

Industry 20842 91

Utilities 92 01

Construction 2591 11

Commerce banking 6865 30

Transport 1670 07

Services 13703 60

Others 7821 34

TOTIL 227677 1000

Agriculture the predominant economic activity is characterized by extremely low levels of technology relying on primitive agriculshytural techniques which -- when combined with the small amount of land available per farm family -- results in very little surplus available for sale after immediate family requirements are met The scarcity

ANNEX V

of all-weather roads and great distances which separate the widely scattered productive valleys contribute to continued low level of production and inadequate dissemination of GOP provided technical assistance through Agrarian Zonal offices and the Agrarian Bank The Agrarian Reform has been active in the -=ea and over 50 of land has been adjudicated in the form of indigerous campesino comshymunities agrarian production cooperatives and individual title to small farms The bulk of farms fall into the latter category and it has been estimated that 98 of the physical extension of the Department is currently farmed in land holdings fallirg between 5 and 25 hectares

91 of the economically active population is engaged in small industry -- chiefly activities associated with dairy farming (Perulac an affiliate of Nestle operates an evaporated milk factory in the city of Cajamarca and there are many small producers of cheese in the central part of the Department) There is additionally a growing market for artisan goods produced in the Cajamarca area although this is not yet an important source of incomeemployment

The service industry of the Department is centered around the growshying importance of Cajamarca as a tourist center While tourist facilishyties are deficient (there is one State-run hotel catering almost exshyclusively to foreign visitors) the GOP has plans to upgrade existing facilities and give incentives to private interests to invest in tourism

The totirist potential of the area combined with Cajamarcas natural advantage for the exploitation of its dairy industry make the area attractive to potential investors Cajamarca cheeses are highly valued throughout Peru but since they are produced on a very small scale they rarely find their way to potential markets on the coast Manjarblanco another mouth-watering treat favored by travellers to the area is another dairy-related industry which could be expanded with ready markets on the coast

ANNEX V

HUANCAVELICA

1 Geography and Population

The population of the Department of Huancavelica in 1972 was331629 of which 76 (252001) were classified as living in ruralareas There is only one significant urban area the city ofHuancavelica with a population of approximately 15000 The restof the population is highly dispersed with little social oreconomic access to the Departmental capital Of the 24 of thepopulation living in areas which the Census classified as urbanthe vast majority live in population centers of less than 500 inhabitants

The Department is classified as Sierra with a small portionto the west sloping down to the coast The topography is ruggedthere are few all-weather transitable roads and there is a raillink with Huancayo in the adjacent Department of Junin

2 Economic Activity

The 1972 Census gives the following occupational breakdown bycategory of employment

Economic Activity Persons Employed of Total

Agriculture (farminglivestock) 55979 703Fishing 4Mining 4236 53Manufacturing 3875 48Utilities 226 02Construction Commerce (inc banking)

3142 39 3625 45Transport 665 08Services 4427 55Others 3773 47

TOTAL 79952 1000

With over 70 of the active labor force engaged in agriculturethe areas economy is based on the production of high-altitudefoodstuffs (potatoes yuca corn etc) and the GOP has been givingpriority to developing sheep ranching and building up alpaca andllama herds The soil conditions are extremely poor there islittle attention given to crop rotation or experimentation withimproved seeds and population pressures on the land are among the

ANNEX V

most extreme in Peru (an estimated 07 hectares of arable land perfam family) As a result of these factors production has droppedin absolute terms during the past ten years and more and morefarm families are being forced to leave the land The problem reshymains however that there are few off-farm jobs available in the area forcing outmigration to adjacent cities such as Huancayo in the Sierra and Ica on the coast or to Lima Mining in Huancavelica continues to be an important source of revenue but the capitalintensive mines of CentroMin in the area can only absorb a handful of new laborers every year -- and most of these are the sons of miners who have worked previously with the companies The famous mercury mines of Santa Barbara and Huancavelica discovered duringthe colonial period at one time enployed almost the entire adultpopulation of the area but are now depleted or uneconomical

Industry in the area is generally carried out on an extremelysmall scale --there are a few bottling plants producing for the area market and some small leather and woodworking companiesUnder the direction of the local SINAMOS office a DevelopmentProgram for 1977 and 1978 has been prepared calling for significantinvestment in small industry in an attempt to divert outmigrationinto productive activity within the Department Among investment possibilities SINAMOS has identified industrialization of alpacaand sheep fiber the development of small fishfarms and eventual production of smoked trout the manufacture of food dyes a small factory to produce fertilizers using mineral traces of the zoneand the development of a milk butter and cheese industry

7hese and other small industries would be carried out at thelevel of established associative enterprises in the zone At presshyent there is one SAIS in the area covering a physical extension of 83000 hectares with over 5000 members and some 10 productioncooperatives created as a result of the Agrarian Reform Vhe bulk of the rural population however remain in indigenous campesinocommunities or work individually-owned small plots of land

HUANUCO

1 Geography and Population

According to the 1972 Census the population of the Departmentof Huanuco was 414468 with 734 (304385) living in areas classified as rural The capital of the Department Huanuco isthe largest urban concentration with an estimated population of30000 inhabitants The majority of other urban dwellers are concenshytrated in mining camps and small commercially-oriented towns which

ANNEX V

provide services to transport traffic using the Lima to Pucallpa highway

The Department contains three distinct geographic zones -shythe high sierra in the eastern part of the Department the ceja de selva and finally the jungle on the western extreme bordering the Department of Loreto The ceja de selva or high jungle has long been signalled as an area of vast potential for Peru but up to the present physical infrastructure and needed financial reshysources have been lacking It is an area which offers potential in both agriculture and livestock expansion as well as small industries using the agricultural and mineral resources of the zone

The Lima-Pucallpa highway traverses much of the Department of Huanuco and while the increasing traffic between coast and jungle has put severe strains on the highway -- especially the La Oroya to Lima section which crosses over the high Andes -- it is noneshytheless possible to make the overland trip from the city of Huanuco to Lima in about 12 hours Additionally the secondary road network is fairly well developed a result of the many small mining ventures in the area which have built roads from their industrial complexes to the highway There is scheduled air traffic from Huanuco to Lima and Pucallpa

2 Economic Activity

The occupational breakdown of the Department of Huanuco according to the 1972 Census is as follows

Economic Activity Persons Employed of Total

Agriculture (farming livestock) 72711 707 Fishing 31 Mining 1542 15 Industry 5392 52 Utilities 53 01

2423Construction 24 Commerce banking 6060 59 Transport 1794 17 Services 8597 84 Other 4260 41 TOTAL 102863 1000

ANNEX V

Agriculture is characterized by minifundia (individually farmedplots averaging two to three hectares) and associative enterprisescreated as a result of the Agrarian Reform An Industrial Banksurvey found that 20 associative enterprises were currentlyfunctioning in the area -- mostly in the area below Huanuco in thehigh jungle The basic productive pattern has traditionally beengarden crops for home consumption and sale of surplus in areamarkets but recently the GOP has been promoting increased cultivashytion of soybeans and fruits which can be consumed fresh or processedfor the coastal or export market

Industry employs 52 of the Department work force The bulkof industry is located in and around the city of Huanuco and isbasically oriented towards the production of consumer goods Fewlinks exist between the agricultural and mining base of the areaand the industries which have grown up there

The Industrial Bank has identified a large number of potentialsub-projects in the area which would help to establish linkagesbetween agricultural and mining output and new industry -- theseinclude the manufacture of auto parts mechnical equipment metalworking a sausage processing plant and other livestock-related industries

Mining while only employing 15 of the economically activepopulation is nonetheless an extremely important activity fromthe national point of view Important zinc and lead deposits arefound in the higher sierra regions including the Milpo andAtacocha mining complexes located an hour above the city ofHuanuco Since capital intensive mine exploitation is practicedin the area there is little possibility that new employmentincome will be generated through increased mining activity

ANNEX VI

Fund Investment Potential In Additional

Sierra Departments

The following is a list of sub-project possibilities for Fund investment in the departments of Huanuco Apurimac and Huancavelica These sub-projects were identified in the course of two-day visits by Bank personnel to the Bank Offices on each department where they interviewed local Bank staff regional planning office personnel managers of associative enterprises and local entrepreneurs Prosshypective sub-borrower or promotors exist for each sub-project except as indicated

HUAhUCO

Sub-Project Activity Estimated Sub-Loan Size (In S1000)

Dairy Products 4000 Chicken Production 2000 Printing Industry 2000 Marketing of Pharmaceutical Products 4000 Gas Station 10000 Milk Processing Plant 4000 Sausage Processing Plant 10000 Auto Spare Parts 10000 Tourism 500 Brick Factory 1000 Saw Mill 2000 Swine Processing Plant 4500 Swine Processing Plant 4500 Industiial Parts Production 300 Livestock Production and Processing 3000 Metal-Working 8000 Hotel 2000 Carpentry Shop 500 Recreation Center 1000 Bakery 500 Rabbit Meat Processing 1000 Bread and Candy Shop 1500 Jewelry and Jewelry Repair Shop 2000 Photo Studio 600 Ice-Cream Shop 1000 Sea-Food Restaurant 285 Local Crafts 2000 Local Crafts 2000 Local Crafts 1000

ANNEX VI

Sub-Project Activity Estimated Sub-Loan Size (In So00)

Cattle Raisiny and related activities 500 Industrialization of Tubers 500 Dairy Processing Plaster Factory Hotel Grain Mill 1600 Meat Packing Center Hog Fattenin 9 Center Sausage Plant Rabbit Meat Processing Local Crafts Sla y hterhouse Leather Crafts Leather Crafts Dairy and Leather Industry

Cement Plant Grain ill Starch Processing and Dried Potato Plant Miscellaneous Supply Store Miscellaneous Supply Store Papaya Canning Plant Juice Cannery Cornstarch Production Dried Potato Prcduction Dairy Plant 2900 Tuber IndustryAseveral small plants on local scale) 72000 Leather and Shoe Shop 1000 Warehouses and Silos 12000 Slaughterhouse 16000 Balanced feed plant 10000 Coristruction liaterials 18000 Pig and Poultry Centers 7000 Fish Farm 10000 Cereal Industry 6000 Tourist Lodging Wiring and Silver Welding Marketing Centers

Local Crafts Non Traditional Crafts Packing Center Warehouse and Market Place Industry 5000 Mechanicamp Industry 3000 Reconstruction and Services Center 5000

AWEX VI

Shb-Project Activity Estimated Sub-Loan Size (In S1000)

Marketing 700 McX keting 500 Markcting 2000 Industry 1500 Marketing 2000 Farm 1000 Marketing 2000 Marketing 2000 Marketing 4000 Marketing 4000 Farm 1000 Marketing 2000 Industry 1000

Potato Industry Potato Industry

Idea stage only with no identified sub-borrower

Total Sub-loan investment in projects with cost estimates S278000000

($3978357 at S70 = USl)

APURIMLAC (Abancay province only)

Sub-Project Activity Estimated Sub-Loan Size (In S000)

Slaughterhouse 15000 Anisette production 2000 Honey processing 1500 Hostels (2 projects) 4500 Balanced feed plant 3000 Guinea pig farms (3 projects 2100 Pig farms (3 projects) 8000 Flour Mill 500 Chicken farm (3 projects) 1800 Brick factory 800 Plaster factories (2 projects) 1000 Leather tannery 2000 Dairy processing 1500 Beverages (2 projects) 3100 Straw bags 500 Perfume factory 500 Noodles factory 2000 Troat farm -1000 Sawnill 1500

ANNEX VI

Sub-Project Activity Estimated Sub-Loan Size

(In S000)

Metal Furniture Production 400 Spice Mill 300 Bikery 500 Restaurant 150 Ice Cream Factory 100 Candy Factory 100 Food retail 300 Silk processing 10000 Plaster factory 500 Brick factory 500 Flour Mill 500

Idea Stage only with no identified sub-borrower

Total Sub-Loan investment in projects with cost estimates S65650000

$ Y37857 at S70 = US$1)

HUANCAVELICA

Sub-Project Activity Estimated Sub-Loan Size

(In (S000)

Alpaca and Sheep wool processing 25000 Fish farms (5 projects) 15000 Leather Tannery Dairy processing Dye factory Tourist restaurant 500 Fertilizer plant Brick and tile factory 500 Sawmill 2000 Meat Conservation Fattening Centers

Idea stage only with no identified sub-borrower

Total Sub-Loan investment in projects with cost estimates S43000000

($ 614286 at S70 = USS1)

ANNEX VII

Projected Sub-loan Commitments of Additional PandCaital

The projections shown below are based on the Banks estimates of the additional departments capacity to absorb Fund credit as follows Apurimac - S80 million Cajamarca - S60 million Huanshycavelica - S60 million and Huanuco - S150 million totallingS350 million These estimates assume slightly higher sub-lendingfigures for Apurimac Cajamarca and Huancavelica than supported bythe Banks totals of potential sub-project investments in these departments in order to provide for additional investment in subshyprojects currently lacking cost estimates and in new sub-projectopportunities to be identified by contracted consultants

This schedule of sub-loan approvals reflects an initial start-up periodof low activity to allow for the hiring of promotors orientation of branch office staff promotion campaigns and the contracting of conshysultants for sub-project identification and study Assuming that the Mission receives authorization to proceed with the proposal to transfer funds and expand the Fund into these departments by March 1 and proshyviding for a start-up period of approximately three months full subshylending operations will begin by June

Projccted ub-Loan Coditrc--ts of 7(2-ional Fund Capital A1MEY VUl March l977

(in S - Jlv 1V8rlillicn)

___-euro - rr-C----- --- VIA S5 --)- J F M J F J I Apurimac so

Apz0 a02 I

I 15 9

49 54 54 6474 82 82 86 86 0 I j il

CaC3ra Gajama ra

I 0 4 2 5

-

3 4

I--I 4 5

~ 1 5

-

6 7

-

71 71

Huancavelica [ 02 1 04 1 1 16 1 6 2 2 5 3

I 4

I 4 5 j 5 67

67 71 71

llic 0 2 i3 3 6 1 10 F

12 13 13 15 16 16 17

__ 7 5--Z 7-7 77__ 3 7 214 124 264 304 366 376 398 378

ANNX VIII VA-c IjEc 0OJECT TITLE DATE Ifi1ORIGINAL jAPPROWOD

77ntermrisc - 1 Dvopaert 1677 REVISION V

977 CY 1978 CY 1979

- -4

4 4-- 0i w W r- v4

4 UsM

14I

0 12 24 36

LPOW

2cr--ato to extenrd $60 million of AID Loan

1 l a--s conitted by Industrial Bank

Inc Aure-r aion

Fcur promotors hird 2-2-

tc-Ln A-reeent 6

Full amount of -7 AID Loan fully disbursed

A= --d ed AID Loan cotmmitted

0-0Z S CRITICAL PERFORMANCE INDICATOR (CP NETWORK

COiTAY ROJECT NC PROjECT TiTLE DATE 527--057 Airal rnterprises I Develooment ORIGINALAppoAOVEOj1677 ORIIONAL

PRCjECT PuRPCSE (FROM PRP FACESHEET)

To irstitutionalize an integrated program of financial and technical assistance to assist existing and new rural enterprises

vl OEscRIPTION

Action Agent Action Date

AIDW 1 Authorization to extend terminal dates Jan 31 1975

AIDW 2 Loan Authorization Mar 15 1977 amended

USAIDGOP 3 Loan Agreement May 1i1977

amended

Industrial Bank 4 Four promotors hired June 15 1977

Industrial Bank 5 $60 million of AID Jan 3] 1978 Loan committed by Industrial Bank

Industrial Bank 6 Full amount of AID July 31 1978 Loan committed

Industrial Bank 7 AID Loan fully Jan 3] 1979 ORDEZA disbursed

AID 102036 (6-76) CRITICAL PERFORMANCE INDICATOR (CPI) DESCRIPTION

--

Memo To Project Committee Members - Loan 057 3shy

2 CON to follow-up with Bank regarding the failure of the Banks accounting to reflect Loan-financed TA expenditures

3 CAP to coordinate with Bank to normalize reporting of monthly

financial data

D Trips

Field trips to Branch offices by CAP CON and AGR staff will be scheduled for the following purposes

-- to consult when desirable or upon request by the Bank on specific project possibilities

-- to monitor the work of the consultant$

-- to compile dataon sub-lending performance

to monitor routine Branch office sub-loan identification study and approval procedures to assure compliance with Loan Agreement criteria

Given these objectives it is expected that the great proportionof Branch office visits will be made during late August and September once the consultants are in the field and the rate of review and approvalof sub-loan applications increases The Branch offices in Cuzco and Junin should each be visited twice during the period given the relatively greatersize of their operations Puno and Ayacucho have not been visited in over six months and should be visited at least once during the period A proposed schedule of visits and travel participants will be prepared in coordination with the Bank by mid-August

BEST AVAILABLE COPY - i

___

_______(i

I75 D

Past Su)-Leding ActivitY] Sub-Loan Avrova~jt (N l~crvnj kcout)

SeC0)

l1

c[ihurc-ent rov

9 74

ir 975-nJry 1977

-- O tl k

N D

c

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$ N

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D

C

A

D

N A

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4

420

5520j3f550

5 5345

1069

1

510

525

3 1075

165

28 1285

246

0

1340cI

40

5 4105

134

2 5P2Z60

760

3

I110 0

572

1796

375

531520

1194

6

2Afl300

7-49

2 ZOO

146

3395

449

3

330

120

22 520

211

3770

910

4

2570

765

5 7410

884

3750

1029

70

1 05

32 3

4

762

2069

233630

2074

29t~f99

2 2050

427

313-100

29

18585

535

9

510

739

1383959

569701

66

92 -

1 9Zgt z

7

4

5 6 3 2

13 1Z00

1650 1747

f

5568

600

50

8

I 35

381Z

P-31Z

21

333

6Z19

13

S4326

I

40 4670

3613

59

15635

8

P

o

0

N

A

3

19 1P60

233i

3 80

9

A

3 540

9141

13

3 2-10

5 470

110-

7

14 140

5

3 D

0-

6 14 7n 4 475 5

244 1 S

1021239 1

6

7

516

13 27

336-

2100

I 4

Z124

1

D 2701 716 1843 2337 71 3 3 i I 3 3 - 7466 1611SO 577

artial figure

Projected disbursement totls r c-c1)c inot availablk poundoi Cuzo and JUllill Pa2iCft-shy

Iox Lr 1j7S-3jnLary 177

6

7023

A-

31

s

1

O

13

o200 I

[__ _ _ _

N

35 3812

_ _ _ _D

D

40 6 1

TOTAL

311 33916

77

7000

029 1 3-12 3613 23850

05

23

-419

2Zq

412 19 19

6 55610 55 8 I 3 I 59_

v]635 i 2578Z 8 i 15000

Z600 62 19 g45 80

762 2io~o 1o I 10 4

I 1 914

8 28690

76 66185 25000

3 427____ 739_6 14 6 11000 4749 ___ 19471

Z00 I70 4475

- - _12

-7 16- 17

13 8 7 i

-i 8c) - I04

7

-

-12

I Z

13 S814

- 2 f

177 12 39

680 746

2 0 0

0118450

i

2

s5

42

12 4

0

73737

16

2669

16 64 7

19 510 4 1

0 14

000

-shyjshy5 o

c iol C uzo und Jun~in P- f fcent

AN=E xII

P-ojeacto Sub-Lozin Cc rnitmcnts of Dalance of Original Fund Caital

February 1977 - January 1978

(S million)

F M A 1 J J A S 0 N D J T TAL

A y A C 7 9 9 7 6 6 6 5 4 3 2 2 66 U C

H 0

C u K Z 17 13 13 12 11 Ii 10 10 8 7 5 4 121 C

0

J

N 16 16 15 11 11 10 9 8 8 6 5 4 119

p

U 0 9 6 5 4 483 1 12 56

0 50

__ 47 43 35 33 31 29 T27 231

Enterprise

CAP Zanja

SAIS 3 de Octubre

Comunidad Cabana

Comunidad Conchucos

SAIS Revoluci6n

SAIS Vallejo

SAIS San I-artin

CAS Pariacoto

ANNTEX IV

Sub-Projects Prepared By ORDEZA For Loan Financing

Activitv Sub-Loan Size Status

(in SMillion)

Livestock 30 Approved by USAID

to 105 of i of

of 59 USAID approval pending TDD Extension

to 80

217 Submitted 1230 under USAID review 138

94

Balanced feed plant 220 Submission expected in 177

TOTAL INVEST NT 943

Cox-itted to approved sub-projects 135

pending cornunitment 8O -8

ANNEX V

Summary Description of Additional Sierra Departments

APURIMAC

1 iGeography and Population

The 1972 Census gave the population of the Department of Apurimac as 308613 of which 756 (233525) lived in areas classified as rural

The principal city of the Department is Abancay with a populashytion estimated at 12000 inhabitants the next largest urban center is Andahuaylas with a population of approximately 2000 in the city itself and serving an extensive rural population The majority of Department inhabitants live in dispersedrural areas or in small urban concentrations of 250 inhabitants or less

Over 90 of the Department is classified as sierra with a small portion of the eastern area sloping down to the high jungle area bordering on the Apurimac River (a tributary of the Amazon) Commushynications networks are extremely deficient with one major road connectshying Abancay with Huancayo and Cuzco (the trip from Huancayo to Cuzco using this route is approximately 50 hours)

2 Economic Activity

The 1972 Census gives the following breakdown of occupationalcategories for the Department of Apurimac

Economic Activity Persons Employed of Total

Agriculture (farming and livestock) 55467 780

Fishing 5

Mining 112 01

Industry 3803 53

Utilities 89 01

Construction 904 13

Commerce (inc banking) 2460 35

Transport 559 08

Services 5267 74

Other 2523 35 TOTAL 71189 1000

ANNEX V

Agriculture as carried out in the Department is practically entirely of a subsistance nature with little surplus sold to regional markets Very few associative enterprises operate in the zone since

there were few privately-owned haciendas in the area prior to the

Agrarian Reform and those few associative enterprises which have been

created are almost exclusively service cooperatives which group together private landholders in order to achieve economies of scale in

the purchasing of agro-inputs and marketing of whatever surplus is

produced Seven such service cooperatives have been identified and several have shown interest in possible investments in small industries

What little industry exists is of the home-industry variety -- small

producers of leather candies and breads and bottled soft drinks The

major non-farm activity in the area is the service sector which has

grown up as a result of the increasing road traffic between Cuzco and

the coast -- small family-operated restaurants and boarding houses

auto mechanics shops and similar services which are offered to truckers

busses and individuals making the overland journey

The economic potential of the zone is not particularly bright given problems of extremely high altitude poor soil conditions lack of mineral resources and a lack of internal savings which is considered

to be the lowest in the country Nonetheless the Industrial Bank has identified a series of small enterprise possibilities which should help

to alleviate the conditions of extreme rural poverty which prevail in the

area These include the production of livestock (cuy swine chickens) and related activities (slaughterhouses production of milk and cheese

balanced feed mills) which are particularly appropriate to the Andashy

huaylas area which is geographically located at a lower altitude than

most of the Department The introduction of fish farming in higher

sierra areas is aJso considered to be a potentially profitable venture

along with a re-introduction of the silk industry (which at one time

was a highly profitable industry ineigenous to the region) and creashy

tion of small service industries xestaurants and commercial entershy

prises

CAJAMARCA

1 Geography and Population

The 1972 Census gives the population of the Department of Cajamarca

as 919161 making it the most populous of Perus predominantly sierra

departments Of this total 759095 (83) are classified as living in

rural areas The major city Cajamarca is located in more or less the

geographic center of the Department and has an estimated population of

32000 following the city of Cajamarca in size and importance are Cajabamba and Chota with populations of about 6000 inhabitants each

- -

ANNEXV

The rest of the population living in areas classified as urban are generally found in small communitie3 primarily agricultural in orientation of 500 persons or less

The geography of the Department is characteristic of the northern Sierra -- broad river-fed valleys interspersed among peaks ranging up to 18000 feet above sea level Transportation routes within the Department are relatively well developed An all-weather road connects the city of Cajamarca with the Pan American highway on the coast and trucks and busses can easily make the journey from Cajamarca to the important coastal cities of Chiclayo and Trujillo in seven hours Cajamarca is also connected to Chiclayo Trujillo and Lima by air service From Cajamarca to other interior points of the Departmenthowever road travel is difficult and while roads are passable during9 or 10 months of the year passage is difficult and vehicle maintenance costs are extremely high

2 Economic Activity

According to the Census the economically active population of the Department is broken down as follows

Economic Activity Persons Employed of Total

Agriculture (farming livestock) 172998 760

Fishing 34

Mining 1061 06

Industry 20842 91

Utilities 92 01

Construction 2591 11

Commerce banking 6865 30

Transport 1670 07

Services 13703 60

Others 7821 34

TOTIL 227677 1000

Agriculture the predominant economic activity is characterized by extremely low levels of technology relying on primitive agriculshytural techniques which -- when combined with the small amount of land available per farm family -- results in very little surplus available for sale after immediate family requirements are met The scarcity

ANNEX V

of all-weather roads and great distances which separate the widely scattered productive valleys contribute to continued low level of production and inadequate dissemination of GOP provided technical assistance through Agrarian Zonal offices and the Agrarian Bank The Agrarian Reform has been active in the -=ea and over 50 of land has been adjudicated in the form of indigerous campesino comshymunities agrarian production cooperatives and individual title to small farms The bulk of farms fall into the latter category and it has been estimated that 98 of the physical extension of the Department is currently farmed in land holdings fallirg between 5 and 25 hectares

91 of the economically active population is engaged in small industry -- chiefly activities associated with dairy farming (Perulac an affiliate of Nestle operates an evaporated milk factory in the city of Cajamarca and there are many small producers of cheese in the central part of the Department) There is additionally a growing market for artisan goods produced in the Cajamarca area although this is not yet an important source of incomeemployment

The service industry of the Department is centered around the growshying importance of Cajamarca as a tourist center While tourist facilishyties are deficient (there is one State-run hotel catering almost exshyclusively to foreign visitors) the GOP has plans to upgrade existing facilities and give incentives to private interests to invest in tourism

The totirist potential of the area combined with Cajamarcas natural advantage for the exploitation of its dairy industry make the area attractive to potential investors Cajamarca cheeses are highly valued throughout Peru but since they are produced on a very small scale they rarely find their way to potential markets on the coast Manjarblanco another mouth-watering treat favored by travellers to the area is another dairy-related industry which could be expanded with ready markets on the coast

ANNEX V

HUANCAVELICA

1 Geography and Population

The population of the Department of Huancavelica in 1972 was331629 of which 76 (252001) were classified as living in ruralareas There is only one significant urban area the city ofHuancavelica with a population of approximately 15000 The restof the population is highly dispersed with little social oreconomic access to the Departmental capital Of the 24 of thepopulation living in areas which the Census classified as urbanthe vast majority live in population centers of less than 500 inhabitants

The Department is classified as Sierra with a small portionto the west sloping down to the coast The topography is ruggedthere are few all-weather transitable roads and there is a raillink with Huancayo in the adjacent Department of Junin

2 Economic Activity

The 1972 Census gives the following occupational breakdown bycategory of employment

Economic Activity Persons Employed of Total

Agriculture (farminglivestock) 55979 703Fishing 4Mining 4236 53Manufacturing 3875 48Utilities 226 02Construction Commerce (inc banking)

3142 39 3625 45Transport 665 08Services 4427 55Others 3773 47

TOTAL 79952 1000

With over 70 of the active labor force engaged in agriculturethe areas economy is based on the production of high-altitudefoodstuffs (potatoes yuca corn etc) and the GOP has been givingpriority to developing sheep ranching and building up alpaca andllama herds The soil conditions are extremely poor there islittle attention given to crop rotation or experimentation withimproved seeds and population pressures on the land are among the

ANNEX V

most extreme in Peru (an estimated 07 hectares of arable land perfam family) As a result of these factors production has droppedin absolute terms during the past ten years and more and morefarm families are being forced to leave the land The problem reshymains however that there are few off-farm jobs available in the area forcing outmigration to adjacent cities such as Huancayo in the Sierra and Ica on the coast or to Lima Mining in Huancavelica continues to be an important source of revenue but the capitalintensive mines of CentroMin in the area can only absorb a handful of new laborers every year -- and most of these are the sons of miners who have worked previously with the companies The famous mercury mines of Santa Barbara and Huancavelica discovered duringthe colonial period at one time enployed almost the entire adultpopulation of the area but are now depleted or uneconomical

Industry in the area is generally carried out on an extremelysmall scale --there are a few bottling plants producing for the area market and some small leather and woodworking companiesUnder the direction of the local SINAMOS office a DevelopmentProgram for 1977 and 1978 has been prepared calling for significantinvestment in small industry in an attempt to divert outmigrationinto productive activity within the Department Among investment possibilities SINAMOS has identified industrialization of alpacaand sheep fiber the development of small fishfarms and eventual production of smoked trout the manufacture of food dyes a small factory to produce fertilizers using mineral traces of the zoneand the development of a milk butter and cheese industry

7hese and other small industries would be carried out at thelevel of established associative enterprises in the zone At presshyent there is one SAIS in the area covering a physical extension of 83000 hectares with over 5000 members and some 10 productioncooperatives created as a result of the Agrarian Reform Vhe bulk of the rural population however remain in indigenous campesinocommunities or work individually-owned small plots of land

HUANUCO

1 Geography and Population

According to the 1972 Census the population of the Departmentof Huanuco was 414468 with 734 (304385) living in areas classified as rural The capital of the Department Huanuco isthe largest urban concentration with an estimated population of30000 inhabitants The majority of other urban dwellers are concenshytrated in mining camps and small commercially-oriented towns which

ANNEX V

provide services to transport traffic using the Lima to Pucallpa highway

The Department contains three distinct geographic zones -shythe high sierra in the eastern part of the Department the ceja de selva and finally the jungle on the western extreme bordering the Department of Loreto The ceja de selva or high jungle has long been signalled as an area of vast potential for Peru but up to the present physical infrastructure and needed financial reshysources have been lacking It is an area which offers potential in both agriculture and livestock expansion as well as small industries using the agricultural and mineral resources of the zone

The Lima-Pucallpa highway traverses much of the Department of Huanuco and while the increasing traffic between coast and jungle has put severe strains on the highway -- especially the La Oroya to Lima section which crosses over the high Andes -- it is noneshytheless possible to make the overland trip from the city of Huanuco to Lima in about 12 hours Additionally the secondary road network is fairly well developed a result of the many small mining ventures in the area which have built roads from their industrial complexes to the highway There is scheduled air traffic from Huanuco to Lima and Pucallpa

2 Economic Activity

The occupational breakdown of the Department of Huanuco according to the 1972 Census is as follows

Economic Activity Persons Employed of Total

Agriculture (farming livestock) 72711 707 Fishing 31 Mining 1542 15 Industry 5392 52 Utilities 53 01

2423Construction 24 Commerce banking 6060 59 Transport 1794 17 Services 8597 84 Other 4260 41 TOTAL 102863 1000

ANNEX V

Agriculture is characterized by minifundia (individually farmedplots averaging two to three hectares) and associative enterprisescreated as a result of the Agrarian Reform An Industrial Banksurvey found that 20 associative enterprises were currentlyfunctioning in the area -- mostly in the area below Huanuco in thehigh jungle The basic productive pattern has traditionally beengarden crops for home consumption and sale of surplus in areamarkets but recently the GOP has been promoting increased cultivashytion of soybeans and fruits which can be consumed fresh or processedfor the coastal or export market

Industry employs 52 of the Department work force The bulkof industry is located in and around the city of Huanuco and isbasically oriented towards the production of consumer goods Fewlinks exist between the agricultural and mining base of the areaand the industries which have grown up there

The Industrial Bank has identified a large number of potentialsub-projects in the area which would help to establish linkagesbetween agricultural and mining output and new industry -- theseinclude the manufacture of auto parts mechnical equipment metalworking a sausage processing plant and other livestock-related industries

Mining while only employing 15 of the economically activepopulation is nonetheless an extremely important activity fromthe national point of view Important zinc and lead deposits arefound in the higher sierra regions including the Milpo andAtacocha mining complexes located an hour above the city ofHuanuco Since capital intensive mine exploitation is practicedin the area there is little possibility that new employmentincome will be generated through increased mining activity

ANNEX VI

Fund Investment Potential In Additional

Sierra Departments

The following is a list of sub-project possibilities for Fund investment in the departments of Huanuco Apurimac and Huancavelica These sub-projects were identified in the course of two-day visits by Bank personnel to the Bank Offices on each department where they interviewed local Bank staff regional planning office personnel managers of associative enterprises and local entrepreneurs Prosshypective sub-borrower or promotors exist for each sub-project except as indicated

HUAhUCO

Sub-Project Activity Estimated Sub-Loan Size (In S1000)

Dairy Products 4000 Chicken Production 2000 Printing Industry 2000 Marketing of Pharmaceutical Products 4000 Gas Station 10000 Milk Processing Plant 4000 Sausage Processing Plant 10000 Auto Spare Parts 10000 Tourism 500 Brick Factory 1000 Saw Mill 2000 Swine Processing Plant 4500 Swine Processing Plant 4500 Industiial Parts Production 300 Livestock Production and Processing 3000 Metal-Working 8000 Hotel 2000 Carpentry Shop 500 Recreation Center 1000 Bakery 500 Rabbit Meat Processing 1000 Bread and Candy Shop 1500 Jewelry and Jewelry Repair Shop 2000 Photo Studio 600 Ice-Cream Shop 1000 Sea-Food Restaurant 285 Local Crafts 2000 Local Crafts 2000 Local Crafts 1000

ANNEX VI

Sub-Project Activity Estimated Sub-Loan Size (In So00)

Cattle Raisiny and related activities 500 Industrialization of Tubers 500 Dairy Processing Plaster Factory Hotel Grain Mill 1600 Meat Packing Center Hog Fattenin 9 Center Sausage Plant Rabbit Meat Processing Local Crafts Sla y hterhouse Leather Crafts Leather Crafts Dairy and Leather Industry

Cement Plant Grain ill Starch Processing and Dried Potato Plant Miscellaneous Supply Store Miscellaneous Supply Store Papaya Canning Plant Juice Cannery Cornstarch Production Dried Potato Prcduction Dairy Plant 2900 Tuber IndustryAseveral small plants on local scale) 72000 Leather and Shoe Shop 1000 Warehouses and Silos 12000 Slaughterhouse 16000 Balanced feed plant 10000 Coristruction liaterials 18000 Pig and Poultry Centers 7000 Fish Farm 10000 Cereal Industry 6000 Tourist Lodging Wiring and Silver Welding Marketing Centers

Local Crafts Non Traditional Crafts Packing Center Warehouse and Market Place Industry 5000 Mechanicamp Industry 3000 Reconstruction and Services Center 5000

AWEX VI

Shb-Project Activity Estimated Sub-Loan Size (In S1000)

Marketing 700 McX keting 500 Markcting 2000 Industry 1500 Marketing 2000 Farm 1000 Marketing 2000 Marketing 2000 Marketing 4000 Marketing 4000 Farm 1000 Marketing 2000 Industry 1000

Potato Industry Potato Industry

Idea stage only with no identified sub-borrower

Total Sub-loan investment in projects with cost estimates S278000000

($3978357 at S70 = USl)

APURIMLAC (Abancay province only)

Sub-Project Activity Estimated Sub-Loan Size (In S000)

Slaughterhouse 15000 Anisette production 2000 Honey processing 1500 Hostels (2 projects) 4500 Balanced feed plant 3000 Guinea pig farms (3 projects 2100 Pig farms (3 projects) 8000 Flour Mill 500 Chicken farm (3 projects) 1800 Brick factory 800 Plaster factories (2 projects) 1000 Leather tannery 2000 Dairy processing 1500 Beverages (2 projects) 3100 Straw bags 500 Perfume factory 500 Noodles factory 2000 Troat farm -1000 Sawnill 1500

ANNEX VI

Sub-Project Activity Estimated Sub-Loan Size

(In S000)

Metal Furniture Production 400 Spice Mill 300 Bikery 500 Restaurant 150 Ice Cream Factory 100 Candy Factory 100 Food retail 300 Silk processing 10000 Plaster factory 500 Brick factory 500 Flour Mill 500

Idea Stage only with no identified sub-borrower

Total Sub-Loan investment in projects with cost estimates S65650000

$ Y37857 at S70 = US$1)

HUANCAVELICA

Sub-Project Activity Estimated Sub-Loan Size

(In (S000)

Alpaca and Sheep wool processing 25000 Fish farms (5 projects) 15000 Leather Tannery Dairy processing Dye factory Tourist restaurant 500 Fertilizer plant Brick and tile factory 500 Sawmill 2000 Meat Conservation Fattening Centers

Idea stage only with no identified sub-borrower

Total Sub-Loan investment in projects with cost estimates S43000000

($ 614286 at S70 = USS1)

ANNEX VII

Projected Sub-loan Commitments of Additional PandCaital

The projections shown below are based on the Banks estimates of the additional departments capacity to absorb Fund credit as follows Apurimac - S80 million Cajamarca - S60 million Huanshycavelica - S60 million and Huanuco - S150 million totallingS350 million These estimates assume slightly higher sub-lendingfigures for Apurimac Cajamarca and Huancavelica than supported bythe Banks totals of potential sub-project investments in these departments in order to provide for additional investment in subshyprojects currently lacking cost estimates and in new sub-projectopportunities to be identified by contracted consultants

This schedule of sub-loan approvals reflects an initial start-up periodof low activity to allow for the hiring of promotors orientation of branch office staff promotion campaigns and the contracting of conshysultants for sub-project identification and study Assuming that the Mission receives authorization to proceed with the proposal to transfer funds and expand the Fund into these departments by March 1 and proshyviding for a start-up period of approximately three months full subshylending operations will begin by June

Projccted ub-Loan Coditrc--ts of 7(2-ional Fund Capital A1MEY VUl March l977

(in S - Jlv 1V8rlillicn)

___-euro - rr-C----- --- VIA S5 --)- J F M J F J I Apurimac so

Apz0 a02 I

I 15 9

49 54 54 6474 82 82 86 86 0 I j il

CaC3ra Gajama ra

I 0 4 2 5

-

3 4

I--I 4 5

~ 1 5

-

6 7

-

71 71

Huancavelica [ 02 1 04 1 1 16 1 6 2 2 5 3

I 4

I 4 5 j 5 67

67 71 71

llic 0 2 i3 3 6 1 10 F

12 13 13 15 16 16 17

__ 7 5--Z 7-7 77__ 3 7 214 124 264 304 366 376 398 378

ANNX VIII VA-c IjEc 0OJECT TITLE DATE Ifi1ORIGINAL jAPPROWOD

77ntermrisc - 1 Dvopaert 1677 REVISION V

977 CY 1978 CY 1979

- -4

4 4-- 0i w W r- v4

4 UsM

14I

0 12 24 36

LPOW

2cr--ato to extenrd $60 million of AID Loan

1 l a--s conitted by Industrial Bank

Inc Aure-r aion

Fcur promotors hird 2-2-

tc-Ln A-reeent 6

Full amount of -7 AID Loan fully disbursed

A= --d ed AID Loan cotmmitted

0-0Z S CRITICAL PERFORMANCE INDICATOR (CP NETWORK

COiTAY ROJECT NC PROjECT TiTLE DATE 527--057 Airal rnterprises I Develooment ORIGINALAppoAOVEOj1677 ORIIONAL

PRCjECT PuRPCSE (FROM PRP FACESHEET)

To irstitutionalize an integrated program of financial and technical assistance to assist existing and new rural enterprises

vl OEscRIPTION

Action Agent Action Date

AIDW 1 Authorization to extend terminal dates Jan 31 1975

AIDW 2 Loan Authorization Mar 15 1977 amended

USAIDGOP 3 Loan Agreement May 1i1977

amended

Industrial Bank 4 Four promotors hired June 15 1977

Industrial Bank 5 $60 million of AID Jan 3] 1978 Loan committed by Industrial Bank

Industrial Bank 6 Full amount of AID July 31 1978 Loan committed

Industrial Bank 7 AID Loan fully Jan 3] 1979 ORDEZA disbursed

AID 102036 (6-76) CRITICAL PERFORMANCE INDICATOR (CPI) DESCRIPTION

BEST AVAILABLE COPY - i

___

_______(i

I75 D

Past Su)-Leding ActivitY] Sub-Loan Avrova~jt (N l~crvnj kcout)

SeC0)

l1

c[ihurc-ent rov

9 74

ir 975-nJry 1977

-- O tl k

N D

c

i

j

$ N

XA

D

C

A

D

N A

D

4

420

5520j3f550

5 5345

1069

1

510

525

3 1075

165

28 1285

246

0

1340cI

40

5 4105

134

2 5P2Z60

760

3

I110 0

572

1796

375

531520

1194

6

2Afl300

7-49

2 ZOO

146

3395

449

3

330

120

22 520

211

3770

910

4

2570

765

5 7410

884

3750

1029

70

1 05

32 3

4

762

2069

233630

2074

29t~f99

2 2050

427

313-100

29

18585

535

9

510

739

1383959

569701

66

92 -

1 9Zgt z

7

4

5 6 3 2

13 1Z00

1650 1747

f

5568

600

50

8

I 35

381Z

P-31Z

21

333

6Z19

13

S4326

I

40 4670

3613

59

15635

8

P

o

0

N

A

3

19 1P60

233i

3 80

9

A

3 540

9141

13

3 2-10

5 470

110-

7

14 140

5

3 D

0-

6 14 7n 4 475 5

244 1 S

1021239 1

6

7

516

13 27

336-

2100

I 4

Z124

1

D 2701 716 1843 2337 71 3 3 i I 3 3 - 7466 1611SO 577

artial figure

Projected disbursement totls r c-c1)c inot availablk poundoi Cuzo and JUllill Pa2iCft-shy

Iox Lr 1j7S-3jnLary 177

6

7023

A-

31

s

1

O

13

o200 I

[__ _ _ _

N

35 3812

_ _ _ _D

D

40 6 1

TOTAL

311 33916

77

7000

029 1 3-12 3613 23850

05

23

-419

2Zq

412 19 19

6 55610 55 8 I 3 I 59_

v]635 i 2578Z 8 i 15000

Z600 62 19 g45 80

762 2io~o 1o I 10 4

I 1 914

8 28690

76 66185 25000

3 427____ 739_6 14 6 11000 4749 ___ 19471

Z00 I70 4475

- - _12

-7 16- 17

13 8 7 i

-i 8c) - I04

7

-

-12

I Z

13 S814

- 2 f

177 12 39

680 746

2 0 0

0118450

i

2

s5

42

12 4

0

73737

16

2669

16 64 7

19 510 4 1

0 14

000

-shyjshy5 o

c iol C uzo und Jun~in P- f fcent

AN=E xII

P-ojeacto Sub-Lozin Cc rnitmcnts of Dalance of Original Fund Caital

February 1977 - January 1978

(S million)

F M A 1 J J A S 0 N D J T TAL

A y A C 7 9 9 7 6 6 6 5 4 3 2 2 66 U C

H 0

C u K Z 17 13 13 12 11 Ii 10 10 8 7 5 4 121 C

0

J

N 16 16 15 11 11 10 9 8 8 6 5 4 119

p

U 0 9 6 5 4 483 1 12 56

0 50

__ 47 43 35 33 31 29 T27 231

Enterprise

CAP Zanja

SAIS 3 de Octubre

Comunidad Cabana

Comunidad Conchucos

SAIS Revoluci6n

SAIS Vallejo

SAIS San I-artin

CAS Pariacoto

ANNTEX IV

Sub-Projects Prepared By ORDEZA For Loan Financing

Activitv Sub-Loan Size Status

(in SMillion)

Livestock 30 Approved by USAID

to 105 of i of

of 59 USAID approval pending TDD Extension

to 80

217 Submitted 1230 under USAID review 138

94

Balanced feed plant 220 Submission expected in 177

TOTAL INVEST NT 943

Cox-itted to approved sub-projects 135

pending cornunitment 8O -8

ANNEX V

Summary Description of Additional Sierra Departments

APURIMAC

1 iGeography and Population

The 1972 Census gave the population of the Department of Apurimac as 308613 of which 756 (233525) lived in areas classified as rural

The principal city of the Department is Abancay with a populashytion estimated at 12000 inhabitants the next largest urban center is Andahuaylas with a population of approximately 2000 in the city itself and serving an extensive rural population The majority of Department inhabitants live in dispersedrural areas or in small urban concentrations of 250 inhabitants or less

Over 90 of the Department is classified as sierra with a small portion of the eastern area sloping down to the high jungle area bordering on the Apurimac River (a tributary of the Amazon) Commushynications networks are extremely deficient with one major road connectshying Abancay with Huancayo and Cuzco (the trip from Huancayo to Cuzco using this route is approximately 50 hours)

2 Economic Activity

The 1972 Census gives the following breakdown of occupationalcategories for the Department of Apurimac

Economic Activity Persons Employed of Total

Agriculture (farming and livestock) 55467 780

Fishing 5

Mining 112 01

Industry 3803 53

Utilities 89 01

Construction 904 13

Commerce (inc banking) 2460 35

Transport 559 08

Services 5267 74

Other 2523 35 TOTAL 71189 1000

ANNEX V

Agriculture as carried out in the Department is practically entirely of a subsistance nature with little surplus sold to regional markets Very few associative enterprises operate in the zone since

there were few privately-owned haciendas in the area prior to the

Agrarian Reform and those few associative enterprises which have been

created are almost exclusively service cooperatives which group together private landholders in order to achieve economies of scale in

the purchasing of agro-inputs and marketing of whatever surplus is

produced Seven such service cooperatives have been identified and several have shown interest in possible investments in small industries

What little industry exists is of the home-industry variety -- small

producers of leather candies and breads and bottled soft drinks The

major non-farm activity in the area is the service sector which has

grown up as a result of the increasing road traffic between Cuzco and

the coast -- small family-operated restaurants and boarding houses

auto mechanics shops and similar services which are offered to truckers

busses and individuals making the overland journey

The economic potential of the zone is not particularly bright given problems of extremely high altitude poor soil conditions lack of mineral resources and a lack of internal savings which is considered

to be the lowest in the country Nonetheless the Industrial Bank has identified a series of small enterprise possibilities which should help

to alleviate the conditions of extreme rural poverty which prevail in the

area These include the production of livestock (cuy swine chickens) and related activities (slaughterhouses production of milk and cheese

balanced feed mills) which are particularly appropriate to the Andashy

huaylas area which is geographically located at a lower altitude than

most of the Department The introduction of fish farming in higher

sierra areas is aJso considered to be a potentially profitable venture

along with a re-introduction of the silk industry (which at one time

was a highly profitable industry ineigenous to the region) and creashy

tion of small service industries xestaurants and commercial entershy

prises

CAJAMARCA

1 Geography and Population

The 1972 Census gives the population of the Department of Cajamarca

as 919161 making it the most populous of Perus predominantly sierra

departments Of this total 759095 (83) are classified as living in

rural areas The major city Cajamarca is located in more or less the

geographic center of the Department and has an estimated population of

32000 following the city of Cajamarca in size and importance are Cajabamba and Chota with populations of about 6000 inhabitants each

- -

ANNEXV

The rest of the population living in areas classified as urban are generally found in small communitie3 primarily agricultural in orientation of 500 persons or less

The geography of the Department is characteristic of the northern Sierra -- broad river-fed valleys interspersed among peaks ranging up to 18000 feet above sea level Transportation routes within the Department are relatively well developed An all-weather road connects the city of Cajamarca with the Pan American highway on the coast and trucks and busses can easily make the journey from Cajamarca to the important coastal cities of Chiclayo and Trujillo in seven hours Cajamarca is also connected to Chiclayo Trujillo and Lima by air service From Cajamarca to other interior points of the Departmenthowever road travel is difficult and while roads are passable during9 or 10 months of the year passage is difficult and vehicle maintenance costs are extremely high

2 Economic Activity

According to the Census the economically active population of the Department is broken down as follows

Economic Activity Persons Employed of Total

Agriculture (farming livestock) 172998 760

Fishing 34

Mining 1061 06

Industry 20842 91

Utilities 92 01

Construction 2591 11

Commerce banking 6865 30

Transport 1670 07

Services 13703 60

Others 7821 34

TOTIL 227677 1000

Agriculture the predominant economic activity is characterized by extremely low levels of technology relying on primitive agriculshytural techniques which -- when combined with the small amount of land available per farm family -- results in very little surplus available for sale after immediate family requirements are met The scarcity

ANNEX V

of all-weather roads and great distances which separate the widely scattered productive valleys contribute to continued low level of production and inadequate dissemination of GOP provided technical assistance through Agrarian Zonal offices and the Agrarian Bank The Agrarian Reform has been active in the -=ea and over 50 of land has been adjudicated in the form of indigerous campesino comshymunities agrarian production cooperatives and individual title to small farms The bulk of farms fall into the latter category and it has been estimated that 98 of the physical extension of the Department is currently farmed in land holdings fallirg between 5 and 25 hectares

91 of the economically active population is engaged in small industry -- chiefly activities associated with dairy farming (Perulac an affiliate of Nestle operates an evaporated milk factory in the city of Cajamarca and there are many small producers of cheese in the central part of the Department) There is additionally a growing market for artisan goods produced in the Cajamarca area although this is not yet an important source of incomeemployment

The service industry of the Department is centered around the growshying importance of Cajamarca as a tourist center While tourist facilishyties are deficient (there is one State-run hotel catering almost exshyclusively to foreign visitors) the GOP has plans to upgrade existing facilities and give incentives to private interests to invest in tourism

The totirist potential of the area combined with Cajamarcas natural advantage for the exploitation of its dairy industry make the area attractive to potential investors Cajamarca cheeses are highly valued throughout Peru but since they are produced on a very small scale they rarely find their way to potential markets on the coast Manjarblanco another mouth-watering treat favored by travellers to the area is another dairy-related industry which could be expanded with ready markets on the coast

ANNEX V

HUANCAVELICA

1 Geography and Population

The population of the Department of Huancavelica in 1972 was331629 of which 76 (252001) were classified as living in ruralareas There is only one significant urban area the city ofHuancavelica with a population of approximately 15000 The restof the population is highly dispersed with little social oreconomic access to the Departmental capital Of the 24 of thepopulation living in areas which the Census classified as urbanthe vast majority live in population centers of less than 500 inhabitants

The Department is classified as Sierra with a small portionto the west sloping down to the coast The topography is ruggedthere are few all-weather transitable roads and there is a raillink with Huancayo in the adjacent Department of Junin

2 Economic Activity

The 1972 Census gives the following occupational breakdown bycategory of employment

Economic Activity Persons Employed of Total

Agriculture (farminglivestock) 55979 703Fishing 4Mining 4236 53Manufacturing 3875 48Utilities 226 02Construction Commerce (inc banking)

3142 39 3625 45Transport 665 08Services 4427 55Others 3773 47

TOTAL 79952 1000

With over 70 of the active labor force engaged in agriculturethe areas economy is based on the production of high-altitudefoodstuffs (potatoes yuca corn etc) and the GOP has been givingpriority to developing sheep ranching and building up alpaca andllama herds The soil conditions are extremely poor there islittle attention given to crop rotation or experimentation withimproved seeds and population pressures on the land are among the

ANNEX V

most extreme in Peru (an estimated 07 hectares of arable land perfam family) As a result of these factors production has droppedin absolute terms during the past ten years and more and morefarm families are being forced to leave the land The problem reshymains however that there are few off-farm jobs available in the area forcing outmigration to adjacent cities such as Huancayo in the Sierra and Ica on the coast or to Lima Mining in Huancavelica continues to be an important source of revenue but the capitalintensive mines of CentroMin in the area can only absorb a handful of new laborers every year -- and most of these are the sons of miners who have worked previously with the companies The famous mercury mines of Santa Barbara and Huancavelica discovered duringthe colonial period at one time enployed almost the entire adultpopulation of the area but are now depleted or uneconomical

Industry in the area is generally carried out on an extremelysmall scale --there are a few bottling plants producing for the area market and some small leather and woodworking companiesUnder the direction of the local SINAMOS office a DevelopmentProgram for 1977 and 1978 has been prepared calling for significantinvestment in small industry in an attempt to divert outmigrationinto productive activity within the Department Among investment possibilities SINAMOS has identified industrialization of alpacaand sheep fiber the development of small fishfarms and eventual production of smoked trout the manufacture of food dyes a small factory to produce fertilizers using mineral traces of the zoneand the development of a milk butter and cheese industry

7hese and other small industries would be carried out at thelevel of established associative enterprises in the zone At presshyent there is one SAIS in the area covering a physical extension of 83000 hectares with over 5000 members and some 10 productioncooperatives created as a result of the Agrarian Reform Vhe bulk of the rural population however remain in indigenous campesinocommunities or work individually-owned small plots of land

HUANUCO

1 Geography and Population

According to the 1972 Census the population of the Departmentof Huanuco was 414468 with 734 (304385) living in areas classified as rural The capital of the Department Huanuco isthe largest urban concentration with an estimated population of30000 inhabitants The majority of other urban dwellers are concenshytrated in mining camps and small commercially-oriented towns which

ANNEX V

provide services to transport traffic using the Lima to Pucallpa highway

The Department contains three distinct geographic zones -shythe high sierra in the eastern part of the Department the ceja de selva and finally the jungle on the western extreme bordering the Department of Loreto The ceja de selva or high jungle has long been signalled as an area of vast potential for Peru but up to the present physical infrastructure and needed financial reshysources have been lacking It is an area which offers potential in both agriculture and livestock expansion as well as small industries using the agricultural and mineral resources of the zone

The Lima-Pucallpa highway traverses much of the Department of Huanuco and while the increasing traffic between coast and jungle has put severe strains on the highway -- especially the La Oroya to Lima section which crosses over the high Andes -- it is noneshytheless possible to make the overland trip from the city of Huanuco to Lima in about 12 hours Additionally the secondary road network is fairly well developed a result of the many small mining ventures in the area which have built roads from their industrial complexes to the highway There is scheduled air traffic from Huanuco to Lima and Pucallpa

2 Economic Activity

The occupational breakdown of the Department of Huanuco according to the 1972 Census is as follows

Economic Activity Persons Employed of Total

Agriculture (farming livestock) 72711 707 Fishing 31 Mining 1542 15 Industry 5392 52 Utilities 53 01

2423Construction 24 Commerce banking 6060 59 Transport 1794 17 Services 8597 84 Other 4260 41 TOTAL 102863 1000

ANNEX V

Agriculture is characterized by minifundia (individually farmedplots averaging two to three hectares) and associative enterprisescreated as a result of the Agrarian Reform An Industrial Banksurvey found that 20 associative enterprises were currentlyfunctioning in the area -- mostly in the area below Huanuco in thehigh jungle The basic productive pattern has traditionally beengarden crops for home consumption and sale of surplus in areamarkets but recently the GOP has been promoting increased cultivashytion of soybeans and fruits which can be consumed fresh or processedfor the coastal or export market

Industry employs 52 of the Department work force The bulkof industry is located in and around the city of Huanuco and isbasically oriented towards the production of consumer goods Fewlinks exist between the agricultural and mining base of the areaand the industries which have grown up there

The Industrial Bank has identified a large number of potentialsub-projects in the area which would help to establish linkagesbetween agricultural and mining output and new industry -- theseinclude the manufacture of auto parts mechnical equipment metalworking a sausage processing plant and other livestock-related industries

Mining while only employing 15 of the economically activepopulation is nonetheless an extremely important activity fromthe national point of view Important zinc and lead deposits arefound in the higher sierra regions including the Milpo andAtacocha mining complexes located an hour above the city ofHuanuco Since capital intensive mine exploitation is practicedin the area there is little possibility that new employmentincome will be generated through increased mining activity

ANNEX VI

Fund Investment Potential In Additional

Sierra Departments

The following is a list of sub-project possibilities for Fund investment in the departments of Huanuco Apurimac and Huancavelica These sub-projects were identified in the course of two-day visits by Bank personnel to the Bank Offices on each department where they interviewed local Bank staff regional planning office personnel managers of associative enterprises and local entrepreneurs Prosshypective sub-borrower or promotors exist for each sub-project except as indicated

HUAhUCO

Sub-Project Activity Estimated Sub-Loan Size (In S1000)

Dairy Products 4000 Chicken Production 2000 Printing Industry 2000 Marketing of Pharmaceutical Products 4000 Gas Station 10000 Milk Processing Plant 4000 Sausage Processing Plant 10000 Auto Spare Parts 10000 Tourism 500 Brick Factory 1000 Saw Mill 2000 Swine Processing Plant 4500 Swine Processing Plant 4500 Industiial Parts Production 300 Livestock Production and Processing 3000 Metal-Working 8000 Hotel 2000 Carpentry Shop 500 Recreation Center 1000 Bakery 500 Rabbit Meat Processing 1000 Bread and Candy Shop 1500 Jewelry and Jewelry Repair Shop 2000 Photo Studio 600 Ice-Cream Shop 1000 Sea-Food Restaurant 285 Local Crafts 2000 Local Crafts 2000 Local Crafts 1000

ANNEX VI

Sub-Project Activity Estimated Sub-Loan Size (In So00)

Cattle Raisiny and related activities 500 Industrialization of Tubers 500 Dairy Processing Plaster Factory Hotel Grain Mill 1600 Meat Packing Center Hog Fattenin 9 Center Sausage Plant Rabbit Meat Processing Local Crafts Sla y hterhouse Leather Crafts Leather Crafts Dairy and Leather Industry

Cement Plant Grain ill Starch Processing and Dried Potato Plant Miscellaneous Supply Store Miscellaneous Supply Store Papaya Canning Plant Juice Cannery Cornstarch Production Dried Potato Prcduction Dairy Plant 2900 Tuber IndustryAseveral small plants on local scale) 72000 Leather and Shoe Shop 1000 Warehouses and Silos 12000 Slaughterhouse 16000 Balanced feed plant 10000 Coristruction liaterials 18000 Pig and Poultry Centers 7000 Fish Farm 10000 Cereal Industry 6000 Tourist Lodging Wiring and Silver Welding Marketing Centers

Local Crafts Non Traditional Crafts Packing Center Warehouse and Market Place Industry 5000 Mechanicamp Industry 3000 Reconstruction and Services Center 5000

AWEX VI

Shb-Project Activity Estimated Sub-Loan Size (In S1000)

Marketing 700 McX keting 500 Markcting 2000 Industry 1500 Marketing 2000 Farm 1000 Marketing 2000 Marketing 2000 Marketing 4000 Marketing 4000 Farm 1000 Marketing 2000 Industry 1000

Potato Industry Potato Industry

Idea stage only with no identified sub-borrower

Total Sub-loan investment in projects with cost estimates S278000000

($3978357 at S70 = USl)

APURIMLAC (Abancay province only)

Sub-Project Activity Estimated Sub-Loan Size (In S000)

Slaughterhouse 15000 Anisette production 2000 Honey processing 1500 Hostels (2 projects) 4500 Balanced feed plant 3000 Guinea pig farms (3 projects 2100 Pig farms (3 projects) 8000 Flour Mill 500 Chicken farm (3 projects) 1800 Brick factory 800 Plaster factories (2 projects) 1000 Leather tannery 2000 Dairy processing 1500 Beverages (2 projects) 3100 Straw bags 500 Perfume factory 500 Noodles factory 2000 Troat farm -1000 Sawnill 1500

ANNEX VI

Sub-Project Activity Estimated Sub-Loan Size

(In S000)

Metal Furniture Production 400 Spice Mill 300 Bikery 500 Restaurant 150 Ice Cream Factory 100 Candy Factory 100 Food retail 300 Silk processing 10000 Plaster factory 500 Brick factory 500 Flour Mill 500

Idea Stage only with no identified sub-borrower

Total Sub-Loan investment in projects with cost estimates S65650000

$ Y37857 at S70 = US$1)

HUANCAVELICA

Sub-Project Activity Estimated Sub-Loan Size

(In (S000)

Alpaca and Sheep wool processing 25000 Fish farms (5 projects) 15000 Leather Tannery Dairy processing Dye factory Tourist restaurant 500 Fertilizer plant Brick and tile factory 500 Sawmill 2000 Meat Conservation Fattening Centers

Idea stage only with no identified sub-borrower

Total Sub-Loan investment in projects with cost estimates S43000000

($ 614286 at S70 = USS1)

ANNEX VII

Projected Sub-loan Commitments of Additional PandCaital

The projections shown below are based on the Banks estimates of the additional departments capacity to absorb Fund credit as follows Apurimac - S80 million Cajamarca - S60 million Huanshycavelica - S60 million and Huanuco - S150 million totallingS350 million These estimates assume slightly higher sub-lendingfigures for Apurimac Cajamarca and Huancavelica than supported bythe Banks totals of potential sub-project investments in these departments in order to provide for additional investment in subshyprojects currently lacking cost estimates and in new sub-projectopportunities to be identified by contracted consultants

This schedule of sub-loan approvals reflects an initial start-up periodof low activity to allow for the hiring of promotors orientation of branch office staff promotion campaigns and the contracting of conshysultants for sub-project identification and study Assuming that the Mission receives authorization to proceed with the proposal to transfer funds and expand the Fund into these departments by March 1 and proshyviding for a start-up period of approximately three months full subshylending operations will begin by June

Projccted ub-Loan Coditrc--ts of 7(2-ional Fund Capital A1MEY VUl March l977

(in S - Jlv 1V8rlillicn)

___-euro - rr-C----- --- VIA S5 --)- J F M J F J I Apurimac so

Apz0 a02 I

I 15 9

49 54 54 6474 82 82 86 86 0 I j il

CaC3ra Gajama ra

I 0 4 2 5

-

3 4

I--I 4 5

~ 1 5

-

6 7

-

71 71

Huancavelica [ 02 1 04 1 1 16 1 6 2 2 5 3

I 4

I 4 5 j 5 67

67 71 71

llic 0 2 i3 3 6 1 10 F

12 13 13 15 16 16 17

__ 7 5--Z 7-7 77__ 3 7 214 124 264 304 366 376 398 378

ANNX VIII VA-c IjEc 0OJECT TITLE DATE Ifi1ORIGINAL jAPPROWOD

77ntermrisc - 1 Dvopaert 1677 REVISION V

977 CY 1978 CY 1979

- -4

4 4-- 0i w W r- v4

4 UsM

14I

0 12 24 36

LPOW

2cr--ato to extenrd $60 million of AID Loan

1 l a--s conitted by Industrial Bank

Inc Aure-r aion

Fcur promotors hird 2-2-

tc-Ln A-reeent 6

Full amount of -7 AID Loan fully disbursed

A= --d ed AID Loan cotmmitted

0-0Z S CRITICAL PERFORMANCE INDICATOR (CP NETWORK

COiTAY ROJECT NC PROjECT TiTLE DATE 527--057 Airal rnterprises I Develooment ORIGINALAppoAOVEOj1677 ORIIONAL

PRCjECT PuRPCSE (FROM PRP FACESHEET)

To irstitutionalize an integrated program of financial and technical assistance to assist existing and new rural enterprises

vl OEscRIPTION

Action Agent Action Date

AIDW 1 Authorization to extend terminal dates Jan 31 1975

AIDW 2 Loan Authorization Mar 15 1977 amended

USAIDGOP 3 Loan Agreement May 1i1977

amended

Industrial Bank 4 Four promotors hired June 15 1977

Industrial Bank 5 $60 million of AID Jan 3] 1978 Loan committed by Industrial Bank

Industrial Bank 6 Full amount of AID July 31 1978 Loan committed

Industrial Bank 7 AID Loan fully Jan 3] 1979 ORDEZA disbursed

AID 102036 (6-76) CRITICAL PERFORMANCE INDICATOR (CPI) DESCRIPTION

Iox Lr 1j7S-3jnLary 177

6

7023

A-

31

s

1

O

13

o200 I

[__ _ _ _

N

35 3812

_ _ _ _D

D

40 6 1

TOTAL

311 33916

77

7000

029 1 3-12 3613 23850

05

23

-419

2Zq

412 19 19

6 55610 55 8 I 3 I 59_

v]635 i 2578Z 8 i 15000

Z600 62 19 g45 80

762 2io~o 1o I 10 4

I 1 914

8 28690

76 66185 25000

3 427____ 739_6 14 6 11000 4749 ___ 19471

Z00 I70 4475

- - _12

-7 16- 17

13 8 7 i

-i 8c) - I04

7

-

-12

I Z

13 S814

- 2 f

177 12 39

680 746

2 0 0

0118450

i

2

s5

42

12 4

0

73737

16

2669

16 64 7

19 510 4 1

0 14

000

-shyjshy5 o

c iol C uzo und Jun~in P- f fcent

AN=E xII

P-ojeacto Sub-Lozin Cc rnitmcnts of Dalance of Original Fund Caital

February 1977 - January 1978

(S million)

F M A 1 J J A S 0 N D J T TAL

A y A C 7 9 9 7 6 6 6 5 4 3 2 2 66 U C

H 0

C u K Z 17 13 13 12 11 Ii 10 10 8 7 5 4 121 C

0

J

N 16 16 15 11 11 10 9 8 8 6 5 4 119

p

U 0 9 6 5 4 483 1 12 56

0 50

__ 47 43 35 33 31 29 T27 231

Enterprise

CAP Zanja

SAIS 3 de Octubre

Comunidad Cabana

Comunidad Conchucos

SAIS Revoluci6n

SAIS Vallejo

SAIS San I-artin

CAS Pariacoto

ANNTEX IV

Sub-Projects Prepared By ORDEZA For Loan Financing

Activitv Sub-Loan Size Status

(in SMillion)

Livestock 30 Approved by USAID

to 105 of i of

of 59 USAID approval pending TDD Extension

to 80

217 Submitted 1230 under USAID review 138

94

Balanced feed plant 220 Submission expected in 177

TOTAL INVEST NT 943

Cox-itted to approved sub-projects 135

pending cornunitment 8O -8

ANNEX V

Summary Description of Additional Sierra Departments

APURIMAC

1 iGeography and Population

The 1972 Census gave the population of the Department of Apurimac as 308613 of which 756 (233525) lived in areas classified as rural

The principal city of the Department is Abancay with a populashytion estimated at 12000 inhabitants the next largest urban center is Andahuaylas with a population of approximately 2000 in the city itself and serving an extensive rural population The majority of Department inhabitants live in dispersedrural areas or in small urban concentrations of 250 inhabitants or less

Over 90 of the Department is classified as sierra with a small portion of the eastern area sloping down to the high jungle area bordering on the Apurimac River (a tributary of the Amazon) Commushynications networks are extremely deficient with one major road connectshying Abancay with Huancayo and Cuzco (the trip from Huancayo to Cuzco using this route is approximately 50 hours)

2 Economic Activity

The 1972 Census gives the following breakdown of occupationalcategories for the Department of Apurimac

Economic Activity Persons Employed of Total

Agriculture (farming and livestock) 55467 780

Fishing 5

Mining 112 01

Industry 3803 53

Utilities 89 01

Construction 904 13

Commerce (inc banking) 2460 35

Transport 559 08

Services 5267 74

Other 2523 35 TOTAL 71189 1000

ANNEX V

Agriculture as carried out in the Department is practically entirely of a subsistance nature with little surplus sold to regional markets Very few associative enterprises operate in the zone since

there were few privately-owned haciendas in the area prior to the

Agrarian Reform and those few associative enterprises which have been

created are almost exclusively service cooperatives which group together private landholders in order to achieve economies of scale in

the purchasing of agro-inputs and marketing of whatever surplus is

produced Seven such service cooperatives have been identified and several have shown interest in possible investments in small industries

What little industry exists is of the home-industry variety -- small

producers of leather candies and breads and bottled soft drinks The

major non-farm activity in the area is the service sector which has

grown up as a result of the increasing road traffic between Cuzco and

the coast -- small family-operated restaurants and boarding houses

auto mechanics shops and similar services which are offered to truckers

busses and individuals making the overland journey

The economic potential of the zone is not particularly bright given problems of extremely high altitude poor soil conditions lack of mineral resources and a lack of internal savings which is considered

to be the lowest in the country Nonetheless the Industrial Bank has identified a series of small enterprise possibilities which should help

to alleviate the conditions of extreme rural poverty which prevail in the

area These include the production of livestock (cuy swine chickens) and related activities (slaughterhouses production of milk and cheese

balanced feed mills) which are particularly appropriate to the Andashy

huaylas area which is geographically located at a lower altitude than

most of the Department The introduction of fish farming in higher

sierra areas is aJso considered to be a potentially profitable venture

along with a re-introduction of the silk industry (which at one time

was a highly profitable industry ineigenous to the region) and creashy

tion of small service industries xestaurants and commercial entershy

prises

CAJAMARCA

1 Geography and Population

The 1972 Census gives the population of the Department of Cajamarca

as 919161 making it the most populous of Perus predominantly sierra

departments Of this total 759095 (83) are classified as living in

rural areas The major city Cajamarca is located in more or less the

geographic center of the Department and has an estimated population of

32000 following the city of Cajamarca in size and importance are Cajabamba and Chota with populations of about 6000 inhabitants each

- -

ANNEXV

The rest of the population living in areas classified as urban are generally found in small communitie3 primarily agricultural in orientation of 500 persons or less

The geography of the Department is characteristic of the northern Sierra -- broad river-fed valleys interspersed among peaks ranging up to 18000 feet above sea level Transportation routes within the Department are relatively well developed An all-weather road connects the city of Cajamarca with the Pan American highway on the coast and trucks and busses can easily make the journey from Cajamarca to the important coastal cities of Chiclayo and Trujillo in seven hours Cajamarca is also connected to Chiclayo Trujillo and Lima by air service From Cajamarca to other interior points of the Departmenthowever road travel is difficult and while roads are passable during9 or 10 months of the year passage is difficult and vehicle maintenance costs are extremely high

2 Economic Activity

According to the Census the economically active population of the Department is broken down as follows

Economic Activity Persons Employed of Total

Agriculture (farming livestock) 172998 760

Fishing 34

Mining 1061 06

Industry 20842 91

Utilities 92 01

Construction 2591 11

Commerce banking 6865 30

Transport 1670 07

Services 13703 60

Others 7821 34

TOTIL 227677 1000

Agriculture the predominant economic activity is characterized by extremely low levels of technology relying on primitive agriculshytural techniques which -- when combined with the small amount of land available per farm family -- results in very little surplus available for sale after immediate family requirements are met The scarcity

ANNEX V

of all-weather roads and great distances which separate the widely scattered productive valleys contribute to continued low level of production and inadequate dissemination of GOP provided technical assistance through Agrarian Zonal offices and the Agrarian Bank The Agrarian Reform has been active in the -=ea and over 50 of land has been adjudicated in the form of indigerous campesino comshymunities agrarian production cooperatives and individual title to small farms The bulk of farms fall into the latter category and it has been estimated that 98 of the physical extension of the Department is currently farmed in land holdings fallirg between 5 and 25 hectares

91 of the economically active population is engaged in small industry -- chiefly activities associated with dairy farming (Perulac an affiliate of Nestle operates an evaporated milk factory in the city of Cajamarca and there are many small producers of cheese in the central part of the Department) There is additionally a growing market for artisan goods produced in the Cajamarca area although this is not yet an important source of incomeemployment

The service industry of the Department is centered around the growshying importance of Cajamarca as a tourist center While tourist facilishyties are deficient (there is one State-run hotel catering almost exshyclusively to foreign visitors) the GOP has plans to upgrade existing facilities and give incentives to private interests to invest in tourism

The totirist potential of the area combined with Cajamarcas natural advantage for the exploitation of its dairy industry make the area attractive to potential investors Cajamarca cheeses are highly valued throughout Peru but since they are produced on a very small scale they rarely find their way to potential markets on the coast Manjarblanco another mouth-watering treat favored by travellers to the area is another dairy-related industry which could be expanded with ready markets on the coast

ANNEX V

HUANCAVELICA

1 Geography and Population

The population of the Department of Huancavelica in 1972 was331629 of which 76 (252001) were classified as living in ruralareas There is only one significant urban area the city ofHuancavelica with a population of approximately 15000 The restof the population is highly dispersed with little social oreconomic access to the Departmental capital Of the 24 of thepopulation living in areas which the Census classified as urbanthe vast majority live in population centers of less than 500 inhabitants

The Department is classified as Sierra with a small portionto the west sloping down to the coast The topography is ruggedthere are few all-weather transitable roads and there is a raillink with Huancayo in the adjacent Department of Junin

2 Economic Activity

The 1972 Census gives the following occupational breakdown bycategory of employment

Economic Activity Persons Employed of Total

Agriculture (farminglivestock) 55979 703Fishing 4Mining 4236 53Manufacturing 3875 48Utilities 226 02Construction Commerce (inc banking)

3142 39 3625 45Transport 665 08Services 4427 55Others 3773 47

TOTAL 79952 1000

With over 70 of the active labor force engaged in agriculturethe areas economy is based on the production of high-altitudefoodstuffs (potatoes yuca corn etc) and the GOP has been givingpriority to developing sheep ranching and building up alpaca andllama herds The soil conditions are extremely poor there islittle attention given to crop rotation or experimentation withimproved seeds and population pressures on the land are among the

ANNEX V

most extreme in Peru (an estimated 07 hectares of arable land perfam family) As a result of these factors production has droppedin absolute terms during the past ten years and more and morefarm families are being forced to leave the land The problem reshymains however that there are few off-farm jobs available in the area forcing outmigration to adjacent cities such as Huancayo in the Sierra and Ica on the coast or to Lima Mining in Huancavelica continues to be an important source of revenue but the capitalintensive mines of CentroMin in the area can only absorb a handful of new laborers every year -- and most of these are the sons of miners who have worked previously with the companies The famous mercury mines of Santa Barbara and Huancavelica discovered duringthe colonial period at one time enployed almost the entire adultpopulation of the area but are now depleted or uneconomical

Industry in the area is generally carried out on an extremelysmall scale --there are a few bottling plants producing for the area market and some small leather and woodworking companiesUnder the direction of the local SINAMOS office a DevelopmentProgram for 1977 and 1978 has been prepared calling for significantinvestment in small industry in an attempt to divert outmigrationinto productive activity within the Department Among investment possibilities SINAMOS has identified industrialization of alpacaand sheep fiber the development of small fishfarms and eventual production of smoked trout the manufacture of food dyes a small factory to produce fertilizers using mineral traces of the zoneand the development of a milk butter and cheese industry

7hese and other small industries would be carried out at thelevel of established associative enterprises in the zone At presshyent there is one SAIS in the area covering a physical extension of 83000 hectares with over 5000 members and some 10 productioncooperatives created as a result of the Agrarian Reform Vhe bulk of the rural population however remain in indigenous campesinocommunities or work individually-owned small plots of land

HUANUCO

1 Geography and Population

According to the 1972 Census the population of the Departmentof Huanuco was 414468 with 734 (304385) living in areas classified as rural The capital of the Department Huanuco isthe largest urban concentration with an estimated population of30000 inhabitants The majority of other urban dwellers are concenshytrated in mining camps and small commercially-oriented towns which

ANNEX V

provide services to transport traffic using the Lima to Pucallpa highway

The Department contains three distinct geographic zones -shythe high sierra in the eastern part of the Department the ceja de selva and finally the jungle on the western extreme bordering the Department of Loreto The ceja de selva or high jungle has long been signalled as an area of vast potential for Peru but up to the present physical infrastructure and needed financial reshysources have been lacking It is an area which offers potential in both agriculture and livestock expansion as well as small industries using the agricultural and mineral resources of the zone

The Lima-Pucallpa highway traverses much of the Department of Huanuco and while the increasing traffic between coast and jungle has put severe strains on the highway -- especially the La Oroya to Lima section which crosses over the high Andes -- it is noneshytheless possible to make the overland trip from the city of Huanuco to Lima in about 12 hours Additionally the secondary road network is fairly well developed a result of the many small mining ventures in the area which have built roads from their industrial complexes to the highway There is scheduled air traffic from Huanuco to Lima and Pucallpa

2 Economic Activity

The occupational breakdown of the Department of Huanuco according to the 1972 Census is as follows

Economic Activity Persons Employed of Total

Agriculture (farming livestock) 72711 707 Fishing 31 Mining 1542 15 Industry 5392 52 Utilities 53 01

2423Construction 24 Commerce banking 6060 59 Transport 1794 17 Services 8597 84 Other 4260 41 TOTAL 102863 1000

ANNEX V

Agriculture is characterized by minifundia (individually farmedplots averaging two to three hectares) and associative enterprisescreated as a result of the Agrarian Reform An Industrial Banksurvey found that 20 associative enterprises were currentlyfunctioning in the area -- mostly in the area below Huanuco in thehigh jungle The basic productive pattern has traditionally beengarden crops for home consumption and sale of surplus in areamarkets but recently the GOP has been promoting increased cultivashytion of soybeans and fruits which can be consumed fresh or processedfor the coastal or export market

Industry employs 52 of the Department work force The bulkof industry is located in and around the city of Huanuco and isbasically oriented towards the production of consumer goods Fewlinks exist between the agricultural and mining base of the areaand the industries which have grown up there

The Industrial Bank has identified a large number of potentialsub-projects in the area which would help to establish linkagesbetween agricultural and mining output and new industry -- theseinclude the manufacture of auto parts mechnical equipment metalworking a sausage processing plant and other livestock-related industries

Mining while only employing 15 of the economically activepopulation is nonetheless an extremely important activity fromthe national point of view Important zinc and lead deposits arefound in the higher sierra regions including the Milpo andAtacocha mining complexes located an hour above the city ofHuanuco Since capital intensive mine exploitation is practicedin the area there is little possibility that new employmentincome will be generated through increased mining activity

ANNEX VI

Fund Investment Potential In Additional

Sierra Departments

The following is a list of sub-project possibilities for Fund investment in the departments of Huanuco Apurimac and Huancavelica These sub-projects were identified in the course of two-day visits by Bank personnel to the Bank Offices on each department where they interviewed local Bank staff regional planning office personnel managers of associative enterprises and local entrepreneurs Prosshypective sub-borrower or promotors exist for each sub-project except as indicated

HUAhUCO

Sub-Project Activity Estimated Sub-Loan Size (In S1000)

Dairy Products 4000 Chicken Production 2000 Printing Industry 2000 Marketing of Pharmaceutical Products 4000 Gas Station 10000 Milk Processing Plant 4000 Sausage Processing Plant 10000 Auto Spare Parts 10000 Tourism 500 Brick Factory 1000 Saw Mill 2000 Swine Processing Plant 4500 Swine Processing Plant 4500 Industiial Parts Production 300 Livestock Production and Processing 3000 Metal-Working 8000 Hotel 2000 Carpentry Shop 500 Recreation Center 1000 Bakery 500 Rabbit Meat Processing 1000 Bread and Candy Shop 1500 Jewelry and Jewelry Repair Shop 2000 Photo Studio 600 Ice-Cream Shop 1000 Sea-Food Restaurant 285 Local Crafts 2000 Local Crafts 2000 Local Crafts 1000

ANNEX VI

Sub-Project Activity Estimated Sub-Loan Size (In So00)

Cattle Raisiny and related activities 500 Industrialization of Tubers 500 Dairy Processing Plaster Factory Hotel Grain Mill 1600 Meat Packing Center Hog Fattenin 9 Center Sausage Plant Rabbit Meat Processing Local Crafts Sla y hterhouse Leather Crafts Leather Crafts Dairy and Leather Industry

Cement Plant Grain ill Starch Processing and Dried Potato Plant Miscellaneous Supply Store Miscellaneous Supply Store Papaya Canning Plant Juice Cannery Cornstarch Production Dried Potato Prcduction Dairy Plant 2900 Tuber IndustryAseveral small plants on local scale) 72000 Leather and Shoe Shop 1000 Warehouses and Silos 12000 Slaughterhouse 16000 Balanced feed plant 10000 Coristruction liaterials 18000 Pig and Poultry Centers 7000 Fish Farm 10000 Cereal Industry 6000 Tourist Lodging Wiring and Silver Welding Marketing Centers

Local Crafts Non Traditional Crafts Packing Center Warehouse and Market Place Industry 5000 Mechanicamp Industry 3000 Reconstruction and Services Center 5000

AWEX VI

Shb-Project Activity Estimated Sub-Loan Size (In S1000)

Marketing 700 McX keting 500 Markcting 2000 Industry 1500 Marketing 2000 Farm 1000 Marketing 2000 Marketing 2000 Marketing 4000 Marketing 4000 Farm 1000 Marketing 2000 Industry 1000

Potato Industry Potato Industry

Idea stage only with no identified sub-borrower

Total Sub-loan investment in projects with cost estimates S278000000

($3978357 at S70 = USl)

APURIMLAC (Abancay province only)

Sub-Project Activity Estimated Sub-Loan Size (In S000)

Slaughterhouse 15000 Anisette production 2000 Honey processing 1500 Hostels (2 projects) 4500 Balanced feed plant 3000 Guinea pig farms (3 projects 2100 Pig farms (3 projects) 8000 Flour Mill 500 Chicken farm (3 projects) 1800 Brick factory 800 Plaster factories (2 projects) 1000 Leather tannery 2000 Dairy processing 1500 Beverages (2 projects) 3100 Straw bags 500 Perfume factory 500 Noodles factory 2000 Troat farm -1000 Sawnill 1500

ANNEX VI

Sub-Project Activity Estimated Sub-Loan Size

(In S000)

Metal Furniture Production 400 Spice Mill 300 Bikery 500 Restaurant 150 Ice Cream Factory 100 Candy Factory 100 Food retail 300 Silk processing 10000 Plaster factory 500 Brick factory 500 Flour Mill 500

Idea Stage only with no identified sub-borrower

Total Sub-Loan investment in projects with cost estimates S65650000

$ Y37857 at S70 = US$1)

HUANCAVELICA

Sub-Project Activity Estimated Sub-Loan Size

(In (S000)

Alpaca and Sheep wool processing 25000 Fish farms (5 projects) 15000 Leather Tannery Dairy processing Dye factory Tourist restaurant 500 Fertilizer plant Brick and tile factory 500 Sawmill 2000 Meat Conservation Fattening Centers

Idea stage only with no identified sub-borrower

Total Sub-Loan investment in projects with cost estimates S43000000

($ 614286 at S70 = USS1)

ANNEX VII

Projected Sub-loan Commitments of Additional PandCaital

The projections shown below are based on the Banks estimates of the additional departments capacity to absorb Fund credit as follows Apurimac - S80 million Cajamarca - S60 million Huanshycavelica - S60 million and Huanuco - S150 million totallingS350 million These estimates assume slightly higher sub-lendingfigures for Apurimac Cajamarca and Huancavelica than supported bythe Banks totals of potential sub-project investments in these departments in order to provide for additional investment in subshyprojects currently lacking cost estimates and in new sub-projectopportunities to be identified by contracted consultants

This schedule of sub-loan approvals reflects an initial start-up periodof low activity to allow for the hiring of promotors orientation of branch office staff promotion campaigns and the contracting of conshysultants for sub-project identification and study Assuming that the Mission receives authorization to proceed with the proposal to transfer funds and expand the Fund into these departments by March 1 and proshyviding for a start-up period of approximately three months full subshylending operations will begin by June

Projccted ub-Loan Coditrc--ts of 7(2-ional Fund Capital A1MEY VUl March l977

(in S - Jlv 1V8rlillicn)

___-euro - rr-C----- --- VIA S5 --)- J F M J F J I Apurimac so

Apz0 a02 I

I 15 9

49 54 54 6474 82 82 86 86 0 I j il

CaC3ra Gajama ra

I 0 4 2 5

-

3 4

I--I 4 5

~ 1 5

-

6 7

-

71 71

Huancavelica [ 02 1 04 1 1 16 1 6 2 2 5 3

I 4

I 4 5 j 5 67

67 71 71

llic 0 2 i3 3 6 1 10 F

12 13 13 15 16 16 17

__ 7 5--Z 7-7 77__ 3 7 214 124 264 304 366 376 398 378

ANNX VIII VA-c IjEc 0OJECT TITLE DATE Ifi1ORIGINAL jAPPROWOD

77ntermrisc - 1 Dvopaert 1677 REVISION V

977 CY 1978 CY 1979

- -4

4 4-- 0i w W r- v4

4 UsM

14I

0 12 24 36

LPOW

2cr--ato to extenrd $60 million of AID Loan

1 l a--s conitted by Industrial Bank

Inc Aure-r aion

Fcur promotors hird 2-2-

tc-Ln A-reeent 6

Full amount of -7 AID Loan fully disbursed

A= --d ed AID Loan cotmmitted

0-0Z S CRITICAL PERFORMANCE INDICATOR (CP NETWORK

COiTAY ROJECT NC PROjECT TiTLE DATE 527--057 Airal rnterprises I Develooment ORIGINALAppoAOVEOj1677 ORIIONAL

PRCjECT PuRPCSE (FROM PRP FACESHEET)

To irstitutionalize an integrated program of financial and technical assistance to assist existing and new rural enterprises

vl OEscRIPTION

Action Agent Action Date

AIDW 1 Authorization to extend terminal dates Jan 31 1975

AIDW 2 Loan Authorization Mar 15 1977 amended

USAIDGOP 3 Loan Agreement May 1i1977

amended

Industrial Bank 4 Four promotors hired June 15 1977

Industrial Bank 5 $60 million of AID Jan 3] 1978 Loan committed by Industrial Bank

Industrial Bank 6 Full amount of AID July 31 1978 Loan committed

Industrial Bank 7 AID Loan fully Jan 3] 1979 ORDEZA disbursed

AID 102036 (6-76) CRITICAL PERFORMANCE INDICATOR (CPI) DESCRIPTION

AN=E xII

P-ojeacto Sub-Lozin Cc rnitmcnts of Dalance of Original Fund Caital

February 1977 - January 1978

(S million)

F M A 1 J J A S 0 N D J T TAL

A y A C 7 9 9 7 6 6 6 5 4 3 2 2 66 U C

H 0

C u K Z 17 13 13 12 11 Ii 10 10 8 7 5 4 121 C

0

J

N 16 16 15 11 11 10 9 8 8 6 5 4 119

p

U 0 9 6 5 4 483 1 12 56

0 50

__ 47 43 35 33 31 29 T27 231

Enterprise

CAP Zanja

SAIS 3 de Octubre

Comunidad Cabana

Comunidad Conchucos

SAIS Revoluci6n

SAIS Vallejo

SAIS San I-artin

CAS Pariacoto

ANNTEX IV

Sub-Projects Prepared By ORDEZA For Loan Financing

Activitv Sub-Loan Size Status

(in SMillion)

Livestock 30 Approved by USAID

to 105 of i of

of 59 USAID approval pending TDD Extension

to 80

217 Submitted 1230 under USAID review 138

94

Balanced feed plant 220 Submission expected in 177

TOTAL INVEST NT 943

Cox-itted to approved sub-projects 135

pending cornunitment 8O -8

ANNEX V

Summary Description of Additional Sierra Departments

APURIMAC

1 iGeography and Population

The 1972 Census gave the population of the Department of Apurimac as 308613 of which 756 (233525) lived in areas classified as rural

The principal city of the Department is Abancay with a populashytion estimated at 12000 inhabitants the next largest urban center is Andahuaylas with a population of approximately 2000 in the city itself and serving an extensive rural population The majority of Department inhabitants live in dispersedrural areas or in small urban concentrations of 250 inhabitants or less

Over 90 of the Department is classified as sierra with a small portion of the eastern area sloping down to the high jungle area bordering on the Apurimac River (a tributary of the Amazon) Commushynications networks are extremely deficient with one major road connectshying Abancay with Huancayo and Cuzco (the trip from Huancayo to Cuzco using this route is approximately 50 hours)

2 Economic Activity

The 1972 Census gives the following breakdown of occupationalcategories for the Department of Apurimac

Economic Activity Persons Employed of Total

Agriculture (farming and livestock) 55467 780

Fishing 5

Mining 112 01

Industry 3803 53

Utilities 89 01

Construction 904 13

Commerce (inc banking) 2460 35

Transport 559 08

Services 5267 74

Other 2523 35 TOTAL 71189 1000

ANNEX V

Agriculture as carried out in the Department is practically entirely of a subsistance nature with little surplus sold to regional markets Very few associative enterprises operate in the zone since

there were few privately-owned haciendas in the area prior to the

Agrarian Reform and those few associative enterprises which have been

created are almost exclusively service cooperatives which group together private landholders in order to achieve economies of scale in

the purchasing of agro-inputs and marketing of whatever surplus is

produced Seven such service cooperatives have been identified and several have shown interest in possible investments in small industries

What little industry exists is of the home-industry variety -- small

producers of leather candies and breads and bottled soft drinks The

major non-farm activity in the area is the service sector which has

grown up as a result of the increasing road traffic between Cuzco and

the coast -- small family-operated restaurants and boarding houses

auto mechanics shops and similar services which are offered to truckers

busses and individuals making the overland journey

The economic potential of the zone is not particularly bright given problems of extremely high altitude poor soil conditions lack of mineral resources and a lack of internal savings which is considered

to be the lowest in the country Nonetheless the Industrial Bank has identified a series of small enterprise possibilities which should help

to alleviate the conditions of extreme rural poverty which prevail in the

area These include the production of livestock (cuy swine chickens) and related activities (slaughterhouses production of milk and cheese

balanced feed mills) which are particularly appropriate to the Andashy

huaylas area which is geographically located at a lower altitude than

most of the Department The introduction of fish farming in higher

sierra areas is aJso considered to be a potentially profitable venture

along with a re-introduction of the silk industry (which at one time

was a highly profitable industry ineigenous to the region) and creashy

tion of small service industries xestaurants and commercial entershy

prises

CAJAMARCA

1 Geography and Population

The 1972 Census gives the population of the Department of Cajamarca

as 919161 making it the most populous of Perus predominantly sierra

departments Of this total 759095 (83) are classified as living in

rural areas The major city Cajamarca is located in more or less the

geographic center of the Department and has an estimated population of

32000 following the city of Cajamarca in size and importance are Cajabamba and Chota with populations of about 6000 inhabitants each

- -

ANNEXV

The rest of the population living in areas classified as urban are generally found in small communitie3 primarily agricultural in orientation of 500 persons or less

The geography of the Department is characteristic of the northern Sierra -- broad river-fed valleys interspersed among peaks ranging up to 18000 feet above sea level Transportation routes within the Department are relatively well developed An all-weather road connects the city of Cajamarca with the Pan American highway on the coast and trucks and busses can easily make the journey from Cajamarca to the important coastal cities of Chiclayo and Trujillo in seven hours Cajamarca is also connected to Chiclayo Trujillo and Lima by air service From Cajamarca to other interior points of the Departmenthowever road travel is difficult and while roads are passable during9 or 10 months of the year passage is difficult and vehicle maintenance costs are extremely high

2 Economic Activity

According to the Census the economically active population of the Department is broken down as follows

Economic Activity Persons Employed of Total

Agriculture (farming livestock) 172998 760

Fishing 34

Mining 1061 06

Industry 20842 91

Utilities 92 01

Construction 2591 11

Commerce banking 6865 30

Transport 1670 07

Services 13703 60

Others 7821 34

TOTIL 227677 1000

Agriculture the predominant economic activity is characterized by extremely low levels of technology relying on primitive agriculshytural techniques which -- when combined with the small amount of land available per farm family -- results in very little surplus available for sale after immediate family requirements are met The scarcity

ANNEX V

of all-weather roads and great distances which separate the widely scattered productive valleys contribute to continued low level of production and inadequate dissemination of GOP provided technical assistance through Agrarian Zonal offices and the Agrarian Bank The Agrarian Reform has been active in the -=ea and over 50 of land has been adjudicated in the form of indigerous campesino comshymunities agrarian production cooperatives and individual title to small farms The bulk of farms fall into the latter category and it has been estimated that 98 of the physical extension of the Department is currently farmed in land holdings fallirg between 5 and 25 hectares

91 of the economically active population is engaged in small industry -- chiefly activities associated with dairy farming (Perulac an affiliate of Nestle operates an evaporated milk factory in the city of Cajamarca and there are many small producers of cheese in the central part of the Department) There is additionally a growing market for artisan goods produced in the Cajamarca area although this is not yet an important source of incomeemployment

The service industry of the Department is centered around the growshying importance of Cajamarca as a tourist center While tourist facilishyties are deficient (there is one State-run hotel catering almost exshyclusively to foreign visitors) the GOP has plans to upgrade existing facilities and give incentives to private interests to invest in tourism

The totirist potential of the area combined with Cajamarcas natural advantage for the exploitation of its dairy industry make the area attractive to potential investors Cajamarca cheeses are highly valued throughout Peru but since they are produced on a very small scale they rarely find their way to potential markets on the coast Manjarblanco another mouth-watering treat favored by travellers to the area is another dairy-related industry which could be expanded with ready markets on the coast

ANNEX V

HUANCAVELICA

1 Geography and Population

The population of the Department of Huancavelica in 1972 was331629 of which 76 (252001) were classified as living in ruralareas There is only one significant urban area the city ofHuancavelica with a population of approximately 15000 The restof the population is highly dispersed with little social oreconomic access to the Departmental capital Of the 24 of thepopulation living in areas which the Census classified as urbanthe vast majority live in population centers of less than 500 inhabitants

The Department is classified as Sierra with a small portionto the west sloping down to the coast The topography is ruggedthere are few all-weather transitable roads and there is a raillink with Huancayo in the adjacent Department of Junin

2 Economic Activity

The 1972 Census gives the following occupational breakdown bycategory of employment

Economic Activity Persons Employed of Total

Agriculture (farminglivestock) 55979 703Fishing 4Mining 4236 53Manufacturing 3875 48Utilities 226 02Construction Commerce (inc banking)

3142 39 3625 45Transport 665 08Services 4427 55Others 3773 47

TOTAL 79952 1000

With over 70 of the active labor force engaged in agriculturethe areas economy is based on the production of high-altitudefoodstuffs (potatoes yuca corn etc) and the GOP has been givingpriority to developing sheep ranching and building up alpaca andllama herds The soil conditions are extremely poor there islittle attention given to crop rotation or experimentation withimproved seeds and population pressures on the land are among the

ANNEX V

most extreme in Peru (an estimated 07 hectares of arable land perfam family) As a result of these factors production has droppedin absolute terms during the past ten years and more and morefarm families are being forced to leave the land The problem reshymains however that there are few off-farm jobs available in the area forcing outmigration to adjacent cities such as Huancayo in the Sierra and Ica on the coast or to Lima Mining in Huancavelica continues to be an important source of revenue but the capitalintensive mines of CentroMin in the area can only absorb a handful of new laborers every year -- and most of these are the sons of miners who have worked previously with the companies The famous mercury mines of Santa Barbara and Huancavelica discovered duringthe colonial period at one time enployed almost the entire adultpopulation of the area but are now depleted or uneconomical

Industry in the area is generally carried out on an extremelysmall scale --there are a few bottling plants producing for the area market and some small leather and woodworking companiesUnder the direction of the local SINAMOS office a DevelopmentProgram for 1977 and 1978 has been prepared calling for significantinvestment in small industry in an attempt to divert outmigrationinto productive activity within the Department Among investment possibilities SINAMOS has identified industrialization of alpacaand sheep fiber the development of small fishfarms and eventual production of smoked trout the manufacture of food dyes a small factory to produce fertilizers using mineral traces of the zoneand the development of a milk butter and cheese industry

7hese and other small industries would be carried out at thelevel of established associative enterprises in the zone At presshyent there is one SAIS in the area covering a physical extension of 83000 hectares with over 5000 members and some 10 productioncooperatives created as a result of the Agrarian Reform Vhe bulk of the rural population however remain in indigenous campesinocommunities or work individually-owned small plots of land

HUANUCO

1 Geography and Population

According to the 1972 Census the population of the Departmentof Huanuco was 414468 with 734 (304385) living in areas classified as rural The capital of the Department Huanuco isthe largest urban concentration with an estimated population of30000 inhabitants The majority of other urban dwellers are concenshytrated in mining camps and small commercially-oriented towns which

ANNEX V

provide services to transport traffic using the Lima to Pucallpa highway

The Department contains three distinct geographic zones -shythe high sierra in the eastern part of the Department the ceja de selva and finally the jungle on the western extreme bordering the Department of Loreto The ceja de selva or high jungle has long been signalled as an area of vast potential for Peru but up to the present physical infrastructure and needed financial reshysources have been lacking It is an area which offers potential in both agriculture and livestock expansion as well as small industries using the agricultural and mineral resources of the zone

The Lima-Pucallpa highway traverses much of the Department of Huanuco and while the increasing traffic between coast and jungle has put severe strains on the highway -- especially the La Oroya to Lima section which crosses over the high Andes -- it is noneshytheless possible to make the overland trip from the city of Huanuco to Lima in about 12 hours Additionally the secondary road network is fairly well developed a result of the many small mining ventures in the area which have built roads from their industrial complexes to the highway There is scheduled air traffic from Huanuco to Lima and Pucallpa

2 Economic Activity

The occupational breakdown of the Department of Huanuco according to the 1972 Census is as follows

Economic Activity Persons Employed of Total

Agriculture (farming livestock) 72711 707 Fishing 31 Mining 1542 15 Industry 5392 52 Utilities 53 01

2423Construction 24 Commerce banking 6060 59 Transport 1794 17 Services 8597 84 Other 4260 41 TOTAL 102863 1000

ANNEX V

Agriculture is characterized by minifundia (individually farmedplots averaging two to three hectares) and associative enterprisescreated as a result of the Agrarian Reform An Industrial Banksurvey found that 20 associative enterprises were currentlyfunctioning in the area -- mostly in the area below Huanuco in thehigh jungle The basic productive pattern has traditionally beengarden crops for home consumption and sale of surplus in areamarkets but recently the GOP has been promoting increased cultivashytion of soybeans and fruits which can be consumed fresh or processedfor the coastal or export market

Industry employs 52 of the Department work force The bulkof industry is located in and around the city of Huanuco and isbasically oriented towards the production of consumer goods Fewlinks exist between the agricultural and mining base of the areaand the industries which have grown up there

The Industrial Bank has identified a large number of potentialsub-projects in the area which would help to establish linkagesbetween agricultural and mining output and new industry -- theseinclude the manufacture of auto parts mechnical equipment metalworking a sausage processing plant and other livestock-related industries

Mining while only employing 15 of the economically activepopulation is nonetheless an extremely important activity fromthe national point of view Important zinc and lead deposits arefound in the higher sierra regions including the Milpo andAtacocha mining complexes located an hour above the city ofHuanuco Since capital intensive mine exploitation is practicedin the area there is little possibility that new employmentincome will be generated through increased mining activity

ANNEX VI

Fund Investment Potential In Additional

Sierra Departments

The following is a list of sub-project possibilities for Fund investment in the departments of Huanuco Apurimac and Huancavelica These sub-projects were identified in the course of two-day visits by Bank personnel to the Bank Offices on each department where they interviewed local Bank staff regional planning office personnel managers of associative enterprises and local entrepreneurs Prosshypective sub-borrower or promotors exist for each sub-project except as indicated

HUAhUCO

Sub-Project Activity Estimated Sub-Loan Size (In S1000)

Dairy Products 4000 Chicken Production 2000 Printing Industry 2000 Marketing of Pharmaceutical Products 4000 Gas Station 10000 Milk Processing Plant 4000 Sausage Processing Plant 10000 Auto Spare Parts 10000 Tourism 500 Brick Factory 1000 Saw Mill 2000 Swine Processing Plant 4500 Swine Processing Plant 4500 Industiial Parts Production 300 Livestock Production and Processing 3000 Metal-Working 8000 Hotel 2000 Carpentry Shop 500 Recreation Center 1000 Bakery 500 Rabbit Meat Processing 1000 Bread and Candy Shop 1500 Jewelry and Jewelry Repair Shop 2000 Photo Studio 600 Ice-Cream Shop 1000 Sea-Food Restaurant 285 Local Crafts 2000 Local Crafts 2000 Local Crafts 1000

ANNEX VI

Sub-Project Activity Estimated Sub-Loan Size (In So00)

Cattle Raisiny and related activities 500 Industrialization of Tubers 500 Dairy Processing Plaster Factory Hotel Grain Mill 1600 Meat Packing Center Hog Fattenin 9 Center Sausage Plant Rabbit Meat Processing Local Crafts Sla y hterhouse Leather Crafts Leather Crafts Dairy and Leather Industry

Cement Plant Grain ill Starch Processing and Dried Potato Plant Miscellaneous Supply Store Miscellaneous Supply Store Papaya Canning Plant Juice Cannery Cornstarch Production Dried Potato Prcduction Dairy Plant 2900 Tuber IndustryAseveral small plants on local scale) 72000 Leather and Shoe Shop 1000 Warehouses and Silos 12000 Slaughterhouse 16000 Balanced feed plant 10000 Coristruction liaterials 18000 Pig and Poultry Centers 7000 Fish Farm 10000 Cereal Industry 6000 Tourist Lodging Wiring and Silver Welding Marketing Centers

Local Crafts Non Traditional Crafts Packing Center Warehouse and Market Place Industry 5000 Mechanicamp Industry 3000 Reconstruction and Services Center 5000

AWEX VI

Shb-Project Activity Estimated Sub-Loan Size (In S1000)

Marketing 700 McX keting 500 Markcting 2000 Industry 1500 Marketing 2000 Farm 1000 Marketing 2000 Marketing 2000 Marketing 4000 Marketing 4000 Farm 1000 Marketing 2000 Industry 1000

Potato Industry Potato Industry

Idea stage only with no identified sub-borrower

Total Sub-loan investment in projects with cost estimates S278000000

($3978357 at S70 = USl)

APURIMLAC (Abancay province only)

Sub-Project Activity Estimated Sub-Loan Size (In S000)

Slaughterhouse 15000 Anisette production 2000 Honey processing 1500 Hostels (2 projects) 4500 Balanced feed plant 3000 Guinea pig farms (3 projects 2100 Pig farms (3 projects) 8000 Flour Mill 500 Chicken farm (3 projects) 1800 Brick factory 800 Plaster factories (2 projects) 1000 Leather tannery 2000 Dairy processing 1500 Beverages (2 projects) 3100 Straw bags 500 Perfume factory 500 Noodles factory 2000 Troat farm -1000 Sawnill 1500

ANNEX VI

Sub-Project Activity Estimated Sub-Loan Size

(In S000)

Metal Furniture Production 400 Spice Mill 300 Bikery 500 Restaurant 150 Ice Cream Factory 100 Candy Factory 100 Food retail 300 Silk processing 10000 Plaster factory 500 Brick factory 500 Flour Mill 500

Idea Stage only with no identified sub-borrower

Total Sub-Loan investment in projects with cost estimates S65650000

$ Y37857 at S70 = US$1)

HUANCAVELICA

Sub-Project Activity Estimated Sub-Loan Size

(In (S000)

Alpaca and Sheep wool processing 25000 Fish farms (5 projects) 15000 Leather Tannery Dairy processing Dye factory Tourist restaurant 500 Fertilizer plant Brick and tile factory 500 Sawmill 2000 Meat Conservation Fattening Centers

Idea stage only with no identified sub-borrower

Total Sub-Loan investment in projects with cost estimates S43000000

($ 614286 at S70 = USS1)

ANNEX VII

Projected Sub-loan Commitments of Additional PandCaital

The projections shown below are based on the Banks estimates of the additional departments capacity to absorb Fund credit as follows Apurimac - S80 million Cajamarca - S60 million Huanshycavelica - S60 million and Huanuco - S150 million totallingS350 million These estimates assume slightly higher sub-lendingfigures for Apurimac Cajamarca and Huancavelica than supported bythe Banks totals of potential sub-project investments in these departments in order to provide for additional investment in subshyprojects currently lacking cost estimates and in new sub-projectopportunities to be identified by contracted consultants

This schedule of sub-loan approvals reflects an initial start-up periodof low activity to allow for the hiring of promotors orientation of branch office staff promotion campaigns and the contracting of conshysultants for sub-project identification and study Assuming that the Mission receives authorization to proceed with the proposal to transfer funds and expand the Fund into these departments by March 1 and proshyviding for a start-up period of approximately three months full subshylending operations will begin by June

Projccted ub-Loan Coditrc--ts of 7(2-ional Fund Capital A1MEY VUl March l977

(in S - Jlv 1V8rlillicn)

___-euro - rr-C----- --- VIA S5 --)- J F M J F J I Apurimac so

Apz0 a02 I

I 15 9

49 54 54 6474 82 82 86 86 0 I j il

CaC3ra Gajama ra

I 0 4 2 5

-

3 4

I--I 4 5

~ 1 5

-

6 7

-

71 71

Huancavelica [ 02 1 04 1 1 16 1 6 2 2 5 3

I 4

I 4 5 j 5 67

67 71 71

llic 0 2 i3 3 6 1 10 F

12 13 13 15 16 16 17

__ 7 5--Z 7-7 77__ 3 7 214 124 264 304 366 376 398 378

ANNX VIII VA-c IjEc 0OJECT TITLE DATE Ifi1ORIGINAL jAPPROWOD

77ntermrisc - 1 Dvopaert 1677 REVISION V

977 CY 1978 CY 1979

- -4

4 4-- 0i w W r- v4

4 UsM

14I

0 12 24 36

LPOW

2cr--ato to extenrd $60 million of AID Loan

1 l a--s conitted by Industrial Bank

Inc Aure-r aion

Fcur promotors hird 2-2-

tc-Ln A-reeent 6

Full amount of -7 AID Loan fully disbursed

A= --d ed AID Loan cotmmitted

0-0Z S CRITICAL PERFORMANCE INDICATOR (CP NETWORK

COiTAY ROJECT NC PROjECT TiTLE DATE 527--057 Airal rnterprises I Develooment ORIGINALAppoAOVEOj1677 ORIIONAL

PRCjECT PuRPCSE (FROM PRP FACESHEET)

To irstitutionalize an integrated program of financial and technical assistance to assist existing and new rural enterprises

vl OEscRIPTION

Action Agent Action Date

AIDW 1 Authorization to extend terminal dates Jan 31 1975

AIDW 2 Loan Authorization Mar 15 1977 amended

USAIDGOP 3 Loan Agreement May 1i1977

amended

Industrial Bank 4 Four promotors hired June 15 1977

Industrial Bank 5 $60 million of AID Jan 3] 1978 Loan committed by Industrial Bank

Industrial Bank 6 Full amount of AID July 31 1978 Loan committed

Industrial Bank 7 AID Loan fully Jan 3] 1979 ORDEZA disbursed

AID 102036 (6-76) CRITICAL PERFORMANCE INDICATOR (CPI) DESCRIPTION

Enterprise

CAP Zanja

SAIS 3 de Octubre

Comunidad Cabana

Comunidad Conchucos

SAIS Revoluci6n

SAIS Vallejo

SAIS San I-artin

CAS Pariacoto

ANNTEX IV

Sub-Projects Prepared By ORDEZA For Loan Financing

Activitv Sub-Loan Size Status

(in SMillion)

Livestock 30 Approved by USAID

to 105 of i of

of 59 USAID approval pending TDD Extension

to 80

217 Submitted 1230 under USAID review 138

94

Balanced feed plant 220 Submission expected in 177

TOTAL INVEST NT 943

Cox-itted to approved sub-projects 135

pending cornunitment 8O -8

ANNEX V

Summary Description of Additional Sierra Departments

APURIMAC

1 iGeography and Population

The 1972 Census gave the population of the Department of Apurimac as 308613 of which 756 (233525) lived in areas classified as rural

The principal city of the Department is Abancay with a populashytion estimated at 12000 inhabitants the next largest urban center is Andahuaylas with a population of approximately 2000 in the city itself and serving an extensive rural population The majority of Department inhabitants live in dispersedrural areas or in small urban concentrations of 250 inhabitants or less

Over 90 of the Department is classified as sierra with a small portion of the eastern area sloping down to the high jungle area bordering on the Apurimac River (a tributary of the Amazon) Commushynications networks are extremely deficient with one major road connectshying Abancay with Huancayo and Cuzco (the trip from Huancayo to Cuzco using this route is approximately 50 hours)

2 Economic Activity

The 1972 Census gives the following breakdown of occupationalcategories for the Department of Apurimac

Economic Activity Persons Employed of Total

Agriculture (farming and livestock) 55467 780

Fishing 5

Mining 112 01

Industry 3803 53

Utilities 89 01

Construction 904 13

Commerce (inc banking) 2460 35

Transport 559 08

Services 5267 74

Other 2523 35 TOTAL 71189 1000

ANNEX V

Agriculture as carried out in the Department is practically entirely of a subsistance nature with little surplus sold to regional markets Very few associative enterprises operate in the zone since

there were few privately-owned haciendas in the area prior to the

Agrarian Reform and those few associative enterprises which have been

created are almost exclusively service cooperatives which group together private landholders in order to achieve economies of scale in

the purchasing of agro-inputs and marketing of whatever surplus is

produced Seven such service cooperatives have been identified and several have shown interest in possible investments in small industries

What little industry exists is of the home-industry variety -- small

producers of leather candies and breads and bottled soft drinks The

major non-farm activity in the area is the service sector which has

grown up as a result of the increasing road traffic between Cuzco and

the coast -- small family-operated restaurants and boarding houses

auto mechanics shops and similar services which are offered to truckers

busses and individuals making the overland journey

The economic potential of the zone is not particularly bright given problems of extremely high altitude poor soil conditions lack of mineral resources and a lack of internal savings which is considered

to be the lowest in the country Nonetheless the Industrial Bank has identified a series of small enterprise possibilities which should help

to alleviate the conditions of extreme rural poverty which prevail in the

area These include the production of livestock (cuy swine chickens) and related activities (slaughterhouses production of milk and cheese

balanced feed mills) which are particularly appropriate to the Andashy

huaylas area which is geographically located at a lower altitude than

most of the Department The introduction of fish farming in higher

sierra areas is aJso considered to be a potentially profitable venture

along with a re-introduction of the silk industry (which at one time

was a highly profitable industry ineigenous to the region) and creashy

tion of small service industries xestaurants and commercial entershy

prises

CAJAMARCA

1 Geography and Population

The 1972 Census gives the population of the Department of Cajamarca

as 919161 making it the most populous of Perus predominantly sierra

departments Of this total 759095 (83) are classified as living in

rural areas The major city Cajamarca is located in more or less the

geographic center of the Department and has an estimated population of

32000 following the city of Cajamarca in size and importance are Cajabamba and Chota with populations of about 6000 inhabitants each

- -

ANNEXV

The rest of the population living in areas classified as urban are generally found in small communitie3 primarily agricultural in orientation of 500 persons or less

The geography of the Department is characteristic of the northern Sierra -- broad river-fed valleys interspersed among peaks ranging up to 18000 feet above sea level Transportation routes within the Department are relatively well developed An all-weather road connects the city of Cajamarca with the Pan American highway on the coast and trucks and busses can easily make the journey from Cajamarca to the important coastal cities of Chiclayo and Trujillo in seven hours Cajamarca is also connected to Chiclayo Trujillo and Lima by air service From Cajamarca to other interior points of the Departmenthowever road travel is difficult and while roads are passable during9 or 10 months of the year passage is difficult and vehicle maintenance costs are extremely high

2 Economic Activity

According to the Census the economically active population of the Department is broken down as follows

Economic Activity Persons Employed of Total

Agriculture (farming livestock) 172998 760

Fishing 34

Mining 1061 06

Industry 20842 91

Utilities 92 01

Construction 2591 11

Commerce banking 6865 30

Transport 1670 07

Services 13703 60

Others 7821 34

TOTIL 227677 1000

Agriculture the predominant economic activity is characterized by extremely low levels of technology relying on primitive agriculshytural techniques which -- when combined with the small amount of land available per farm family -- results in very little surplus available for sale after immediate family requirements are met The scarcity

ANNEX V

of all-weather roads and great distances which separate the widely scattered productive valleys contribute to continued low level of production and inadequate dissemination of GOP provided technical assistance through Agrarian Zonal offices and the Agrarian Bank The Agrarian Reform has been active in the -=ea and over 50 of land has been adjudicated in the form of indigerous campesino comshymunities agrarian production cooperatives and individual title to small farms The bulk of farms fall into the latter category and it has been estimated that 98 of the physical extension of the Department is currently farmed in land holdings fallirg between 5 and 25 hectares

91 of the economically active population is engaged in small industry -- chiefly activities associated with dairy farming (Perulac an affiliate of Nestle operates an evaporated milk factory in the city of Cajamarca and there are many small producers of cheese in the central part of the Department) There is additionally a growing market for artisan goods produced in the Cajamarca area although this is not yet an important source of incomeemployment

The service industry of the Department is centered around the growshying importance of Cajamarca as a tourist center While tourist facilishyties are deficient (there is one State-run hotel catering almost exshyclusively to foreign visitors) the GOP has plans to upgrade existing facilities and give incentives to private interests to invest in tourism

The totirist potential of the area combined with Cajamarcas natural advantage for the exploitation of its dairy industry make the area attractive to potential investors Cajamarca cheeses are highly valued throughout Peru but since they are produced on a very small scale they rarely find their way to potential markets on the coast Manjarblanco another mouth-watering treat favored by travellers to the area is another dairy-related industry which could be expanded with ready markets on the coast

ANNEX V

HUANCAVELICA

1 Geography and Population

The population of the Department of Huancavelica in 1972 was331629 of which 76 (252001) were classified as living in ruralareas There is only one significant urban area the city ofHuancavelica with a population of approximately 15000 The restof the population is highly dispersed with little social oreconomic access to the Departmental capital Of the 24 of thepopulation living in areas which the Census classified as urbanthe vast majority live in population centers of less than 500 inhabitants

The Department is classified as Sierra with a small portionto the west sloping down to the coast The topography is ruggedthere are few all-weather transitable roads and there is a raillink with Huancayo in the adjacent Department of Junin

2 Economic Activity

The 1972 Census gives the following occupational breakdown bycategory of employment

Economic Activity Persons Employed of Total

Agriculture (farminglivestock) 55979 703Fishing 4Mining 4236 53Manufacturing 3875 48Utilities 226 02Construction Commerce (inc banking)

3142 39 3625 45Transport 665 08Services 4427 55Others 3773 47

TOTAL 79952 1000

With over 70 of the active labor force engaged in agriculturethe areas economy is based on the production of high-altitudefoodstuffs (potatoes yuca corn etc) and the GOP has been givingpriority to developing sheep ranching and building up alpaca andllama herds The soil conditions are extremely poor there islittle attention given to crop rotation or experimentation withimproved seeds and population pressures on the land are among the

ANNEX V

most extreme in Peru (an estimated 07 hectares of arable land perfam family) As a result of these factors production has droppedin absolute terms during the past ten years and more and morefarm families are being forced to leave the land The problem reshymains however that there are few off-farm jobs available in the area forcing outmigration to adjacent cities such as Huancayo in the Sierra and Ica on the coast or to Lima Mining in Huancavelica continues to be an important source of revenue but the capitalintensive mines of CentroMin in the area can only absorb a handful of new laborers every year -- and most of these are the sons of miners who have worked previously with the companies The famous mercury mines of Santa Barbara and Huancavelica discovered duringthe colonial period at one time enployed almost the entire adultpopulation of the area but are now depleted or uneconomical

Industry in the area is generally carried out on an extremelysmall scale --there are a few bottling plants producing for the area market and some small leather and woodworking companiesUnder the direction of the local SINAMOS office a DevelopmentProgram for 1977 and 1978 has been prepared calling for significantinvestment in small industry in an attempt to divert outmigrationinto productive activity within the Department Among investment possibilities SINAMOS has identified industrialization of alpacaand sheep fiber the development of small fishfarms and eventual production of smoked trout the manufacture of food dyes a small factory to produce fertilizers using mineral traces of the zoneand the development of a milk butter and cheese industry

7hese and other small industries would be carried out at thelevel of established associative enterprises in the zone At presshyent there is one SAIS in the area covering a physical extension of 83000 hectares with over 5000 members and some 10 productioncooperatives created as a result of the Agrarian Reform Vhe bulk of the rural population however remain in indigenous campesinocommunities or work individually-owned small plots of land

HUANUCO

1 Geography and Population

According to the 1972 Census the population of the Departmentof Huanuco was 414468 with 734 (304385) living in areas classified as rural The capital of the Department Huanuco isthe largest urban concentration with an estimated population of30000 inhabitants The majority of other urban dwellers are concenshytrated in mining camps and small commercially-oriented towns which

ANNEX V

provide services to transport traffic using the Lima to Pucallpa highway

The Department contains three distinct geographic zones -shythe high sierra in the eastern part of the Department the ceja de selva and finally the jungle on the western extreme bordering the Department of Loreto The ceja de selva or high jungle has long been signalled as an area of vast potential for Peru but up to the present physical infrastructure and needed financial reshysources have been lacking It is an area which offers potential in both agriculture and livestock expansion as well as small industries using the agricultural and mineral resources of the zone

The Lima-Pucallpa highway traverses much of the Department of Huanuco and while the increasing traffic between coast and jungle has put severe strains on the highway -- especially the La Oroya to Lima section which crosses over the high Andes -- it is noneshytheless possible to make the overland trip from the city of Huanuco to Lima in about 12 hours Additionally the secondary road network is fairly well developed a result of the many small mining ventures in the area which have built roads from their industrial complexes to the highway There is scheduled air traffic from Huanuco to Lima and Pucallpa

2 Economic Activity

The occupational breakdown of the Department of Huanuco according to the 1972 Census is as follows

Economic Activity Persons Employed of Total

Agriculture (farming livestock) 72711 707 Fishing 31 Mining 1542 15 Industry 5392 52 Utilities 53 01

2423Construction 24 Commerce banking 6060 59 Transport 1794 17 Services 8597 84 Other 4260 41 TOTAL 102863 1000

ANNEX V

Agriculture is characterized by minifundia (individually farmedplots averaging two to three hectares) and associative enterprisescreated as a result of the Agrarian Reform An Industrial Banksurvey found that 20 associative enterprises were currentlyfunctioning in the area -- mostly in the area below Huanuco in thehigh jungle The basic productive pattern has traditionally beengarden crops for home consumption and sale of surplus in areamarkets but recently the GOP has been promoting increased cultivashytion of soybeans and fruits which can be consumed fresh or processedfor the coastal or export market

Industry employs 52 of the Department work force The bulkof industry is located in and around the city of Huanuco and isbasically oriented towards the production of consumer goods Fewlinks exist between the agricultural and mining base of the areaand the industries which have grown up there

The Industrial Bank has identified a large number of potentialsub-projects in the area which would help to establish linkagesbetween agricultural and mining output and new industry -- theseinclude the manufacture of auto parts mechnical equipment metalworking a sausage processing plant and other livestock-related industries

Mining while only employing 15 of the economically activepopulation is nonetheless an extremely important activity fromthe national point of view Important zinc and lead deposits arefound in the higher sierra regions including the Milpo andAtacocha mining complexes located an hour above the city ofHuanuco Since capital intensive mine exploitation is practicedin the area there is little possibility that new employmentincome will be generated through increased mining activity

ANNEX VI

Fund Investment Potential In Additional

Sierra Departments

The following is a list of sub-project possibilities for Fund investment in the departments of Huanuco Apurimac and Huancavelica These sub-projects were identified in the course of two-day visits by Bank personnel to the Bank Offices on each department where they interviewed local Bank staff regional planning office personnel managers of associative enterprises and local entrepreneurs Prosshypective sub-borrower or promotors exist for each sub-project except as indicated

HUAhUCO

Sub-Project Activity Estimated Sub-Loan Size (In S1000)

Dairy Products 4000 Chicken Production 2000 Printing Industry 2000 Marketing of Pharmaceutical Products 4000 Gas Station 10000 Milk Processing Plant 4000 Sausage Processing Plant 10000 Auto Spare Parts 10000 Tourism 500 Brick Factory 1000 Saw Mill 2000 Swine Processing Plant 4500 Swine Processing Plant 4500 Industiial Parts Production 300 Livestock Production and Processing 3000 Metal-Working 8000 Hotel 2000 Carpentry Shop 500 Recreation Center 1000 Bakery 500 Rabbit Meat Processing 1000 Bread and Candy Shop 1500 Jewelry and Jewelry Repair Shop 2000 Photo Studio 600 Ice-Cream Shop 1000 Sea-Food Restaurant 285 Local Crafts 2000 Local Crafts 2000 Local Crafts 1000

ANNEX VI

Sub-Project Activity Estimated Sub-Loan Size (In So00)

Cattle Raisiny and related activities 500 Industrialization of Tubers 500 Dairy Processing Plaster Factory Hotel Grain Mill 1600 Meat Packing Center Hog Fattenin 9 Center Sausage Plant Rabbit Meat Processing Local Crafts Sla y hterhouse Leather Crafts Leather Crafts Dairy and Leather Industry

Cement Plant Grain ill Starch Processing and Dried Potato Plant Miscellaneous Supply Store Miscellaneous Supply Store Papaya Canning Plant Juice Cannery Cornstarch Production Dried Potato Prcduction Dairy Plant 2900 Tuber IndustryAseveral small plants on local scale) 72000 Leather and Shoe Shop 1000 Warehouses and Silos 12000 Slaughterhouse 16000 Balanced feed plant 10000 Coristruction liaterials 18000 Pig and Poultry Centers 7000 Fish Farm 10000 Cereal Industry 6000 Tourist Lodging Wiring and Silver Welding Marketing Centers

Local Crafts Non Traditional Crafts Packing Center Warehouse and Market Place Industry 5000 Mechanicamp Industry 3000 Reconstruction and Services Center 5000

AWEX VI

Shb-Project Activity Estimated Sub-Loan Size (In S1000)

Marketing 700 McX keting 500 Markcting 2000 Industry 1500 Marketing 2000 Farm 1000 Marketing 2000 Marketing 2000 Marketing 4000 Marketing 4000 Farm 1000 Marketing 2000 Industry 1000

Potato Industry Potato Industry

Idea stage only with no identified sub-borrower

Total Sub-loan investment in projects with cost estimates S278000000

($3978357 at S70 = USl)

APURIMLAC (Abancay province only)

Sub-Project Activity Estimated Sub-Loan Size (In S000)

Slaughterhouse 15000 Anisette production 2000 Honey processing 1500 Hostels (2 projects) 4500 Balanced feed plant 3000 Guinea pig farms (3 projects 2100 Pig farms (3 projects) 8000 Flour Mill 500 Chicken farm (3 projects) 1800 Brick factory 800 Plaster factories (2 projects) 1000 Leather tannery 2000 Dairy processing 1500 Beverages (2 projects) 3100 Straw bags 500 Perfume factory 500 Noodles factory 2000 Troat farm -1000 Sawnill 1500

ANNEX VI

Sub-Project Activity Estimated Sub-Loan Size

(In S000)

Metal Furniture Production 400 Spice Mill 300 Bikery 500 Restaurant 150 Ice Cream Factory 100 Candy Factory 100 Food retail 300 Silk processing 10000 Plaster factory 500 Brick factory 500 Flour Mill 500

Idea Stage only with no identified sub-borrower

Total Sub-Loan investment in projects with cost estimates S65650000

$ Y37857 at S70 = US$1)

HUANCAVELICA

Sub-Project Activity Estimated Sub-Loan Size

(In (S000)

Alpaca and Sheep wool processing 25000 Fish farms (5 projects) 15000 Leather Tannery Dairy processing Dye factory Tourist restaurant 500 Fertilizer plant Brick and tile factory 500 Sawmill 2000 Meat Conservation Fattening Centers

Idea stage only with no identified sub-borrower

Total Sub-Loan investment in projects with cost estimates S43000000

($ 614286 at S70 = USS1)

ANNEX VII

Projected Sub-loan Commitments of Additional PandCaital

The projections shown below are based on the Banks estimates of the additional departments capacity to absorb Fund credit as follows Apurimac - S80 million Cajamarca - S60 million Huanshycavelica - S60 million and Huanuco - S150 million totallingS350 million These estimates assume slightly higher sub-lendingfigures for Apurimac Cajamarca and Huancavelica than supported bythe Banks totals of potential sub-project investments in these departments in order to provide for additional investment in subshyprojects currently lacking cost estimates and in new sub-projectopportunities to be identified by contracted consultants

This schedule of sub-loan approvals reflects an initial start-up periodof low activity to allow for the hiring of promotors orientation of branch office staff promotion campaigns and the contracting of conshysultants for sub-project identification and study Assuming that the Mission receives authorization to proceed with the proposal to transfer funds and expand the Fund into these departments by March 1 and proshyviding for a start-up period of approximately three months full subshylending operations will begin by June

Projccted ub-Loan Coditrc--ts of 7(2-ional Fund Capital A1MEY VUl March l977

(in S - Jlv 1V8rlillicn)

___-euro - rr-C----- --- VIA S5 --)- J F M J F J I Apurimac so

Apz0 a02 I

I 15 9

49 54 54 6474 82 82 86 86 0 I j il

CaC3ra Gajama ra

I 0 4 2 5

-

3 4

I--I 4 5

~ 1 5

-

6 7

-

71 71

Huancavelica [ 02 1 04 1 1 16 1 6 2 2 5 3

I 4

I 4 5 j 5 67

67 71 71

llic 0 2 i3 3 6 1 10 F

12 13 13 15 16 16 17

__ 7 5--Z 7-7 77__ 3 7 214 124 264 304 366 376 398 378

ANNX VIII VA-c IjEc 0OJECT TITLE DATE Ifi1ORIGINAL jAPPROWOD

77ntermrisc - 1 Dvopaert 1677 REVISION V

977 CY 1978 CY 1979

- -4

4 4-- 0i w W r- v4

4 UsM

14I

0 12 24 36

LPOW

2cr--ato to extenrd $60 million of AID Loan

1 l a--s conitted by Industrial Bank

Inc Aure-r aion

Fcur promotors hird 2-2-

tc-Ln A-reeent 6

Full amount of -7 AID Loan fully disbursed

A= --d ed AID Loan cotmmitted

0-0Z S CRITICAL PERFORMANCE INDICATOR (CP NETWORK

COiTAY ROJECT NC PROjECT TiTLE DATE 527--057 Airal rnterprises I Develooment ORIGINALAppoAOVEOj1677 ORIIONAL

PRCjECT PuRPCSE (FROM PRP FACESHEET)

To irstitutionalize an integrated program of financial and technical assistance to assist existing and new rural enterprises

vl OEscRIPTION

Action Agent Action Date

AIDW 1 Authorization to extend terminal dates Jan 31 1975

AIDW 2 Loan Authorization Mar 15 1977 amended

USAIDGOP 3 Loan Agreement May 1i1977

amended

Industrial Bank 4 Four promotors hired June 15 1977

Industrial Bank 5 $60 million of AID Jan 3] 1978 Loan committed by Industrial Bank

Industrial Bank 6 Full amount of AID July 31 1978 Loan committed

Industrial Bank 7 AID Loan fully Jan 3] 1979 ORDEZA disbursed

AID 102036 (6-76) CRITICAL PERFORMANCE INDICATOR (CPI) DESCRIPTION

ANNEX V

Summary Description of Additional Sierra Departments

APURIMAC

1 iGeography and Population

The 1972 Census gave the population of the Department of Apurimac as 308613 of which 756 (233525) lived in areas classified as rural

The principal city of the Department is Abancay with a populashytion estimated at 12000 inhabitants the next largest urban center is Andahuaylas with a population of approximately 2000 in the city itself and serving an extensive rural population The majority of Department inhabitants live in dispersedrural areas or in small urban concentrations of 250 inhabitants or less

Over 90 of the Department is classified as sierra with a small portion of the eastern area sloping down to the high jungle area bordering on the Apurimac River (a tributary of the Amazon) Commushynications networks are extremely deficient with one major road connectshying Abancay with Huancayo and Cuzco (the trip from Huancayo to Cuzco using this route is approximately 50 hours)

2 Economic Activity

The 1972 Census gives the following breakdown of occupationalcategories for the Department of Apurimac

Economic Activity Persons Employed of Total

Agriculture (farming and livestock) 55467 780

Fishing 5

Mining 112 01

Industry 3803 53

Utilities 89 01

Construction 904 13

Commerce (inc banking) 2460 35

Transport 559 08

Services 5267 74

Other 2523 35 TOTAL 71189 1000

ANNEX V

Agriculture as carried out in the Department is practically entirely of a subsistance nature with little surplus sold to regional markets Very few associative enterprises operate in the zone since

there were few privately-owned haciendas in the area prior to the

Agrarian Reform and those few associative enterprises which have been

created are almost exclusively service cooperatives which group together private landholders in order to achieve economies of scale in

the purchasing of agro-inputs and marketing of whatever surplus is

produced Seven such service cooperatives have been identified and several have shown interest in possible investments in small industries

What little industry exists is of the home-industry variety -- small

producers of leather candies and breads and bottled soft drinks The

major non-farm activity in the area is the service sector which has

grown up as a result of the increasing road traffic between Cuzco and

the coast -- small family-operated restaurants and boarding houses

auto mechanics shops and similar services which are offered to truckers

busses and individuals making the overland journey

The economic potential of the zone is not particularly bright given problems of extremely high altitude poor soil conditions lack of mineral resources and a lack of internal savings which is considered

to be the lowest in the country Nonetheless the Industrial Bank has identified a series of small enterprise possibilities which should help

to alleviate the conditions of extreme rural poverty which prevail in the

area These include the production of livestock (cuy swine chickens) and related activities (slaughterhouses production of milk and cheese

balanced feed mills) which are particularly appropriate to the Andashy

huaylas area which is geographically located at a lower altitude than

most of the Department The introduction of fish farming in higher

sierra areas is aJso considered to be a potentially profitable venture

along with a re-introduction of the silk industry (which at one time

was a highly profitable industry ineigenous to the region) and creashy

tion of small service industries xestaurants and commercial entershy

prises

CAJAMARCA

1 Geography and Population

The 1972 Census gives the population of the Department of Cajamarca

as 919161 making it the most populous of Perus predominantly sierra

departments Of this total 759095 (83) are classified as living in

rural areas The major city Cajamarca is located in more or less the

geographic center of the Department and has an estimated population of

32000 following the city of Cajamarca in size and importance are Cajabamba and Chota with populations of about 6000 inhabitants each

- -

ANNEXV

The rest of the population living in areas classified as urban are generally found in small communitie3 primarily agricultural in orientation of 500 persons or less

The geography of the Department is characteristic of the northern Sierra -- broad river-fed valleys interspersed among peaks ranging up to 18000 feet above sea level Transportation routes within the Department are relatively well developed An all-weather road connects the city of Cajamarca with the Pan American highway on the coast and trucks and busses can easily make the journey from Cajamarca to the important coastal cities of Chiclayo and Trujillo in seven hours Cajamarca is also connected to Chiclayo Trujillo and Lima by air service From Cajamarca to other interior points of the Departmenthowever road travel is difficult and while roads are passable during9 or 10 months of the year passage is difficult and vehicle maintenance costs are extremely high

2 Economic Activity

According to the Census the economically active population of the Department is broken down as follows

Economic Activity Persons Employed of Total

Agriculture (farming livestock) 172998 760

Fishing 34

Mining 1061 06

Industry 20842 91

Utilities 92 01

Construction 2591 11

Commerce banking 6865 30

Transport 1670 07

Services 13703 60

Others 7821 34

TOTIL 227677 1000

Agriculture the predominant economic activity is characterized by extremely low levels of technology relying on primitive agriculshytural techniques which -- when combined with the small amount of land available per farm family -- results in very little surplus available for sale after immediate family requirements are met The scarcity

ANNEX V

of all-weather roads and great distances which separate the widely scattered productive valleys contribute to continued low level of production and inadequate dissemination of GOP provided technical assistance through Agrarian Zonal offices and the Agrarian Bank The Agrarian Reform has been active in the -=ea and over 50 of land has been adjudicated in the form of indigerous campesino comshymunities agrarian production cooperatives and individual title to small farms The bulk of farms fall into the latter category and it has been estimated that 98 of the physical extension of the Department is currently farmed in land holdings fallirg between 5 and 25 hectares

91 of the economically active population is engaged in small industry -- chiefly activities associated with dairy farming (Perulac an affiliate of Nestle operates an evaporated milk factory in the city of Cajamarca and there are many small producers of cheese in the central part of the Department) There is additionally a growing market for artisan goods produced in the Cajamarca area although this is not yet an important source of incomeemployment

The service industry of the Department is centered around the growshying importance of Cajamarca as a tourist center While tourist facilishyties are deficient (there is one State-run hotel catering almost exshyclusively to foreign visitors) the GOP has plans to upgrade existing facilities and give incentives to private interests to invest in tourism

The totirist potential of the area combined with Cajamarcas natural advantage for the exploitation of its dairy industry make the area attractive to potential investors Cajamarca cheeses are highly valued throughout Peru but since they are produced on a very small scale they rarely find their way to potential markets on the coast Manjarblanco another mouth-watering treat favored by travellers to the area is another dairy-related industry which could be expanded with ready markets on the coast

ANNEX V

HUANCAVELICA

1 Geography and Population

The population of the Department of Huancavelica in 1972 was331629 of which 76 (252001) were classified as living in ruralareas There is only one significant urban area the city ofHuancavelica with a population of approximately 15000 The restof the population is highly dispersed with little social oreconomic access to the Departmental capital Of the 24 of thepopulation living in areas which the Census classified as urbanthe vast majority live in population centers of less than 500 inhabitants

The Department is classified as Sierra with a small portionto the west sloping down to the coast The topography is ruggedthere are few all-weather transitable roads and there is a raillink with Huancayo in the adjacent Department of Junin

2 Economic Activity

The 1972 Census gives the following occupational breakdown bycategory of employment

Economic Activity Persons Employed of Total

Agriculture (farminglivestock) 55979 703Fishing 4Mining 4236 53Manufacturing 3875 48Utilities 226 02Construction Commerce (inc banking)

3142 39 3625 45Transport 665 08Services 4427 55Others 3773 47

TOTAL 79952 1000

With over 70 of the active labor force engaged in agriculturethe areas economy is based on the production of high-altitudefoodstuffs (potatoes yuca corn etc) and the GOP has been givingpriority to developing sheep ranching and building up alpaca andllama herds The soil conditions are extremely poor there islittle attention given to crop rotation or experimentation withimproved seeds and population pressures on the land are among the

ANNEX V

most extreme in Peru (an estimated 07 hectares of arable land perfam family) As a result of these factors production has droppedin absolute terms during the past ten years and more and morefarm families are being forced to leave the land The problem reshymains however that there are few off-farm jobs available in the area forcing outmigration to adjacent cities such as Huancayo in the Sierra and Ica on the coast or to Lima Mining in Huancavelica continues to be an important source of revenue but the capitalintensive mines of CentroMin in the area can only absorb a handful of new laborers every year -- and most of these are the sons of miners who have worked previously with the companies The famous mercury mines of Santa Barbara and Huancavelica discovered duringthe colonial period at one time enployed almost the entire adultpopulation of the area but are now depleted or uneconomical

Industry in the area is generally carried out on an extremelysmall scale --there are a few bottling plants producing for the area market and some small leather and woodworking companiesUnder the direction of the local SINAMOS office a DevelopmentProgram for 1977 and 1978 has been prepared calling for significantinvestment in small industry in an attempt to divert outmigrationinto productive activity within the Department Among investment possibilities SINAMOS has identified industrialization of alpacaand sheep fiber the development of small fishfarms and eventual production of smoked trout the manufacture of food dyes a small factory to produce fertilizers using mineral traces of the zoneand the development of a milk butter and cheese industry

7hese and other small industries would be carried out at thelevel of established associative enterprises in the zone At presshyent there is one SAIS in the area covering a physical extension of 83000 hectares with over 5000 members and some 10 productioncooperatives created as a result of the Agrarian Reform Vhe bulk of the rural population however remain in indigenous campesinocommunities or work individually-owned small plots of land

HUANUCO

1 Geography and Population

According to the 1972 Census the population of the Departmentof Huanuco was 414468 with 734 (304385) living in areas classified as rural The capital of the Department Huanuco isthe largest urban concentration with an estimated population of30000 inhabitants The majority of other urban dwellers are concenshytrated in mining camps and small commercially-oriented towns which

ANNEX V

provide services to transport traffic using the Lima to Pucallpa highway

The Department contains three distinct geographic zones -shythe high sierra in the eastern part of the Department the ceja de selva and finally the jungle on the western extreme bordering the Department of Loreto The ceja de selva or high jungle has long been signalled as an area of vast potential for Peru but up to the present physical infrastructure and needed financial reshysources have been lacking It is an area which offers potential in both agriculture and livestock expansion as well as small industries using the agricultural and mineral resources of the zone

The Lima-Pucallpa highway traverses much of the Department of Huanuco and while the increasing traffic between coast and jungle has put severe strains on the highway -- especially the La Oroya to Lima section which crosses over the high Andes -- it is noneshytheless possible to make the overland trip from the city of Huanuco to Lima in about 12 hours Additionally the secondary road network is fairly well developed a result of the many small mining ventures in the area which have built roads from their industrial complexes to the highway There is scheduled air traffic from Huanuco to Lima and Pucallpa

2 Economic Activity

The occupational breakdown of the Department of Huanuco according to the 1972 Census is as follows

Economic Activity Persons Employed of Total

Agriculture (farming livestock) 72711 707 Fishing 31 Mining 1542 15 Industry 5392 52 Utilities 53 01

2423Construction 24 Commerce banking 6060 59 Transport 1794 17 Services 8597 84 Other 4260 41 TOTAL 102863 1000

ANNEX V

Agriculture is characterized by minifundia (individually farmedplots averaging two to three hectares) and associative enterprisescreated as a result of the Agrarian Reform An Industrial Banksurvey found that 20 associative enterprises were currentlyfunctioning in the area -- mostly in the area below Huanuco in thehigh jungle The basic productive pattern has traditionally beengarden crops for home consumption and sale of surplus in areamarkets but recently the GOP has been promoting increased cultivashytion of soybeans and fruits which can be consumed fresh or processedfor the coastal or export market

Industry employs 52 of the Department work force The bulkof industry is located in and around the city of Huanuco and isbasically oriented towards the production of consumer goods Fewlinks exist between the agricultural and mining base of the areaand the industries which have grown up there

The Industrial Bank has identified a large number of potentialsub-projects in the area which would help to establish linkagesbetween agricultural and mining output and new industry -- theseinclude the manufacture of auto parts mechnical equipment metalworking a sausage processing plant and other livestock-related industries

Mining while only employing 15 of the economically activepopulation is nonetheless an extremely important activity fromthe national point of view Important zinc and lead deposits arefound in the higher sierra regions including the Milpo andAtacocha mining complexes located an hour above the city ofHuanuco Since capital intensive mine exploitation is practicedin the area there is little possibility that new employmentincome will be generated through increased mining activity

ANNEX VI

Fund Investment Potential In Additional

Sierra Departments

The following is a list of sub-project possibilities for Fund investment in the departments of Huanuco Apurimac and Huancavelica These sub-projects were identified in the course of two-day visits by Bank personnel to the Bank Offices on each department where they interviewed local Bank staff regional planning office personnel managers of associative enterprises and local entrepreneurs Prosshypective sub-borrower or promotors exist for each sub-project except as indicated

HUAhUCO

Sub-Project Activity Estimated Sub-Loan Size (In S1000)

Dairy Products 4000 Chicken Production 2000 Printing Industry 2000 Marketing of Pharmaceutical Products 4000 Gas Station 10000 Milk Processing Plant 4000 Sausage Processing Plant 10000 Auto Spare Parts 10000 Tourism 500 Brick Factory 1000 Saw Mill 2000 Swine Processing Plant 4500 Swine Processing Plant 4500 Industiial Parts Production 300 Livestock Production and Processing 3000 Metal-Working 8000 Hotel 2000 Carpentry Shop 500 Recreation Center 1000 Bakery 500 Rabbit Meat Processing 1000 Bread and Candy Shop 1500 Jewelry and Jewelry Repair Shop 2000 Photo Studio 600 Ice-Cream Shop 1000 Sea-Food Restaurant 285 Local Crafts 2000 Local Crafts 2000 Local Crafts 1000

ANNEX VI

Sub-Project Activity Estimated Sub-Loan Size (In So00)

Cattle Raisiny and related activities 500 Industrialization of Tubers 500 Dairy Processing Plaster Factory Hotel Grain Mill 1600 Meat Packing Center Hog Fattenin 9 Center Sausage Plant Rabbit Meat Processing Local Crafts Sla y hterhouse Leather Crafts Leather Crafts Dairy and Leather Industry

Cement Plant Grain ill Starch Processing and Dried Potato Plant Miscellaneous Supply Store Miscellaneous Supply Store Papaya Canning Plant Juice Cannery Cornstarch Production Dried Potato Prcduction Dairy Plant 2900 Tuber IndustryAseveral small plants on local scale) 72000 Leather and Shoe Shop 1000 Warehouses and Silos 12000 Slaughterhouse 16000 Balanced feed plant 10000 Coristruction liaterials 18000 Pig and Poultry Centers 7000 Fish Farm 10000 Cereal Industry 6000 Tourist Lodging Wiring and Silver Welding Marketing Centers

Local Crafts Non Traditional Crafts Packing Center Warehouse and Market Place Industry 5000 Mechanicamp Industry 3000 Reconstruction and Services Center 5000

AWEX VI

Shb-Project Activity Estimated Sub-Loan Size (In S1000)

Marketing 700 McX keting 500 Markcting 2000 Industry 1500 Marketing 2000 Farm 1000 Marketing 2000 Marketing 2000 Marketing 4000 Marketing 4000 Farm 1000 Marketing 2000 Industry 1000

Potato Industry Potato Industry

Idea stage only with no identified sub-borrower

Total Sub-loan investment in projects with cost estimates S278000000

($3978357 at S70 = USl)

APURIMLAC (Abancay province only)

Sub-Project Activity Estimated Sub-Loan Size (In S000)

Slaughterhouse 15000 Anisette production 2000 Honey processing 1500 Hostels (2 projects) 4500 Balanced feed plant 3000 Guinea pig farms (3 projects 2100 Pig farms (3 projects) 8000 Flour Mill 500 Chicken farm (3 projects) 1800 Brick factory 800 Plaster factories (2 projects) 1000 Leather tannery 2000 Dairy processing 1500 Beverages (2 projects) 3100 Straw bags 500 Perfume factory 500 Noodles factory 2000 Troat farm -1000 Sawnill 1500

ANNEX VI

Sub-Project Activity Estimated Sub-Loan Size

(In S000)

Metal Furniture Production 400 Spice Mill 300 Bikery 500 Restaurant 150 Ice Cream Factory 100 Candy Factory 100 Food retail 300 Silk processing 10000 Plaster factory 500 Brick factory 500 Flour Mill 500

Idea Stage only with no identified sub-borrower

Total Sub-Loan investment in projects with cost estimates S65650000

$ Y37857 at S70 = US$1)

HUANCAVELICA

Sub-Project Activity Estimated Sub-Loan Size

(In (S000)

Alpaca and Sheep wool processing 25000 Fish farms (5 projects) 15000 Leather Tannery Dairy processing Dye factory Tourist restaurant 500 Fertilizer plant Brick and tile factory 500 Sawmill 2000 Meat Conservation Fattening Centers

Idea stage only with no identified sub-borrower

Total Sub-Loan investment in projects with cost estimates S43000000

($ 614286 at S70 = USS1)

ANNEX VII

Projected Sub-loan Commitments of Additional PandCaital

The projections shown below are based on the Banks estimates of the additional departments capacity to absorb Fund credit as follows Apurimac - S80 million Cajamarca - S60 million Huanshycavelica - S60 million and Huanuco - S150 million totallingS350 million These estimates assume slightly higher sub-lendingfigures for Apurimac Cajamarca and Huancavelica than supported bythe Banks totals of potential sub-project investments in these departments in order to provide for additional investment in subshyprojects currently lacking cost estimates and in new sub-projectopportunities to be identified by contracted consultants

This schedule of sub-loan approvals reflects an initial start-up periodof low activity to allow for the hiring of promotors orientation of branch office staff promotion campaigns and the contracting of conshysultants for sub-project identification and study Assuming that the Mission receives authorization to proceed with the proposal to transfer funds and expand the Fund into these departments by March 1 and proshyviding for a start-up period of approximately three months full subshylending operations will begin by June

Projccted ub-Loan Coditrc--ts of 7(2-ional Fund Capital A1MEY VUl March l977

(in S - Jlv 1V8rlillicn)

___-euro - rr-C----- --- VIA S5 --)- J F M J F J I Apurimac so

Apz0 a02 I

I 15 9

49 54 54 6474 82 82 86 86 0 I j il

CaC3ra Gajama ra

I 0 4 2 5

-

3 4

I--I 4 5

~ 1 5

-

6 7

-

71 71

Huancavelica [ 02 1 04 1 1 16 1 6 2 2 5 3

I 4

I 4 5 j 5 67

67 71 71

llic 0 2 i3 3 6 1 10 F

12 13 13 15 16 16 17

__ 7 5--Z 7-7 77__ 3 7 214 124 264 304 366 376 398 378

ANNX VIII VA-c IjEc 0OJECT TITLE DATE Ifi1ORIGINAL jAPPROWOD

77ntermrisc - 1 Dvopaert 1677 REVISION V

977 CY 1978 CY 1979

- -4

4 4-- 0i w W r- v4

4 UsM

14I

0 12 24 36

LPOW

2cr--ato to extenrd $60 million of AID Loan

1 l a--s conitted by Industrial Bank

Inc Aure-r aion

Fcur promotors hird 2-2-

tc-Ln A-reeent 6

Full amount of -7 AID Loan fully disbursed

A= --d ed AID Loan cotmmitted

0-0Z S CRITICAL PERFORMANCE INDICATOR (CP NETWORK

COiTAY ROJECT NC PROjECT TiTLE DATE 527--057 Airal rnterprises I Develooment ORIGINALAppoAOVEOj1677 ORIIONAL

PRCjECT PuRPCSE (FROM PRP FACESHEET)

To irstitutionalize an integrated program of financial and technical assistance to assist existing and new rural enterprises

vl OEscRIPTION

Action Agent Action Date

AIDW 1 Authorization to extend terminal dates Jan 31 1975

AIDW 2 Loan Authorization Mar 15 1977 amended

USAIDGOP 3 Loan Agreement May 1i1977

amended

Industrial Bank 4 Four promotors hired June 15 1977

Industrial Bank 5 $60 million of AID Jan 3] 1978 Loan committed by Industrial Bank

Industrial Bank 6 Full amount of AID July 31 1978 Loan committed

Industrial Bank 7 AID Loan fully Jan 3] 1979 ORDEZA disbursed

AID 102036 (6-76) CRITICAL PERFORMANCE INDICATOR (CPI) DESCRIPTION

ANNEX V

Agriculture as carried out in the Department is practically entirely of a subsistance nature with little surplus sold to regional markets Very few associative enterprises operate in the zone since

there were few privately-owned haciendas in the area prior to the

Agrarian Reform and those few associative enterprises which have been

created are almost exclusively service cooperatives which group together private landholders in order to achieve economies of scale in

the purchasing of agro-inputs and marketing of whatever surplus is

produced Seven such service cooperatives have been identified and several have shown interest in possible investments in small industries

What little industry exists is of the home-industry variety -- small

producers of leather candies and breads and bottled soft drinks The

major non-farm activity in the area is the service sector which has

grown up as a result of the increasing road traffic between Cuzco and

the coast -- small family-operated restaurants and boarding houses

auto mechanics shops and similar services which are offered to truckers

busses and individuals making the overland journey

The economic potential of the zone is not particularly bright given problems of extremely high altitude poor soil conditions lack of mineral resources and a lack of internal savings which is considered

to be the lowest in the country Nonetheless the Industrial Bank has identified a series of small enterprise possibilities which should help

to alleviate the conditions of extreme rural poverty which prevail in the

area These include the production of livestock (cuy swine chickens) and related activities (slaughterhouses production of milk and cheese

balanced feed mills) which are particularly appropriate to the Andashy

huaylas area which is geographically located at a lower altitude than

most of the Department The introduction of fish farming in higher

sierra areas is aJso considered to be a potentially profitable venture

along with a re-introduction of the silk industry (which at one time

was a highly profitable industry ineigenous to the region) and creashy

tion of small service industries xestaurants and commercial entershy

prises

CAJAMARCA

1 Geography and Population

The 1972 Census gives the population of the Department of Cajamarca

as 919161 making it the most populous of Perus predominantly sierra

departments Of this total 759095 (83) are classified as living in

rural areas The major city Cajamarca is located in more or less the

geographic center of the Department and has an estimated population of

32000 following the city of Cajamarca in size and importance are Cajabamba and Chota with populations of about 6000 inhabitants each

- -

ANNEXV

The rest of the population living in areas classified as urban are generally found in small communitie3 primarily agricultural in orientation of 500 persons or less

The geography of the Department is characteristic of the northern Sierra -- broad river-fed valleys interspersed among peaks ranging up to 18000 feet above sea level Transportation routes within the Department are relatively well developed An all-weather road connects the city of Cajamarca with the Pan American highway on the coast and trucks and busses can easily make the journey from Cajamarca to the important coastal cities of Chiclayo and Trujillo in seven hours Cajamarca is also connected to Chiclayo Trujillo and Lima by air service From Cajamarca to other interior points of the Departmenthowever road travel is difficult and while roads are passable during9 or 10 months of the year passage is difficult and vehicle maintenance costs are extremely high

2 Economic Activity

According to the Census the economically active population of the Department is broken down as follows

Economic Activity Persons Employed of Total

Agriculture (farming livestock) 172998 760

Fishing 34

Mining 1061 06

Industry 20842 91

Utilities 92 01

Construction 2591 11

Commerce banking 6865 30

Transport 1670 07

Services 13703 60

Others 7821 34

TOTIL 227677 1000

Agriculture the predominant economic activity is characterized by extremely low levels of technology relying on primitive agriculshytural techniques which -- when combined with the small amount of land available per farm family -- results in very little surplus available for sale after immediate family requirements are met The scarcity

ANNEX V

of all-weather roads and great distances which separate the widely scattered productive valleys contribute to continued low level of production and inadequate dissemination of GOP provided technical assistance through Agrarian Zonal offices and the Agrarian Bank The Agrarian Reform has been active in the -=ea and over 50 of land has been adjudicated in the form of indigerous campesino comshymunities agrarian production cooperatives and individual title to small farms The bulk of farms fall into the latter category and it has been estimated that 98 of the physical extension of the Department is currently farmed in land holdings fallirg between 5 and 25 hectares

91 of the economically active population is engaged in small industry -- chiefly activities associated with dairy farming (Perulac an affiliate of Nestle operates an evaporated milk factory in the city of Cajamarca and there are many small producers of cheese in the central part of the Department) There is additionally a growing market for artisan goods produced in the Cajamarca area although this is not yet an important source of incomeemployment

The service industry of the Department is centered around the growshying importance of Cajamarca as a tourist center While tourist facilishyties are deficient (there is one State-run hotel catering almost exshyclusively to foreign visitors) the GOP has plans to upgrade existing facilities and give incentives to private interests to invest in tourism

The totirist potential of the area combined with Cajamarcas natural advantage for the exploitation of its dairy industry make the area attractive to potential investors Cajamarca cheeses are highly valued throughout Peru but since they are produced on a very small scale they rarely find their way to potential markets on the coast Manjarblanco another mouth-watering treat favored by travellers to the area is another dairy-related industry which could be expanded with ready markets on the coast

ANNEX V

HUANCAVELICA

1 Geography and Population

The population of the Department of Huancavelica in 1972 was331629 of which 76 (252001) were classified as living in ruralareas There is only one significant urban area the city ofHuancavelica with a population of approximately 15000 The restof the population is highly dispersed with little social oreconomic access to the Departmental capital Of the 24 of thepopulation living in areas which the Census classified as urbanthe vast majority live in population centers of less than 500 inhabitants

The Department is classified as Sierra with a small portionto the west sloping down to the coast The topography is ruggedthere are few all-weather transitable roads and there is a raillink with Huancayo in the adjacent Department of Junin

2 Economic Activity

The 1972 Census gives the following occupational breakdown bycategory of employment

Economic Activity Persons Employed of Total

Agriculture (farminglivestock) 55979 703Fishing 4Mining 4236 53Manufacturing 3875 48Utilities 226 02Construction Commerce (inc banking)

3142 39 3625 45Transport 665 08Services 4427 55Others 3773 47

TOTAL 79952 1000

With over 70 of the active labor force engaged in agriculturethe areas economy is based on the production of high-altitudefoodstuffs (potatoes yuca corn etc) and the GOP has been givingpriority to developing sheep ranching and building up alpaca andllama herds The soil conditions are extremely poor there islittle attention given to crop rotation or experimentation withimproved seeds and population pressures on the land are among the

ANNEX V

most extreme in Peru (an estimated 07 hectares of arable land perfam family) As a result of these factors production has droppedin absolute terms during the past ten years and more and morefarm families are being forced to leave the land The problem reshymains however that there are few off-farm jobs available in the area forcing outmigration to adjacent cities such as Huancayo in the Sierra and Ica on the coast or to Lima Mining in Huancavelica continues to be an important source of revenue but the capitalintensive mines of CentroMin in the area can only absorb a handful of new laborers every year -- and most of these are the sons of miners who have worked previously with the companies The famous mercury mines of Santa Barbara and Huancavelica discovered duringthe colonial period at one time enployed almost the entire adultpopulation of the area but are now depleted or uneconomical

Industry in the area is generally carried out on an extremelysmall scale --there are a few bottling plants producing for the area market and some small leather and woodworking companiesUnder the direction of the local SINAMOS office a DevelopmentProgram for 1977 and 1978 has been prepared calling for significantinvestment in small industry in an attempt to divert outmigrationinto productive activity within the Department Among investment possibilities SINAMOS has identified industrialization of alpacaand sheep fiber the development of small fishfarms and eventual production of smoked trout the manufacture of food dyes a small factory to produce fertilizers using mineral traces of the zoneand the development of a milk butter and cheese industry

7hese and other small industries would be carried out at thelevel of established associative enterprises in the zone At presshyent there is one SAIS in the area covering a physical extension of 83000 hectares with over 5000 members and some 10 productioncooperatives created as a result of the Agrarian Reform Vhe bulk of the rural population however remain in indigenous campesinocommunities or work individually-owned small plots of land

HUANUCO

1 Geography and Population

According to the 1972 Census the population of the Departmentof Huanuco was 414468 with 734 (304385) living in areas classified as rural The capital of the Department Huanuco isthe largest urban concentration with an estimated population of30000 inhabitants The majority of other urban dwellers are concenshytrated in mining camps and small commercially-oriented towns which

ANNEX V

provide services to transport traffic using the Lima to Pucallpa highway

The Department contains three distinct geographic zones -shythe high sierra in the eastern part of the Department the ceja de selva and finally the jungle on the western extreme bordering the Department of Loreto The ceja de selva or high jungle has long been signalled as an area of vast potential for Peru but up to the present physical infrastructure and needed financial reshysources have been lacking It is an area which offers potential in both agriculture and livestock expansion as well as small industries using the agricultural and mineral resources of the zone

The Lima-Pucallpa highway traverses much of the Department of Huanuco and while the increasing traffic between coast and jungle has put severe strains on the highway -- especially the La Oroya to Lima section which crosses over the high Andes -- it is noneshytheless possible to make the overland trip from the city of Huanuco to Lima in about 12 hours Additionally the secondary road network is fairly well developed a result of the many small mining ventures in the area which have built roads from their industrial complexes to the highway There is scheduled air traffic from Huanuco to Lima and Pucallpa

2 Economic Activity

The occupational breakdown of the Department of Huanuco according to the 1972 Census is as follows

Economic Activity Persons Employed of Total

Agriculture (farming livestock) 72711 707 Fishing 31 Mining 1542 15 Industry 5392 52 Utilities 53 01

2423Construction 24 Commerce banking 6060 59 Transport 1794 17 Services 8597 84 Other 4260 41 TOTAL 102863 1000

ANNEX V

Agriculture is characterized by minifundia (individually farmedplots averaging two to three hectares) and associative enterprisescreated as a result of the Agrarian Reform An Industrial Banksurvey found that 20 associative enterprises were currentlyfunctioning in the area -- mostly in the area below Huanuco in thehigh jungle The basic productive pattern has traditionally beengarden crops for home consumption and sale of surplus in areamarkets but recently the GOP has been promoting increased cultivashytion of soybeans and fruits which can be consumed fresh or processedfor the coastal or export market

Industry employs 52 of the Department work force The bulkof industry is located in and around the city of Huanuco and isbasically oriented towards the production of consumer goods Fewlinks exist between the agricultural and mining base of the areaand the industries which have grown up there

The Industrial Bank has identified a large number of potentialsub-projects in the area which would help to establish linkagesbetween agricultural and mining output and new industry -- theseinclude the manufacture of auto parts mechnical equipment metalworking a sausage processing plant and other livestock-related industries

Mining while only employing 15 of the economically activepopulation is nonetheless an extremely important activity fromthe national point of view Important zinc and lead deposits arefound in the higher sierra regions including the Milpo andAtacocha mining complexes located an hour above the city ofHuanuco Since capital intensive mine exploitation is practicedin the area there is little possibility that new employmentincome will be generated through increased mining activity

ANNEX VI

Fund Investment Potential In Additional

Sierra Departments

The following is a list of sub-project possibilities for Fund investment in the departments of Huanuco Apurimac and Huancavelica These sub-projects were identified in the course of two-day visits by Bank personnel to the Bank Offices on each department where they interviewed local Bank staff regional planning office personnel managers of associative enterprises and local entrepreneurs Prosshypective sub-borrower or promotors exist for each sub-project except as indicated

HUAhUCO

Sub-Project Activity Estimated Sub-Loan Size (In S1000)

Dairy Products 4000 Chicken Production 2000 Printing Industry 2000 Marketing of Pharmaceutical Products 4000 Gas Station 10000 Milk Processing Plant 4000 Sausage Processing Plant 10000 Auto Spare Parts 10000 Tourism 500 Brick Factory 1000 Saw Mill 2000 Swine Processing Plant 4500 Swine Processing Plant 4500 Industiial Parts Production 300 Livestock Production and Processing 3000 Metal-Working 8000 Hotel 2000 Carpentry Shop 500 Recreation Center 1000 Bakery 500 Rabbit Meat Processing 1000 Bread and Candy Shop 1500 Jewelry and Jewelry Repair Shop 2000 Photo Studio 600 Ice-Cream Shop 1000 Sea-Food Restaurant 285 Local Crafts 2000 Local Crafts 2000 Local Crafts 1000

ANNEX VI

Sub-Project Activity Estimated Sub-Loan Size (In So00)

Cattle Raisiny and related activities 500 Industrialization of Tubers 500 Dairy Processing Plaster Factory Hotel Grain Mill 1600 Meat Packing Center Hog Fattenin 9 Center Sausage Plant Rabbit Meat Processing Local Crafts Sla y hterhouse Leather Crafts Leather Crafts Dairy and Leather Industry

Cement Plant Grain ill Starch Processing and Dried Potato Plant Miscellaneous Supply Store Miscellaneous Supply Store Papaya Canning Plant Juice Cannery Cornstarch Production Dried Potato Prcduction Dairy Plant 2900 Tuber IndustryAseveral small plants on local scale) 72000 Leather and Shoe Shop 1000 Warehouses and Silos 12000 Slaughterhouse 16000 Balanced feed plant 10000 Coristruction liaterials 18000 Pig and Poultry Centers 7000 Fish Farm 10000 Cereal Industry 6000 Tourist Lodging Wiring and Silver Welding Marketing Centers

Local Crafts Non Traditional Crafts Packing Center Warehouse and Market Place Industry 5000 Mechanicamp Industry 3000 Reconstruction and Services Center 5000

AWEX VI

Shb-Project Activity Estimated Sub-Loan Size (In S1000)

Marketing 700 McX keting 500 Markcting 2000 Industry 1500 Marketing 2000 Farm 1000 Marketing 2000 Marketing 2000 Marketing 4000 Marketing 4000 Farm 1000 Marketing 2000 Industry 1000

Potato Industry Potato Industry

Idea stage only with no identified sub-borrower

Total Sub-loan investment in projects with cost estimates S278000000

($3978357 at S70 = USl)

APURIMLAC (Abancay province only)

Sub-Project Activity Estimated Sub-Loan Size (In S000)

Slaughterhouse 15000 Anisette production 2000 Honey processing 1500 Hostels (2 projects) 4500 Balanced feed plant 3000 Guinea pig farms (3 projects 2100 Pig farms (3 projects) 8000 Flour Mill 500 Chicken farm (3 projects) 1800 Brick factory 800 Plaster factories (2 projects) 1000 Leather tannery 2000 Dairy processing 1500 Beverages (2 projects) 3100 Straw bags 500 Perfume factory 500 Noodles factory 2000 Troat farm -1000 Sawnill 1500

ANNEX VI

Sub-Project Activity Estimated Sub-Loan Size

(In S000)

Metal Furniture Production 400 Spice Mill 300 Bikery 500 Restaurant 150 Ice Cream Factory 100 Candy Factory 100 Food retail 300 Silk processing 10000 Plaster factory 500 Brick factory 500 Flour Mill 500

Idea Stage only with no identified sub-borrower

Total Sub-Loan investment in projects with cost estimates S65650000

$ Y37857 at S70 = US$1)

HUANCAVELICA

Sub-Project Activity Estimated Sub-Loan Size

(In (S000)

Alpaca and Sheep wool processing 25000 Fish farms (5 projects) 15000 Leather Tannery Dairy processing Dye factory Tourist restaurant 500 Fertilizer plant Brick and tile factory 500 Sawmill 2000 Meat Conservation Fattening Centers

Idea stage only with no identified sub-borrower

Total Sub-Loan investment in projects with cost estimates S43000000

($ 614286 at S70 = USS1)

ANNEX VII

Projected Sub-loan Commitments of Additional PandCaital

The projections shown below are based on the Banks estimates of the additional departments capacity to absorb Fund credit as follows Apurimac - S80 million Cajamarca - S60 million Huanshycavelica - S60 million and Huanuco - S150 million totallingS350 million These estimates assume slightly higher sub-lendingfigures for Apurimac Cajamarca and Huancavelica than supported bythe Banks totals of potential sub-project investments in these departments in order to provide for additional investment in subshyprojects currently lacking cost estimates and in new sub-projectopportunities to be identified by contracted consultants

This schedule of sub-loan approvals reflects an initial start-up periodof low activity to allow for the hiring of promotors orientation of branch office staff promotion campaigns and the contracting of conshysultants for sub-project identification and study Assuming that the Mission receives authorization to proceed with the proposal to transfer funds and expand the Fund into these departments by March 1 and proshyviding for a start-up period of approximately three months full subshylending operations will begin by June

Projccted ub-Loan Coditrc--ts of 7(2-ional Fund Capital A1MEY VUl March l977

(in S - Jlv 1V8rlillicn)

___-euro - rr-C----- --- VIA S5 --)- J F M J F J I Apurimac so

Apz0 a02 I

I 15 9

49 54 54 6474 82 82 86 86 0 I j il

CaC3ra Gajama ra

I 0 4 2 5

-

3 4

I--I 4 5

~ 1 5

-

6 7

-

71 71

Huancavelica [ 02 1 04 1 1 16 1 6 2 2 5 3

I 4

I 4 5 j 5 67

67 71 71

llic 0 2 i3 3 6 1 10 F

12 13 13 15 16 16 17

__ 7 5--Z 7-7 77__ 3 7 214 124 264 304 366 376 398 378

ANNX VIII VA-c IjEc 0OJECT TITLE DATE Ifi1ORIGINAL jAPPROWOD

77ntermrisc - 1 Dvopaert 1677 REVISION V

977 CY 1978 CY 1979

- -4

4 4-- 0i w W r- v4

4 UsM

14I

0 12 24 36

LPOW

2cr--ato to extenrd $60 million of AID Loan

1 l a--s conitted by Industrial Bank

Inc Aure-r aion

Fcur promotors hird 2-2-

tc-Ln A-reeent 6

Full amount of -7 AID Loan fully disbursed

A= --d ed AID Loan cotmmitted

0-0Z S CRITICAL PERFORMANCE INDICATOR (CP NETWORK

COiTAY ROJECT NC PROjECT TiTLE DATE 527--057 Airal rnterprises I Develooment ORIGINALAppoAOVEOj1677 ORIIONAL

PRCjECT PuRPCSE (FROM PRP FACESHEET)

To irstitutionalize an integrated program of financial and technical assistance to assist existing and new rural enterprises

vl OEscRIPTION

Action Agent Action Date

AIDW 1 Authorization to extend terminal dates Jan 31 1975

AIDW 2 Loan Authorization Mar 15 1977 amended

USAIDGOP 3 Loan Agreement May 1i1977

amended

Industrial Bank 4 Four promotors hired June 15 1977

Industrial Bank 5 $60 million of AID Jan 3] 1978 Loan committed by Industrial Bank

Industrial Bank 6 Full amount of AID July 31 1978 Loan committed

Industrial Bank 7 AID Loan fully Jan 3] 1979 ORDEZA disbursed

AID 102036 (6-76) CRITICAL PERFORMANCE INDICATOR (CPI) DESCRIPTION

- -

ANNEXV

The rest of the population living in areas classified as urban are generally found in small communitie3 primarily agricultural in orientation of 500 persons or less

The geography of the Department is characteristic of the northern Sierra -- broad river-fed valleys interspersed among peaks ranging up to 18000 feet above sea level Transportation routes within the Department are relatively well developed An all-weather road connects the city of Cajamarca with the Pan American highway on the coast and trucks and busses can easily make the journey from Cajamarca to the important coastal cities of Chiclayo and Trujillo in seven hours Cajamarca is also connected to Chiclayo Trujillo and Lima by air service From Cajamarca to other interior points of the Departmenthowever road travel is difficult and while roads are passable during9 or 10 months of the year passage is difficult and vehicle maintenance costs are extremely high

2 Economic Activity

According to the Census the economically active population of the Department is broken down as follows

Economic Activity Persons Employed of Total

Agriculture (farming livestock) 172998 760

Fishing 34

Mining 1061 06

Industry 20842 91

Utilities 92 01

Construction 2591 11

Commerce banking 6865 30

Transport 1670 07

Services 13703 60

Others 7821 34

TOTIL 227677 1000

Agriculture the predominant economic activity is characterized by extremely low levels of technology relying on primitive agriculshytural techniques which -- when combined with the small amount of land available per farm family -- results in very little surplus available for sale after immediate family requirements are met The scarcity

ANNEX V

of all-weather roads and great distances which separate the widely scattered productive valleys contribute to continued low level of production and inadequate dissemination of GOP provided technical assistance through Agrarian Zonal offices and the Agrarian Bank The Agrarian Reform has been active in the -=ea and over 50 of land has been adjudicated in the form of indigerous campesino comshymunities agrarian production cooperatives and individual title to small farms The bulk of farms fall into the latter category and it has been estimated that 98 of the physical extension of the Department is currently farmed in land holdings fallirg between 5 and 25 hectares

91 of the economically active population is engaged in small industry -- chiefly activities associated with dairy farming (Perulac an affiliate of Nestle operates an evaporated milk factory in the city of Cajamarca and there are many small producers of cheese in the central part of the Department) There is additionally a growing market for artisan goods produced in the Cajamarca area although this is not yet an important source of incomeemployment

The service industry of the Department is centered around the growshying importance of Cajamarca as a tourist center While tourist facilishyties are deficient (there is one State-run hotel catering almost exshyclusively to foreign visitors) the GOP has plans to upgrade existing facilities and give incentives to private interests to invest in tourism

The totirist potential of the area combined with Cajamarcas natural advantage for the exploitation of its dairy industry make the area attractive to potential investors Cajamarca cheeses are highly valued throughout Peru but since they are produced on a very small scale they rarely find their way to potential markets on the coast Manjarblanco another mouth-watering treat favored by travellers to the area is another dairy-related industry which could be expanded with ready markets on the coast

ANNEX V

HUANCAVELICA

1 Geography and Population

The population of the Department of Huancavelica in 1972 was331629 of which 76 (252001) were classified as living in ruralareas There is only one significant urban area the city ofHuancavelica with a population of approximately 15000 The restof the population is highly dispersed with little social oreconomic access to the Departmental capital Of the 24 of thepopulation living in areas which the Census classified as urbanthe vast majority live in population centers of less than 500 inhabitants

The Department is classified as Sierra with a small portionto the west sloping down to the coast The topography is ruggedthere are few all-weather transitable roads and there is a raillink with Huancayo in the adjacent Department of Junin

2 Economic Activity

The 1972 Census gives the following occupational breakdown bycategory of employment

Economic Activity Persons Employed of Total

Agriculture (farminglivestock) 55979 703Fishing 4Mining 4236 53Manufacturing 3875 48Utilities 226 02Construction Commerce (inc banking)

3142 39 3625 45Transport 665 08Services 4427 55Others 3773 47

TOTAL 79952 1000

With over 70 of the active labor force engaged in agriculturethe areas economy is based on the production of high-altitudefoodstuffs (potatoes yuca corn etc) and the GOP has been givingpriority to developing sheep ranching and building up alpaca andllama herds The soil conditions are extremely poor there islittle attention given to crop rotation or experimentation withimproved seeds and population pressures on the land are among the

ANNEX V

most extreme in Peru (an estimated 07 hectares of arable land perfam family) As a result of these factors production has droppedin absolute terms during the past ten years and more and morefarm families are being forced to leave the land The problem reshymains however that there are few off-farm jobs available in the area forcing outmigration to adjacent cities such as Huancayo in the Sierra and Ica on the coast or to Lima Mining in Huancavelica continues to be an important source of revenue but the capitalintensive mines of CentroMin in the area can only absorb a handful of new laborers every year -- and most of these are the sons of miners who have worked previously with the companies The famous mercury mines of Santa Barbara and Huancavelica discovered duringthe colonial period at one time enployed almost the entire adultpopulation of the area but are now depleted or uneconomical

Industry in the area is generally carried out on an extremelysmall scale --there are a few bottling plants producing for the area market and some small leather and woodworking companiesUnder the direction of the local SINAMOS office a DevelopmentProgram for 1977 and 1978 has been prepared calling for significantinvestment in small industry in an attempt to divert outmigrationinto productive activity within the Department Among investment possibilities SINAMOS has identified industrialization of alpacaand sheep fiber the development of small fishfarms and eventual production of smoked trout the manufacture of food dyes a small factory to produce fertilizers using mineral traces of the zoneand the development of a milk butter and cheese industry

7hese and other small industries would be carried out at thelevel of established associative enterprises in the zone At presshyent there is one SAIS in the area covering a physical extension of 83000 hectares with over 5000 members and some 10 productioncooperatives created as a result of the Agrarian Reform Vhe bulk of the rural population however remain in indigenous campesinocommunities or work individually-owned small plots of land

HUANUCO

1 Geography and Population

According to the 1972 Census the population of the Departmentof Huanuco was 414468 with 734 (304385) living in areas classified as rural The capital of the Department Huanuco isthe largest urban concentration with an estimated population of30000 inhabitants The majority of other urban dwellers are concenshytrated in mining camps and small commercially-oriented towns which

ANNEX V

provide services to transport traffic using the Lima to Pucallpa highway

The Department contains three distinct geographic zones -shythe high sierra in the eastern part of the Department the ceja de selva and finally the jungle on the western extreme bordering the Department of Loreto The ceja de selva or high jungle has long been signalled as an area of vast potential for Peru but up to the present physical infrastructure and needed financial reshysources have been lacking It is an area which offers potential in both agriculture and livestock expansion as well as small industries using the agricultural and mineral resources of the zone

The Lima-Pucallpa highway traverses much of the Department of Huanuco and while the increasing traffic between coast and jungle has put severe strains on the highway -- especially the La Oroya to Lima section which crosses over the high Andes -- it is noneshytheless possible to make the overland trip from the city of Huanuco to Lima in about 12 hours Additionally the secondary road network is fairly well developed a result of the many small mining ventures in the area which have built roads from their industrial complexes to the highway There is scheduled air traffic from Huanuco to Lima and Pucallpa

2 Economic Activity

The occupational breakdown of the Department of Huanuco according to the 1972 Census is as follows

Economic Activity Persons Employed of Total

Agriculture (farming livestock) 72711 707 Fishing 31 Mining 1542 15 Industry 5392 52 Utilities 53 01

2423Construction 24 Commerce banking 6060 59 Transport 1794 17 Services 8597 84 Other 4260 41 TOTAL 102863 1000

ANNEX V

Agriculture is characterized by minifundia (individually farmedplots averaging two to three hectares) and associative enterprisescreated as a result of the Agrarian Reform An Industrial Banksurvey found that 20 associative enterprises were currentlyfunctioning in the area -- mostly in the area below Huanuco in thehigh jungle The basic productive pattern has traditionally beengarden crops for home consumption and sale of surplus in areamarkets but recently the GOP has been promoting increased cultivashytion of soybeans and fruits which can be consumed fresh or processedfor the coastal or export market

Industry employs 52 of the Department work force The bulkof industry is located in and around the city of Huanuco and isbasically oriented towards the production of consumer goods Fewlinks exist between the agricultural and mining base of the areaand the industries which have grown up there

The Industrial Bank has identified a large number of potentialsub-projects in the area which would help to establish linkagesbetween agricultural and mining output and new industry -- theseinclude the manufacture of auto parts mechnical equipment metalworking a sausage processing plant and other livestock-related industries

Mining while only employing 15 of the economically activepopulation is nonetheless an extremely important activity fromthe national point of view Important zinc and lead deposits arefound in the higher sierra regions including the Milpo andAtacocha mining complexes located an hour above the city ofHuanuco Since capital intensive mine exploitation is practicedin the area there is little possibility that new employmentincome will be generated through increased mining activity

ANNEX VI

Fund Investment Potential In Additional

Sierra Departments

The following is a list of sub-project possibilities for Fund investment in the departments of Huanuco Apurimac and Huancavelica These sub-projects were identified in the course of two-day visits by Bank personnel to the Bank Offices on each department where they interviewed local Bank staff regional planning office personnel managers of associative enterprises and local entrepreneurs Prosshypective sub-borrower or promotors exist for each sub-project except as indicated

HUAhUCO

Sub-Project Activity Estimated Sub-Loan Size (In S1000)

Dairy Products 4000 Chicken Production 2000 Printing Industry 2000 Marketing of Pharmaceutical Products 4000 Gas Station 10000 Milk Processing Plant 4000 Sausage Processing Plant 10000 Auto Spare Parts 10000 Tourism 500 Brick Factory 1000 Saw Mill 2000 Swine Processing Plant 4500 Swine Processing Plant 4500 Industiial Parts Production 300 Livestock Production and Processing 3000 Metal-Working 8000 Hotel 2000 Carpentry Shop 500 Recreation Center 1000 Bakery 500 Rabbit Meat Processing 1000 Bread and Candy Shop 1500 Jewelry and Jewelry Repair Shop 2000 Photo Studio 600 Ice-Cream Shop 1000 Sea-Food Restaurant 285 Local Crafts 2000 Local Crafts 2000 Local Crafts 1000

ANNEX VI

Sub-Project Activity Estimated Sub-Loan Size (In So00)

Cattle Raisiny and related activities 500 Industrialization of Tubers 500 Dairy Processing Plaster Factory Hotel Grain Mill 1600 Meat Packing Center Hog Fattenin 9 Center Sausage Plant Rabbit Meat Processing Local Crafts Sla y hterhouse Leather Crafts Leather Crafts Dairy and Leather Industry

Cement Plant Grain ill Starch Processing and Dried Potato Plant Miscellaneous Supply Store Miscellaneous Supply Store Papaya Canning Plant Juice Cannery Cornstarch Production Dried Potato Prcduction Dairy Plant 2900 Tuber IndustryAseveral small plants on local scale) 72000 Leather and Shoe Shop 1000 Warehouses and Silos 12000 Slaughterhouse 16000 Balanced feed plant 10000 Coristruction liaterials 18000 Pig and Poultry Centers 7000 Fish Farm 10000 Cereal Industry 6000 Tourist Lodging Wiring and Silver Welding Marketing Centers

Local Crafts Non Traditional Crafts Packing Center Warehouse and Market Place Industry 5000 Mechanicamp Industry 3000 Reconstruction and Services Center 5000

AWEX VI

Shb-Project Activity Estimated Sub-Loan Size (In S1000)

Marketing 700 McX keting 500 Markcting 2000 Industry 1500 Marketing 2000 Farm 1000 Marketing 2000 Marketing 2000 Marketing 4000 Marketing 4000 Farm 1000 Marketing 2000 Industry 1000

Potato Industry Potato Industry

Idea stage only with no identified sub-borrower

Total Sub-loan investment in projects with cost estimates S278000000

($3978357 at S70 = USl)

APURIMLAC (Abancay province only)

Sub-Project Activity Estimated Sub-Loan Size (In S000)

Slaughterhouse 15000 Anisette production 2000 Honey processing 1500 Hostels (2 projects) 4500 Balanced feed plant 3000 Guinea pig farms (3 projects 2100 Pig farms (3 projects) 8000 Flour Mill 500 Chicken farm (3 projects) 1800 Brick factory 800 Plaster factories (2 projects) 1000 Leather tannery 2000 Dairy processing 1500 Beverages (2 projects) 3100 Straw bags 500 Perfume factory 500 Noodles factory 2000 Troat farm -1000 Sawnill 1500

ANNEX VI

Sub-Project Activity Estimated Sub-Loan Size

(In S000)

Metal Furniture Production 400 Spice Mill 300 Bikery 500 Restaurant 150 Ice Cream Factory 100 Candy Factory 100 Food retail 300 Silk processing 10000 Plaster factory 500 Brick factory 500 Flour Mill 500

Idea Stage only with no identified sub-borrower

Total Sub-Loan investment in projects with cost estimates S65650000

$ Y37857 at S70 = US$1)

HUANCAVELICA

Sub-Project Activity Estimated Sub-Loan Size

(In (S000)

Alpaca and Sheep wool processing 25000 Fish farms (5 projects) 15000 Leather Tannery Dairy processing Dye factory Tourist restaurant 500 Fertilizer plant Brick and tile factory 500 Sawmill 2000 Meat Conservation Fattening Centers

Idea stage only with no identified sub-borrower

Total Sub-Loan investment in projects with cost estimates S43000000

($ 614286 at S70 = USS1)

ANNEX VII

Projected Sub-loan Commitments of Additional PandCaital

The projections shown below are based on the Banks estimates of the additional departments capacity to absorb Fund credit as follows Apurimac - S80 million Cajamarca - S60 million Huanshycavelica - S60 million and Huanuco - S150 million totallingS350 million These estimates assume slightly higher sub-lendingfigures for Apurimac Cajamarca and Huancavelica than supported bythe Banks totals of potential sub-project investments in these departments in order to provide for additional investment in subshyprojects currently lacking cost estimates and in new sub-projectopportunities to be identified by contracted consultants

This schedule of sub-loan approvals reflects an initial start-up periodof low activity to allow for the hiring of promotors orientation of branch office staff promotion campaigns and the contracting of conshysultants for sub-project identification and study Assuming that the Mission receives authorization to proceed with the proposal to transfer funds and expand the Fund into these departments by March 1 and proshyviding for a start-up period of approximately three months full subshylending operations will begin by June

Projccted ub-Loan Coditrc--ts of 7(2-ional Fund Capital A1MEY VUl March l977

(in S - Jlv 1V8rlillicn)

___-euro - rr-C----- --- VIA S5 --)- J F M J F J I Apurimac so

Apz0 a02 I

I 15 9

49 54 54 6474 82 82 86 86 0 I j il

CaC3ra Gajama ra

I 0 4 2 5

-

3 4

I--I 4 5

~ 1 5

-

6 7

-

71 71

Huancavelica [ 02 1 04 1 1 16 1 6 2 2 5 3

I 4

I 4 5 j 5 67

67 71 71

llic 0 2 i3 3 6 1 10 F

12 13 13 15 16 16 17

__ 7 5--Z 7-7 77__ 3 7 214 124 264 304 366 376 398 378

ANNX VIII VA-c IjEc 0OJECT TITLE DATE Ifi1ORIGINAL jAPPROWOD

77ntermrisc - 1 Dvopaert 1677 REVISION V

977 CY 1978 CY 1979

- -4

4 4-- 0i w W r- v4

4 UsM

14I

0 12 24 36

LPOW

2cr--ato to extenrd $60 million of AID Loan

1 l a--s conitted by Industrial Bank

Inc Aure-r aion

Fcur promotors hird 2-2-

tc-Ln A-reeent 6

Full amount of -7 AID Loan fully disbursed

A= --d ed AID Loan cotmmitted

0-0Z S CRITICAL PERFORMANCE INDICATOR (CP NETWORK

COiTAY ROJECT NC PROjECT TiTLE DATE 527--057 Airal rnterprises I Develooment ORIGINALAppoAOVEOj1677 ORIIONAL

PRCjECT PuRPCSE (FROM PRP FACESHEET)

To irstitutionalize an integrated program of financial and technical assistance to assist existing and new rural enterprises

vl OEscRIPTION

Action Agent Action Date

AIDW 1 Authorization to extend terminal dates Jan 31 1975

AIDW 2 Loan Authorization Mar 15 1977 amended

USAIDGOP 3 Loan Agreement May 1i1977

amended

Industrial Bank 4 Four promotors hired June 15 1977

Industrial Bank 5 $60 million of AID Jan 3] 1978 Loan committed by Industrial Bank

Industrial Bank 6 Full amount of AID July 31 1978 Loan committed

Industrial Bank 7 AID Loan fully Jan 3] 1979 ORDEZA disbursed

AID 102036 (6-76) CRITICAL PERFORMANCE INDICATOR (CPI) DESCRIPTION

ANNEX V

of all-weather roads and great distances which separate the widely scattered productive valleys contribute to continued low level of production and inadequate dissemination of GOP provided technical assistance through Agrarian Zonal offices and the Agrarian Bank The Agrarian Reform has been active in the -=ea and over 50 of land has been adjudicated in the form of indigerous campesino comshymunities agrarian production cooperatives and individual title to small farms The bulk of farms fall into the latter category and it has been estimated that 98 of the physical extension of the Department is currently farmed in land holdings fallirg between 5 and 25 hectares

91 of the economically active population is engaged in small industry -- chiefly activities associated with dairy farming (Perulac an affiliate of Nestle operates an evaporated milk factory in the city of Cajamarca and there are many small producers of cheese in the central part of the Department) There is additionally a growing market for artisan goods produced in the Cajamarca area although this is not yet an important source of incomeemployment

The service industry of the Department is centered around the growshying importance of Cajamarca as a tourist center While tourist facilishyties are deficient (there is one State-run hotel catering almost exshyclusively to foreign visitors) the GOP has plans to upgrade existing facilities and give incentives to private interests to invest in tourism

The totirist potential of the area combined with Cajamarcas natural advantage for the exploitation of its dairy industry make the area attractive to potential investors Cajamarca cheeses are highly valued throughout Peru but since they are produced on a very small scale they rarely find their way to potential markets on the coast Manjarblanco another mouth-watering treat favored by travellers to the area is another dairy-related industry which could be expanded with ready markets on the coast

ANNEX V

HUANCAVELICA

1 Geography and Population

The population of the Department of Huancavelica in 1972 was331629 of which 76 (252001) were classified as living in ruralareas There is only one significant urban area the city ofHuancavelica with a population of approximately 15000 The restof the population is highly dispersed with little social oreconomic access to the Departmental capital Of the 24 of thepopulation living in areas which the Census classified as urbanthe vast majority live in population centers of less than 500 inhabitants

The Department is classified as Sierra with a small portionto the west sloping down to the coast The topography is ruggedthere are few all-weather transitable roads and there is a raillink with Huancayo in the adjacent Department of Junin

2 Economic Activity

The 1972 Census gives the following occupational breakdown bycategory of employment

Economic Activity Persons Employed of Total

Agriculture (farminglivestock) 55979 703Fishing 4Mining 4236 53Manufacturing 3875 48Utilities 226 02Construction Commerce (inc banking)

3142 39 3625 45Transport 665 08Services 4427 55Others 3773 47

TOTAL 79952 1000

With over 70 of the active labor force engaged in agriculturethe areas economy is based on the production of high-altitudefoodstuffs (potatoes yuca corn etc) and the GOP has been givingpriority to developing sheep ranching and building up alpaca andllama herds The soil conditions are extremely poor there islittle attention given to crop rotation or experimentation withimproved seeds and population pressures on the land are among the

ANNEX V

most extreme in Peru (an estimated 07 hectares of arable land perfam family) As a result of these factors production has droppedin absolute terms during the past ten years and more and morefarm families are being forced to leave the land The problem reshymains however that there are few off-farm jobs available in the area forcing outmigration to adjacent cities such as Huancayo in the Sierra and Ica on the coast or to Lima Mining in Huancavelica continues to be an important source of revenue but the capitalintensive mines of CentroMin in the area can only absorb a handful of new laborers every year -- and most of these are the sons of miners who have worked previously with the companies The famous mercury mines of Santa Barbara and Huancavelica discovered duringthe colonial period at one time enployed almost the entire adultpopulation of the area but are now depleted or uneconomical

Industry in the area is generally carried out on an extremelysmall scale --there are a few bottling plants producing for the area market and some small leather and woodworking companiesUnder the direction of the local SINAMOS office a DevelopmentProgram for 1977 and 1978 has been prepared calling for significantinvestment in small industry in an attempt to divert outmigrationinto productive activity within the Department Among investment possibilities SINAMOS has identified industrialization of alpacaand sheep fiber the development of small fishfarms and eventual production of smoked trout the manufacture of food dyes a small factory to produce fertilizers using mineral traces of the zoneand the development of a milk butter and cheese industry

7hese and other small industries would be carried out at thelevel of established associative enterprises in the zone At presshyent there is one SAIS in the area covering a physical extension of 83000 hectares with over 5000 members and some 10 productioncooperatives created as a result of the Agrarian Reform Vhe bulk of the rural population however remain in indigenous campesinocommunities or work individually-owned small plots of land

HUANUCO

1 Geography and Population

According to the 1972 Census the population of the Departmentof Huanuco was 414468 with 734 (304385) living in areas classified as rural The capital of the Department Huanuco isthe largest urban concentration with an estimated population of30000 inhabitants The majority of other urban dwellers are concenshytrated in mining camps and small commercially-oriented towns which

ANNEX V

provide services to transport traffic using the Lima to Pucallpa highway

The Department contains three distinct geographic zones -shythe high sierra in the eastern part of the Department the ceja de selva and finally the jungle on the western extreme bordering the Department of Loreto The ceja de selva or high jungle has long been signalled as an area of vast potential for Peru but up to the present physical infrastructure and needed financial reshysources have been lacking It is an area which offers potential in both agriculture and livestock expansion as well as small industries using the agricultural and mineral resources of the zone

The Lima-Pucallpa highway traverses much of the Department of Huanuco and while the increasing traffic between coast and jungle has put severe strains on the highway -- especially the La Oroya to Lima section which crosses over the high Andes -- it is noneshytheless possible to make the overland trip from the city of Huanuco to Lima in about 12 hours Additionally the secondary road network is fairly well developed a result of the many small mining ventures in the area which have built roads from their industrial complexes to the highway There is scheduled air traffic from Huanuco to Lima and Pucallpa

2 Economic Activity

The occupational breakdown of the Department of Huanuco according to the 1972 Census is as follows

Economic Activity Persons Employed of Total

Agriculture (farming livestock) 72711 707 Fishing 31 Mining 1542 15 Industry 5392 52 Utilities 53 01

2423Construction 24 Commerce banking 6060 59 Transport 1794 17 Services 8597 84 Other 4260 41 TOTAL 102863 1000

ANNEX V

Agriculture is characterized by minifundia (individually farmedplots averaging two to three hectares) and associative enterprisescreated as a result of the Agrarian Reform An Industrial Banksurvey found that 20 associative enterprises were currentlyfunctioning in the area -- mostly in the area below Huanuco in thehigh jungle The basic productive pattern has traditionally beengarden crops for home consumption and sale of surplus in areamarkets but recently the GOP has been promoting increased cultivashytion of soybeans and fruits which can be consumed fresh or processedfor the coastal or export market

Industry employs 52 of the Department work force The bulkof industry is located in and around the city of Huanuco and isbasically oriented towards the production of consumer goods Fewlinks exist between the agricultural and mining base of the areaand the industries which have grown up there

The Industrial Bank has identified a large number of potentialsub-projects in the area which would help to establish linkagesbetween agricultural and mining output and new industry -- theseinclude the manufacture of auto parts mechnical equipment metalworking a sausage processing plant and other livestock-related industries

Mining while only employing 15 of the economically activepopulation is nonetheless an extremely important activity fromthe national point of view Important zinc and lead deposits arefound in the higher sierra regions including the Milpo andAtacocha mining complexes located an hour above the city ofHuanuco Since capital intensive mine exploitation is practicedin the area there is little possibility that new employmentincome will be generated through increased mining activity

ANNEX VI

Fund Investment Potential In Additional

Sierra Departments

The following is a list of sub-project possibilities for Fund investment in the departments of Huanuco Apurimac and Huancavelica These sub-projects were identified in the course of two-day visits by Bank personnel to the Bank Offices on each department where they interviewed local Bank staff regional planning office personnel managers of associative enterprises and local entrepreneurs Prosshypective sub-borrower or promotors exist for each sub-project except as indicated

HUAhUCO

Sub-Project Activity Estimated Sub-Loan Size (In S1000)

Dairy Products 4000 Chicken Production 2000 Printing Industry 2000 Marketing of Pharmaceutical Products 4000 Gas Station 10000 Milk Processing Plant 4000 Sausage Processing Plant 10000 Auto Spare Parts 10000 Tourism 500 Brick Factory 1000 Saw Mill 2000 Swine Processing Plant 4500 Swine Processing Plant 4500 Industiial Parts Production 300 Livestock Production and Processing 3000 Metal-Working 8000 Hotel 2000 Carpentry Shop 500 Recreation Center 1000 Bakery 500 Rabbit Meat Processing 1000 Bread and Candy Shop 1500 Jewelry and Jewelry Repair Shop 2000 Photo Studio 600 Ice-Cream Shop 1000 Sea-Food Restaurant 285 Local Crafts 2000 Local Crafts 2000 Local Crafts 1000

ANNEX VI

Sub-Project Activity Estimated Sub-Loan Size (In So00)

Cattle Raisiny and related activities 500 Industrialization of Tubers 500 Dairy Processing Plaster Factory Hotel Grain Mill 1600 Meat Packing Center Hog Fattenin 9 Center Sausage Plant Rabbit Meat Processing Local Crafts Sla y hterhouse Leather Crafts Leather Crafts Dairy and Leather Industry

Cement Plant Grain ill Starch Processing and Dried Potato Plant Miscellaneous Supply Store Miscellaneous Supply Store Papaya Canning Plant Juice Cannery Cornstarch Production Dried Potato Prcduction Dairy Plant 2900 Tuber IndustryAseveral small plants on local scale) 72000 Leather and Shoe Shop 1000 Warehouses and Silos 12000 Slaughterhouse 16000 Balanced feed plant 10000 Coristruction liaterials 18000 Pig and Poultry Centers 7000 Fish Farm 10000 Cereal Industry 6000 Tourist Lodging Wiring and Silver Welding Marketing Centers

Local Crafts Non Traditional Crafts Packing Center Warehouse and Market Place Industry 5000 Mechanicamp Industry 3000 Reconstruction and Services Center 5000

AWEX VI

Shb-Project Activity Estimated Sub-Loan Size (In S1000)

Marketing 700 McX keting 500 Markcting 2000 Industry 1500 Marketing 2000 Farm 1000 Marketing 2000 Marketing 2000 Marketing 4000 Marketing 4000 Farm 1000 Marketing 2000 Industry 1000

Potato Industry Potato Industry

Idea stage only with no identified sub-borrower

Total Sub-loan investment in projects with cost estimates S278000000

($3978357 at S70 = USl)

APURIMLAC (Abancay province only)

Sub-Project Activity Estimated Sub-Loan Size (In S000)

Slaughterhouse 15000 Anisette production 2000 Honey processing 1500 Hostels (2 projects) 4500 Balanced feed plant 3000 Guinea pig farms (3 projects 2100 Pig farms (3 projects) 8000 Flour Mill 500 Chicken farm (3 projects) 1800 Brick factory 800 Plaster factories (2 projects) 1000 Leather tannery 2000 Dairy processing 1500 Beverages (2 projects) 3100 Straw bags 500 Perfume factory 500 Noodles factory 2000 Troat farm -1000 Sawnill 1500

ANNEX VI

Sub-Project Activity Estimated Sub-Loan Size

(In S000)

Metal Furniture Production 400 Spice Mill 300 Bikery 500 Restaurant 150 Ice Cream Factory 100 Candy Factory 100 Food retail 300 Silk processing 10000 Plaster factory 500 Brick factory 500 Flour Mill 500

Idea Stage only with no identified sub-borrower

Total Sub-Loan investment in projects with cost estimates S65650000

$ Y37857 at S70 = US$1)

HUANCAVELICA

Sub-Project Activity Estimated Sub-Loan Size

(In (S000)

Alpaca and Sheep wool processing 25000 Fish farms (5 projects) 15000 Leather Tannery Dairy processing Dye factory Tourist restaurant 500 Fertilizer plant Brick and tile factory 500 Sawmill 2000 Meat Conservation Fattening Centers

Idea stage only with no identified sub-borrower

Total Sub-Loan investment in projects with cost estimates S43000000

($ 614286 at S70 = USS1)

ANNEX VII

Projected Sub-loan Commitments of Additional PandCaital

The projections shown below are based on the Banks estimates of the additional departments capacity to absorb Fund credit as follows Apurimac - S80 million Cajamarca - S60 million Huanshycavelica - S60 million and Huanuco - S150 million totallingS350 million These estimates assume slightly higher sub-lendingfigures for Apurimac Cajamarca and Huancavelica than supported bythe Banks totals of potential sub-project investments in these departments in order to provide for additional investment in subshyprojects currently lacking cost estimates and in new sub-projectopportunities to be identified by contracted consultants

This schedule of sub-loan approvals reflects an initial start-up periodof low activity to allow for the hiring of promotors orientation of branch office staff promotion campaigns and the contracting of conshysultants for sub-project identification and study Assuming that the Mission receives authorization to proceed with the proposal to transfer funds and expand the Fund into these departments by March 1 and proshyviding for a start-up period of approximately three months full subshylending operations will begin by June

Projccted ub-Loan Coditrc--ts of 7(2-ional Fund Capital A1MEY VUl March l977

(in S - Jlv 1V8rlillicn)

___-euro - rr-C----- --- VIA S5 --)- J F M J F J I Apurimac so

Apz0 a02 I

I 15 9

49 54 54 6474 82 82 86 86 0 I j il

CaC3ra Gajama ra

I 0 4 2 5

-

3 4

I--I 4 5

~ 1 5

-

6 7

-

71 71

Huancavelica [ 02 1 04 1 1 16 1 6 2 2 5 3

I 4

I 4 5 j 5 67

67 71 71

llic 0 2 i3 3 6 1 10 F

12 13 13 15 16 16 17

__ 7 5--Z 7-7 77__ 3 7 214 124 264 304 366 376 398 378

ANNX VIII VA-c IjEc 0OJECT TITLE DATE Ifi1ORIGINAL jAPPROWOD

77ntermrisc - 1 Dvopaert 1677 REVISION V

977 CY 1978 CY 1979

- -4

4 4-- 0i w W r- v4

4 UsM

14I

0 12 24 36

LPOW

2cr--ato to extenrd $60 million of AID Loan

1 l a--s conitted by Industrial Bank

Inc Aure-r aion

Fcur promotors hird 2-2-

tc-Ln A-reeent 6

Full amount of -7 AID Loan fully disbursed

A= --d ed AID Loan cotmmitted

0-0Z S CRITICAL PERFORMANCE INDICATOR (CP NETWORK

COiTAY ROJECT NC PROjECT TiTLE DATE 527--057 Airal rnterprises I Develooment ORIGINALAppoAOVEOj1677 ORIIONAL

PRCjECT PuRPCSE (FROM PRP FACESHEET)

To irstitutionalize an integrated program of financial and technical assistance to assist existing and new rural enterprises

vl OEscRIPTION

Action Agent Action Date

AIDW 1 Authorization to extend terminal dates Jan 31 1975

AIDW 2 Loan Authorization Mar 15 1977 amended

USAIDGOP 3 Loan Agreement May 1i1977

amended

Industrial Bank 4 Four promotors hired June 15 1977

Industrial Bank 5 $60 million of AID Jan 3] 1978 Loan committed by Industrial Bank

Industrial Bank 6 Full amount of AID July 31 1978 Loan committed

Industrial Bank 7 AID Loan fully Jan 3] 1979 ORDEZA disbursed

AID 102036 (6-76) CRITICAL PERFORMANCE INDICATOR (CPI) DESCRIPTION

ANNEX V

HUANCAVELICA

1 Geography and Population

The population of the Department of Huancavelica in 1972 was331629 of which 76 (252001) were classified as living in ruralareas There is only one significant urban area the city ofHuancavelica with a population of approximately 15000 The restof the population is highly dispersed with little social oreconomic access to the Departmental capital Of the 24 of thepopulation living in areas which the Census classified as urbanthe vast majority live in population centers of less than 500 inhabitants

The Department is classified as Sierra with a small portionto the west sloping down to the coast The topography is ruggedthere are few all-weather transitable roads and there is a raillink with Huancayo in the adjacent Department of Junin

2 Economic Activity

The 1972 Census gives the following occupational breakdown bycategory of employment

Economic Activity Persons Employed of Total

Agriculture (farminglivestock) 55979 703Fishing 4Mining 4236 53Manufacturing 3875 48Utilities 226 02Construction Commerce (inc banking)

3142 39 3625 45Transport 665 08Services 4427 55Others 3773 47

TOTAL 79952 1000

With over 70 of the active labor force engaged in agriculturethe areas economy is based on the production of high-altitudefoodstuffs (potatoes yuca corn etc) and the GOP has been givingpriority to developing sheep ranching and building up alpaca andllama herds The soil conditions are extremely poor there islittle attention given to crop rotation or experimentation withimproved seeds and population pressures on the land are among the

ANNEX V

most extreme in Peru (an estimated 07 hectares of arable land perfam family) As a result of these factors production has droppedin absolute terms during the past ten years and more and morefarm families are being forced to leave the land The problem reshymains however that there are few off-farm jobs available in the area forcing outmigration to adjacent cities such as Huancayo in the Sierra and Ica on the coast or to Lima Mining in Huancavelica continues to be an important source of revenue but the capitalintensive mines of CentroMin in the area can only absorb a handful of new laborers every year -- and most of these are the sons of miners who have worked previously with the companies The famous mercury mines of Santa Barbara and Huancavelica discovered duringthe colonial period at one time enployed almost the entire adultpopulation of the area but are now depleted or uneconomical

Industry in the area is generally carried out on an extremelysmall scale --there are a few bottling plants producing for the area market and some small leather and woodworking companiesUnder the direction of the local SINAMOS office a DevelopmentProgram for 1977 and 1978 has been prepared calling for significantinvestment in small industry in an attempt to divert outmigrationinto productive activity within the Department Among investment possibilities SINAMOS has identified industrialization of alpacaand sheep fiber the development of small fishfarms and eventual production of smoked trout the manufacture of food dyes a small factory to produce fertilizers using mineral traces of the zoneand the development of a milk butter and cheese industry

7hese and other small industries would be carried out at thelevel of established associative enterprises in the zone At presshyent there is one SAIS in the area covering a physical extension of 83000 hectares with over 5000 members and some 10 productioncooperatives created as a result of the Agrarian Reform Vhe bulk of the rural population however remain in indigenous campesinocommunities or work individually-owned small plots of land

HUANUCO

1 Geography and Population

According to the 1972 Census the population of the Departmentof Huanuco was 414468 with 734 (304385) living in areas classified as rural The capital of the Department Huanuco isthe largest urban concentration with an estimated population of30000 inhabitants The majority of other urban dwellers are concenshytrated in mining camps and small commercially-oriented towns which

ANNEX V

provide services to transport traffic using the Lima to Pucallpa highway

The Department contains three distinct geographic zones -shythe high sierra in the eastern part of the Department the ceja de selva and finally the jungle on the western extreme bordering the Department of Loreto The ceja de selva or high jungle has long been signalled as an area of vast potential for Peru but up to the present physical infrastructure and needed financial reshysources have been lacking It is an area which offers potential in both agriculture and livestock expansion as well as small industries using the agricultural and mineral resources of the zone

The Lima-Pucallpa highway traverses much of the Department of Huanuco and while the increasing traffic between coast and jungle has put severe strains on the highway -- especially the La Oroya to Lima section which crosses over the high Andes -- it is noneshytheless possible to make the overland trip from the city of Huanuco to Lima in about 12 hours Additionally the secondary road network is fairly well developed a result of the many small mining ventures in the area which have built roads from their industrial complexes to the highway There is scheduled air traffic from Huanuco to Lima and Pucallpa

2 Economic Activity

The occupational breakdown of the Department of Huanuco according to the 1972 Census is as follows

Economic Activity Persons Employed of Total

Agriculture (farming livestock) 72711 707 Fishing 31 Mining 1542 15 Industry 5392 52 Utilities 53 01

2423Construction 24 Commerce banking 6060 59 Transport 1794 17 Services 8597 84 Other 4260 41 TOTAL 102863 1000

ANNEX V

Agriculture is characterized by minifundia (individually farmedplots averaging two to three hectares) and associative enterprisescreated as a result of the Agrarian Reform An Industrial Banksurvey found that 20 associative enterprises were currentlyfunctioning in the area -- mostly in the area below Huanuco in thehigh jungle The basic productive pattern has traditionally beengarden crops for home consumption and sale of surplus in areamarkets but recently the GOP has been promoting increased cultivashytion of soybeans and fruits which can be consumed fresh or processedfor the coastal or export market

Industry employs 52 of the Department work force The bulkof industry is located in and around the city of Huanuco and isbasically oriented towards the production of consumer goods Fewlinks exist between the agricultural and mining base of the areaand the industries which have grown up there

The Industrial Bank has identified a large number of potentialsub-projects in the area which would help to establish linkagesbetween agricultural and mining output and new industry -- theseinclude the manufacture of auto parts mechnical equipment metalworking a sausage processing plant and other livestock-related industries

Mining while only employing 15 of the economically activepopulation is nonetheless an extremely important activity fromthe national point of view Important zinc and lead deposits arefound in the higher sierra regions including the Milpo andAtacocha mining complexes located an hour above the city ofHuanuco Since capital intensive mine exploitation is practicedin the area there is little possibility that new employmentincome will be generated through increased mining activity

ANNEX VI

Fund Investment Potential In Additional

Sierra Departments

The following is a list of sub-project possibilities for Fund investment in the departments of Huanuco Apurimac and Huancavelica These sub-projects were identified in the course of two-day visits by Bank personnel to the Bank Offices on each department where they interviewed local Bank staff regional planning office personnel managers of associative enterprises and local entrepreneurs Prosshypective sub-borrower or promotors exist for each sub-project except as indicated

HUAhUCO

Sub-Project Activity Estimated Sub-Loan Size (In S1000)

Dairy Products 4000 Chicken Production 2000 Printing Industry 2000 Marketing of Pharmaceutical Products 4000 Gas Station 10000 Milk Processing Plant 4000 Sausage Processing Plant 10000 Auto Spare Parts 10000 Tourism 500 Brick Factory 1000 Saw Mill 2000 Swine Processing Plant 4500 Swine Processing Plant 4500 Industiial Parts Production 300 Livestock Production and Processing 3000 Metal-Working 8000 Hotel 2000 Carpentry Shop 500 Recreation Center 1000 Bakery 500 Rabbit Meat Processing 1000 Bread and Candy Shop 1500 Jewelry and Jewelry Repair Shop 2000 Photo Studio 600 Ice-Cream Shop 1000 Sea-Food Restaurant 285 Local Crafts 2000 Local Crafts 2000 Local Crafts 1000

ANNEX VI

Sub-Project Activity Estimated Sub-Loan Size (In So00)

Cattle Raisiny and related activities 500 Industrialization of Tubers 500 Dairy Processing Plaster Factory Hotel Grain Mill 1600 Meat Packing Center Hog Fattenin 9 Center Sausage Plant Rabbit Meat Processing Local Crafts Sla y hterhouse Leather Crafts Leather Crafts Dairy and Leather Industry

Cement Plant Grain ill Starch Processing and Dried Potato Plant Miscellaneous Supply Store Miscellaneous Supply Store Papaya Canning Plant Juice Cannery Cornstarch Production Dried Potato Prcduction Dairy Plant 2900 Tuber IndustryAseveral small plants on local scale) 72000 Leather and Shoe Shop 1000 Warehouses and Silos 12000 Slaughterhouse 16000 Balanced feed plant 10000 Coristruction liaterials 18000 Pig and Poultry Centers 7000 Fish Farm 10000 Cereal Industry 6000 Tourist Lodging Wiring and Silver Welding Marketing Centers

Local Crafts Non Traditional Crafts Packing Center Warehouse and Market Place Industry 5000 Mechanicamp Industry 3000 Reconstruction and Services Center 5000

AWEX VI

Shb-Project Activity Estimated Sub-Loan Size (In S1000)

Marketing 700 McX keting 500 Markcting 2000 Industry 1500 Marketing 2000 Farm 1000 Marketing 2000 Marketing 2000 Marketing 4000 Marketing 4000 Farm 1000 Marketing 2000 Industry 1000

Potato Industry Potato Industry

Idea stage only with no identified sub-borrower

Total Sub-loan investment in projects with cost estimates S278000000

($3978357 at S70 = USl)

APURIMLAC (Abancay province only)

Sub-Project Activity Estimated Sub-Loan Size (In S000)

Slaughterhouse 15000 Anisette production 2000 Honey processing 1500 Hostels (2 projects) 4500 Balanced feed plant 3000 Guinea pig farms (3 projects 2100 Pig farms (3 projects) 8000 Flour Mill 500 Chicken farm (3 projects) 1800 Brick factory 800 Plaster factories (2 projects) 1000 Leather tannery 2000 Dairy processing 1500 Beverages (2 projects) 3100 Straw bags 500 Perfume factory 500 Noodles factory 2000 Troat farm -1000 Sawnill 1500

ANNEX VI

Sub-Project Activity Estimated Sub-Loan Size

(In S000)

Metal Furniture Production 400 Spice Mill 300 Bikery 500 Restaurant 150 Ice Cream Factory 100 Candy Factory 100 Food retail 300 Silk processing 10000 Plaster factory 500 Brick factory 500 Flour Mill 500

Idea Stage only with no identified sub-borrower

Total Sub-Loan investment in projects with cost estimates S65650000

$ Y37857 at S70 = US$1)

HUANCAVELICA

Sub-Project Activity Estimated Sub-Loan Size

(In (S000)

Alpaca and Sheep wool processing 25000 Fish farms (5 projects) 15000 Leather Tannery Dairy processing Dye factory Tourist restaurant 500 Fertilizer plant Brick and tile factory 500 Sawmill 2000 Meat Conservation Fattening Centers

Idea stage only with no identified sub-borrower

Total Sub-Loan investment in projects with cost estimates S43000000

($ 614286 at S70 = USS1)

ANNEX VII

Projected Sub-loan Commitments of Additional PandCaital

The projections shown below are based on the Banks estimates of the additional departments capacity to absorb Fund credit as follows Apurimac - S80 million Cajamarca - S60 million Huanshycavelica - S60 million and Huanuco - S150 million totallingS350 million These estimates assume slightly higher sub-lendingfigures for Apurimac Cajamarca and Huancavelica than supported bythe Banks totals of potential sub-project investments in these departments in order to provide for additional investment in subshyprojects currently lacking cost estimates and in new sub-projectopportunities to be identified by contracted consultants

This schedule of sub-loan approvals reflects an initial start-up periodof low activity to allow for the hiring of promotors orientation of branch office staff promotion campaigns and the contracting of conshysultants for sub-project identification and study Assuming that the Mission receives authorization to proceed with the proposal to transfer funds and expand the Fund into these departments by March 1 and proshyviding for a start-up period of approximately three months full subshylending operations will begin by June

Projccted ub-Loan Coditrc--ts of 7(2-ional Fund Capital A1MEY VUl March l977

(in S - Jlv 1V8rlillicn)

___-euro - rr-C----- --- VIA S5 --)- J F M J F J I Apurimac so

Apz0 a02 I

I 15 9

49 54 54 6474 82 82 86 86 0 I j il

CaC3ra Gajama ra

I 0 4 2 5

-

3 4

I--I 4 5

~ 1 5

-

6 7

-

71 71

Huancavelica [ 02 1 04 1 1 16 1 6 2 2 5 3

I 4

I 4 5 j 5 67

67 71 71

llic 0 2 i3 3 6 1 10 F

12 13 13 15 16 16 17

__ 7 5--Z 7-7 77__ 3 7 214 124 264 304 366 376 398 378

ANNX VIII VA-c IjEc 0OJECT TITLE DATE Ifi1ORIGINAL jAPPROWOD

77ntermrisc - 1 Dvopaert 1677 REVISION V

977 CY 1978 CY 1979

- -4

4 4-- 0i w W r- v4

4 UsM

14I

0 12 24 36

LPOW

2cr--ato to extenrd $60 million of AID Loan

1 l a--s conitted by Industrial Bank

Inc Aure-r aion

Fcur promotors hird 2-2-

tc-Ln A-reeent 6

Full amount of -7 AID Loan fully disbursed

A= --d ed AID Loan cotmmitted

0-0Z S CRITICAL PERFORMANCE INDICATOR (CP NETWORK

COiTAY ROJECT NC PROjECT TiTLE DATE 527--057 Airal rnterprises I Develooment ORIGINALAppoAOVEOj1677 ORIIONAL

PRCjECT PuRPCSE (FROM PRP FACESHEET)

To irstitutionalize an integrated program of financial and technical assistance to assist existing and new rural enterprises

vl OEscRIPTION

Action Agent Action Date

AIDW 1 Authorization to extend terminal dates Jan 31 1975

AIDW 2 Loan Authorization Mar 15 1977 amended

USAIDGOP 3 Loan Agreement May 1i1977

amended

Industrial Bank 4 Four promotors hired June 15 1977

Industrial Bank 5 $60 million of AID Jan 3] 1978 Loan committed by Industrial Bank

Industrial Bank 6 Full amount of AID July 31 1978 Loan committed

Industrial Bank 7 AID Loan fully Jan 3] 1979 ORDEZA disbursed

AID 102036 (6-76) CRITICAL PERFORMANCE INDICATOR (CPI) DESCRIPTION

ANNEX V

most extreme in Peru (an estimated 07 hectares of arable land perfam family) As a result of these factors production has droppedin absolute terms during the past ten years and more and morefarm families are being forced to leave the land The problem reshymains however that there are few off-farm jobs available in the area forcing outmigration to adjacent cities such as Huancayo in the Sierra and Ica on the coast or to Lima Mining in Huancavelica continues to be an important source of revenue but the capitalintensive mines of CentroMin in the area can only absorb a handful of new laborers every year -- and most of these are the sons of miners who have worked previously with the companies The famous mercury mines of Santa Barbara and Huancavelica discovered duringthe colonial period at one time enployed almost the entire adultpopulation of the area but are now depleted or uneconomical

Industry in the area is generally carried out on an extremelysmall scale --there are a few bottling plants producing for the area market and some small leather and woodworking companiesUnder the direction of the local SINAMOS office a DevelopmentProgram for 1977 and 1978 has been prepared calling for significantinvestment in small industry in an attempt to divert outmigrationinto productive activity within the Department Among investment possibilities SINAMOS has identified industrialization of alpacaand sheep fiber the development of small fishfarms and eventual production of smoked trout the manufacture of food dyes a small factory to produce fertilizers using mineral traces of the zoneand the development of a milk butter and cheese industry

7hese and other small industries would be carried out at thelevel of established associative enterprises in the zone At presshyent there is one SAIS in the area covering a physical extension of 83000 hectares with over 5000 members and some 10 productioncooperatives created as a result of the Agrarian Reform Vhe bulk of the rural population however remain in indigenous campesinocommunities or work individually-owned small plots of land

HUANUCO

1 Geography and Population

According to the 1972 Census the population of the Departmentof Huanuco was 414468 with 734 (304385) living in areas classified as rural The capital of the Department Huanuco isthe largest urban concentration with an estimated population of30000 inhabitants The majority of other urban dwellers are concenshytrated in mining camps and small commercially-oriented towns which

ANNEX V

provide services to transport traffic using the Lima to Pucallpa highway

The Department contains three distinct geographic zones -shythe high sierra in the eastern part of the Department the ceja de selva and finally the jungle on the western extreme bordering the Department of Loreto The ceja de selva or high jungle has long been signalled as an area of vast potential for Peru but up to the present physical infrastructure and needed financial reshysources have been lacking It is an area which offers potential in both agriculture and livestock expansion as well as small industries using the agricultural and mineral resources of the zone

The Lima-Pucallpa highway traverses much of the Department of Huanuco and while the increasing traffic between coast and jungle has put severe strains on the highway -- especially the La Oroya to Lima section which crosses over the high Andes -- it is noneshytheless possible to make the overland trip from the city of Huanuco to Lima in about 12 hours Additionally the secondary road network is fairly well developed a result of the many small mining ventures in the area which have built roads from their industrial complexes to the highway There is scheduled air traffic from Huanuco to Lima and Pucallpa

2 Economic Activity

The occupational breakdown of the Department of Huanuco according to the 1972 Census is as follows

Economic Activity Persons Employed of Total

Agriculture (farming livestock) 72711 707 Fishing 31 Mining 1542 15 Industry 5392 52 Utilities 53 01

2423Construction 24 Commerce banking 6060 59 Transport 1794 17 Services 8597 84 Other 4260 41 TOTAL 102863 1000

ANNEX V

Agriculture is characterized by minifundia (individually farmedplots averaging two to three hectares) and associative enterprisescreated as a result of the Agrarian Reform An Industrial Banksurvey found that 20 associative enterprises were currentlyfunctioning in the area -- mostly in the area below Huanuco in thehigh jungle The basic productive pattern has traditionally beengarden crops for home consumption and sale of surplus in areamarkets but recently the GOP has been promoting increased cultivashytion of soybeans and fruits which can be consumed fresh or processedfor the coastal or export market

Industry employs 52 of the Department work force The bulkof industry is located in and around the city of Huanuco and isbasically oriented towards the production of consumer goods Fewlinks exist between the agricultural and mining base of the areaand the industries which have grown up there

The Industrial Bank has identified a large number of potentialsub-projects in the area which would help to establish linkagesbetween agricultural and mining output and new industry -- theseinclude the manufacture of auto parts mechnical equipment metalworking a sausage processing plant and other livestock-related industries

Mining while only employing 15 of the economically activepopulation is nonetheless an extremely important activity fromthe national point of view Important zinc and lead deposits arefound in the higher sierra regions including the Milpo andAtacocha mining complexes located an hour above the city ofHuanuco Since capital intensive mine exploitation is practicedin the area there is little possibility that new employmentincome will be generated through increased mining activity

ANNEX VI

Fund Investment Potential In Additional

Sierra Departments

The following is a list of sub-project possibilities for Fund investment in the departments of Huanuco Apurimac and Huancavelica These sub-projects were identified in the course of two-day visits by Bank personnel to the Bank Offices on each department where they interviewed local Bank staff regional planning office personnel managers of associative enterprises and local entrepreneurs Prosshypective sub-borrower or promotors exist for each sub-project except as indicated

HUAhUCO

Sub-Project Activity Estimated Sub-Loan Size (In S1000)

Dairy Products 4000 Chicken Production 2000 Printing Industry 2000 Marketing of Pharmaceutical Products 4000 Gas Station 10000 Milk Processing Plant 4000 Sausage Processing Plant 10000 Auto Spare Parts 10000 Tourism 500 Brick Factory 1000 Saw Mill 2000 Swine Processing Plant 4500 Swine Processing Plant 4500 Industiial Parts Production 300 Livestock Production and Processing 3000 Metal-Working 8000 Hotel 2000 Carpentry Shop 500 Recreation Center 1000 Bakery 500 Rabbit Meat Processing 1000 Bread and Candy Shop 1500 Jewelry and Jewelry Repair Shop 2000 Photo Studio 600 Ice-Cream Shop 1000 Sea-Food Restaurant 285 Local Crafts 2000 Local Crafts 2000 Local Crafts 1000

ANNEX VI

Sub-Project Activity Estimated Sub-Loan Size (In So00)

Cattle Raisiny and related activities 500 Industrialization of Tubers 500 Dairy Processing Plaster Factory Hotel Grain Mill 1600 Meat Packing Center Hog Fattenin 9 Center Sausage Plant Rabbit Meat Processing Local Crafts Sla y hterhouse Leather Crafts Leather Crafts Dairy and Leather Industry

Cement Plant Grain ill Starch Processing and Dried Potato Plant Miscellaneous Supply Store Miscellaneous Supply Store Papaya Canning Plant Juice Cannery Cornstarch Production Dried Potato Prcduction Dairy Plant 2900 Tuber IndustryAseveral small plants on local scale) 72000 Leather and Shoe Shop 1000 Warehouses and Silos 12000 Slaughterhouse 16000 Balanced feed plant 10000 Coristruction liaterials 18000 Pig and Poultry Centers 7000 Fish Farm 10000 Cereal Industry 6000 Tourist Lodging Wiring and Silver Welding Marketing Centers

Local Crafts Non Traditional Crafts Packing Center Warehouse and Market Place Industry 5000 Mechanicamp Industry 3000 Reconstruction and Services Center 5000

AWEX VI

Shb-Project Activity Estimated Sub-Loan Size (In S1000)

Marketing 700 McX keting 500 Markcting 2000 Industry 1500 Marketing 2000 Farm 1000 Marketing 2000 Marketing 2000 Marketing 4000 Marketing 4000 Farm 1000 Marketing 2000 Industry 1000

Potato Industry Potato Industry

Idea stage only with no identified sub-borrower

Total Sub-loan investment in projects with cost estimates S278000000

($3978357 at S70 = USl)

APURIMLAC (Abancay province only)

Sub-Project Activity Estimated Sub-Loan Size (In S000)

Slaughterhouse 15000 Anisette production 2000 Honey processing 1500 Hostels (2 projects) 4500 Balanced feed plant 3000 Guinea pig farms (3 projects 2100 Pig farms (3 projects) 8000 Flour Mill 500 Chicken farm (3 projects) 1800 Brick factory 800 Plaster factories (2 projects) 1000 Leather tannery 2000 Dairy processing 1500 Beverages (2 projects) 3100 Straw bags 500 Perfume factory 500 Noodles factory 2000 Troat farm -1000 Sawnill 1500

ANNEX VI

Sub-Project Activity Estimated Sub-Loan Size

(In S000)

Metal Furniture Production 400 Spice Mill 300 Bikery 500 Restaurant 150 Ice Cream Factory 100 Candy Factory 100 Food retail 300 Silk processing 10000 Plaster factory 500 Brick factory 500 Flour Mill 500

Idea Stage only with no identified sub-borrower

Total Sub-Loan investment in projects with cost estimates S65650000

$ Y37857 at S70 = US$1)

HUANCAVELICA

Sub-Project Activity Estimated Sub-Loan Size

(In (S000)

Alpaca and Sheep wool processing 25000 Fish farms (5 projects) 15000 Leather Tannery Dairy processing Dye factory Tourist restaurant 500 Fertilizer plant Brick and tile factory 500 Sawmill 2000 Meat Conservation Fattening Centers

Idea stage only with no identified sub-borrower

Total Sub-Loan investment in projects with cost estimates S43000000

($ 614286 at S70 = USS1)

ANNEX VII

Projected Sub-loan Commitments of Additional PandCaital

The projections shown below are based on the Banks estimates of the additional departments capacity to absorb Fund credit as follows Apurimac - S80 million Cajamarca - S60 million Huanshycavelica - S60 million and Huanuco - S150 million totallingS350 million These estimates assume slightly higher sub-lendingfigures for Apurimac Cajamarca and Huancavelica than supported bythe Banks totals of potential sub-project investments in these departments in order to provide for additional investment in subshyprojects currently lacking cost estimates and in new sub-projectopportunities to be identified by contracted consultants

This schedule of sub-loan approvals reflects an initial start-up periodof low activity to allow for the hiring of promotors orientation of branch office staff promotion campaigns and the contracting of conshysultants for sub-project identification and study Assuming that the Mission receives authorization to proceed with the proposal to transfer funds and expand the Fund into these departments by March 1 and proshyviding for a start-up period of approximately three months full subshylending operations will begin by June

Projccted ub-Loan Coditrc--ts of 7(2-ional Fund Capital A1MEY VUl March l977

(in S - Jlv 1V8rlillicn)

___-euro - rr-C----- --- VIA S5 --)- J F M J F J I Apurimac so

Apz0 a02 I

I 15 9

49 54 54 6474 82 82 86 86 0 I j il

CaC3ra Gajama ra

I 0 4 2 5

-

3 4

I--I 4 5

~ 1 5

-

6 7

-

71 71

Huancavelica [ 02 1 04 1 1 16 1 6 2 2 5 3

I 4

I 4 5 j 5 67

67 71 71

llic 0 2 i3 3 6 1 10 F

12 13 13 15 16 16 17

__ 7 5--Z 7-7 77__ 3 7 214 124 264 304 366 376 398 378

ANNX VIII VA-c IjEc 0OJECT TITLE DATE Ifi1ORIGINAL jAPPROWOD

77ntermrisc - 1 Dvopaert 1677 REVISION V

977 CY 1978 CY 1979

- -4

4 4-- 0i w W r- v4

4 UsM

14I

0 12 24 36

LPOW

2cr--ato to extenrd $60 million of AID Loan

1 l a--s conitted by Industrial Bank

Inc Aure-r aion

Fcur promotors hird 2-2-

tc-Ln A-reeent 6

Full amount of -7 AID Loan fully disbursed

A= --d ed AID Loan cotmmitted

0-0Z S CRITICAL PERFORMANCE INDICATOR (CP NETWORK

COiTAY ROJECT NC PROjECT TiTLE DATE 527--057 Airal rnterprises I Develooment ORIGINALAppoAOVEOj1677 ORIIONAL

PRCjECT PuRPCSE (FROM PRP FACESHEET)

To irstitutionalize an integrated program of financial and technical assistance to assist existing and new rural enterprises

vl OEscRIPTION

Action Agent Action Date

AIDW 1 Authorization to extend terminal dates Jan 31 1975

AIDW 2 Loan Authorization Mar 15 1977 amended

USAIDGOP 3 Loan Agreement May 1i1977

amended

Industrial Bank 4 Four promotors hired June 15 1977

Industrial Bank 5 $60 million of AID Jan 3] 1978 Loan committed by Industrial Bank

Industrial Bank 6 Full amount of AID July 31 1978 Loan committed

Industrial Bank 7 AID Loan fully Jan 3] 1979 ORDEZA disbursed

AID 102036 (6-76) CRITICAL PERFORMANCE INDICATOR (CPI) DESCRIPTION

ANNEX V

provide services to transport traffic using the Lima to Pucallpa highway

The Department contains three distinct geographic zones -shythe high sierra in the eastern part of the Department the ceja de selva and finally the jungle on the western extreme bordering the Department of Loreto The ceja de selva or high jungle has long been signalled as an area of vast potential for Peru but up to the present physical infrastructure and needed financial reshysources have been lacking It is an area which offers potential in both agriculture and livestock expansion as well as small industries using the agricultural and mineral resources of the zone

The Lima-Pucallpa highway traverses much of the Department of Huanuco and while the increasing traffic between coast and jungle has put severe strains on the highway -- especially the La Oroya to Lima section which crosses over the high Andes -- it is noneshytheless possible to make the overland trip from the city of Huanuco to Lima in about 12 hours Additionally the secondary road network is fairly well developed a result of the many small mining ventures in the area which have built roads from their industrial complexes to the highway There is scheduled air traffic from Huanuco to Lima and Pucallpa

2 Economic Activity

The occupational breakdown of the Department of Huanuco according to the 1972 Census is as follows

Economic Activity Persons Employed of Total

Agriculture (farming livestock) 72711 707 Fishing 31 Mining 1542 15 Industry 5392 52 Utilities 53 01

2423Construction 24 Commerce banking 6060 59 Transport 1794 17 Services 8597 84 Other 4260 41 TOTAL 102863 1000

ANNEX V

Agriculture is characterized by minifundia (individually farmedplots averaging two to three hectares) and associative enterprisescreated as a result of the Agrarian Reform An Industrial Banksurvey found that 20 associative enterprises were currentlyfunctioning in the area -- mostly in the area below Huanuco in thehigh jungle The basic productive pattern has traditionally beengarden crops for home consumption and sale of surplus in areamarkets but recently the GOP has been promoting increased cultivashytion of soybeans and fruits which can be consumed fresh or processedfor the coastal or export market

Industry employs 52 of the Department work force The bulkof industry is located in and around the city of Huanuco and isbasically oriented towards the production of consumer goods Fewlinks exist between the agricultural and mining base of the areaand the industries which have grown up there

The Industrial Bank has identified a large number of potentialsub-projects in the area which would help to establish linkagesbetween agricultural and mining output and new industry -- theseinclude the manufacture of auto parts mechnical equipment metalworking a sausage processing plant and other livestock-related industries

Mining while only employing 15 of the economically activepopulation is nonetheless an extremely important activity fromthe national point of view Important zinc and lead deposits arefound in the higher sierra regions including the Milpo andAtacocha mining complexes located an hour above the city ofHuanuco Since capital intensive mine exploitation is practicedin the area there is little possibility that new employmentincome will be generated through increased mining activity

ANNEX VI

Fund Investment Potential In Additional

Sierra Departments

The following is a list of sub-project possibilities for Fund investment in the departments of Huanuco Apurimac and Huancavelica These sub-projects were identified in the course of two-day visits by Bank personnel to the Bank Offices on each department where they interviewed local Bank staff regional planning office personnel managers of associative enterprises and local entrepreneurs Prosshypective sub-borrower or promotors exist for each sub-project except as indicated

HUAhUCO

Sub-Project Activity Estimated Sub-Loan Size (In S1000)

Dairy Products 4000 Chicken Production 2000 Printing Industry 2000 Marketing of Pharmaceutical Products 4000 Gas Station 10000 Milk Processing Plant 4000 Sausage Processing Plant 10000 Auto Spare Parts 10000 Tourism 500 Brick Factory 1000 Saw Mill 2000 Swine Processing Plant 4500 Swine Processing Plant 4500 Industiial Parts Production 300 Livestock Production and Processing 3000 Metal-Working 8000 Hotel 2000 Carpentry Shop 500 Recreation Center 1000 Bakery 500 Rabbit Meat Processing 1000 Bread and Candy Shop 1500 Jewelry and Jewelry Repair Shop 2000 Photo Studio 600 Ice-Cream Shop 1000 Sea-Food Restaurant 285 Local Crafts 2000 Local Crafts 2000 Local Crafts 1000

ANNEX VI

Sub-Project Activity Estimated Sub-Loan Size (In So00)

Cattle Raisiny and related activities 500 Industrialization of Tubers 500 Dairy Processing Plaster Factory Hotel Grain Mill 1600 Meat Packing Center Hog Fattenin 9 Center Sausage Plant Rabbit Meat Processing Local Crafts Sla y hterhouse Leather Crafts Leather Crafts Dairy and Leather Industry

Cement Plant Grain ill Starch Processing and Dried Potato Plant Miscellaneous Supply Store Miscellaneous Supply Store Papaya Canning Plant Juice Cannery Cornstarch Production Dried Potato Prcduction Dairy Plant 2900 Tuber IndustryAseveral small plants on local scale) 72000 Leather and Shoe Shop 1000 Warehouses and Silos 12000 Slaughterhouse 16000 Balanced feed plant 10000 Coristruction liaterials 18000 Pig and Poultry Centers 7000 Fish Farm 10000 Cereal Industry 6000 Tourist Lodging Wiring and Silver Welding Marketing Centers

Local Crafts Non Traditional Crafts Packing Center Warehouse and Market Place Industry 5000 Mechanicamp Industry 3000 Reconstruction and Services Center 5000

AWEX VI

Shb-Project Activity Estimated Sub-Loan Size (In S1000)

Marketing 700 McX keting 500 Markcting 2000 Industry 1500 Marketing 2000 Farm 1000 Marketing 2000 Marketing 2000 Marketing 4000 Marketing 4000 Farm 1000 Marketing 2000 Industry 1000

Potato Industry Potato Industry

Idea stage only with no identified sub-borrower

Total Sub-loan investment in projects with cost estimates S278000000

($3978357 at S70 = USl)

APURIMLAC (Abancay province only)

Sub-Project Activity Estimated Sub-Loan Size (In S000)

Slaughterhouse 15000 Anisette production 2000 Honey processing 1500 Hostels (2 projects) 4500 Balanced feed plant 3000 Guinea pig farms (3 projects 2100 Pig farms (3 projects) 8000 Flour Mill 500 Chicken farm (3 projects) 1800 Brick factory 800 Plaster factories (2 projects) 1000 Leather tannery 2000 Dairy processing 1500 Beverages (2 projects) 3100 Straw bags 500 Perfume factory 500 Noodles factory 2000 Troat farm -1000 Sawnill 1500

ANNEX VI

Sub-Project Activity Estimated Sub-Loan Size

(In S000)

Metal Furniture Production 400 Spice Mill 300 Bikery 500 Restaurant 150 Ice Cream Factory 100 Candy Factory 100 Food retail 300 Silk processing 10000 Plaster factory 500 Brick factory 500 Flour Mill 500

Idea Stage only with no identified sub-borrower

Total Sub-Loan investment in projects with cost estimates S65650000

$ Y37857 at S70 = US$1)

HUANCAVELICA

Sub-Project Activity Estimated Sub-Loan Size

(In (S000)

Alpaca and Sheep wool processing 25000 Fish farms (5 projects) 15000 Leather Tannery Dairy processing Dye factory Tourist restaurant 500 Fertilizer plant Brick and tile factory 500 Sawmill 2000 Meat Conservation Fattening Centers

Idea stage only with no identified sub-borrower

Total Sub-Loan investment in projects with cost estimates S43000000

($ 614286 at S70 = USS1)

ANNEX VII

Projected Sub-loan Commitments of Additional PandCaital

The projections shown below are based on the Banks estimates of the additional departments capacity to absorb Fund credit as follows Apurimac - S80 million Cajamarca - S60 million Huanshycavelica - S60 million and Huanuco - S150 million totallingS350 million These estimates assume slightly higher sub-lendingfigures for Apurimac Cajamarca and Huancavelica than supported bythe Banks totals of potential sub-project investments in these departments in order to provide for additional investment in subshyprojects currently lacking cost estimates and in new sub-projectopportunities to be identified by contracted consultants

This schedule of sub-loan approvals reflects an initial start-up periodof low activity to allow for the hiring of promotors orientation of branch office staff promotion campaigns and the contracting of conshysultants for sub-project identification and study Assuming that the Mission receives authorization to proceed with the proposal to transfer funds and expand the Fund into these departments by March 1 and proshyviding for a start-up period of approximately three months full subshylending operations will begin by June

Projccted ub-Loan Coditrc--ts of 7(2-ional Fund Capital A1MEY VUl March l977

(in S - Jlv 1V8rlillicn)

___-euro - rr-C----- --- VIA S5 --)- J F M J F J I Apurimac so

Apz0 a02 I

I 15 9

49 54 54 6474 82 82 86 86 0 I j il

CaC3ra Gajama ra

I 0 4 2 5

-

3 4

I--I 4 5

~ 1 5

-

6 7

-

71 71

Huancavelica [ 02 1 04 1 1 16 1 6 2 2 5 3

I 4

I 4 5 j 5 67

67 71 71

llic 0 2 i3 3 6 1 10 F

12 13 13 15 16 16 17

__ 7 5--Z 7-7 77__ 3 7 214 124 264 304 366 376 398 378

ANNX VIII VA-c IjEc 0OJECT TITLE DATE Ifi1ORIGINAL jAPPROWOD

77ntermrisc - 1 Dvopaert 1677 REVISION V

977 CY 1978 CY 1979

- -4

4 4-- 0i w W r- v4

4 UsM

14I

0 12 24 36

LPOW

2cr--ato to extenrd $60 million of AID Loan

1 l a--s conitted by Industrial Bank

Inc Aure-r aion

Fcur promotors hird 2-2-

tc-Ln A-reeent 6

Full amount of -7 AID Loan fully disbursed

A= --d ed AID Loan cotmmitted

0-0Z S CRITICAL PERFORMANCE INDICATOR (CP NETWORK

COiTAY ROJECT NC PROjECT TiTLE DATE 527--057 Airal rnterprises I Develooment ORIGINALAppoAOVEOj1677 ORIIONAL

PRCjECT PuRPCSE (FROM PRP FACESHEET)

To irstitutionalize an integrated program of financial and technical assistance to assist existing and new rural enterprises

vl OEscRIPTION

Action Agent Action Date

AIDW 1 Authorization to extend terminal dates Jan 31 1975

AIDW 2 Loan Authorization Mar 15 1977 amended

USAIDGOP 3 Loan Agreement May 1i1977

amended

Industrial Bank 4 Four promotors hired June 15 1977

Industrial Bank 5 $60 million of AID Jan 3] 1978 Loan committed by Industrial Bank

Industrial Bank 6 Full amount of AID July 31 1978 Loan committed

Industrial Bank 7 AID Loan fully Jan 3] 1979 ORDEZA disbursed

AID 102036 (6-76) CRITICAL PERFORMANCE INDICATOR (CPI) DESCRIPTION

ANNEX V

Agriculture is characterized by minifundia (individually farmedplots averaging two to three hectares) and associative enterprisescreated as a result of the Agrarian Reform An Industrial Banksurvey found that 20 associative enterprises were currentlyfunctioning in the area -- mostly in the area below Huanuco in thehigh jungle The basic productive pattern has traditionally beengarden crops for home consumption and sale of surplus in areamarkets but recently the GOP has been promoting increased cultivashytion of soybeans and fruits which can be consumed fresh or processedfor the coastal or export market

Industry employs 52 of the Department work force The bulkof industry is located in and around the city of Huanuco and isbasically oriented towards the production of consumer goods Fewlinks exist between the agricultural and mining base of the areaand the industries which have grown up there

The Industrial Bank has identified a large number of potentialsub-projects in the area which would help to establish linkagesbetween agricultural and mining output and new industry -- theseinclude the manufacture of auto parts mechnical equipment metalworking a sausage processing plant and other livestock-related industries

Mining while only employing 15 of the economically activepopulation is nonetheless an extremely important activity fromthe national point of view Important zinc and lead deposits arefound in the higher sierra regions including the Milpo andAtacocha mining complexes located an hour above the city ofHuanuco Since capital intensive mine exploitation is practicedin the area there is little possibility that new employmentincome will be generated through increased mining activity

ANNEX VI

Fund Investment Potential In Additional

Sierra Departments

The following is a list of sub-project possibilities for Fund investment in the departments of Huanuco Apurimac and Huancavelica These sub-projects were identified in the course of two-day visits by Bank personnel to the Bank Offices on each department where they interviewed local Bank staff regional planning office personnel managers of associative enterprises and local entrepreneurs Prosshypective sub-borrower or promotors exist for each sub-project except as indicated

HUAhUCO

Sub-Project Activity Estimated Sub-Loan Size (In S1000)

Dairy Products 4000 Chicken Production 2000 Printing Industry 2000 Marketing of Pharmaceutical Products 4000 Gas Station 10000 Milk Processing Plant 4000 Sausage Processing Plant 10000 Auto Spare Parts 10000 Tourism 500 Brick Factory 1000 Saw Mill 2000 Swine Processing Plant 4500 Swine Processing Plant 4500 Industiial Parts Production 300 Livestock Production and Processing 3000 Metal-Working 8000 Hotel 2000 Carpentry Shop 500 Recreation Center 1000 Bakery 500 Rabbit Meat Processing 1000 Bread and Candy Shop 1500 Jewelry and Jewelry Repair Shop 2000 Photo Studio 600 Ice-Cream Shop 1000 Sea-Food Restaurant 285 Local Crafts 2000 Local Crafts 2000 Local Crafts 1000

ANNEX VI

Sub-Project Activity Estimated Sub-Loan Size (In So00)

Cattle Raisiny and related activities 500 Industrialization of Tubers 500 Dairy Processing Plaster Factory Hotel Grain Mill 1600 Meat Packing Center Hog Fattenin 9 Center Sausage Plant Rabbit Meat Processing Local Crafts Sla y hterhouse Leather Crafts Leather Crafts Dairy and Leather Industry

Cement Plant Grain ill Starch Processing and Dried Potato Plant Miscellaneous Supply Store Miscellaneous Supply Store Papaya Canning Plant Juice Cannery Cornstarch Production Dried Potato Prcduction Dairy Plant 2900 Tuber IndustryAseveral small plants on local scale) 72000 Leather and Shoe Shop 1000 Warehouses and Silos 12000 Slaughterhouse 16000 Balanced feed plant 10000 Coristruction liaterials 18000 Pig and Poultry Centers 7000 Fish Farm 10000 Cereal Industry 6000 Tourist Lodging Wiring and Silver Welding Marketing Centers

Local Crafts Non Traditional Crafts Packing Center Warehouse and Market Place Industry 5000 Mechanicamp Industry 3000 Reconstruction and Services Center 5000

AWEX VI

Shb-Project Activity Estimated Sub-Loan Size (In S1000)

Marketing 700 McX keting 500 Markcting 2000 Industry 1500 Marketing 2000 Farm 1000 Marketing 2000 Marketing 2000 Marketing 4000 Marketing 4000 Farm 1000 Marketing 2000 Industry 1000

Potato Industry Potato Industry

Idea stage only with no identified sub-borrower

Total Sub-loan investment in projects with cost estimates S278000000

($3978357 at S70 = USl)

APURIMLAC (Abancay province only)

Sub-Project Activity Estimated Sub-Loan Size (In S000)

Slaughterhouse 15000 Anisette production 2000 Honey processing 1500 Hostels (2 projects) 4500 Balanced feed plant 3000 Guinea pig farms (3 projects 2100 Pig farms (3 projects) 8000 Flour Mill 500 Chicken farm (3 projects) 1800 Brick factory 800 Plaster factories (2 projects) 1000 Leather tannery 2000 Dairy processing 1500 Beverages (2 projects) 3100 Straw bags 500 Perfume factory 500 Noodles factory 2000 Troat farm -1000 Sawnill 1500

ANNEX VI

Sub-Project Activity Estimated Sub-Loan Size

(In S000)

Metal Furniture Production 400 Spice Mill 300 Bikery 500 Restaurant 150 Ice Cream Factory 100 Candy Factory 100 Food retail 300 Silk processing 10000 Plaster factory 500 Brick factory 500 Flour Mill 500

Idea Stage only with no identified sub-borrower

Total Sub-Loan investment in projects with cost estimates S65650000

$ Y37857 at S70 = US$1)

HUANCAVELICA

Sub-Project Activity Estimated Sub-Loan Size

(In (S000)

Alpaca and Sheep wool processing 25000 Fish farms (5 projects) 15000 Leather Tannery Dairy processing Dye factory Tourist restaurant 500 Fertilizer plant Brick and tile factory 500 Sawmill 2000 Meat Conservation Fattening Centers

Idea stage only with no identified sub-borrower

Total Sub-Loan investment in projects with cost estimates S43000000

($ 614286 at S70 = USS1)

ANNEX VII

Projected Sub-loan Commitments of Additional PandCaital

The projections shown below are based on the Banks estimates of the additional departments capacity to absorb Fund credit as follows Apurimac - S80 million Cajamarca - S60 million Huanshycavelica - S60 million and Huanuco - S150 million totallingS350 million These estimates assume slightly higher sub-lendingfigures for Apurimac Cajamarca and Huancavelica than supported bythe Banks totals of potential sub-project investments in these departments in order to provide for additional investment in subshyprojects currently lacking cost estimates and in new sub-projectopportunities to be identified by contracted consultants

This schedule of sub-loan approvals reflects an initial start-up periodof low activity to allow for the hiring of promotors orientation of branch office staff promotion campaigns and the contracting of conshysultants for sub-project identification and study Assuming that the Mission receives authorization to proceed with the proposal to transfer funds and expand the Fund into these departments by March 1 and proshyviding for a start-up period of approximately three months full subshylending operations will begin by June

Projccted ub-Loan Coditrc--ts of 7(2-ional Fund Capital A1MEY VUl March l977

(in S - Jlv 1V8rlillicn)

___-euro - rr-C----- --- VIA S5 --)- J F M J F J I Apurimac so

Apz0 a02 I

I 15 9

49 54 54 6474 82 82 86 86 0 I j il

CaC3ra Gajama ra

I 0 4 2 5

-

3 4

I--I 4 5

~ 1 5

-

6 7

-

71 71

Huancavelica [ 02 1 04 1 1 16 1 6 2 2 5 3

I 4

I 4 5 j 5 67

67 71 71

llic 0 2 i3 3 6 1 10 F

12 13 13 15 16 16 17

__ 7 5--Z 7-7 77__ 3 7 214 124 264 304 366 376 398 378

ANNX VIII VA-c IjEc 0OJECT TITLE DATE Ifi1ORIGINAL jAPPROWOD

77ntermrisc - 1 Dvopaert 1677 REVISION V

977 CY 1978 CY 1979

- -4

4 4-- 0i w W r- v4

4 UsM

14I

0 12 24 36

LPOW

2cr--ato to extenrd $60 million of AID Loan

1 l a--s conitted by Industrial Bank

Inc Aure-r aion

Fcur promotors hird 2-2-

tc-Ln A-reeent 6

Full amount of -7 AID Loan fully disbursed

A= --d ed AID Loan cotmmitted

0-0Z S CRITICAL PERFORMANCE INDICATOR (CP NETWORK

COiTAY ROJECT NC PROjECT TiTLE DATE 527--057 Airal rnterprises I Develooment ORIGINALAppoAOVEOj1677 ORIIONAL

PRCjECT PuRPCSE (FROM PRP FACESHEET)

To irstitutionalize an integrated program of financial and technical assistance to assist existing and new rural enterprises

vl OEscRIPTION

Action Agent Action Date

AIDW 1 Authorization to extend terminal dates Jan 31 1975

AIDW 2 Loan Authorization Mar 15 1977 amended

USAIDGOP 3 Loan Agreement May 1i1977

amended

Industrial Bank 4 Four promotors hired June 15 1977

Industrial Bank 5 $60 million of AID Jan 3] 1978 Loan committed by Industrial Bank

Industrial Bank 6 Full amount of AID July 31 1978 Loan committed

Industrial Bank 7 AID Loan fully Jan 3] 1979 ORDEZA disbursed

AID 102036 (6-76) CRITICAL PERFORMANCE INDICATOR (CPI) DESCRIPTION

ANNEX VI

Fund Investment Potential In Additional

Sierra Departments

The following is a list of sub-project possibilities for Fund investment in the departments of Huanuco Apurimac and Huancavelica These sub-projects were identified in the course of two-day visits by Bank personnel to the Bank Offices on each department where they interviewed local Bank staff regional planning office personnel managers of associative enterprises and local entrepreneurs Prosshypective sub-borrower or promotors exist for each sub-project except as indicated

HUAhUCO

Sub-Project Activity Estimated Sub-Loan Size (In S1000)

Dairy Products 4000 Chicken Production 2000 Printing Industry 2000 Marketing of Pharmaceutical Products 4000 Gas Station 10000 Milk Processing Plant 4000 Sausage Processing Plant 10000 Auto Spare Parts 10000 Tourism 500 Brick Factory 1000 Saw Mill 2000 Swine Processing Plant 4500 Swine Processing Plant 4500 Industiial Parts Production 300 Livestock Production and Processing 3000 Metal-Working 8000 Hotel 2000 Carpentry Shop 500 Recreation Center 1000 Bakery 500 Rabbit Meat Processing 1000 Bread and Candy Shop 1500 Jewelry and Jewelry Repair Shop 2000 Photo Studio 600 Ice-Cream Shop 1000 Sea-Food Restaurant 285 Local Crafts 2000 Local Crafts 2000 Local Crafts 1000

ANNEX VI

Sub-Project Activity Estimated Sub-Loan Size (In So00)

Cattle Raisiny and related activities 500 Industrialization of Tubers 500 Dairy Processing Plaster Factory Hotel Grain Mill 1600 Meat Packing Center Hog Fattenin 9 Center Sausage Plant Rabbit Meat Processing Local Crafts Sla y hterhouse Leather Crafts Leather Crafts Dairy and Leather Industry

Cement Plant Grain ill Starch Processing and Dried Potato Plant Miscellaneous Supply Store Miscellaneous Supply Store Papaya Canning Plant Juice Cannery Cornstarch Production Dried Potato Prcduction Dairy Plant 2900 Tuber IndustryAseveral small plants on local scale) 72000 Leather and Shoe Shop 1000 Warehouses and Silos 12000 Slaughterhouse 16000 Balanced feed plant 10000 Coristruction liaterials 18000 Pig and Poultry Centers 7000 Fish Farm 10000 Cereal Industry 6000 Tourist Lodging Wiring and Silver Welding Marketing Centers

Local Crafts Non Traditional Crafts Packing Center Warehouse and Market Place Industry 5000 Mechanicamp Industry 3000 Reconstruction and Services Center 5000

AWEX VI

Shb-Project Activity Estimated Sub-Loan Size (In S1000)

Marketing 700 McX keting 500 Markcting 2000 Industry 1500 Marketing 2000 Farm 1000 Marketing 2000 Marketing 2000 Marketing 4000 Marketing 4000 Farm 1000 Marketing 2000 Industry 1000

Potato Industry Potato Industry

Idea stage only with no identified sub-borrower

Total Sub-loan investment in projects with cost estimates S278000000

($3978357 at S70 = USl)

APURIMLAC (Abancay province only)

Sub-Project Activity Estimated Sub-Loan Size (In S000)

Slaughterhouse 15000 Anisette production 2000 Honey processing 1500 Hostels (2 projects) 4500 Balanced feed plant 3000 Guinea pig farms (3 projects 2100 Pig farms (3 projects) 8000 Flour Mill 500 Chicken farm (3 projects) 1800 Brick factory 800 Plaster factories (2 projects) 1000 Leather tannery 2000 Dairy processing 1500 Beverages (2 projects) 3100 Straw bags 500 Perfume factory 500 Noodles factory 2000 Troat farm -1000 Sawnill 1500

ANNEX VI

Sub-Project Activity Estimated Sub-Loan Size

(In S000)

Metal Furniture Production 400 Spice Mill 300 Bikery 500 Restaurant 150 Ice Cream Factory 100 Candy Factory 100 Food retail 300 Silk processing 10000 Plaster factory 500 Brick factory 500 Flour Mill 500

Idea Stage only with no identified sub-borrower

Total Sub-Loan investment in projects with cost estimates S65650000

$ Y37857 at S70 = US$1)

HUANCAVELICA

Sub-Project Activity Estimated Sub-Loan Size

(In (S000)

Alpaca and Sheep wool processing 25000 Fish farms (5 projects) 15000 Leather Tannery Dairy processing Dye factory Tourist restaurant 500 Fertilizer plant Brick and tile factory 500 Sawmill 2000 Meat Conservation Fattening Centers

Idea stage only with no identified sub-borrower

Total Sub-Loan investment in projects with cost estimates S43000000

($ 614286 at S70 = USS1)

ANNEX VII

Projected Sub-loan Commitments of Additional PandCaital

The projections shown below are based on the Banks estimates of the additional departments capacity to absorb Fund credit as follows Apurimac - S80 million Cajamarca - S60 million Huanshycavelica - S60 million and Huanuco - S150 million totallingS350 million These estimates assume slightly higher sub-lendingfigures for Apurimac Cajamarca and Huancavelica than supported bythe Banks totals of potential sub-project investments in these departments in order to provide for additional investment in subshyprojects currently lacking cost estimates and in new sub-projectopportunities to be identified by contracted consultants

This schedule of sub-loan approvals reflects an initial start-up periodof low activity to allow for the hiring of promotors orientation of branch office staff promotion campaigns and the contracting of conshysultants for sub-project identification and study Assuming that the Mission receives authorization to proceed with the proposal to transfer funds and expand the Fund into these departments by March 1 and proshyviding for a start-up period of approximately three months full subshylending operations will begin by June

Projccted ub-Loan Coditrc--ts of 7(2-ional Fund Capital A1MEY VUl March l977

(in S - Jlv 1V8rlillicn)

___-euro - rr-C----- --- VIA S5 --)- J F M J F J I Apurimac so

Apz0 a02 I

I 15 9

49 54 54 6474 82 82 86 86 0 I j il

CaC3ra Gajama ra

I 0 4 2 5

-

3 4

I--I 4 5

~ 1 5

-

6 7

-

71 71

Huancavelica [ 02 1 04 1 1 16 1 6 2 2 5 3

I 4

I 4 5 j 5 67

67 71 71

llic 0 2 i3 3 6 1 10 F

12 13 13 15 16 16 17

__ 7 5--Z 7-7 77__ 3 7 214 124 264 304 366 376 398 378

ANNX VIII VA-c IjEc 0OJECT TITLE DATE Ifi1ORIGINAL jAPPROWOD

77ntermrisc - 1 Dvopaert 1677 REVISION V

977 CY 1978 CY 1979

- -4

4 4-- 0i w W r- v4

4 UsM

14I

0 12 24 36

LPOW

2cr--ato to extenrd $60 million of AID Loan

1 l a--s conitted by Industrial Bank

Inc Aure-r aion

Fcur promotors hird 2-2-

tc-Ln A-reeent 6

Full amount of -7 AID Loan fully disbursed

A= --d ed AID Loan cotmmitted

0-0Z S CRITICAL PERFORMANCE INDICATOR (CP NETWORK

COiTAY ROJECT NC PROjECT TiTLE DATE 527--057 Airal rnterprises I Develooment ORIGINALAppoAOVEOj1677 ORIIONAL

PRCjECT PuRPCSE (FROM PRP FACESHEET)

To irstitutionalize an integrated program of financial and technical assistance to assist existing and new rural enterprises

vl OEscRIPTION

Action Agent Action Date

AIDW 1 Authorization to extend terminal dates Jan 31 1975

AIDW 2 Loan Authorization Mar 15 1977 amended

USAIDGOP 3 Loan Agreement May 1i1977

amended

Industrial Bank 4 Four promotors hired June 15 1977

Industrial Bank 5 $60 million of AID Jan 3] 1978 Loan committed by Industrial Bank

Industrial Bank 6 Full amount of AID July 31 1978 Loan committed

Industrial Bank 7 AID Loan fully Jan 3] 1979 ORDEZA disbursed

AID 102036 (6-76) CRITICAL PERFORMANCE INDICATOR (CPI) DESCRIPTION

ANNEX VI

Sub-Project Activity Estimated Sub-Loan Size (In So00)

Cattle Raisiny and related activities 500 Industrialization of Tubers 500 Dairy Processing Plaster Factory Hotel Grain Mill 1600 Meat Packing Center Hog Fattenin 9 Center Sausage Plant Rabbit Meat Processing Local Crafts Sla y hterhouse Leather Crafts Leather Crafts Dairy and Leather Industry

Cement Plant Grain ill Starch Processing and Dried Potato Plant Miscellaneous Supply Store Miscellaneous Supply Store Papaya Canning Plant Juice Cannery Cornstarch Production Dried Potato Prcduction Dairy Plant 2900 Tuber IndustryAseveral small plants on local scale) 72000 Leather and Shoe Shop 1000 Warehouses and Silos 12000 Slaughterhouse 16000 Balanced feed plant 10000 Coristruction liaterials 18000 Pig and Poultry Centers 7000 Fish Farm 10000 Cereal Industry 6000 Tourist Lodging Wiring and Silver Welding Marketing Centers

Local Crafts Non Traditional Crafts Packing Center Warehouse and Market Place Industry 5000 Mechanicamp Industry 3000 Reconstruction and Services Center 5000

AWEX VI

Shb-Project Activity Estimated Sub-Loan Size (In S1000)

Marketing 700 McX keting 500 Markcting 2000 Industry 1500 Marketing 2000 Farm 1000 Marketing 2000 Marketing 2000 Marketing 4000 Marketing 4000 Farm 1000 Marketing 2000 Industry 1000

Potato Industry Potato Industry

Idea stage only with no identified sub-borrower

Total Sub-loan investment in projects with cost estimates S278000000

($3978357 at S70 = USl)

APURIMLAC (Abancay province only)

Sub-Project Activity Estimated Sub-Loan Size (In S000)

Slaughterhouse 15000 Anisette production 2000 Honey processing 1500 Hostels (2 projects) 4500 Balanced feed plant 3000 Guinea pig farms (3 projects 2100 Pig farms (3 projects) 8000 Flour Mill 500 Chicken farm (3 projects) 1800 Brick factory 800 Plaster factories (2 projects) 1000 Leather tannery 2000 Dairy processing 1500 Beverages (2 projects) 3100 Straw bags 500 Perfume factory 500 Noodles factory 2000 Troat farm -1000 Sawnill 1500

ANNEX VI

Sub-Project Activity Estimated Sub-Loan Size

(In S000)

Metal Furniture Production 400 Spice Mill 300 Bikery 500 Restaurant 150 Ice Cream Factory 100 Candy Factory 100 Food retail 300 Silk processing 10000 Plaster factory 500 Brick factory 500 Flour Mill 500

Idea Stage only with no identified sub-borrower

Total Sub-Loan investment in projects with cost estimates S65650000

$ Y37857 at S70 = US$1)

HUANCAVELICA

Sub-Project Activity Estimated Sub-Loan Size

(In (S000)

Alpaca and Sheep wool processing 25000 Fish farms (5 projects) 15000 Leather Tannery Dairy processing Dye factory Tourist restaurant 500 Fertilizer plant Brick and tile factory 500 Sawmill 2000 Meat Conservation Fattening Centers

Idea stage only with no identified sub-borrower

Total Sub-Loan investment in projects with cost estimates S43000000

($ 614286 at S70 = USS1)

ANNEX VII

Projected Sub-loan Commitments of Additional PandCaital

The projections shown below are based on the Banks estimates of the additional departments capacity to absorb Fund credit as follows Apurimac - S80 million Cajamarca - S60 million Huanshycavelica - S60 million and Huanuco - S150 million totallingS350 million These estimates assume slightly higher sub-lendingfigures for Apurimac Cajamarca and Huancavelica than supported bythe Banks totals of potential sub-project investments in these departments in order to provide for additional investment in subshyprojects currently lacking cost estimates and in new sub-projectopportunities to be identified by contracted consultants

This schedule of sub-loan approvals reflects an initial start-up periodof low activity to allow for the hiring of promotors orientation of branch office staff promotion campaigns and the contracting of conshysultants for sub-project identification and study Assuming that the Mission receives authorization to proceed with the proposal to transfer funds and expand the Fund into these departments by March 1 and proshyviding for a start-up period of approximately three months full subshylending operations will begin by June

Projccted ub-Loan Coditrc--ts of 7(2-ional Fund Capital A1MEY VUl March l977

(in S - Jlv 1V8rlillicn)

___-euro - rr-C----- --- VIA S5 --)- J F M J F J I Apurimac so

Apz0 a02 I

I 15 9

49 54 54 6474 82 82 86 86 0 I j il

CaC3ra Gajama ra

I 0 4 2 5

-

3 4

I--I 4 5

~ 1 5

-

6 7

-

71 71

Huancavelica [ 02 1 04 1 1 16 1 6 2 2 5 3

I 4

I 4 5 j 5 67

67 71 71

llic 0 2 i3 3 6 1 10 F

12 13 13 15 16 16 17

__ 7 5--Z 7-7 77__ 3 7 214 124 264 304 366 376 398 378

ANNX VIII VA-c IjEc 0OJECT TITLE DATE Ifi1ORIGINAL jAPPROWOD

77ntermrisc - 1 Dvopaert 1677 REVISION V

977 CY 1978 CY 1979

- -4

4 4-- 0i w W r- v4

4 UsM

14I

0 12 24 36

LPOW

2cr--ato to extenrd $60 million of AID Loan

1 l a--s conitted by Industrial Bank

Inc Aure-r aion

Fcur promotors hird 2-2-

tc-Ln A-reeent 6

Full amount of -7 AID Loan fully disbursed

A= --d ed AID Loan cotmmitted

0-0Z S CRITICAL PERFORMANCE INDICATOR (CP NETWORK

COiTAY ROJECT NC PROjECT TiTLE DATE 527--057 Airal rnterprises I Develooment ORIGINALAppoAOVEOj1677 ORIIONAL

PRCjECT PuRPCSE (FROM PRP FACESHEET)

To irstitutionalize an integrated program of financial and technical assistance to assist existing and new rural enterprises

vl OEscRIPTION

Action Agent Action Date

AIDW 1 Authorization to extend terminal dates Jan 31 1975

AIDW 2 Loan Authorization Mar 15 1977 amended

USAIDGOP 3 Loan Agreement May 1i1977

amended

Industrial Bank 4 Four promotors hired June 15 1977

Industrial Bank 5 $60 million of AID Jan 3] 1978 Loan committed by Industrial Bank

Industrial Bank 6 Full amount of AID July 31 1978 Loan committed

Industrial Bank 7 AID Loan fully Jan 3] 1979 ORDEZA disbursed

AID 102036 (6-76) CRITICAL PERFORMANCE INDICATOR (CPI) DESCRIPTION

AWEX VI

Shb-Project Activity Estimated Sub-Loan Size (In S1000)

Marketing 700 McX keting 500 Markcting 2000 Industry 1500 Marketing 2000 Farm 1000 Marketing 2000 Marketing 2000 Marketing 4000 Marketing 4000 Farm 1000 Marketing 2000 Industry 1000

Potato Industry Potato Industry

Idea stage only with no identified sub-borrower

Total Sub-loan investment in projects with cost estimates S278000000

($3978357 at S70 = USl)

APURIMLAC (Abancay province only)

Sub-Project Activity Estimated Sub-Loan Size (In S000)

Slaughterhouse 15000 Anisette production 2000 Honey processing 1500 Hostels (2 projects) 4500 Balanced feed plant 3000 Guinea pig farms (3 projects 2100 Pig farms (3 projects) 8000 Flour Mill 500 Chicken farm (3 projects) 1800 Brick factory 800 Plaster factories (2 projects) 1000 Leather tannery 2000 Dairy processing 1500 Beverages (2 projects) 3100 Straw bags 500 Perfume factory 500 Noodles factory 2000 Troat farm -1000 Sawnill 1500

ANNEX VI

Sub-Project Activity Estimated Sub-Loan Size

(In S000)

Metal Furniture Production 400 Spice Mill 300 Bikery 500 Restaurant 150 Ice Cream Factory 100 Candy Factory 100 Food retail 300 Silk processing 10000 Plaster factory 500 Brick factory 500 Flour Mill 500

Idea Stage only with no identified sub-borrower

Total Sub-Loan investment in projects with cost estimates S65650000

$ Y37857 at S70 = US$1)

HUANCAVELICA

Sub-Project Activity Estimated Sub-Loan Size

(In (S000)

Alpaca and Sheep wool processing 25000 Fish farms (5 projects) 15000 Leather Tannery Dairy processing Dye factory Tourist restaurant 500 Fertilizer plant Brick and tile factory 500 Sawmill 2000 Meat Conservation Fattening Centers

Idea stage only with no identified sub-borrower

Total Sub-Loan investment in projects with cost estimates S43000000

($ 614286 at S70 = USS1)

ANNEX VII

Projected Sub-loan Commitments of Additional PandCaital

The projections shown below are based on the Banks estimates of the additional departments capacity to absorb Fund credit as follows Apurimac - S80 million Cajamarca - S60 million Huanshycavelica - S60 million and Huanuco - S150 million totallingS350 million These estimates assume slightly higher sub-lendingfigures for Apurimac Cajamarca and Huancavelica than supported bythe Banks totals of potential sub-project investments in these departments in order to provide for additional investment in subshyprojects currently lacking cost estimates and in new sub-projectopportunities to be identified by contracted consultants

This schedule of sub-loan approvals reflects an initial start-up periodof low activity to allow for the hiring of promotors orientation of branch office staff promotion campaigns and the contracting of conshysultants for sub-project identification and study Assuming that the Mission receives authorization to proceed with the proposal to transfer funds and expand the Fund into these departments by March 1 and proshyviding for a start-up period of approximately three months full subshylending operations will begin by June

Projccted ub-Loan Coditrc--ts of 7(2-ional Fund Capital A1MEY VUl March l977

(in S - Jlv 1V8rlillicn)

___-euro - rr-C----- --- VIA S5 --)- J F M J F J I Apurimac so

Apz0 a02 I

I 15 9

49 54 54 6474 82 82 86 86 0 I j il

CaC3ra Gajama ra

I 0 4 2 5

-

3 4

I--I 4 5

~ 1 5

-

6 7

-

71 71

Huancavelica [ 02 1 04 1 1 16 1 6 2 2 5 3

I 4

I 4 5 j 5 67

67 71 71

llic 0 2 i3 3 6 1 10 F

12 13 13 15 16 16 17

__ 7 5--Z 7-7 77__ 3 7 214 124 264 304 366 376 398 378

ANNX VIII VA-c IjEc 0OJECT TITLE DATE Ifi1ORIGINAL jAPPROWOD

77ntermrisc - 1 Dvopaert 1677 REVISION V

977 CY 1978 CY 1979

- -4

4 4-- 0i w W r- v4

4 UsM

14I

0 12 24 36

LPOW

2cr--ato to extenrd $60 million of AID Loan

1 l a--s conitted by Industrial Bank

Inc Aure-r aion

Fcur promotors hird 2-2-

tc-Ln A-reeent 6

Full amount of -7 AID Loan fully disbursed

A= --d ed AID Loan cotmmitted

0-0Z S CRITICAL PERFORMANCE INDICATOR (CP NETWORK

COiTAY ROJECT NC PROjECT TiTLE DATE 527--057 Airal rnterprises I Develooment ORIGINALAppoAOVEOj1677 ORIIONAL

PRCjECT PuRPCSE (FROM PRP FACESHEET)

To irstitutionalize an integrated program of financial and technical assistance to assist existing and new rural enterprises

vl OEscRIPTION

Action Agent Action Date

AIDW 1 Authorization to extend terminal dates Jan 31 1975

AIDW 2 Loan Authorization Mar 15 1977 amended

USAIDGOP 3 Loan Agreement May 1i1977

amended

Industrial Bank 4 Four promotors hired June 15 1977

Industrial Bank 5 $60 million of AID Jan 3] 1978 Loan committed by Industrial Bank

Industrial Bank 6 Full amount of AID July 31 1978 Loan committed

Industrial Bank 7 AID Loan fully Jan 3] 1979 ORDEZA disbursed

AID 102036 (6-76) CRITICAL PERFORMANCE INDICATOR (CPI) DESCRIPTION

ANNEX VI

Sub-Project Activity Estimated Sub-Loan Size

(In S000)

Metal Furniture Production 400 Spice Mill 300 Bikery 500 Restaurant 150 Ice Cream Factory 100 Candy Factory 100 Food retail 300 Silk processing 10000 Plaster factory 500 Brick factory 500 Flour Mill 500

Idea Stage only with no identified sub-borrower

Total Sub-Loan investment in projects with cost estimates S65650000

$ Y37857 at S70 = US$1)

HUANCAVELICA

Sub-Project Activity Estimated Sub-Loan Size

(In (S000)

Alpaca and Sheep wool processing 25000 Fish farms (5 projects) 15000 Leather Tannery Dairy processing Dye factory Tourist restaurant 500 Fertilizer plant Brick and tile factory 500 Sawmill 2000 Meat Conservation Fattening Centers

Idea stage only with no identified sub-borrower

Total Sub-Loan investment in projects with cost estimates S43000000

($ 614286 at S70 = USS1)

ANNEX VII

Projected Sub-loan Commitments of Additional PandCaital

The projections shown below are based on the Banks estimates of the additional departments capacity to absorb Fund credit as follows Apurimac - S80 million Cajamarca - S60 million Huanshycavelica - S60 million and Huanuco - S150 million totallingS350 million These estimates assume slightly higher sub-lendingfigures for Apurimac Cajamarca and Huancavelica than supported bythe Banks totals of potential sub-project investments in these departments in order to provide for additional investment in subshyprojects currently lacking cost estimates and in new sub-projectopportunities to be identified by contracted consultants

This schedule of sub-loan approvals reflects an initial start-up periodof low activity to allow for the hiring of promotors orientation of branch office staff promotion campaigns and the contracting of conshysultants for sub-project identification and study Assuming that the Mission receives authorization to proceed with the proposal to transfer funds and expand the Fund into these departments by March 1 and proshyviding for a start-up period of approximately three months full subshylending operations will begin by June

Projccted ub-Loan Coditrc--ts of 7(2-ional Fund Capital A1MEY VUl March l977

(in S - Jlv 1V8rlillicn)

___-euro - rr-C----- --- VIA S5 --)- J F M J F J I Apurimac so

Apz0 a02 I

I 15 9

49 54 54 6474 82 82 86 86 0 I j il

CaC3ra Gajama ra

I 0 4 2 5

-

3 4

I--I 4 5

~ 1 5

-

6 7

-

71 71

Huancavelica [ 02 1 04 1 1 16 1 6 2 2 5 3

I 4

I 4 5 j 5 67

67 71 71

llic 0 2 i3 3 6 1 10 F

12 13 13 15 16 16 17

__ 7 5--Z 7-7 77__ 3 7 214 124 264 304 366 376 398 378

ANNX VIII VA-c IjEc 0OJECT TITLE DATE Ifi1ORIGINAL jAPPROWOD

77ntermrisc - 1 Dvopaert 1677 REVISION V

977 CY 1978 CY 1979

- -4

4 4-- 0i w W r- v4

4 UsM

14I

0 12 24 36

LPOW

2cr--ato to extenrd $60 million of AID Loan

1 l a--s conitted by Industrial Bank

Inc Aure-r aion

Fcur promotors hird 2-2-

tc-Ln A-reeent 6

Full amount of -7 AID Loan fully disbursed

A= --d ed AID Loan cotmmitted

0-0Z S CRITICAL PERFORMANCE INDICATOR (CP NETWORK

COiTAY ROJECT NC PROjECT TiTLE DATE 527--057 Airal rnterprises I Develooment ORIGINALAppoAOVEOj1677 ORIIONAL

PRCjECT PuRPCSE (FROM PRP FACESHEET)

To irstitutionalize an integrated program of financial and technical assistance to assist existing and new rural enterprises

vl OEscRIPTION

Action Agent Action Date

AIDW 1 Authorization to extend terminal dates Jan 31 1975

AIDW 2 Loan Authorization Mar 15 1977 amended

USAIDGOP 3 Loan Agreement May 1i1977

amended

Industrial Bank 4 Four promotors hired June 15 1977

Industrial Bank 5 $60 million of AID Jan 3] 1978 Loan committed by Industrial Bank

Industrial Bank 6 Full amount of AID July 31 1978 Loan committed

Industrial Bank 7 AID Loan fully Jan 3] 1979 ORDEZA disbursed

AID 102036 (6-76) CRITICAL PERFORMANCE INDICATOR (CPI) DESCRIPTION

ANNEX VII

Projected Sub-loan Commitments of Additional PandCaital

The projections shown below are based on the Banks estimates of the additional departments capacity to absorb Fund credit as follows Apurimac - S80 million Cajamarca - S60 million Huanshycavelica - S60 million and Huanuco - S150 million totallingS350 million These estimates assume slightly higher sub-lendingfigures for Apurimac Cajamarca and Huancavelica than supported bythe Banks totals of potential sub-project investments in these departments in order to provide for additional investment in subshyprojects currently lacking cost estimates and in new sub-projectopportunities to be identified by contracted consultants

This schedule of sub-loan approvals reflects an initial start-up periodof low activity to allow for the hiring of promotors orientation of branch office staff promotion campaigns and the contracting of conshysultants for sub-project identification and study Assuming that the Mission receives authorization to proceed with the proposal to transfer funds and expand the Fund into these departments by March 1 and proshyviding for a start-up period of approximately three months full subshylending operations will begin by June

Projccted ub-Loan Coditrc--ts of 7(2-ional Fund Capital A1MEY VUl March l977

(in S - Jlv 1V8rlillicn)

___-euro - rr-C----- --- VIA S5 --)- J F M J F J I Apurimac so

Apz0 a02 I

I 15 9

49 54 54 6474 82 82 86 86 0 I j il

CaC3ra Gajama ra

I 0 4 2 5

-

3 4

I--I 4 5

~ 1 5

-

6 7

-

71 71

Huancavelica [ 02 1 04 1 1 16 1 6 2 2 5 3

I 4

I 4 5 j 5 67

67 71 71

llic 0 2 i3 3 6 1 10 F

12 13 13 15 16 16 17

__ 7 5--Z 7-7 77__ 3 7 214 124 264 304 366 376 398 378

ANNX VIII VA-c IjEc 0OJECT TITLE DATE Ifi1ORIGINAL jAPPROWOD

77ntermrisc - 1 Dvopaert 1677 REVISION V

977 CY 1978 CY 1979

- -4

4 4-- 0i w W r- v4

4 UsM

14I

0 12 24 36

LPOW

2cr--ato to extenrd $60 million of AID Loan

1 l a--s conitted by Industrial Bank

Inc Aure-r aion

Fcur promotors hird 2-2-

tc-Ln A-reeent 6

Full amount of -7 AID Loan fully disbursed

A= --d ed AID Loan cotmmitted

0-0Z S CRITICAL PERFORMANCE INDICATOR (CP NETWORK

COiTAY ROJECT NC PROjECT TiTLE DATE 527--057 Airal rnterprises I Develooment ORIGINALAppoAOVEOj1677 ORIIONAL

PRCjECT PuRPCSE (FROM PRP FACESHEET)

To irstitutionalize an integrated program of financial and technical assistance to assist existing and new rural enterprises

vl OEscRIPTION

Action Agent Action Date

AIDW 1 Authorization to extend terminal dates Jan 31 1975

AIDW 2 Loan Authorization Mar 15 1977 amended

USAIDGOP 3 Loan Agreement May 1i1977

amended

Industrial Bank 4 Four promotors hired June 15 1977

Industrial Bank 5 $60 million of AID Jan 3] 1978 Loan committed by Industrial Bank

Industrial Bank 6 Full amount of AID July 31 1978 Loan committed

Industrial Bank 7 AID Loan fully Jan 3] 1979 ORDEZA disbursed

AID 102036 (6-76) CRITICAL PERFORMANCE INDICATOR (CPI) DESCRIPTION

Projccted ub-Loan Coditrc--ts of 7(2-ional Fund Capital A1MEY VUl March l977

(in S - Jlv 1V8rlillicn)

___-euro - rr-C----- --- VIA S5 --)- J F M J F J I Apurimac so

Apz0 a02 I

I 15 9

49 54 54 6474 82 82 86 86 0 I j il

CaC3ra Gajama ra

I 0 4 2 5

-

3 4

I--I 4 5

~ 1 5

-

6 7

-

71 71

Huancavelica [ 02 1 04 1 1 16 1 6 2 2 5 3

I 4

I 4 5 j 5 67

67 71 71

llic 0 2 i3 3 6 1 10 F

12 13 13 15 16 16 17

__ 7 5--Z 7-7 77__ 3 7 214 124 264 304 366 376 398 378

ANNX VIII VA-c IjEc 0OJECT TITLE DATE Ifi1ORIGINAL jAPPROWOD

77ntermrisc - 1 Dvopaert 1677 REVISION V

977 CY 1978 CY 1979

- -4

4 4-- 0i w W r- v4

4 UsM

14I

0 12 24 36

LPOW

2cr--ato to extenrd $60 million of AID Loan

1 l a--s conitted by Industrial Bank

Inc Aure-r aion

Fcur promotors hird 2-2-

tc-Ln A-reeent 6

Full amount of -7 AID Loan fully disbursed

A= --d ed AID Loan cotmmitted

0-0Z S CRITICAL PERFORMANCE INDICATOR (CP NETWORK

COiTAY ROJECT NC PROjECT TiTLE DATE 527--057 Airal rnterprises I Develooment ORIGINALAppoAOVEOj1677 ORIIONAL

PRCjECT PuRPCSE (FROM PRP FACESHEET)

To irstitutionalize an integrated program of financial and technical assistance to assist existing and new rural enterprises

vl OEscRIPTION

Action Agent Action Date

AIDW 1 Authorization to extend terminal dates Jan 31 1975

AIDW 2 Loan Authorization Mar 15 1977 amended

USAIDGOP 3 Loan Agreement May 1i1977

amended

Industrial Bank 4 Four promotors hired June 15 1977

Industrial Bank 5 $60 million of AID Jan 3] 1978 Loan committed by Industrial Bank

Industrial Bank 6 Full amount of AID July 31 1978 Loan committed

Industrial Bank 7 AID Loan fully Jan 3] 1979 ORDEZA disbursed

AID 102036 (6-76) CRITICAL PERFORMANCE INDICATOR (CPI) DESCRIPTION

ANNX VIII VA-c IjEc 0OJECT TITLE DATE Ifi1ORIGINAL jAPPROWOD

77ntermrisc - 1 Dvopaert 1677 REVISION V

977 CY 1978 CY 1979

- -4

4 4-- 0i w W r- v4

4 UsM

14I

0 12 24 36

LPOW

2cr--ato to extenrd $60 million of AID Loan

1 l a--s conitted by Industrial Bank

Inc Aure-r aion

Fcur promotors hird 2-2-

tc-Ln A-reeent 6

Full amount of -7 AID Loan fully disbursed

A= --d ed AID Loan cotmmitted

0-0Z S CRITICAL PERFORMANCE INDICATOR (CP NETWORK

COiTAY ROJECT NC PROjECT TiTLE DATE 527--057 Airal rnterprises I Develooment ORIGINALAppoAOVEOj1677 ORIIONAL

PRCjECT PuRPCSE (FROM PRP FACESHEET)

To irstitutionalize an integrated program of financial and technical assistance to assist existing and new rural enterprises

vl OEscRIPTION

Action Agent Action Date

AIDW 1 Authorization to extend terminal dates Jan 31 1975

AIDW 2 Loan Authorization Mar 15 1977 amended

USAIDGOP 3 Loan Agreement May 1i1977

amended

Industrial Bank 4 Four promotors hired June 15 1977

Industrial Bank 5 $60 million of AID Jan 3] 1978 Loan committed by Industrial Bank

Industrial Bank 6 Full amount of AID July 31 1978 Loan committed

Industrial Bank 7 AID Loan fully Jan 3] 1979 ORDEZA disbursed

AID 102036 (6-76) CRITICAL PERFORMANCE INDICATOR (CPI) DESCRIPTION

COiTAY ROJECT NC PROjECT TiTLE DATE 527--057 Airal rnterprises I Develooment ORIGINALAppoAOVEOj1677 ORIIONAL

PRCjECT PuRPCSE (FROM PRP FACESHEET)

To irstitutionalize an integrated program of financial and technical assistance to assist existing and new rural enterprises

vl OEscRIPTION

Action Agent Action Date

AIDW 1 Authorization to extend terminal dates Jan 31 1975

AIDW 2 Loan Authorization Mar 15 1977 amended

USAIDGOP 3 Loan Agreement May 1i1977

amended

Industrial Bank 4 Four promotors hired June 15 1977

Industrial Bank 5 $60 million of AID Jan 3] 1978 Loan committed by Industrial Bank

Industrial Bank 6 Full amount of AID July 31 1978 Loan committed

Industrial Bank 7 AID Loan fully Jan 3] 1979 ORDEZA disbursed

AID 102036 (6-76) CRITICAL PERFORMANCE INDICATOR (CPI) DESCRIPTION