Document of

The Wor-ld Bank FI L C- FOR OFFICIAL USE ONLY

Report No. P-3327-BR

REPORT AND RECOMMENDATION

OF THE

PRESIDENT OF THE

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

TO THE

EXECUTIVE DIRECTORS

ON A

PROPOSED LOAN

TO THE

FEDERATIVE REPUBLIC OF BRAZIL

FOR A

MARANHAO RURAL DEVELOPMENT PROJECT

May 21, 1982

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

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CURRENCY EQUIVALENTS

Calendar 1981 May 17, 1982

Currency Unit Cruzeiro (Cr$) Cr$I US$1 = Cr$94.75 Cr$155.23

Cr$1 = US$0.0155 US$0.0064

GOVERNMENT OF BRAZIL FISCAL YEAR

January 1 - December 31

POLONORDESTE PROGRAM FISCAL YEAR

April 1 - March 31

The exchange rate used in the Staff Appraisal Report (US$1 = Cr$100.68)corresponds to the cruzeiro August 1981 exchange rate.

FOR OFFICIAL USE ONLY

GLOSSARY OF ACRONYMS

BB Banco do Brasil(Bank of Brazil)

BNB Banco do Nordeste do Brasil(Bank of Northeast Brazil)

BNCC Banco Nacional de Credito as Cooperativas(National Bank for Credit to Cooperatives)

COTERMA Companhia de Colonizacao e Terras do Maranhao(State Land and Colonization Company)

CEASA-MA Centrais de Abastecimento do Maranhao(State Food Supply Centers)

COMABA Companhia Maranhense de Abastecimento(State Input Supply Company)

COPENAT Companhia de Pesquisa e Aproveitamento de Recursos Naturais(State Company for Research and Use of Natural Resources)

CODERMA Companhia de Desenvolvimento Rodoviario do Maranhao(State Company for Road Development)

COLONE Companhia de Colonizacao do Nordeste(Colonization Company of the Northeast)

CEAG-MA Centro de Apoio a Pequena e Media Empresa do Maranhao(State Center of Support for Small and Medium Enterprises)

DERMA Departamento de Estradas e Rodagem do Maranhao(Road Construction and Maintenance Agency of Maranhao)

EMATER-MA Empresa de Assistencia Tecnica e Extensao Rural - Maranhao(Technical Assistance and Rural Extension Agency - Maranhao)

EMAPA Empresa Maranhense de Pesquisa Agropecuaria(State Agricultural Research Company)

EMBRAPA Empresa Brasileira de Pesquisa Agropecuaria(Brazilian Agricultural Research Agency)

FCAP Faculdade de Ciencias Agrarias do Para(Agricultural Faculty - Para University)

FSESP Fundacao Servico Especial de Saude Publica(Foundation for Special Public Health Services)

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

Glossary of Acronyms Page 2

FUNAI Fundacao Nacional do Indio(National Indian F-Ju.dtion)

ICM Imposto sobre Circulacao de Mercaderias(Tax on product circul'tion)

ITERMA Instituto da Terra do Maranhao(State Land Institute)

INCRA Instituto Nacional de Colonizacao e Reforma Agraria(National Institute of Colonization and Agrarian Reform)

IBDF Instituto Brasileiro de T,esenvolvimento Florestal(Brazilian Forestry Deve1opment Institute)

POLONORDESTE Programa de Desenvolvimento de Areas Integradasdo Nordeste

(Development Program for Integrated Areasin the Northeast)

REPEMIR Reflorestamento em Pequenos e Medios Imoveis Rurais(Reforestation Program for Small and Medium Farms)

SUDENE Superintendencia do Desenvolvimento do Nordeste(Northeast Economic Development Superintendency)

SIMA Servico de Informacao de Mercado Agricola(Agricultural Marketing Information Service)

SUCAM Superintendencia de Campanhas Medicinais(Superintendency of Public Health Campaigns)

SERNAT Secretaria de Recursos Naturais do Maranhao(State Secretariat for Natural Resources)

SE Secretaria de Educacao(State Secretariat for Education)

SES Secretaria de Saude(State Secretariat of Health)

BRAZIL

MARANHAO RURAL DEVELOPMENT PROJECT

Loan and Project Summary

Borrower: Federative Republic of Brazil

Amount: US$42.7 million equivalent, including capitalized front-endfee

Terms: Interest at 11.6% per annum. Repayment in 15 years,including 3 years of grace

ProjectDescription: The objective of the project is to increase income and

agricultural production of small farmers in central andnorthwest Maranhao by providing secure land tenure, tech-nical and marketing assistance, agricultural research, basichealth care and expansion of education services, and projectcoordination, monitoring and evaluation. The project wouldreach some 39,000 small farmers in 46 municipalities of thestate of Maranhao. A state land institute would be respon-sible for carrying out the regularization and redistributionof public lands to small farmers. Improved agriculturaltechniques would be introduced gradually to increaseproductivity while limiting soil erosion and improving soilfertility.

Risks: The constraints on increasing productivity of small farmersin the area reflect in part the long established politicaland cultural traditions which are slow to change. There issome risk that the project may overload the administrativecapacity of the state. This risk should be reduced by theestablishment of separate administrative units for the threesubprojects and the use of state-level rural developmentprogram coordinating mechanisms. There is also risk thatdelay in completing land regularization activities may causedelays in other components. This risk has been reduced bythe provision of technical assistance to the state landinstitute and introduction of modern techniques to speed theprocess of land titling.

Estimated Costs: -----US$ Millions------Local Foreign Total

A. Land Activities 28.9 2.6 31.5

Land Regularization/Redistribution 22.1 1.0 23.1Laud Use Studies 6.8 1.6 8.4

B. Production Activities 20.1 1.7 21.8

Agricultural Research/Seec' Production 4.6 .4 5.0

Extension 10.3 .7 11.0Marketing, Input Supply 2.8 .6 3.4Fisheries 1.2 0 1.2Small-Scale Enterprises 1.2 0 1.2

C. Forestry 1.2 0.1 1.3

D. Rural Transport 14.5 7.6 22.1

E. Social Infrastructure 9.9 1.4 11.3

Education 5.6 0.6 6.2Health and Water Supply 4.3 0.8 5.1

F. Project Administration 5.7 .4 6.1

G. Baseline Costs 80.3 13.8 94.1

Physical Contingencies 5.5 1.5 7.0Price Contingencies 18.0 3.1 21.1

H. TOTAL PROJECT COST 103.8 18.4 122.2 1/

I. Front-End Fee on Loan - .7 .7

J. TOTAL FINANCING REQUIRED 103.8 19.1 122.9

1/ Including about US$1.6 million of local taxes.

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Financing Plan: ---US$ Million---Local Foreign Total

Government 80.2 - 80.2IBRD 23.6 19.1 42.7

EstimatedDisbursement: Bank FY: FY83 FY84 FY85 FY86 FY87 FY88

Annual 3.9 1/ 6.0 6.8 9.2 11.5 5.3Cumulative 3.9 9.9 16.7 25.9 37.4 42.7

1/ Including front-end fee of US$0.7 million.

Rate of Return: 22% for the directly productive component, covering 78%of estimated total project costs.

Staff AppraisalReport: No. 3845a-BR of May 21, 1982.

I

i

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

REPORT AND RECOMMENDATION OF THE PRESIDENTTO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN

TO THE FEDERATIVE REPUBLIC OF BRAZILFOR A MARANHAO RURAL DEVELOPMENT PROJECT

1. I submit the following report and recommendation on a proposedloan to the Federative Repubic of Brazil for the equivalent of US$42.7million, including the capitalized front-end fee, to help finance a ruraldevelopment project in the State of Maranhao. The proposed loan would havea term of 15 years including 3 years of grace, with interest at 11.6% perannum.

PART I - THE ECONOMY 1/

2. The most recent economic report entitled "Economic Memorandum onBrazil" (Report No. 3275a-BR dated May 29, 1981) was distributed to theExecutive Directors on June 26, 1981. A mission to prepare a new countryeconomic memorandum is scheduled for May 1982. Country data are providedin Annex I.

3. The present government, headed by President Figueiredo, tookoffice on March 15, 1979, for a six-year term. Much of its attention hashad to be devoted to grappling with inflation and a difficult balance-of-payments situation. Major economic priorities of the Government includethe growth of agriculture, reduced dependence on imported petroleum,continued expansion of manufactured exports, and increasing domesticsavings. Success on these fronts is crucial to the solution of the infla-tion and balance-of-payments problems, as well as to the sustained improve-ment of living standards and better income distribution.

Economic Performance

4. In the 13 years ending in 1980, Brazil enjoyed a high level ofeconomic growth, with GDP rising at a rate of about 9% per annum. Duringthe 1967-73 period, growth was achieved with no significant deteriorationof the external resource balance, despite considerable tradeliberalization, and there also occurred a decline in the rate of domesticinflation. However, given the dependence of industry and transport onpetroleum, over 80% of which was imported, the quadrupling of oil prices in1973 resulted in a sharp deterioration in the nation's terms of trade.Excess aggregate demand and a succession of bad harvests, along with higherenergy costs, resulted in increasing balance-of-payments difficulties andthe acceleration of inflation.

l1 Parts I and II are reproduced without substantial change from theeconomic section of the President's Report on the Amazonas RuralDevelopment Project (Report No. 3311-BR, dated May 10, 1982).

5e Coping with these constraints, while responding to pressures tomaintain growth of output and employment and simultaneously establishingthe basis for structural ad justment3 has been the central problem ofBrazilian economic management. At the same time that success was achievedin maintaining growth, an innovat4ve effort was 1aunched to reduce energyconsumption and substitute domestic energy resources for importedpetroleum. Through 1978. the balance-o--payments pressures were containedthrough the rapid expansion of `exports (particularly of manufactures),increased import barriers, import. sustitution, and heavy externalborrowing. However, the rapid accum"-lation of external debt, compressionof imports, and intensificat-ion of inflationary pressures increased theeconomy's vulnerabilitv to Eur'nher external shock, and that vulnerabilitywas severely testea by the sharp ir.reases ir. petroleum prices and interestrates that occurred iln 1979 and 1930

6. Measures were taken in 1979 and 1980 to improve control overpublic sector spending and monetary ex-,pansion. These included increasedcentral authority over the investrments and borrowings of the public enter-prises, the phasing-out of ta-x earnarklings, and the reduction of majorconsumer and producer subsidies. Nevertheless, aggregate demand continuedto grow strongly, plac7ng severe tressure on prices and the balance ofpayments. in 1980, inIlation accelerated to 110% (from 41% in 1978), and,despite a 32% growth of exports and significant reduction in the volume ofpetroleum imports, the current account deficit grew to almost US$13 billion(compared to $6 billion in 1978). At the same time, Brazil's internationalreserves fell from US$11.9 billion tvo 869 billion, and terms tightened onnew foreign borrowing.

7. In response to the deteriorating situation, and strengthened bythe institutional reforms of the prevYrous two years, constraints wereimposed on aggregate demand n 1 981, and efforts to correct the tradebalance were increaseds The public sector deficit and the monetary aggre-gates were reduced in real terms. In an effort to encourage private finan-cial savings and maintain export incentives, monetary correction andexchange rate adjustments, -wh ch .ere allowed to lag in 1980, were broughtback into line with domestic inflation. Banks were freed from interestrate controls on thei r lending, and rates were increased on officialcredits. Some tax incenti-^zes tc exports, wnin.h had been eliminated in thewake of a large devaluation ofL the cruzeiro at the end of 1979, wererestored, while the forei-gn excharige tr-nsections tax on imports was raisedfrom 15% to 25%.7

8. As a consequence of trese -easures, the economy entered intorecession 'n 1981. Despite an es'a;aed 8% growth of agricultural output,GDP declined around 4,%. The industr-al sector was hard hit by highinterest rates and cutbacks in pp bLic expenditures, and unemployment hasincreased in the industria1 centers; Manufactured exports, however, havecontinued to grow rapidly, Q236% in nor-irnal terms, and a merchandise tradesurplus of some US$1.2 b i:io was ach-ieved in contrast to deficits of $2.8billion in both 1979 and i983.. r 19L surplus also reflected zero growthof imports, including the further reduction of petroleum imports. Despitesharply higher interest payments -broad; the current account deficit wascut by some US$2 billion. Tnflation for the year was reduced to 95% with a

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declining trend evident through the second half of the year. No problemswere experienced in obtaining the US$11.5 billion in net external financingrequired in 1981. Contrasting with 1979 and 1980 foreign exchange reservesincreased by US$600 million in 1981. Total M&LT external debt at year-endwas about US$61.4 billion.

Poverty Programs

9. Although Brazil continues to be characterized by severe incomeinequality, the government has made substantial efforts to relievepoverty. In addition to efforts to maintain the growth of employment andprevent the erosion of real wages, special programs for the northeastregion have been continued notwithstanding the tight fiscal and monetaryrestraints. Coverage of the social security program has been expanded andextended to the rural population. More than 70% of the urban population isnow covered by the social security health care system, and a cash transferprogram has been established for the rural elderly poor. Almost twomillion loans have been made for housing by the National Housing Bank (BNH)since 1964. Improvement and extension of the primary health services tothe urban and rural poor areas is a government priority in the healthsector. A program for grassroots health and sanitation actions fornortheast Brazil was initiated in 1976. A sites and services program wasestablished in 1975 to benefit the urban poor more directly, and this wascomplemented in 1977 by a program to finance home improvement and buildingmaterials. High priority has also been given to the extension and improve-ment of urban water supply. Consequently, some six million households com-prising about 30 million people have been connected to public water supplysystems since 1971, increasing the proportion of urban dwellers who receivesuch services to 75%. 2/

Future Prospects

10. Since 1973, Brazil has made major efforts to reduce petroleumimports. Investments in exploration have been accelerated, and foreigncompanies have been invited to drill under risk contracts with PETROBRAS,the state oil company. Investments have also been undertaken to developthe nation's hydroelectric potential, to initiate nuclear power production,to substitute alcohol for gasoline, to expand domestic coal production, andto exploit Brazil's shale oil deposits. Efforts are also being made toinduce energy conservation. While results thus far are encouraging,dependence on imported energy remains formidable. With oil importsconstituting an estimated US$10.3 billion (nearly 44% of Brazil'simports) in 1981, as compared to US$700 million (11% of imports) in 1973,the trade-off between growth and balance-of-payments viability willcontinue to be a principal preoccupation of economic decision-makers.

2/ For a more detailed account of these efforts see "The Distribution ofIncome in Brazil" (Staff Working Paper No. 356, dated September 1979)and "Brazil - Human Resources Special Report" (Report No. 2604-BR,dated July 13, 1979).

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11. In view of the balance-of-payments constraint, Brazil mustcontinue to experience a period of careful demand management. Accelerateddevaluations of the cruzeiro, the removal of import deposit requirements,the scheduled phasing-out of tax subsidies to export, and the gradual free-ing of prices and interest rates should help to promote more efficientresource allocation favorable to both export growth and efficient importsubstitution. Public investments may continue to be constrained by reducedresource availabilities over the next several years, and foreign lenders,including the Bank, should be prepared to finance a significant proportionof project costs including, when necessary, a part of local costs. Fur-thermore, priority attention has to be given to the development of domesticenergy sources, agriculture and the stimulation of domestic savings.

12. Growth is expected to recover to about 5% in 1982 and to averageabout 6% per annum in 1983-86, as compared to 11% in 1967-73 and 7.2% in1973-80. Such a growth rate should be compatible with a falling currentaccount deficit through 1986. The debt service ratio would declineslowly. These projections are sensitive, however, to petroleum prices,interest rates, and the rate of growth of manufactured exports. Thecombination of high debt service and a high share of petroleum in totalimports leaves the economy vulnerable and this may be expected to persistfor several years.

External Assistance and Creditworthiness

13. Brazil's resource balance is expected to become positive in1982, but interest payments on the growing external debt will increasethroughout the 1982-86 period, even if interest rates should decline. Thuslarge service account deficits will contribute to current account deficitsthrough 1986. As a proportion of GDP, the current account deficit isprojected to fall steadily from its peak of 5.4% in 1980. This projectionassumes that imports grow at a moderate pace through 1986, reflectingrestrained demand and a strengthening of the domestic savings effort.

14. Net medium- and long-term borrowing requirements are expected tobe around US$9 billion in 1982, and to decline thereafter. Gross borrowingwould be about US$16 billion this year and remain in the US$15-16 billionrange over the five-year period, with 70% obtained as financial creditsfrom private lenders. Consequently, the net debt service ratio 3/ woulddecline from about 55% in 1980 to about 39% in 1986.

15. In summary, after a period of rapid growth in the late 1960s and1970s, the increased cost of petroleum imports has forced the nation tomoderate its growth expectations and to adapt its economic structure to

3/ Including both public and private debt. The figure for public debtservice alone would be substantially lower. For example, in 1980 thepublic sector accounted for only 61% of total debt service payments.

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the changed terms of trade. This adjustment process was initially eased bya strong reserve position, a solid image of creditworthiness, theaggressive expansion of manufactured exports, and the opportunities forefficient import substitution offered by the large domestic market. Never-theless, heavy dependence on petroleum imports, the resurgence of domesticinflation, and the rapid accumulation of external debt left the economyvulnerable to further external shocks. The government recognizes the needfor careful demand management and for selectivity in its investmentpolicies emphasizing efficiency in export expansion, import substitution,employment creation, and poverty alleviation.

16. The sensitivity of Brazil's balance of payments to petroleumprices and interest rates makes projections subject to a wide margin oferror. The present scenario also depends on Brazil's ability to curtailinflation, expand manufactured exports, and on its continued access tointernational capital. A major effort is underway to reduce dependence onforeign petroleum, but significant results may not be apparent for severalyears. On the other hand, the Brazilian economy remains dynamic, divers-ified, and resilient. The task of economic management will not be easy,but policymakers have demonstrated their ability to adjust to changingcircumstances, and recent policy measures have strengthened their manage-ment capacity. Thus, Brazil remains creditworthy for new borrowing on con-ventional terms in the amounts indicated above.

PART II - BANK OPERATIONS IN BRAZIL

17. By March 31, 1982 the Bank had made 110 loans to Brazil, amount-ing to US$6,310.8 million (net of cancellations), of which 58 were not yetfully disbursed. During FY70-75, disbursements averaged US$150 million peryear, reaching US$202 million in FY76, US$267 million in FY77, US$252 mil-lion in FY78, US$295 million in FY79, US$318 million in FY80 and US$378million in FY81. The total undisbursed amount as of March 31, 1982 wasUS$3,003.5 million. Annex II contains a summary statement of Bank loans asof March 31, 1982 and notes on the execution of ongoing projects.

18. Over the FY77-81 period, Bank lending to Brazil ranged fromUS$425 million to over US$800 million per year. In FY81, eight loanstotaling US$844 million were approved. So far in FY82, five loans total-ing US$529.1 million for the first and second phases of Bank participationin the POLONOROESTE program and for a power distribution project have beenapproved. Documents for a US$26.4 million loan for and agricultural devel-opment project in the state of Amazonas and for a US$123.9 million loan foran urban development project in the city of Recife have been distributed tothe Executive Directors. Work is relatively advanced on a third loan forsecondary and feeder roads, a large iron ore mining project in the Serrados Carajas, and the third-phase project of the northwest region develop-ment program.

19. Brazil's external public and private debt outstanding and dis-bursed at the end of 1980 amounted to US$63 billion, and is estimated to

have been US$61 billion at the end of 1981. At the end of 1980, the Bankheld 3.9% of the debt, and its share of the service on this debt in 1980was 2%. In 1981, the Bank's share in total outstanding debt is estimatedto have risen slightly to 4.2% while its share in total debt serviceremained constant. These percentages are not expected to rise signifi-cantly in the next five years.

20. As of March 31, 1982, IFC commitments to Brazil totaled US$819.5million, of which US$546.2 million had been sold, repaid or cancelled. Ofthe balance of US$273.3 million, US$207.6 million represent loans andUS$65.7 million equity. A summary of IFC's investments as of March 31,1982 is given in Annex II.

Lending Strategy

21. In its lending to Brazil, the Bank has sought to help the Govern-ment achieve important development objectives which are interdependent.One lending objective in Brazil is to help intensify the efforts of theGovernment to develop projects that will increase the productivity of thelowest income segments of the population, to broaden the opportunities opento those groups, and to improve their living conditions. This is a primaryobjective of the proposed Maranhao rural development project. Previousloans for nutrition, primary education, vocational training, agriculturalresearch, agricultural extension, polder construction in the lower SaoFrancisco river basin, and integrated rural development were designed toassist low-income groups in rural areas, especially those in the north-east. The Bank is currently reviewing its experience over the past tenyears in the Northeast of Brazil, and is working with the Government toidentify further approaches to assist the region's rural poor. Loans forwater supply and sewerage projects in the state of Minas Gerais, in greaterSao Paulo, in the northeast and in the south, loans for urban transport inseveral major cities, a loan for sites and services and low-cost housing,and a loan for urban development in medium-sized cities are assisting theimprovement of the living conditions of the urban population, particularlyof the urban poor.

22. Another lending objective in Brazil is to support institutionaldevelopment and policy reform designed to establish adequate coordinationand control within the public sector and help maximize public savings andensure that they are used economically through rational selection ofprojects. This institution-building objective is particularly important inthe proposed project which seeks to build up planning and administrationrequired at the state and local levels for rural development activities andfor designing and implementing land policies appropriate to the needs offarmers with insecure tenure in the state of Maranhao. The project landrelated activities build upon the experience with the Piaui rural develop-ment project, approved by the Board in FY81. Loans for urban development,industrial finance, agricultural research and extension, rural development,water supply and sewerage, and the recently approved loan for alcohol andbiomass energy development also have important institution-building objec-tives.

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23. Another lending objective is to ease the foreign exchangeconstraint on development by supporting projects designed to increaseBrazil's export capacity and, where economical, to substitute domestic pro-duction for imports. Lending for the electric power sector supports thisobjective, since it is based on hydroelectric energy, and its developmentlessens the need for petroleum imports. Bank support of fertilizer andpetrochemical projects is assisting Brazil to substitute large-scale effi-cient domestic production for imports and thus aid its balance-of-paymentsposition. The alcohol and biomass energy development project addresses theneed to restrict growth of petroleum imports. Much of the Bank-assistedinvestment in the transport sector -- railways, ports and highways -- isdesigned to facilitate the economical flow of exports.

24. A final objective is to provide part of the large medium- andlong-term capital inflows that Brazil needs to sustain satisfactory growthand achieve its employment creation and regional development objectives.Continued lending by the Bank in Brazil is regarded by the internationalfinancial community as a sign of confidence in Brazil and encourages othersto contribute to the country's development. In some sectors, especially inelectric power and industry, Bank participation has helped Brazil obtainadditional resources in greater amounts and on more favorable terms frombilateral credit agencies and private financial institutions than mayotherwise have been provided. Eleven co-financing operations, for morethan US$425 million, have been concluded since 1976 with private financialinstitutions and several others are in preparation.

PART III - THE AGRICULTURAL SECTOR

The Sector in the Economy

25. Agriculture continues to be an important sector in the Brazilianeconomy, employing 36% of Brazil's labor force, contributing over 10% ofGDP, and about half of export earnings. The average annual agriculturalgrowth rate in the decade to 1980 was just over 5%. Brazil is the world'slargest exporter of coffee and orange juice, the largest producer of sugar-cane, and the third largest producer of soybeans. Other agriculturalexports include meat and fish products, cotton, corn, peanuts, cocoa,castor oil, and sisal. In most years Brazil is self-sufficient in basicfood production, except for wheat. Most of the productivity gains haveoccurred in the south and center-west of the country, while the north andnortheast have largely continued to use traditional practices with rela-tively rudimentary technology.

26. Agricultural development has been assigned high priority inBrazil's 1980-85 development plan, to help reduce inflation throughexpanded food production and to improve the balance-of-payments throughincreased production of export crops and energy substitutes. To achievethese objectives, the government is continuing its support for specialregional development programs during the current period of restraint inpublic expenditures. However, despite reduction of the agricultural creditsubsidies, these remain high.

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Rural Development and Land Tenure in the Northeast

27. The nine states of northeast Brazil have a population of about 35million (1980), of which half is rural. Much of the region has a semi-aridclimate with periodic droughts, and there are extensive areas of poorsoils. Nonetheless, the northeast contains about 30% of Brazil's harvestedarea and 45% of its agricultural work force, and produces a major share ofthe nation's cocoa, cotton, beans, rice and sugar.

28. Although some crops (such as sugarcane) are grown predominantlyon large farms, basic food crops are produced mainly by small farmers,using rudimentary technology and obtaining low yields. Development of theagriculture of small farmers has been hampered by limited access toimproved seeds and other inputs, poor or inadequate rural extensionservices, shortages of working capital and investment credit, and marketisolation. However, the insecurity of land tenure and lack of access toland have compounded these difficulties and are considered to be majorconstraints on small farmer investment and increases in productivity.

29. Various programs have been directed at speeding economic develop-ment in the northeast handled by the Northeast Development Superintendency(SUDENE), and a special development bank for the northeast, Bank of theNortheast of Brazil (BNB). Substantial fiscal and monetary incentives havebeen made available for both industry and agriculture. Programs togenerate jobs in the industrial sector have not, however, kept pace withpopulation increases, and population movements have continued to the indus-trialized center-south and to the center-west of Brazil. Prior to the mid-1970s, government programs directed to the rural population of thenortheast concentrated on public works, with substantial efforts indrought-prone areas to develop dams and ponds. More recently, efforts havebeen initiated to strengthen the institutions offering the support servicesrequired to develop more productive farming systems. Such efforts includethe POLONORDESTE program, initiated in 1974, a wide-ranging program aimedat raising living standards through a series of area-based integrateddevelopment projects.

Bank Involvement in the Agricultural Sector and POLONORDESTE

30. Bank-assisted operations in Brazil's agricultural sector combinean area development approach, which focuses on poor rural areas in thenortheast and northwest, with a functional approach designed to furtherneeded institutional and policy improvements. To date, the Bank has made23 loans totalling US$895 million for agricultural and rural development inBrazil. Of these, twelve, including the recently approved projects for thenorthwest region, were for rural development; two each for irrigation,livestock development, agro-industries and agricultural research; and oneeach for land settlement, agricultural extension services, and grainstorage. In addition, Bank loans for fertilizer production, nutrition

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research and development, and secondary and feeder roads are having adirect impact on agricultural production and rural development. Documentsfor a proposed agricultural development project in the state of Amazonashave already been distributed to the Executive Directors. Completion andProject Performance Audit Reports have been issued for the grain storageand the two livestock development projects. In each of these threeprojects, significant differences developed between the government and theBank .regarding interest rate policy, leading to some cancellation and/orearly repayments of the loans. Project Performance Audit Reports arecurrently under preparation for an agro-industry credit project and theAlto Turi land settlement project.

31. The Bank has actively participated in the rural developmenteffort in northeast Brazil since 1973 especially through the POLONORDESTEprogram. Bank assistance to the program aimed at helping the Governmentsharpen the focus of efforts on behalf of the rural poor and to betterintegrate development activities. The initial strategy called forconcentrating development activities on selected geographical areas whilepromoting the establishment of an effective administration for theprogram. This latter expectation, however, has been frustrated byfinancial and administrative difficulties encountered by SUDENE, thefederal agency entrusted with the overall management of the program. Incontrast, good progress has been made by several of the northeast states inimproving their planning and execution capability for rural developmentprojects. Competent technical units have been established in most statesand a significant group of experienced managers has been developed.Lessons learned from these earlier projects have made it possible for theproposed project in Maranhao to better address land and communityparticipation issues on a significant scale.

PART IV - THE PROJECT

32. The proposed project was identified by a Bank mission in April1980 as a follow-up to the first Bank loan for the Alto Turi project. Theproject was broadened to include areas of population concentration whereland tenure uncertainties were depressing agricultural production andcausing increased rural-urban migration. The project was appraised inSeptember 1981. Negotiations took place in Washington from May 3 to May 7,1982 with a delegation led by Mrs. Bette Antunes of the Federal Secretariatof Planning. A Staff Appraisal Report, entitled "Northeast Brazil -Maranhao Rural Development Project" (Report No. 3845a-BR, dated May 21,1982) is being distributed to the Executive Directors separately.Supplementary data, including references to clauses in the legal documentsare provided in Annex III.

33. The original Alto Turi project (Loan No. 853-BR) aimed to settlesome 5,200 families in the northwest of Maranhao on part of the areatransferred to the Northeast Colonization Company (COLONE) by the state.The project faced delays resulting from difficulties with land tenureissues and the need to reformulate production recommendations. The overalleconomic rate of return was estimated after completion at 13%, compared

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with an appraisal projection of 16%. The project revealed the need forclose collaboration between COLONE and the state agencies, for the transferof some responsibilities to the state, and for measures to improveconservation of the area's soils and forests.

Project Area

34. Maranhao, the second largest northeastern state, has a populationof about 4 million with a total area of about 330,000 km2. The projectarea of about 50,700 km2 is 15% of the state's total land area. Itincludes 47 municipalities (including parts of five in the Alto Turi areanot developed under the first loan) of central and northwestern Maranhaocomprising 27% of the state's agricultural land. Population density rangesfrom a minimum of 1/km2 to a maximum of 64.2/km2. Some 77% of thepopulation in the project area is rural. Population growth rates in theproject area vary, with the highest (5.5% per annum) in the Alto Turiarea. This reflects the influx of settlers from within and outside thestate in search of secure ownership of land.

35. Land tenure in the project area is confused, but available datashow concentrated land ownership, with 13% of farmers claiming 64% of thearea. Holdings above 100 ha account for less than 3% of the total, butoccupy 70% of the total area. The trend has been for large farmers toprogressively claim remaining available state lands, primarily forlivestock production. This has resulted in growing rural-urban migrationwhile also substituting extensive livestock production for food crops.Land use and distribution have become a major concern of state authorities.

36. The project area produces about one-third of the value of thestate's agricultural and livestock output. Apart from beef, most of theagricultural production comes from small farmers using techniques asso-ciated with shifting agriculture and few modern inputs. Yields of themajor crops have been declining over the past 10 years, reflecting both thedepletion of soil fertility and increasing use of marginal lands. Produc-tion support services are generally weak in the project area.

37. Traditional agricultural techniques and limited support infra-structure contribute to the low per capita income in the range ofUS$150-220 estimated for the project area. This compares with an averagestate per capita income of US$320. Transport infrastructure is littledeveloped and much of the road system becomes impassable during the wetseason. Clean and reliable supplies of drinking water are scarce and abouthalf the children in the area suffer from malnutrition. Education facili-ties and programs are generally deficient, with a net enrollment rate of52% for rural children. Health services are lacking and poorly distri-buted, with 50% of all physicians concentrated in four municipalities.Infant mortality rates are estimated to be 93 per 1,000 newborn.

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Project Objectives and Strategy

38. The proposed loan would support activities to alleviate majorconstraints to improving the productivity and incomes of small farmers.A special objective of the proposed project would be to strengthen theadministrative capacity of state and local institutions to formulatepolicies and implement programs to increase agricultural production ofsmall farmers. This will entail the development of a technically soundapproach to land regularization and redistribution, 4/ the two key meansavailable to resolve land tenure uncertainty. The provision of securetitle to land, combined with appropriate production support services toensure efficient use of newly acquired land, would be the basis for achiev-ing the objectives of the proposed project. The project would alsoconsolidate and complete the settlement activities in the Alto Turi areainitiated under Loan 853-BR and provide for the transfer of settler supportactivities from COLONE to state agencies.

39. The introduction of agricultural production systems compatiblewith the resource base, and support to other local productive activities,would improve living conditions and slow rural-urban migration. Annualproject planning, along with monitoring and evaluation of project activ-ities would ensure that these activities, are consistent with the scope andtiming of land activities. Project design has emphasized technical assis-tance to support institutions active in the project.

Project Components

40. The proposed project would comprise three subprojects to beexecuted in adjoining subproject areas referred to as the Baixada, AltoTuri, and the Mearim-Pindare (IBRD Map No. 16152, attached). Combined, thesub-projects would include:

(a) Land Tenure Activities: Regularization and provision oftitle to about 39,000 small farmers on lands which theycurrently occupy or on unused or irregularly occupied statelands. This would require cadastral surveys of some 3.4million ha, resolution of claims for some 2.2 million ha,demarcation of about 1.4 million ha, support for the newState Land Institute (ITERMA), and land use capabilitystudies;

4/ By "regularization" is meant providing title to present occupiers ofland with legitimate claims. "Redistribution" involves recovery ofstate lands from irregular occupiers for redistribution to landlessfarmers.

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(b) Production Assistance: Support for applied research; ruralextension; seed production; marketing, input supply, andcooperative development; support for small-scale industries;inland fisheries; and reforestation and forest protectionprograms;

(c) Physical Infrastructure: Construction of 510 km of newaccess roads and minimum road improvements to 640 km ofexisting roads, and a study to investigate the potential useof the area's existing waterways;

(d) Social Infrastructure: Provision of physical facilities forimproved access to and delivery of education and healthservices, and training and provision of materials necessaryfor assisting in the control of major diseases;

(e) Project Administration: Coordination, planning, monitoringand evaluation of project activities.

The project is expected to be carried out mainly over a five-year period,beginning April 1982, but some activities began in late 1981.

41. Land Regularization and Redistribution. Resolving land tenure inthe project area would begin with cadastral surveys. Following this, anumber of steps are required to determine ownership rights before finalissuance and registration of titles can be completed. The project wouldintroduce modern techniques, such as the use of aerial photographs, toreduce the need for costly conventional topographics, improve state admin-istration of land ownership records and develop modern record keeping sys-tems. It is estimated that some 364,000 ha or 17% of the area to be regu-larized will become available for redistribution. Holdings of about 35 hawould be distributed to renters, sharecroppers, or small owner-operators.Recipients would pay for land services received under the project by makingpayments into Land Funds, so that about 20% of the real cost of land tenureregularization services would be recovered. Beneficiaries who decided tosell their land before completing payment for these land services would berequired first to offer it to ITERMA (in the Baixada), or INCRA, theNational Coloniation and Agrarian Reform Institute (in the Mearim-Pindare),or COLONE (in Alto Turi).

42. ITERMA, the new state land institute, would carry out landrelated activities in the Baixada. COLONE would be responsible for theseactivities in the Alto Turi area. INCRA would carry out land activities inthe Mearim-Pindare and provide technical assistance to ITERMA during theearly years of the project. To help assure smooth and timely implementa-tion of this key component, agreement was reached: (a) that the claimsof irregular occupiers over 60 ha in the Alto Turi area would be settlednot later than December 31, 1983; (b) the state and INCRA would provide by

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November 30, 1982 plans for the interim management of lands recovered forredistribution; (c) INCRA would maintain an agreement to provide technicalassistance to ITERMA for the duration of the project; (d) annual landactivities would not be less than the agreed minima specified for each yearof the project and agricultural land recovered through the project would beused exclusively for small farmers. Establishment of the Land Funds andrecovery of 10,000 ha. (including lands claimed by 3 of the 15 largestirregular occupiers) in the Alto Turi area would be conditions of loaneffectiveness.

43. Land Use Capability and Planning Studies. Land use capabilitystudies would be carried out to assist land tenure regularization and dis-tribution activities and subsequent development planning for the region.The initial studies would be based on photo-interprecation to define poten-tially useful areas for agriculture, now estimated to be about three mil-lion ha. It is expected that, within this area, some 975,000 ha wouldrequire field surveys to prepare detailed land capability maps. Areasunsuited for agriculture would be set aside as reserves.

44. Agricultural Research and Seed Production. The existing facil-ities of the state research agency (EMAPA) d' not provide adequate coveragefor the area, owing to micro-regional variations in soils, topography andland use. The component would adapt and further develop existing researchon techniques to improve labor efficiency and improve the linkages betweenresearchers, producers and extensionists. Foundation seed, produced byEMAPA to meet project requirements (for rice, beans and maize) would bemultiplied by COLONE and by cooperatives for distribution to project bene-ficiaries.

45. Rural Extension. Current extension services are weak, reachingabout 6% of the 70,000 producers in the Baixada. More effective extensionservices are necessary to promote increases in agricultural production.Some 80 additional extensionists needed for the project would receivetraining (through facilities provided by Loan 1568-BR to EMBRATER) inextension methods, plant and animal protection, credit, animal traction,soil conservation, farm layout, agro-forestry, and irrigation. Thecomponent would provide a full range of extension services to an additional12,000 farmers in the Alto Turi area and 7,500 families in the Baixada; afurther 4,500 families in the Baixada would receive less intensiveextension services. Project beneficiaries in the Mearim-Pindare subprojectwould benefit from extension services already provided by the stateextension agency (EMATER-MA) within an ongoing POLONORDESTE project. Tworegional and 26 local offices would be constructed in isolated communities,and costs of incremental salaries, operating costs, and training would beincluded as project costs.

46. Marketing, Input Supply and Cooperatives. Marketing institutionsin the state are weak and provide farmers with few options for the sale ofproduce. The project would provide for a marketing study to diagnose

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problems, and to define policies for a coordinated approach by public andprivate agents for the supply of inputs and distribution of production.The component would strengthen the agricultural market information system,provide for re-equippping and establishment of new input supply outlets inthe area, and increase storage capacity to about 11,000 tons. Technical,financial, and administrative support would be provided to establishcooperatives. The state would, by September 30, 1982: (a) cause the inputsupply agency to hire a consultant to assist in improving its administra-tive capacity; and (b) provide satisfactory details of the management andcost-recovery criteria prior to construction of stores.

47. Inland Fisheries. The project component would help improveartisanal inland fisheries to help increase incomes as well as proteinsupply for the local population and generate small quantities of fish forexport from the region. The component would provide for (a) strengtheningthe technical assistance capacity of COPENAT, the state's company forResearch and Use of Natural Resources; (b) training courses for fishermenand women; and (c) studies of technological improvements, marketing, andtransport of the catch.

48. Forestry Development. Shifting cultivation in the Baixada andthe more recent organized, as well as spontaneous, settlement of previouslyunexploited areas, have removed much of the natural forests. One forestreserve has already been established and the land use studies proposedunder the project would identify further areas which would remain under, orbe returned to, forest cover. The project would undertake to identify andprotect and manage new and existing reserves, define an overall forest pro-tection strategy, and expand on-farm reforestation. The forest reserveactivities would be carried out by the Brazilian Forestry DevelopmentInstitute (IBDF) in conjunction with the State Secretariat of NaturalResources (SERNAT). The state would prepare detailed plans for the protec-tion of forest reserves.

49. Small-Scale Enterprises. Existing small non-farm enterprisesprovide a variety of services and goods which are locally consumed. Manyare carried out by farm families as complements to agricultural activ-ities. The component would aim to improve the productivity and enhanceemployment opportunities within the Alto Turi and Baixada subprojectareas. The project would provide for managerial and technical assistanceto about 650 small-scale enterprises, and technical and financial feasibil-ity studies on commodity processing following a survey of the industrialsector in the project area. CEAG-MA, the state's small enterprise assis-tance agency, would execute the component.

50. Rural Transport. The proposed transport component would providefinancing for the construction of new access roads and minimum roadimprovements to existing roads, as well as the strenghtening of DERMA, thestate road agency particularly for road maintenance activites. A study on

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the use of water transport and possible integration of water and roadtransport systems will be made based on an evaluation of user cost-savings,and funds could be allocated for this purpose. Model terms of referencefor road maintenance and civil works supervision have been agreed, as wellas the final list of maintenance equipment to be purchased. The state roadagency, DERMA, would provide personnel and workshop support to operate andto maintain the project financed equipment. Prior to initiatingconstruction works, DERMA would enter into contractual agreements with eachmunicipality to maintain the roadworks, with the exception that for worksbeginning in calendar year 1982 such agreements would be required as ofSeptember 30, 1982.

51. Social Services. Improvement in access to and quality of health,education, and water supply services are necessary. Social service compo-nents would be directed at constructing and locating the physical infra-structure necessary to improve access, and the training of manpower toimprove delivery systems. In education, the project would provide for con-struction, furnishing and equipping of 107 rural schools, 50% of whichwould replace currently unsuitable facilities. Location of schools wouldbe based upon the results of a school mapping study. About 800 teachersand 100 supervisors and administrators would be trained along with staffresponsible for project implementation at the regional level.

52. Health and water supply activities undertaken by the projectwould help alleviate the most severe health problems and aim at a generallevel of cost-effective rural health services. The completion of staffingof existing offices and regional health units, and establishment of vitaldiagnostic facilities for leprosy and tuberculosis in existing health postswould be conditions of disbursement for the component. The project wouldfinance the establishment and/or improvement of health posts in the projectarea, provision of consultancy services to improve administration and todevelop in-service training materials, and training of some 410 healthpersonnel. The state would implement measures which were agreed with theBank for improving health administration no later than June 30, 1983.Water supply systems would complement health activities by providing cleandrinking water to minimize water borne diseases. The project would financeconstruction of some 365 village well and pump systems. However, no suchsystem would be installed until the beneficiaries had established a wateruser association to help pay for operating and maintenance costs.

53. Project Administration: The project would be administered by aProject Management Unit (PMU) for each of the subproject areas (see paras.62-64). The project would finance vehicles and equipment, PMU staffsalaries, travel costs, consultants, and additional needs for projectcoordination, monitoring and evaluation.

Complementary Activities

54. Credit. The total incremental credit requirements, estimated tobe some US$69 million over the five-year project, would be provided by theFederal Government under its existing POLONORDESTE credit line, its regularrural credit programs, and a special credit line known as PROBOR III(Natural Rubber Development Program). The participating banks have agreedto open new facilities in the project area and would adjust their credit

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availability based on annual estimates of credit demand. Owing to the con-tinued high subsidy element implicit in the prevailing interest rates,credit would not be included in items subject to Bank financing. TheGovernment would ensure the timely availability of credit to the project'sbeneficiaries and the state government would evaluate the implementation ofthe credit component annually.

55. - Amerindian Protection. There are two Amerindian reserves closeto the project area which could be influenced by development of the area.Both lie within the influence area of the Carajas-Sao Luis railroad, and aprogram to protect these reserves was developed during preparation of theproposed Carajas mining project. The Government would ensure that sucharrangements will be carried out for the two reserves. The proposedMaranhao rural development project would also provide for health care ofAmerindians on request, and collaboration in the demarcation of one of thereserve boundaries shared with the Alto Turi subproject area.

56. Agricultural Development in the Mearim-Pindare Subproject.Project activities in the Mearim-Pindare subproject would be limited toland re, ularization and redistribution. Some 70% of the subproject areamunicipalities are, however, already benefiting from an ongoingPOLONORDESTE rural development project (Vale do Medio Mearim). The remain-ing area largely lies within the influence area of the planned Carajas-SaoLuis railroad and is expected to benefit from various related developmentefforts. The state and federal governments would ensure that (a) supportof rural development activities under the Vale do Medio Mearim projectwould be maintained and coordinated to support a common group ofbeneficiaries under the proposed subproject; (b) the Annual Operating Plansfor the ongoing Vale do Medio Mearim project would be provided to the Bankfor comment prior to implementation; and (c) in its other plans andprograms for provision of support services and rural infrastructure, thestate would give priority to the subproject area municipalities not coveredby the Medio Vale do Mearim project.

Project Costs and Financing

57. The project cost over the five-year period beginning in November1981 is estimated at US$122.2 million, net of the US$0.7 million front-endfee, of which US$18.4 million or 15% would be foreign exchange and aboutUS$1.6 million equivalent, duties and taxes. Base costs have been adjustedto mid-April 1982 values and reflect recent actual costs for comparablegoods and services in Northeast Brazil. The physical contingenciesamounted to 7.4% of base costs and include 15% for civil works, and 5% forequipment, training, technical assistance and other operating costs. Con-tingencies for price escalation over the project period amount to theequivalent of 20.9% of base costs and physical contingencies, and werecalculated in US dollar terms, based on international inflation ratesprojected at 8.5% for 1982, 7.5% for 1983 through 1985, and 6.0% for 1986and 1987. Project costs are summarized in the Loan and Project Summary.

58. The proposed Bank loan of US$42.7 million, including the capital-ized front-end fee would finance 35% of total project costs net of taxes.It would cover the full foreign exchange cost (US$18.4 million) and aboutUS$23.6 million equivalent, or 23%, of local costs. The balance would be

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financed by the Federal Government through its POLONORDESTE program (59%)and through INCRA (7%). The financing of some local expenditures isrequired to establish a meaningful Bank presence in this project which hasa high poverty impact but a low foreign exchange component. The Federaland State Governments would finance credit and essential complementaryitems, including payment of compensation for improvements on lands to berecovered from previous irregular occupants in the Alto Turi subprojectarea. The Federal and State Governments would make adequate counterpartfunding available.

59. Procurement. Farm inputs and equipment for small-scale enter-prises and fisheries would be procured by producers through local tradechannels or through the state supply agencies. Civil works (about US$19million, excluding contingencies) associated with the transport componentwould be procured following local competitive bidding procedures with con-struction packages sized to allow bids from small and medium contractors.Although the bidding procedures do not exclude foreign firms, no foreignfirms are likely to participate. Brazil's construction industry is compe-titive and capable of carrying out such works. Civil works involving theconstruction of offices, research facilities, storage units, schools,health posts and water supply facilities would be geographically dispersed,individually small, and phased over time. Such works (totalling about US$7million) would largely be executed under contracts awarded following localcompetitive bidding although some 20% of these works would be executed by acombination of force account and self-help. Most of the vehicles (US$2million), materials and equipment (US$5 million) are locally produced andreadily available and would be procured in small and dispersed packagesfollowing acceptable local procurement procedures. Various services suchas cadastral surveys and demarcations for the land component (US$13 mil-lion) would be procured following local competitive bidding, with contractspackaged to allow bids from small and medium contractors. Consultancyservices (US$1 million) would include a total of about 16 man-years at ananticipated cost ranging from US$1,500 to US$7,000 per man-month. About45% of such services would be for technical and administrative aspects ofthe land components which would be carried out by local or foreignconsultants, while the balance would be largely local consultancies forproject administration, education and health administration, marketing,forestry, fisheries and small-scale enterprise development. Consultantswould be selected and employed in accordance with Bank policies andprocedures.

60. Disbursements. The proceeds of the proposed loan would be dis-bursed against all project expenditures except compensation for improve-ments on lands recovered from irregular occupiers under the land compo-nent. Disbursement would be equivalent to 100% of expenditures (net oftaxes) for aerial photography and photo-restitution work. Costs of allother eligible expenditures would be reimbursed at a rate of 31%. Dis-bursements for works carried out by force account and operational expenseswould be made against withdrawal applications covering statements of expen-ditures initiated by the various implementing agencies and certified by thePMU. Supporting documentation would be retained by the agency responsiblefor certification and would be made available for inspection by the Bank.

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61. A Special Account, similar to that for other recent projects inBrazil, would be opened in the Central Bank with an initial deposit of upto US$3 million. Withdrawals in cruzeiros from the account would be madeon the basis of the statements of expenditures forwarded to the CentralBank. Conversion from dollars into cruzeiros would be made at the exchangerate that prevailed on the date the expenditures were made. The CentralBank would send the statements to the Bank for review, which would thendisburse to the Special Account.

Project Implementation

62. Organization and Management. Each of the three subprojects wouldhave its own administration and coordination unit (PMU). The variouscomponents would be executed through special agreements with existingagencies. Coordination of planning and execution by the various agenciesresponsible for implementing the project would be achieved through aProject Coordination Committee composed of senior representatives of eachagency. This Coordinating Committee would be responsible to the state'sexisting POLONORDESTE Management Council, which guides policy for thestate's overall POLONORDESTE program.

63. Each PMU would be responsible for the day-to-day coordination,administration and monitoring of each sub-project. The PMU for the Baixadasubproject would come under the direct administrative responsibility of thestate's POLONORDESTE coordinator. The PMU for the Alto Turi subprojectwould have a similar internal structure and staffing as the Baixada PMU,but its staff would be employees of COLONE. COLONE would coordinate itsactivities with those undertaken by state and other participatingagencies. COLONE would hire a consultant by September 30, 1982 to presentby July 31, 1983 a proposal for the transfer of project-related respon-sibilities to state agencies by mid-1987. The PMU for the Mearim-Pindareland regularization subproject would consist of a small unit within INCRAresponsible for day-to-day management. A coordinating unit in ITERMA'sPlanning Division would collaborate in overall planning and monitoring, andliaison with activities with the on-going POLONORDESTE project in thearea. All project management units would be staffed by September 30, 1982and their staffing adequately maintained for the duration of the project.

64. Mechanisms for continued review are necessary to ensure that thesub-projects respond quickly and flexibly to changing circumstances.Activities of the project would reflect specific overall targets andobjectives updated through detailed Annual Operating Plans. Satisfactorydraft Annual Operating Plans for the project would be submitted to the Banknot later than October 1 of each year and the Bank would be informed by theGovernment, before the beginning of each project year, of the finalapproved plans.

65. Monitoring and Evaluation: The three PMUs would include aninternal monitoring system to provide administrators with timely informa-tion. The project's performance would be evaluated to determine whetherthe expected effects and impacts are being achieved. The evaluation would

comprise a longitudinal study consisting of baseline, mid-term and post-

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project surveys of about 300 producers within each subproject. The evalua-tion activities would be identified by the PMUs but carried out by a smallindependent team, including staff of the State Agricultural PlanningCommission (CEPA-MA), which would receive technical assistance from anexisting UNDP project which is already in the state. The results of thebaseline, mid-term and post-project surveys would be provided to the Banknot later than December 31, 1982, 1985, and 1987, respectively.

66. Accounts and Auditing. All participating agencies, wouldmaintain separate accounts of project expenditures, and would be auditedannually by the Central Secretariat of Internal Control (SECIN) of theFederal Secretariat of Planning, which is satisfactory. The PMU wouldretain copies of all documentation of project related statements of expen-ditures. Copies of the combined audited statement of the project accountsfor the three subprojects would be provided to the Bank within six monthsof the end of their fiscal year. The Special Account in the Central Bankwould be audited by independent auditors satisfactory to the Bank.

Benefits and Risks

67. Production. The proposed project activities are expected to leadto significant increases in agricultural production and modest increases inoutput from small-scale enterprises and inland fisheries. By fulldevelopment (year 10), the annual value of incremental crop production isprojected at US$40 million equivalent in 1981 prices. This productionincrease would be derived from: an increase in area planted (by about30%); increases in crop yields resulting from the use of improved seeds,selected labor-saving and yield-enhancing inputs and from the adoption ofbetter cultural practices; the gradual introduction of new crops such asrubber, banana, guarana, peanuts, sugarcane and pineapple; and improvementsin labor productivity owing to the removal of non-productive tasks and theadoption of cropping systems which spread labor demand more evenly. Some40% of the value of incremental production at full development would comefrom cassava; 17% from rice; 3% from beans; 9% from rubber; and 30% frombananas, pineapples or other high-value, newly introduced crops. Annualincremental livestock production is valued at about US$2 million at fulldevelopment resulting from the introduction of small cattle herds (orcomparable livestock activities) on about 13% of the beneficiary farms.

68. Return to Farmers. The impact of the proposed changes in on-farmpractices on producer costs and incomes were analyzed to indicate likelyreturns to beneficiaries. The estimated financial rates of return rangefrom 30% to over 50%. Current family incomes are estimated in the range ofUS$900-1,500 in 1981, equivalent to a per capita income of US$150-220 for afamily of six, below Brazil's rural poverty level of US$330 per capita. Atfull development, the average family income is expected to increase bytwo-thirds to reach US$1,940 (in 1981 dollars). The returns to familylabor would increase by some 36%. Based on conservative estimates 17% ofproject beneficiaries would have incomes above Brazil's relative povertylevel at full development. It can be assumed that farmers making onlyminimal improvements in productivity during the first five years of theproject would adopt more advanced practices, in response to continuedprovision of production support services, and could be expected to have

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incomes above the rural poverty level by year 10. The project would alsosupport a number of small-scale enterprises which are expected to generaterates of return ranging from 20% to greater than 50%.

69. Cost Recovery. The costs of project investments per benefittingfamily would range from US$5,800 for families receiving full land, produc-tion and social services to US$730 for families receiving only land regu-larization services. The state's existing fiscal devices could collectrevenues to offset recurrent costs and part of the capital costs. Themarketing tax (ICM), levied on incremental project marketed production,could generate some US$4 million annually by full development compared torecurrent project-related costs of some US$3 million. In addition, ruralsocial security revenue (FUNRURAL), levied at 2.5% on the value of incre-mental marketed production, could annually provide a further US$1 millionat full development. Road maintenance costs could be partially recoveredthrough the various license fees, road user charges and taxes. Watersupply systems would be largely maintained by the communities through userassociations and user charges. Land beneficiaries would be required tocontribute towards the costs of land they receive in addition to paymentsof land tax (ITR), further improving the fiscal impact of the project. Theoverall level of cost recovery is difficult to estimate however, in view ofthe judgements which must be made about the efficiency with which existingfiscal devices would be applied. Provisions for financing of operation andmaintenance for each component would be detailed in the operating agree-ments between participating entities to reduce uncertainties.

70. Economic Rate of Return. The economic rate of return for thedirectly productive aspects of the proposed project (representing about 78%of total project costs) has been estimated at about 22%. For various otheraspects of the project, such as the health, rural water supply, and educa-tion components, which have significant but not readily quantifiable bene-fits, no economic rate of return was calculated. The costs and benefits ofthe pilot fisheries assistance and reforestation components were notincluded in the rate of return analysis. The costs used in estimating theeconomic rate of return included all on-farm and small-scale enterpriseinvestment and incremental operating costs, all off-farm investment andincremental operating costs directly related to agricultural developmentduring the project period, and recurrent costs of services, infrastructureand of certain project services (e.g., extension, marketing, research),which would be necessary to sustain the projected development. The benefitstream used in the economic rate of return analysis includes all of theincremental production greater than the "without project" situation offarmers and small-scale enterprise operators who are expected to receivetechnical assistance through the project. Conservative estimates of bene-fits to be derived from increased agricultural production resulting fromthe more secure land tenure situation were also included. The prices usedin the economic analysis for goods traded on the international market areborder prices adjusted to take into account quality differentials andfarm-to-border transportation costs. Non-traded goods were valued at localfarmgate prices. Most of these prices are expected to remain stable orincrease slightly over the next decade. Labor was valued at a seasonallyadjusted wage rate ranging from 60-100% of the peak market value, in orderto reflect the prevailing unemployment and underemployment in the projectarea. Foreign exchange costs were adjusted upward by 20% to reflect trade

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distorting tariffs, subsidies, advance import deposits, export taxes andquantitative restrictions. To measure the impact of possible changes inthe economic environment on the project's stream of costs and benefits, arange of sensitivity tests were performed. The project exhibits a moderatebut acceptable degree of sensitivity to possible variations in key para-meters. Analysis of switching values reveals that the project benefitswould need to fall 41%, or the project cost to rise 68%, to depress thereturn to a 12% opportunity cost of capital.

71. Employment. The project would provide additional agriculturalemployment equivalent to about 11,000 worker-years at full development.Some 85% of this increment would be provided by family labor. Additionalemployment would be generated in the processing, marketing, and serviceindustries as a result of increased agricultural input demand and produc-tion. Project assistance to some 650 small-scale enterprises is expectedto generate about 1,000 new jobs by full development.

72. Environmental Impact. The project would have a beneficial impacton the project area environment. The land use studies would lead to morerational use of the area resources both at a regional level and withinfarms. The areas found to be unsuitable for agriculture would be protectedor reforested, thus reducing soil erosion in watersheds and siltation inwatercourses. The shift from slash and burn agriculture to sedentarycultivation incorporating crop rotations and restoration of fertilitythrough use of fertilizers would help stabilize land use. The encourage-ment of practices such as contour farming, rotation of crops, and theestablishment of farm woodlots, would contribute to environmental protec-tion.

73. Project Risks. The proposed project represents an ambitiousattempt to redress the most obstinate and long-standing constraints todevelopment of one of the least developed states in Northeast Brazil. Theconstraints involved -- land tenure, infrastructure, support services andeconomic options -- reflect not only scarcity of financial resources,inadequate administration of service agencies, and mediocre resource endow-ments of the area, but also long-established political and cultural tradi-tions inimical to change. Perhaps the greatest risk the project faces isthat the state will not be able to sustain its determination to bringchange to the traditions hampering small farmer development. The risk hasbeen minimized by ensuring that the project reflected the state's owndesires and assessment of what would be feasible, and by ensuring that someof the politically sensitive land-related decisions were taken prior toproject start-up. The remaining problems are more readily addressed byproject design and are common to rural development projects in Brazil.There is a risk that the project would overload the administrative capacityof the state. This should be offset by the establishment of sub-projectadministration units, the use of strengthened state-level coordinatingmechanisms, and the provision of technical assistance to reduce the admin-istrative burden. The risk that there could be inadequate coordinationbetween executing agencies would be minimized by the functioning of theCoordinating Committee and Project Management Units, and the designation ofliaison officers in each executing agency. Joint preparation of annualoperating plans and continual monitoring and evaluation of project activ-ities ought to provide adequate warning of failures of coordination.

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There is a risk that land regularization activities may be delayed andcause delays in other activities. This risk would be reduced by the annualestablishment of goals in the light of progress made and by the provisionof technical assistance to ITERMA to help speed implementation. Finally,there is the risk that project activities may not be adequately main-tained. This has been addressed by giving particular emphasis to mainte-nance needs in the project design and including specific assurances to thisend. Overall, the risks associated with the proposed project are accept-able in view of the expected magnitude of project benefits and the antici-pated role of the project in fostering greater institutional effectivenessin the state to resolve the problem of insecure land tenure and provide abasis for productive investments in rural development.

PART V - LEGAL INSTRUMENTS AND AUTHORITY

74. The draft Loan Agreement between the Federative Republic ofBrazil and the Bank, the draft Project Agreement between the State ofMaranhao and the Bank, the draft Project Agreement between COLONE and theBank, and the Report of the Committee provided for in Article III, Section4(iii) of the Articles of Agreement are being distributed to the ExecutiveDirectors separately.

75. Special conditions of the project are listed in Section III ofthe Annex III. Additional conditions of effectiveness are that the LandFunds would have been established and that at least ten thousand hectaresof land (including lands claimed by 3 of the 15 largest irregularoccupiers) in sub-area one of the Alto Turi subproject area would have beenrecovered.

PART VI - RECOMMENDATIONS

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

77. I recommend that the Executive Directors approve the proposedloan.

A. W. ClausenPresident

Attachments By M. Qureshi

May 21, 1982Washington, D. C.

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BRAZiLL - SOCIAL INDICATORS DAIA SHEET

BRAZIL REFERENCE GRUGPS (WEIGHTED AV,>GES

LAhu AREA (InoUnAND SQ. kn.) - MoST RECENT ESTILATE)--

luIAL 6511.U IIST RELENT MIDDLE IRCiOHE MIULI F INCIMH

ALRILLSLIURAL 2ul7.2 19bO /b 1970 1b ESTIMATE /b LATIN AMFiRICA b CARIBBEAN EUROPE

.N? PER LAPITA (US5) 320.0 570.0 1780.0 * 1616.2 2609.1

ENhKOY GoSbUMPTION PeK LAPITA(KILWuiAMS ot LOAL EQUIVALENT) 392.1 565.0 1061.5 1324.1 2368.4

POPULATION AND VLIAL STATLSISLSYOPULAIIOh, MID-YEAR (THOUSANDS) 7151J.0 95322.0 116539.0LRbAh PopuLArTuI (PERKCET OF TOrAL) 46.1 5 5. 9 64.1 64.2 53.2

POPULATION PROJECTIONSPOPULATILON 1S YEAR 2uu0 (MILLIONS) 176.5

SIATIONARY POPULAIION (MILLIONS) 281.0

YEAR STAIlONARY POPULATION IS RlACHEU 2075

Po PULAIUoN DENS 11rYPER bQ. KM. 8.4 11.2 13.7 34.3 80.6

PKR SQ. KH. AGRILULTURAL LAND 44.1 50.5 55.1 94.5 133.9

POPULATION ALGE STRLCIUR (PERCENT)0-14 YRb. 43.6 42.7 41.5 40.7 30.1

15-b4 YRb. 53.h 54.3 55.1 55.3 61.5L5 YRb. AND AbOVE 2.6 3.0 3.4 4.0 8.3

PUPULATIuN KROWTH KATE (PERLENr)TOIAL 3.0 2.9 2.2 2.4 1,5

uRbAN 5.5 4.8 3.8 3.7 3.1

CKUDE bIRIH RATl (PER THOuSAND) 42.5 37.0 29.4 31.4 22.9

LKUDU DLATH RAIE (PER THOUSAND) 12.9 10.5 8.7 8.4 9.1

GROSb REPRODUCIION RATE J.0 2.6 2.4 2.3 1.6FAMILY PLANNING

ALCLEPTORs, ANNUAL (JIHOUbANDS) .. 111.0 203.6

U6EsR (PERLENI OF MARR0ED WUMEN) .. 1.6

FOD ANU D NUIRLIUONINDEX oF FPUD PRoDUCTIoN

PER CAPITA (1969-71-LO) 89.0 102.0 114.0 108.3 119.8

PER LCAP1A SUPPLY OF

LALORIES (PERCENT OFREOUIREFILNTS) 101.0 1u4.0 107.2 107.6 125.7

PRoTEINb (GRAMb PER DAY) 61.0 61.0 62.7 65.8 92.5OP WHICH ANIMAL AND PULSE 34.0 34.0 35.1 34.0 39.7

niiLD (AGEb 1-4) PURTALETY RATE 17.3 i2.0 8.3 7.6 3.4

HEALTH

LIFE EXPELTANCY AT BIRTH (YEARS) 54.7 59.1 62.7 64.1 68.9

INFANT MORTALITY RATE (PER

TO1USAND) 128.0 92.0 70.9 25.2

ACCESb Io SAFE WATER (PERCENI uFPOPULATIUN)

TOTAL .. 56.3 77.1 65.7

URBAN .. 77.7 88.8 79.7RURAL .. 29.0 56.8 43.9

ACLESS To EXLRETA DISPOSAL (PERCENr

uF POPULATIUN)

UTTAL .. 59.9 64.8 59.9URBAN . 8. 6.1 83.7 75.7RLRAL .. 26.5 31.7 30.4

POPULAT1uN PER PHYSlCLALN 2561.2 2123.8 1700.0 1728.2 973.3

POPULATION PER NURSING PERbUN 2772.1 2992.3 .. 1288.2 896.6

POPULATION PER HOSPITAL BED

TOTAL 3u7.0 269.0 247.7 471.2 262.3

URBAN 325.6 322.6 .. 558.0 191.8RURAL .. ..

ADMISbIONS PER HOSPITAL BED .. 18.0 .. * 18.2

AVEKAGE SIZE OF HOUSEHOLD

TOTAL 5.1 4.8 4.9URBAN .. 4.6 4.7

RURAL .. 5.2 5.3

AVERAGE NUMBER UF PERSONS PER ROOMTOTAL .. 1.1

URBAN .. 1.0

RURAL .. 1.2

ACCESS TIo ELECTRICITY (PERCENTOF DWELLINGS)

IOTAL 38.7 47.6 63.0

URBAN .. 75.6 84.9RURAL .. 8.4 19.2

- 24 - ANNEX IP1ge2 of 5

BRAZIL - SOCIAL INDICATORS DATA SHEET

BRAZIL REFERENCE GROUPS (WEIGHTEED AVER.AgES

- MOST RECENT ESTIMATE) -fEIST RECENT MIDDLE INCOME MIDDLE INCOKE

1980 /b 1970 /b ESTIMATE /b LATIN AMERICA A CARIBBEAN EUROPE

EDUCATIpNADJUSTED ENROLLMENT RATIOS

PR LMARY: TOTAL 95.0 12 5.0 88.0/c 101.7 105.9

MALE 97.0 125.0 87.07W 103.0 109.6

FPMkLE 93.0 125.0 88.07W 101.5 102.2

SECONDARY: TOTAL 11.0 26.0 24.0/c 35.3 66.3

MALE 11.0 26.0 22.o7W 34.9 73.2

FEMALE 10.0 26.0 26.07W 35.6 59.5

VOCATIONAL ENROL. (2 OF SECONDARY) 19.0 17.0 47.0/c,d 30.1 28.4

PUPIL-TEACHER RATIO

PRIMARY 33.0 28.0 22.0/e 29.6 26.8

SECONDARY 13.0 13.0 13.07W 15.7 23.6

ADULT LITERACY RATE (PERCENT) 61.0 66.2 75.7 80.0 75.4

CONSUMPT ION

PASSENGER LARS PER THOUSANDPOPULATION 7.0 24.4 53.6 42.6 83.9

RADIO RECEIVERS PER THOUSAND

POPLLATION 66.4 123.8 155.0 215.0 181.6

TV RECEIVERS PER THOUSANDPOPULATION 16.8 64.0 97.9 89.0 131.1

NEWSPAPER ('DAILY GENERALINTEREST") CIRCULATION PERTHOUSAND POPULATION 54.0 37.0 45.2 62.8 123.8

CINEMA ANNUAL ATTENDANCE PER CAPITA 5.0 1.9 1.9 3.2 5.7

LABOR FORCETOTAL LABOR FORCE (THOUSANDS) 22869.1 30078.5 36718.3

FEMALE (PERCENT) 17.5 20.4 22.6 22.6 32.9

AGRICULTURE (PERCENT) 51.9 45.6 39.8 35.0 34.0

INDUSTRY (PERCENT) 14.8 18.3 21.8 23.2 28.7

PARTICIPATION RATE IPERCENT)TOTAL 32.0 31.6 31.5 31.8 42.3

MALE 52.7 50.3 48.9 49.0 56.5

FEMALE 11.2 12.8 14.2 14.6 28.5

ECONOMIC DEPENDENCY RATIO 1.4 1.4 1.4 1.4 0.9

INCOME DISTRIBUTIONPERCENT OF PRIVATE INCOMERECEIVED BY

HIGHEST 5 PERCENT OF HOUSEHOLDS .. ..

HIGHEST 20 PERCENT OF HOUSEHOLDS 60.0 63.5 62.0

LOWEST 20 PERCENT OF HOUSEHOLDS 3.8 3.2 2.8

LOWEST 40 PERCENT OF HOUSEHOLDS 10.8 9.0 9.4

POVERTY TARGET GROUPSESTIMATED ABSOLUTE POVERTY INCOME

LEVEL (USS PER CAPITA)URBAN ..

RURAL .. .. 150.0 187.6

ESTiMATED RELATIVE POVERTY INCOMELEVEL (US$ PER CAPITA)

URBAN 465.0 513.9

RURAL .. .. 332.0 362.2 385.1

ESTLMATED POPULATION BEWW ABSOLUTE

POVERTY INCOME LEVEL (PERCENT)

URBAN ..

RURAL ..

Not available

NoL applicabl-.NOTES

ia The group averages tor each indicator are population-weighted arithmetic neans. Coverage of countries

acong the icdlca-trs depends on a-ailability of data and is not anifotn.

ib ScL-nu utheraiue noted, data for 19.0 reter L. any year between 1959 and 19611 for 1970, between 1969

and i971; and for Most Recent Entimate, between 1976 and 1979.

o gining 1973 priacay and secondary educations cover age groups 7-14 and 15-17 instead of 7-10 and 11-17

mn earlier >nars; therefore nost recent estinates are nor comparable with earlier data; /d 1974; /e 1975.

* The updated 1980 GNP per capita and population estimates shown in the

1981 World Atlas are US$2,050 (at 1978-80 prices) and 119 billion.

April 14, 1982

- 25 - ANNEiX iiege I of 5

hfFLoIIOIJSc OF 10(1ŽA44. IColAfdidE

ee Acoo h dy dec. .rc d-ee from ... oa generaly fudged dIeN OO d - c t terd rlal,3 od alec A. -od ddial dhe., yd b. Aa--dmdor,lyc -brele AIeu... of the mtOk fettd dlddf -d i- in ..eai dtopeoeddho ff-Irt, ooeta orol.y hg . et.- The .. or

tiere -t.f.l d-ea ib -rd-do cddy irdi tae trend., eod odaac1te eitohl ddff .... -

ot the ovOtto o..c,ioy emomt f reotm, boocoe IdEnoiet -gyo wher Middle boom Month Afydo md IodrEs acoem I te ae

eeroyo h orre rgoyt.df o ha idied io t oaeeo onrc n he ivdte-nn- depend. or-cleave ilehllty of Ietenooetltoof,re tedclded. iorec..d...aii adeege odon~1. lndt-anor'3.--.yo 1......... .yoetl ---petjoeeleflno-d fd i d -.000 O bl 3-ldo~. Id :

IlAl ldA-- :Iooata.i. tl oolot (oe

Total da dft ranmreo o readm I metdOo conrtd oddh Ie eyo i viov opolhd

(to yEl CltolU~d hO ye satr ea tedeeat orrydweted oiea oa ~ ooaoo. oIncude, bte itrlh la.howve dol ho lalt

dadto mb ttI Ie l:Imited tante If aedi-a ei Ioie .,oeeat

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ld~~lLATldald.D A.ldot. hTdCldTlCh

data. drena~~~~I-l 1 tt. de.. htord tt-tes-t ICed-oOrf ibdoeedold,rta,nln tdo.Orln rriltio nenen orrot> -Odd3-,of oon -l idecy noIft di caildnntt o rC Ointtta .lod .r ...... b.t

dIferntdelootoe f nitanctou oytn capruild; f at to Ie- nt- feao hoard en on loge eay onwyId b otddI

tnhd IC,itetbttdnC i ton i -onunott d-itl 'a ynbI vl -a 1itnn o.3eeI Iitlit pnoioAnllae.ite.aba.ed ianI,d n enl , en _ro _ro.o orb3tta tCr Oepr-lneiotI ollg therrefyd otddatr

eeore fiforolto. ruro.etooooaooeteloveotifdtllomo otOtA.,t-dd.tnd-ot_dollidsfeyeotoelfeoltycod o . Co00 line: adIFofe'n,tand efrat

boo cdnty t oentoI Ida on3 Id-v t le nhda_mo of- morcaltr IClildIllId

th eraenn Il coe00 of oni dl ttodilir-ad .abt eoigeertto oto do dlote fr ifernt eiot i pteye_oeen.fo

h.o.tuIol,b- pul.n-edeno -nioenoo. ruif.o.noo2totOt ICO IeCrl.o-ototl or teatten tr-e-rlI ... ro gi ..efrrori

area,1dIl, 1971 -drIO 03-todbold etl .ndano -- otoe preraadhio orrth bderoo-l

loyult .on .a itot-n roeo lirr (-I-onI,l ent--odaee.15- nreo ndre-dary bide diolded by nower no teade.. it rIteIiyae -tdrtie4h njq1yoda aId oo,c eroae tmdya o.-ooenodt eo

Pod-j-no d 1 G- eh tdfo y - booa In ito r-h Intorrid .0bal p-nea leeetigatfeagh_eeoe nnietwoate.lre n_ro-or-id- 19d0b,0 1970,ad 119 ,dataal i97oneloee

opatn,1db., 1170. rod lAb dei broa rtac- -In-sea. al e hotd fyylio;sroe n

len nrmuloepddocdde reold o rioadreledde Onrart te-tal ifto tt- rds et ty fffeo, dat f.r reenrmi way no be rdmparebleelcdneell i y rare; ooal l f to-yearanereed ediv Io bItt, 1970, and l9l9, maecooeeie aolldlceee

of lrt-lrityl eoieo nde trnlve f ntora,(ael- lorin rrretov.i eeeotlreio pet _haard none tern Iro fue te eresa T. feceneeoeo ofodfl-herld ego11:to ntit eb ra ii-tnotrnl d-oiree. ICleneaewm otlvenle noen no einn - Shnoatbeuneetetoo-

prbli-aiioooenottd primaily to relo-ding gen-e de.maI It Ioe.d-oeItODI 010 00T01T01 irI ely' if In ....... at I eeo , oon lneeeee..k

lode. of Prod _Pr_dootido ro_ o ioI>l-S-IL lodto tO por cupola onol Iomloolotedrenrlpt e 1ea - Bte.oId1 h,tIe'oler of

'Idc o falfodnmtdte ynndrdin tt lden eead ad, feed ed ~ teiba-soId dorn heno i-r ldnig aer o noet ioce_e

ocrat eo add:.Igrraiyrd.o.t.to of e.n. .0..cr ry iaoed, 0C IiOR FORCEooainel nyugenrdooe rycd 01 1961-t5, I190, and 1970 dar.- oT.tl Lahrbrrc P hIoei,- to etiy- cto rron ioodo

Per rente srrrdy o cu loron (rorneoiof retotrcenra 9 -Cowotd fr.o erred foorta end toemployd boo. -- i org hoo.o.. e tdns e.-rdd e -IalI I If Iro fr rPyle mom- al itdoor yen tay rc Pnni

0roia-to f l mr. e Otonton in -eir.e t -oin d

yed-y d-aflable opimcwyiedntl nr- dcoo, lo non idee ooc Cown-rie; 191910 AI rod 1979 date.dor -r4o h-doee -rock Nlet tpplnt-m lo'de animal feed -tode.,fml rrto FI 1-1Pemlo elo fono e p-reog If tota Iblot force

Itlottltitaood 1,In 11Ž nombe ai .o.m. In dtolotnn .qbe-dnintrnlrb-i- an oteI mottd oe y, hnitra aid.wentoenrom toetod by f~o -oad on phyaidloelca t..OrO -onolc fitehtg oe noroer-ar of total b, Ito .o. lO/ -11 191 aid 1979 dat.-otto add bal onrdoletrntttoeeu t-bd egt.aeindaI-

1Iprtn - eLonC _drleIn nivine. notrfo eoen

end .e.. i bo,on op.do.n alet1

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3dtT1 d-c. lhnf ad Id9 df.-

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"I rinonrto eriiltledh- 1- nrnnldo ton nJnirvo lletIvro Idl-dl rd feil oprlnr1ino If el,I'tletreerotloat;olheyroot O auorof -to -rtenr pot dao and lb egi- or attol u- 1961, 197~1,.ed- Ol dta T7rmo brdnIl.p-rttirottotre_

oilrrprott

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- 2 6 - ANNEX IPage 4 of 5

ECONOMIC INDICATORS

Population 119.0 million (1980)GNP Per Capita: US$2,050 (1980)

Amount Average Annual Increase (Z) Share of GDP at Market Prices (Z)Indicator (Million US$ Current) (at Constant 1970 Prices) (at Current Prices)

1980 1965-70 1970-75 1975-80 1981-86 1970 1975 1979 1980 /b 1985

National AccountsGross Domestic Product /a 248,200 7.7 10.6 6.9 6.0 100.0 100.0 100.0 100.0 100.0

Agriculture 23,365 1.9 5.7 4.7 5.2 8.2 8.7 9.4 9.4 9.4Industry 71,590 9.2 11.6 7.6 5.9 29.1 32.6 31.8 28.8 31.8Services 111,365 8.0 10.7 6.8 6.2 43.0 41.3 42.5 44.4 42.5

Consumption 201,040 7.7 9.8 5.7 5.7 76.9 78.6 79.8 80.5 76.3Gross Investment 52,460 9.4 14.6 5.2 6.0 23.5 25.4 22.6 21.1 22.9Exports of Goods and NFS 21,305 8.2 11.2 7.3 8.2 6.6 7.4 8.2 8.6 9.7Imports of Goods and NFS 26,575 14.5 17.2 2.8 5.9 7.0 11.4 10.6 10.7 8.9

Gross Domestic Savings 47,160 7.9 12.9 6.1 - 23.1 21.4 20.2 19.5 23.7

Amount Average Annual Increase (%) Composition of Merchandise Trade (%)(Million US$ Current) (at Constant 1970 Prices) (at Current Prices)

1980 1965-70 1970-75 1975-80 1966 1970 1975 1980

Merchandise TradeMerchandise Exports 20,132 7.8 11.9 5.8 100.0 100.0 100.0 100.0

Primary 11,092 7.3 8.3 1.1 82.9 75.1 61.8 55.1Manufactures 9,040 7.9 28.2 18.2 17.1 24.9 38.2 44.9

Merchandise Import 22,961 10.0 17.6 -1.4 100.0 100.0 100.0 100.0Food 1,239 -3.8 -6.7 17.5 11.5 4.5 3.0 5.4Petroleum 10,210 9.3 7.6 4.3 14.7 11.2 24.5 44.5Machinery and Equipment 4,392 22.1 15.2 -7.5 15.2 21.2 14.0 19.1Other 7,120 8.3 28.4 -1.9 58.6 63.1 58.5 31.0

1975 1976 1977 1978 1979 1980

Prices and Terms of TradeGDP Deflator (1970 = 100) 305.1 444.3 632.7 892.5 1,399.4 2,724.6Exchange Rate (Cr5/USS) 8.1 10.6 14.1 18.1 26.9 53.5

Export Price Index (1970 = 100) 176.0 192.0 226.0 228.0 266.0 290.0Import Price Index (1970 = 100) 242.0 255.0 286.0 317.0 389.0 431.0Terms of Trade Index (1970 = 100) 72.0 75.0 79.0 72.0 68.0 67.0

As % of GDP(at Current Cruzeiro Prices)

1970 1975 1979 /b

Public Finance (Central Government)Current Revenue 16.6 19.8 20.8Current Expenditure 14.4 15.8 17.6Surplus (+) or deficit (-) 2.2 4.0 3.2Capital Expenditure 2.6 3.8 3.7Financing (Net) -0.4 0.2 -0.5

1965-70 1970-75 1975-79

Other IndicatorsGNP Growth Rate (%) 7.7 10.7 5.8GNP per Capita Growth Rate (%) 4.6 7.7 3.0Energy Consumption Growth Rate (%) 7.2 7.3 6.5

ICOR 2.9 3.0 3.9Marginal Savings Rate 20.5 25.7 22.7Import Elasticity 2.2 1.6 0.3

/a At market prices; components are net domestic products expressed at factor cost and will not add due to exclusion of depreciation and indirecttaxes less subsidies.

/b Preliminary Economic Mission scheduled for May 1982 will update the fiscal data.

May 5, 1982

Page S of S

LUANCE OF PANTSI . XflRIAL CAPITAL Aim DMST(sultan USS at U,rre t prie)

Population: g119 illio- (1980)GNP Per Capita: US2,050 (1980)

ACTIAIL P20JtCTE1975 1976 1977 1-98 1979 1980 1981 1982 1983 5984 1985 1986

Balance of PsyenttNet eaporta of gooda and aervicet -6,702 -6,018 -4,037 -6,086 -10,039 -12,564 -11,173 (-8,770) (-7,533) (-5,735) (-4,095) (-979)

Roporta of gooda (8,670) (10,128) (12,120) (12,659) (15,244) (20,132) (23,293) (27,757) (32,770) (38.740) (035143) (52,596)Iworta of Goods (12.210) (L2.383) ()2,023) f13,683) (16,084) (22,955) (22,080) (23,648) (26,065) (28,937) (32.505) (36,99)

Not fac-or Incoe -1,733 -2,188 .2 536 -3,257 -4,821 -6,621 -9,549 -8,687 -10,609 -11,397 -11,990 -11,153(of hlloh net loeaoaol paynca (-1,488) (-1.810) (-2,103) (-2.686) (-4,185) (-6,311) (-9,179) (-7.365) (-8.246) (-9.020) (-9,631) -8,663

Nes naon-acooraerolcea (-1,429) (-1,574) (-1,578) (-1,805) (-2,378) (-3,120) (-2,837) (-3,192) 4,3,628) (-4,141) (-4,744) (-5,429)

Mtet oaiora 2 1 - 71 18 168 197 197 197 197 (97 197Correct account baSance -6,700 -6,017 -4,037 -6,015 -10,021 -12,396 -10,976 -8,573 -7,336 -5,538 -3,898 -782

Otroct pnltato Inne-teoc /b 892 959 810 1,071 1,491 1,123 569 1,776 2.004 2,376 0,628 2(980b64L loane oat 4,830 5,542 3,650 10,016 3,297 3,673 9,571 8,996 8.307 6.981 5 974 32 55

Trod" -tonaltoorco (955) (1,147) (1,059) (1,450) (1,250) (1,195) (4,314) (524) (5.125) (4,965) (4,986) (4,354)Pinanct-l credits (6,027) (7 013) (8,226) (13,714) (50,479) (8,890) (13,513) (50.962) (10.936) (11,370) (15 010) (12.017Jtmorlsaaelot (2.552) (2.658) (3,633) (5,546) (6,630) (6.610) (7,956) (-7,190) (-7 754) (-9,354) (-11,017) ((3.080)

Scaailian Ioat, abroad (ceo( -190 -240 -267 -357 -608 -416 -702 - -.,h- capital n. .1 -62 1,829 -1,248 -418 1,059 4,732 5,304 -1,638 -2.188 -2,801 -3,549 -4,040

Change In rei eree. (-i-cr,a.e. 1 5,230 -2,065 -908 -4,299 2,782 3,480 -766 -560 -806 -948 -1,154 -1,410

ItOOOoationa 0 neaproca /d 4,041 6,544 7,256 11,895 9,699 6,913 7,505 8,065 8,872 9,820 10,974 12,384tesecoe,o, nmontah of iw-orta/c 4 6.3 7 .2 3.9 6.4 2.8 4.1 3.3 3.3 3,2 3.7 3. 2

1975 1976 1977 5978 1975 1980 1981

Ontercal [altTotal debt ouOtaed- ng and d1a1o-eod 23,298 28,403 34,6051 46,436 31,342 54,865 61,400 /f

Poblic and pobitly goaranlead 13,70b 17,349 21,593 30,284 35,478 30,2600fficlaoorce 3,959 4,431 4,717 5,401 5,889 6,416

2000 (1,093) (1,21)) (1,453) (1,602) (1,827) (2,069) -Olher (2,866) (3,214) (3,304) (3,799) (4,062) (4,347)

Priat__ ... rev 9,747 52,918 16,878 23,883 29,589 31,844rclaee ncon-oornloeed 9,592 11,133 13,005 16,152 15,864 (6,605

lndltburaed deI _ (pubIc only) 3,879 6,620 8,415 10,209 12,448 14,04151

tross DisbursetintsTotal gee.. dlebortenect of M6LT loaoI 6,9I1 8,106 9,282 15,164 11,72 10,095

Pulit 10/ pobocly gc.renceed 3,788 4,921 5,422 10,116 9.532 6.893Of II.ol enc -nccrrd(ta 428 405 169 490 448 467

IBRD 250 173 298 275 302 343 -Other n,lttlacero( 159 13 92 130 206 (92P--lote coocce 2,991 4,233 4,862 9,216 8,197 5,892

Pi-tce oe -- -ar -tseed 3,194 3,239 3,861 5,048 2,576 3,192

Debt ServiceCot-l delbt aecoce paypeett 4,195 4,352 5,642 8,232 11,147 53,51668

Icterest (nec) (1,677) (5,423) (1,655) (2,457) (3,553) (5,452) -Poyaettsoo 0 T of t' porto a- d NFS 39.6 36,2 39,6 54.2 59.8 54.9Papuanosos X of NCP 259 2,6 3,0 3.7 4,3 4. 8

resta u Oce public dobl (X) 8i 8,7 7.6 0.3 9.9 51.2 15.3 -Otffioal sococe 7.7 79 60 7( t5 3 8 -

Av aaturt oftn. guaranteed loan. * 0 11.3 10,0 lo, 11.5 10,3tics adroe 18 4 16.3 56.1 14,5 54,0 53.6

Private source 7.0 9.3 8,7 9.3 11.2 9,3

18RU Esosr0 D0 202/Total 4,7 4,3 4,1 34 3.6 3 81660 digburtedaeus(total gores dlibura--e.ot (X) 3.5 2,1 3,2 1,8 2,6 3.4IBD debt scruis .totol deli arni-ce (X) 2.5 3.2 3.7 2,7 2,2 251 -

As X of total debl nat.tandoigat end of Deta-be- 1980 (h

reb,r Ntn:rs.,reNfaturitysatoucoune of Oslo outetandlog

lateirltes dos vtbil 3 peace 67

Mae,rSotlee ted ott-.nn IO -ear, 33

/1 Edtite.'b tocludito re-loceatad profItsIc 9c-luditg doOlor -aluation edjua.t nta sod Ioneeloeolon of doneaio gold./d Includiog gold and dollat 1 aloattoo adjuatetts,/e Good -nly.If -e -ilsuoaoalle./g Public debt only./h Pro-iti.ced

So-rce: balance of Payeot- Isa - Banco Ceospal do Bratil; E.teroal Debt Dasa - EPD

Map 3, 1982

- 28 -ANNEX IIPage 1 of 14

THE STATUS OF BANK GROUP OPERATIONS IN BRAZIL

A. SUMMARY STATEMENT OF LOANS(As of March 31, 1982)

Amount lessLoan # Year Borrower Purpose Cancellations Undisbursed

(US$ Million)

Fifty-two loans fully disbursed 1,736.1

923 1973 Furnas Centrais Eletricas - Power 125.0 3.3Itumbiara

1008 1974 Cia. Hidro Eletrica do Sao Power 81.0 16.0Francisco-CHESF

1067 1974 Brazil Education 23.5 7.51074 1975 Rede Ferroviaria Federal Railways 175.0 2.11075 1975 Brazil Roads 110.0 16.71151 1975 Companhia Siderurgica Nacional Industry 95.0 13.01152 1975 Companhia Siderurgica Paulista Industry 60.0 21.71153 1975 Brazil Agriculture 23.0 3.21171 1975 FEPASA - Ferrovia Paulista Railways 75.0 14.11195 1976 Brazil Rural Development 12.0 7.61207 1976 Brazil Feeder Roads 55.0 32.01249 1976 Brazil Agriculture 40.0 9.71300 1976 Eletrobras Power 50.0 0.81302 1976 Brazil Nutrition 19.0 2.01309 1976 Banco Nacional da Habitacao Water Supply 40.0 0.11317 1976 Brazil Agro-Industry 83.0 59.61343 1977 ELETROSUL Power 82.0 17.51362 1977 State of Minas Gerais Rural Development 42.0 10.51406 1977 Petrobras Fertilizantes Fertilizer 52.0 11.71411 1977 Fertilizantes Vale do Fertilizer 55.0 1.9

Rio Grande S.A.-VALEFERTIL1452 1977 Brazil Education 32.0 22.71488 1977 Brazil Rural Development 17.0 12.11525 1978 Banco Nacional da Habitacao Sewerage 110.0 75.91537 1978 Brazil Rural Development 24.0 19.51538 1978 ELETROBRAS Power 130.0 64.91557 1978 Brazil Roads 114.0 88.51562 1978 COPESUL Petrochemicals 85.0 14.11563 1978 Brazil Urban Transport 88.0 36.41568 1978 Brazil Agric. Extension 100.0 76.5

- 29 -

ANNEX IIPage 2 of 14

A. SUMMARY STATEMENT OF LOANS (Continued)(As of March 31, 1982)

Amount lessLoan # Year Borrower Purpose Cancellations Undisbursed

(US$ Million)

1589 1978 Brazil Rural Development 37.0 28.51654 1979 Banco Nacional da Habitacao Sites & Services 93.0 65.91656 1979 Banco Nacional da Habitacao Water & Sewerage 100.0 85.71660 1979 Valesul Aluminio S.A. Aluminum 78.8 11.51714 1979 Brazil Rural Development 26.0 23.71720 1979 Brazil Urban Development 70.0 61.51721 1979 COPEL Power 109.0 84.91728 1979 Brazil Rural Development 40.0 35.21729 1979 Brazil Irrigation 28.0 18.61730 1979 Brazil Roads 110.0 100.61822 1980 Brazil/BNDE Pollution Control 58.0 58.01823 1980 Banco Nacional

da Habitacao Water Supply 130.0 115.01824 1980 CEEE Power 114.0 114.01839 1980 Brazil Urban Transport 159.0 155.81850 1980 Banco Nacional da Habitacao Water Supply 139.0 120.11867 1980 Brazil Education 32.0 30.81877 1980 State of Minas Gerais Rural Development 63.0 61.31895 1980 ELETROSUL Power 125.0 124.71924 1981 Brazil Rural Development 56.0 53.01939 1981 ELETROBRAS Power 54.0 52.61965 1981 EBTU Urban Transport 90.0 90.01970 1981 Banco Nacional da Habitacao Water Supply 180.0 168.11989 1981 Brazil Alcohol Devt. 250.0 250.02015 1981 Brazil Agriculture 29.0 29.02016 1981 Brazil Agriculture 60.0 57.02060 /1 1982 Brazil Agriculture 67.0 67.02061 /1 1982 Brazil Health 13.0 13.02062 /1 1982 Brazil Highways 240.0 240.02116 /1 /3 1982 Brazil Agriculture 26.4 26.4

Total 6,310.8 /2Of which has been repaid to the Bank 883.4Total now outstanding 5,427.4Amount sold 45.8of which has been repaid 45.3 0.5

Total now held by Bank 5,426.9

Total undisbursed 3X003-5

/1 Not yet effective./2 No IDA credits have been made to Brazil./3 Not yet signed.

- 30 -ANNEX IIPage 3 of 14

B. STATEMENT OF IFC INVEST#ENTS (a, of March 31. 1982)

Fiscal Amoust in US$ millionYear 0 b 1 i g o r Type of Business Loans Equity Total

1957 Siemens do Brasil Cia. de Electricidade Electrical Equipment 2.00 - 2.00

1958 Olinkraft, S. A. Cel.lose e Papel Pulp and Paper 1.20 - 1.20

1958 D. L. R. Plasticos do Brasil, S. A. Astomotive Parts 0.45 - 0.45

1958 Willys-Overland do Brasil, S. A. - Industria e Comerclo Motor Vehicles 2.45 - 2.45

1959 Companhia Mineira de Cinento Portland, S. A. Cement 1.20 - 1.20

1959 Chanpios Celulose, S. A. Pulp 4.00 - 4.00

1966/1968/1972 Acos Villares, S. A. Steel 8.00 1.93 9.93

1966/1969 Papel e Celulosa Catarinen-e S. A. Pulp and Paper 3.78 3.41 7.19

1967/1972 Ultrafertil, S. A. - Industria e Comercin de Fertilizantes Fertilizers 8.22 3.03 11.25

1969 Petroquimica Uniao. S. A. Petrochemicals 5.50 2.88 8.38

1970 Pololefinas. S. A. Industria e Comercio Petrochemicals 5.50 2.88 8.38

1971 Oxiteno, S. A. Industria e Comercio Petrochemicals 4.60 1.44 6.04

1971 Rio Grande - Coapanhia de Celulose do Sul Pulp 4.90 - 4.90

1972/1975/1981 Companhia de Ciwento Nacional de Mhinas Cewent 169.14 6.70 175.84

1973/1974/1977/1981 Coapanhia Siderurgica da Guanabara - COSIGUA Steel 76.97 11.22 88.19

1973 Capital Market Development Pund - FUMCAP Capital Market Development 5.00 - 5.00

1973/1978 Empresa de Desenvolvimento de Recursos Minerais - CODEMIN, 8. A. Nickel Mining and Refining 85.00 8.34 93.34

1974 Industrias Villares. S. A. Elevators and Industrial Equipment 6.00 - 6.00

1974 Pabrica de Tecido Tatuape. S. A. Testiles 31.00 - 31.00

1975/1979 Capuava Carbonos Indostrias Ltd. Carbon Black 6.18 1.19 7.37

1975 Oxiteno Nordeste. S. A. Petrochemicals 10.00 - 10.00

1976 Santista Industria - Textil do Nordeste, S. A. Te.tiles 6.45 1.00 7.45

1976/1980 Tecanor S. A. - Textil Catarinense do Nordeste Te.tiles 16.20 - 16.20

1977 FMB S. A. Productos Metalurgicos Iron and Aluminum Castings 20.00 - 20.00

1977 Mineracao Rio do Norte S. A. Mining 15.00 - 15.00

1978 Ci-tal Siderurgia S. A. Iron and Steel 7.00 3.00 10.00

1979 Volvo do Brasil Motores e Veicules, S. A. Motor Vehicles 60.00 5.00 65.00

1980 Hering do Nordeste S. A. - Malhas Ready-made Garments 2.00 - 2.00

1980 Dende do Para S/A - Denpasa - Agricultura, Industriae Comerco de Oleaginosas Palm-OS1 3.50 1.00 4.50

1980 Villares Industrias de Base S. A. - VIBASA Iron and Steel 5.00 - 5.00

1980 PP8 - Companhia Industrial de Polipropileno Chemicals and Petrochemicals 15.00 2.00 17.00

1980 Destilaria Cianorte S. A. Chemicals and Petrochemicals - 0.25 0.25

1980 Sotave Ama.onia Quisica e Mineral S/A Fertilizers 16.00 4.00 20.00

1980 Polisul Petroqaimica Chemicals and Petrochemicals 43.00 5.00 48.00

1981 BraSilpar Money and Capital Markets - 1.50 1.50

1981 Companhia Brasileira de Agropecuaria - COBRAPE Food and Food Processing 5.50 3.00 8.50

1981 Triunfo Chemicals and Petrochesicals 46.00 4.00 50.00

1982 Cimento CAUE Cement and Construction Materials 40.00 5.00 45.00

Total Gross Comitmests 741.74 77.77 819.51

Less Cancellations. Terminations, Repay.ents and Sales 534.19 12.02 546.21

Total Commitments No. Held by IPC 207.55 65.75 273.30

Total Undisbursed 219.01 21.47 240.48

- 31 -

ANNEX IIPage 4 of 14

C. Status of Projects in ExecutionAs of March 31, 1982 1/

As of March 31, 1982, there were 54 effective Bank loans underdisbursement:

Loan No.

923 Itumbiara Hydroelectric Project: US$125.0 million loan of August 1,1973; Effective Date: October 30, 1973; Closing Date: December 31,1982. The project is about 90% completed. Major procurement hasbeen completed. Four of the six generating units have been inservice since late 1980; the other two were commissioned in 1981.A cost overrun of about 57% is forecast due mainly to a substantialincrease in the size of the transmission works and to an increasein the cost of civil works.

1008 Paulo Afonso IV Hydroelectric Power Project: US$81.0 million loanof June 17, 1974; Effective Date: April 15, 1975; Closing Date:June 30, 1982. Resettlement of the 9,700 families displaced bythe Sobradinho reservoir has been satisfactorily completed, and newtowns and villages to house the displaced population have been con-structed. The construction of the underground power station andSobradinho Dam is proceeding on schedule. Construction of thetransmission lines and sub-stations is about 12 months behindschedule. The Closing date was postponed to June 30, 1982 toallow additional time for equipment deliveries extending into thelatter half of 1981, and thereafter to meet retention paymentson equipment contracts.

1067 Second Education Project: US$23.5 million loan of December 27,1974; Effective Date: April 17, 1975; Closing Date: December 31, 1982Project execution is about two years behind schedule mainly becauseof delays during the early stages. Forty-four of the 51 facilitiesto be constructed are now operating or just completed. Progress inimplementation of the enlarged project is satisfactory. Overall costsare within reviewed estimates. A local project completion team shouldsend a draft PCR to the Bank for comments by September 1982.

1074 Second Railway Project: US$175.0 million loan of January 17, 1975;Effective Date: June 17, 1975; Closing Date: December 31, 1981.The project has been completed and no further disbursements willbe made. About US$1.0 million is being cancelled. A projectcompletion report will be issued before the end of 1982.

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

- 32 -

ANNEX IIPage 5 of 14

1075 Fifth Highway Project: US$110.0 million loan of January 17, 1975;Effective Date: May 15, 1975; Closing Date: June 30, 1983.Roadworks, detailed engineering studies for road constructionand road rehabilitation have been completed. Implementation ofthe maintenance program in the states of Minas Gerais and Rio Grandedo Sul is progressing well. Installation of the 73 weighing stations(Phase I) suffered delays because of financial constraints imposedby the federal government. Additional counterpart funds for 1981have been provided recently and works have been reactivated. Theweighing station program is being reformulated; the closing datewill have to be extended further to allow completion of the works.

1151 CSN Steel Expansion Project - Stage III: US$95.0 million loan ofJune 9, 1975; Effective Date: April 30, 1976; Closing Date:December 31, 1982. Due to lack of funds in 1981 and furtherconstraints on 1982 spending, project completion is now scheduledfor November 1983. The company's financial position is inadequatewith a year-end 1981 current ratio of 0.54, debt equity ratio of52:48 and debt service coverage of 0.6 times. A supervisionmission visited Brazil in March 1982, and strongly reiterated theBank's request that the Government provide additional funds (orallow CSN to increase its long-term borrowings) to complete theproject by May 1983 (the earliest now possible) and to restorethe company's current ratio to 1.0 times by year-end 1982 (withfull compliance on all financial covenants to be met by end-1984).The Government and the Bank are discussing possible measures toaccelerate project completion and restore the company to aviable financial position.

1152 COSIPA Steel Expansion Project - Stage III: US$60.0 million loanof August 4, 1975; Effective Date: March 4, 1976; Closing Date:December 30, 1983. Government approved budgets for the companyindicate that spending on the project in 1982 will be cut by 40%in real terms below last year's levels. As a result, work on theproject is expected to stop by July 1982. The company also remainsin a poor financial situation, with a year-end 1981 current ratio of0.45, debt-equity ratio of 55:45, and debt service coverage of 0.6times. A supervision mission visited Brazil in March and stronglyreiterated the Bank's request that the Government provide additionalfunds (or allow COSIPA to increase its long-term borrowings) tocomplete the project by October 1984 (the earliest now possible) andto restore the company's current ratio to 1.0 times by year-end 1982with full compliance on all financial covenants to be met by end-1984).The Government and the Bank are discussing possible measures toaccelerate project completion and restore the company to a viablefinancial position.

- 33 -

ANNEX IIPage S of 14

1153 Lower Sao Francisco Polders Project: US$23.0 million loan ofAugust 4, 1975; Effective Date: November 25, 1975; Closing Date:December 31, 1982. The Bank agreed to a CODEVASF proposal toreplace works previously planned for certain areas with therehabilitation of works in several flood plain areas whichsuffered heavily from floods in 1979. With respect to theproject works, construction of the irrigation and drainagesystem and settlement in the Betume flood plain has beendelayed by the unexpected need to construct a new small damto control floods in a tributary river. Roads recentlyconstructed by the Government in the area of Brejo Grande floodplain are acting as control dikes for irrigation purposes, sopreviously planned project works may be excluded from the project.

1171 Third Railway Project (FEPASA): US$75.0 million loan of November 12,1975; Effective Date: March 24, 1976; Closing Date: September 30,1983. The implementation of the project, as redefined to take intoaccount FEPASA's weak financial position in 1976-78, is improving.Completion is estimated for mid-1983. FEPASA's operations continueto improve significantly. The railway has reduced its operatingcost in the past year mainly due to reduction in staff and improve-ment of train operations.

1195 Rio Grande do Norte Rural Development Project: US$12.0 million loanof March 1, 1976; Effective Date: July 30, 1976; Closing Date:September 30, 1982. Phase I of this project ended satisfactorilyin the areas of extension, credit, applied research, and health,although one year behind the original schedule. The design ofPhase II, extended project activities to new municipalities,sharpened the project's focus on the lowest income farmers, andincluded new components in the areas of marketing, storage, supportto cooperatives, land services, seed production, and inland fisheries.Serious droughts in the last three years, coupled with delays in therelease of funds, have slowed down the implementation of Phase II,but activities related to land, inland fisheries, and to increasingsmall farmers' resistance to drought through small-scale irrigationmethods, have recently shown good progress.

1207 Secondary and Feeder Roads Project: US$55.0 million loan ofMarch 1, 1976; Effective Date: July 13, 1976; Closing Date:June 30, 1982. The loan was fully committed by mid-1980 for16 subprojects in 12 states. Because of implementation delaysand constant devaluation of the ORTN, the monetary unit in whichsubloans are denominated, a major reformulation was necessary torestore BNDE/DNER/IBRD participation to its initial level. Under-taken by mid-1981, the reformulation of the project is now complete,resulting in a reduction of its scope to improvement or constructionof 5,420 km of roads and 62 bridges, and in the provision of aboutUS$23 million from the second Loan (1730-BR) for additional financingof 10 subprojects under the first project. Physical implementationof the project, which had reached 47% at the end of 1981, is nowprogressing well. Disbursements under the first loan are expected tobe completed by the end of 1983.

- 34 -

ANNEX IIPage 7 of 14

1249 Agricultural Research I Project: US$40.0 million loan of June 23,1976; Effective Date: September 21, 1976; Closing Date:December 31, 1982. With the removal of constraints on the levelsof incremental staff, imports of project related equipment andcontrols on the training programs (abroad) for research technicians,the project progressed satisfactorily during 1981 and the rate ofdisbursements rose sharply. Provided the current levels ofcounterpart funding and project implementation are sustained during1982, the project should be completed by about end-1982.

1300 Northeast Power Distribution: US$50.0 million loan of August 27,1976; Effective Date: January 31, 1977; Closing Date: June 30, 1982.Project implementation is about 6 months behind schedule because ofinitial difficulties in obtaining a Government definition regardingparticipation by Brazilian suppliers. Procurement is now progressingsatisfactorily. The agreed targets for connection of low incomehouseholds have been widely exceeded. Substantial improvements inthe management of the project companies have been achieved, partic-ularly in the areas of financial control and planning of COELBA andCELPE.

1302 Nutrition Research and Development: US$19.0 million loan ofOctober 1, 1976; Effective Date: December 30, 1976; ClosingDate: June 30, 1983. An amending Agreement to the Loan andProject Agreements was signed on January 14, 1981. The majorchanges in the project involved the elimination of a credit programfor nutritious foods industries and the incorporation of a programfor the distribution of basic foods to low-income urban families.The reformulated project responds better to the Government'sinstitutional priorities. Since this reformulation, projectoperations have improved substantially. Problems still remainwith the quality of evaluation studies presently carried out andcounterpart funding for these studies. The rate of disbursementshas risen sharply. About 90% of the loan is now disbursed.

1309 Second Minas Gerais Water Supply and Sewerage Project: US$40.0million loan of August 27, 1976; Effective Date: January 18, 1977;Closing Date: September 30, 1982. This loan has been fullycommitted for the financing of subprojects in the metropolitanarea of Belo Horizonte, 38 subprojects for medium sized cities inthe interior, and 138 subprojects for small communities mostly inrural areas of the state. The physical works financed under theproject are about 80% complete. The closing Date was postponedto September 30, 1982.

1317 Second Agro-Industries Credit Project: US$83.0 million loan ofSeptember 22, 1976; Effective Date: March 25, 1977; Closing Date:December 31, 1982. Because of commitment delays under the FirstAgro-Industries Credit Project (Loan No. 924-BR of August 1, 1973,the undisbursed balance of which was cancelled as of December 31,1980), disbursements for the second loan began only in 1981. Theexistence of competing credit lines at subsidized rates and atemporary Government policy of prefixing monetary correction unrelated

- 35 -

ANNEX IIPage 8 of 14

to the actual inflation rate have ended. The Government is now follow-ing a revised monetary correction system under which the level ofindexing more nearly reflects the level of inflation, in line withthe conditions of the Loan Agreement. Arrangements for monitoringthe adequacy of monetary correction were agreed with the Government.The loan is expected to be fully committed shortly.

1343 ELETROSUL Transmission Project: US$82.0 million loan ofFebruary 23, 1977; Effective Date: June 13, 1977; Closing Date:June 30, 1982. The project is about 95% complete and 100% of thecontracts for supply of equipment and materials to be financedunder the loan have been awarded. Project execution is on schedule.The Loan is expected to be fully disbursed by the closing date ofJune 30, 1982.

1362 Minas Gerais Rural Development Project I: US$42.0 million loan ofFebruary 23, 1977; Effective Date: June 29, 1977; Closing Date:June 30, 1983. This project is progressing satisfactorilyafter initial delays. Participation in this project by landlessproducers was initially lower than originally envisaged, butconcerted efforts by the state government and the participatingbanks have improved this situation markedly. A postponement ofthe closing date by 18 months, and a reallocation of loanproceeds to incorporate marketing, road improvement, and watersupply activities, have been agreed.

1406 Sergipe Fertilizer Project: US$64.0 million loan of April 29, 1977;Effective Date: August 31, 1977; Closing Date: May 31, 1982.Construction of plant buildings and erection of equipment are welladvanced, but some delays have been experienced in delivery oflocally ordered equipment which may delay the project completiondate by about eighteen months. Commercial production is nowexpected to begin in October 1982. The costs to complete theproject are expected to be about 15% below the appraisal estimate.

1411 VALEFERTIL Phosphate Fertilizer Project: US$82.0 million loan ofApril 29, 1977; Effective Date: July 29, 1977; Closing Date:June 30, 1982. The project has been in operation from August 1980.During this period it achieved an average capacity utilization of81% for sulfuric acid, 55% for MAP and 37% for TSP. Several plantmodifications have been carried out to improve performance of MAPand TSP plants. Market constraints following revised creditpolicies and fertilizer price increases in early 1981 have affectedproduction of finished products by about 20%.

1452 Vocational Training Project: US$32.0 million loan of September 7,1977; Effective Date: April 5, 1978; Closing Date: June 30, 1985.The loan was amended on March 26, 1982, subsequent to a projectreformulation required by: (a) reduction in counterpart fundsaffecting one component, and (b) difficulties encountered inacquiring suitable sites for a number of centers. The presidentialdecree approving the legal and financial definition of SENAR wassigned, which now permits this component to be fully implemented.

- 36 -

ANNEX IIPage 9 of 14

1488 Ceara Rural Development Project: US$17.0 million loan ofNovember 17, 1977; Effective Date: March 28, 1978, Closing Date:December 31, 1982. The project is proceeding satisfactorily.Agricultural extension has been particularly successful in reach-ing target farmers, and initial land purchases for a first smallgroup of farmers have been made. Agricultural credit has sufferedfrom shortages of local bank funds. Physical and social infra-structure is proceeding well, although there are some difficultiesin administering the health component and delays in carrying out thewater supply program. A state proposal to reformulate certain re-maining aspects of the project and to extend the Closing Date isunder consideration.

1525 Greater Sao Paulo Sewage Collection and Treatment Project: US$110.0million loan of March 10, 1978; Effective Date: August 7, 1978;Closing Date: September 30, 1984. Physical execution of theproject components financed by the Bank is on schedule; however,because of financial constraints the pace of execution is slow forthose project components not financed by the Bank. Three importantmunicipalities whose facilities are not operated by the executingagency are not building the necessary sewage collectors to connectto one of the treatment plants being built under the project. Thisproblem has been raised with the Brazilian authorities and isexpected to be solved soon. Project completion is expected to bedelayed by about two years.

1537 Paraiba Rural Development Project: US$24.0 million of May 8, 1978;Effective Date: October 19, 1978; Closing Date: September 30, 1983.While financial and managerial problems created significant delaysin project implementation over the past two years, the situationhas improved since the recent reorganization of the project adminis-tration. Several components, such as land tenure services, non-farm rural enterprises, and agricultural credit, show encouragingprogress. Preliminary plans are currently developed toward modify-ing the land, marketing and health components, and to expand theproject area for selected project activities.

1538 South-Southeast Power Distribution Project: US$130.0 million loanof May 8, 1978; Effective Date: September 14, 1978; Closing Date:December 31, 1982. Disbursements were initially delayed by aboutone year due to necessary revisions of the beneficiaries' construc-tion programs caused by changes in the power market, reluctance bytwo of the beneficiaries to contract consultants as agreed, andprocurement delays. Initially there were also delays in projectexecution due to low tariff levels and insufficient counterpartfunds. In July 1981, ELETROBRAS arranged for the required counter-part funds to be provided and in September 1981 the Governmentagreed with the Bank to increase tariffs to appropriate levels sothat these projects can now proceed satisfactorily.

- 37 -

ANNEX IIPage 10 of 14

1557 Sixth Highway Project: US$114.0 million loan of May 8, 1978;Effective Date: October 13, 1978; Closing Date: December 31, 1982.Rehabilitation of highways foreseen under the project proceededsatisfactorily to mid-1980, when works were suspended becauseof financial constraints imposed by the federal government. However,these problems have been recently corrected and project executionhas been resumed. The maintenance program in the state of Paranais progressing well. The second phase of the weighing stationprogram will not begin until the first phase (under Loan 1075-BR)has been completed and the effects monitored. The Project is being

* reformulated to reflect current priorities. Project completioncould be delayed by two years.

1562 COPESUL Petrochemical Project: US$85.0 million loan of July 6, 1978;Effective Date: October 30, 1978; Closing Date: June 30, 1983.Project implementation is proceeding well with an overall completionratio approaching 75%. Commencement of commercial operations isexpected in October 1982. The anticipated cost to complete theproject is presently running about 7% below the original estimate.

1563 Urban Transport Project: US$88.0 million loan of May 22, 1978;Effective Date: September 1, 1978; Closing Date: June 30, 1983.This project is progressing satisfactorily although progressinitially varied widely among the five cities involved. Theproject has been partially reformulated to delete certain itemswhose implementation was no longer justified as originally envisagedat appraisal, or could not be physically completed by the revisedproject completion date, December 31, 1982. At the same time, somenew items have been included to achieve the project's objective, whichis improvement of the delivery of urban transport services in severalcities. The Closing Date has also been postponed to June 30, 1983.

1568 Agricultural Extension Project: US$100.0 million loan of May 22,

1978; Effective Date: September 22, 1978; Closing Date: June 30,1984. The executing agency, EMBRATER, continues to work closelywith state/territory agencies to achieve adequate project implementa-tion. The Project Coordination Unit has been effective, and projectexecution proceeded satisfactorily during 1981. The Closing Datehas been postponed from December 31, 1982 to June 30, 1984, inpart to allow additional time to achieve planned levels of incre-mental staffing, fellowships for staff training, and use ofconsultants. However, at least a partial exemption to recentlyre-imposed Government hiring restrictions will need to be arrangedby EMBRATER to prevent a serious slow-down in project development.Overall, the remaining project activities appear to be proceeding

reasonably well.

1589 Bahia Rural Development Project: US$37.0 million loan of July 19,1978; Effective Date: December 5, 1978; Closing Date: December 31,1983. The pace of project execution is now satisfactory, and delaysin funding have been reduced. Extension and land titling serviceshave been improved, but lack of land purchase credit is hamperingthe balanced progress of the project. The quality of feeder road

- 8S -

ANNEX IIPage 11 of 14

construction has been uneven, but supervision of construction isbeing strengthened. The health component is proceeding smoothly;however, the education and water supply components are far behindschedule.

1654 Sites and Services and Low-Cost Housing Project: US$93.0 millionloan of February 8, 1979; Effective Date: July 9, 1979;Closing Date: December 31, 1983. Housing targets are being met anddifficulties which had been encountered in meeting the sites andservices targets have been overcome. The Bank has approved aproposal that will offer a solution to the problems which havecaused slow progress in this project and an amendment to the LoanAgreement has recently been signed.

1656 Northeast Water Supply and Sewerage Project: US$100.0 millionloan of February 8, 1979; Effective Date: July 10, 1979, ClosingDate: June 30, 1983. The National Housing Bank has approved thefive year investment program of the project water companies for theperiod 1980-1984. The first subprojects for the capital cities havealso been approved and construction is underway. Due to inherentweaknesses in the State Water Company, the project may be completedwith about a one-year delay.

1660 Valesul Aluminum Project: US$98.0 million loan of March 7, 1979;Effective Date: August 6, 1979; Closing Date: July 31, 1982.The Loan Agreement has been amended to cancel US$19.2 million ofthe loan which will not be utilized. Construction is 99% complete,and training pots were started in January 1982. There is a costoverrun of about 8%. The shareholders are preparing an actionplan to finance project completion and start-up losses during 1982,which are expected due to very low aluminum prices.

1714 Sergipe Rural Development Project: US$26.0 million loan ofJune 20, 1979; Effective Date: February 5, 1980; Closing Date:September 30, 1984. Reasonable progress is being made withmost project components. Extension services achieved veryclose to first year targets and exceeded second year targets.The land titling and colonization components are progressingmore slowly, but remedial action is beginning to show results.The management of the project has become quite effective, andthe monitoring and evaluation of project results is proceedingsatisfactorily.

1720 Medium-Sized Cities Project: US$70.0 million loan of June 20, 1979;Effective Date: May 2, 1980; Closing Date: December 31, 1983.After a slow start, the project is now proceeding satisfactorily.

1721 COPEL Second Power Distribution Project: US$109.0 million loan ofJune 20, 1979; Effective Date: November 21, 1979; Closing Date:June 30, 1983. Project implementation is about six months behindschedule because the Borrower postponed procurement pending loaneffectiveness. The Borrower is, however, accelerating procure-ment and the project is expected to be completed on schedule.

39 ANNEX IIPage 12 of 14

1728 Pernambuco Rural Development Project: US$40.0 million loan ofJune 20, 1979; Effective Date: February 5, 1980; Closing Date:December 31, 1984. The project's start-up period was longerthan expected, in part due to delays in the release of federalfunds. Project administration has improved but further improve-ments in coordination among the entities involved in execution isstill needed. The agency responsible for the village water supplycomponent has not performed adequately and is being replaced byanother entity. The recommendations of the land tenure study arestill under review in the state.

1729 Sao Francisco Second Irrigation Project: US$28.0 million loan ofJune 20, 1979; Effective Date: January 23, 1980; Closing Date:June 30, 1986. While previously initiated civil works haveproceeded satisfactorily, local funding shortfalls and technicalproblems emerging in the detailed design of project works for theBoacica sub-area have slowed project progress. The infrastructurebeing developed by the Government outside the project in theBrejo Grande sub-area may lead to the dropping from the project ofpreviously planned irrigation and drainage investments there. Themonitoring unit has been installed and is now operational.

1730 Second Feeder Roads Project: US$110.0 million loan of June 20,1979; Effective Date: December 17, 1979; Closing Date:December 31, 1986. The Second Feeder Roads Project providescontinuity to the program started under Loan 1207-BR. The loanis now fully committed for 16 subprojects in 15 states, totallingimprovement or construction of 4,790 km of roads and 239 bridges.Physical implementation is on schedule. Disbursements havereached US$10 million by the end of March 1982, which is in linewith appraisal estimate. Completion is scheduled for June 30, 1986.

1822 Sao Paulo Industrial Pollution Control Project: US$58.0 millionloan of April 14, 1980; Effective Date: January 15, 1981; ClosingDate: March 31, 1984. The project is experiencing some initialdelays, due mainly to long lead times in developing specific engi-neering solutions to the pollution problems of individual industrialconcerns, but the first subprojects have begun to reach the Bank.

1823 Southern States Water Supply and Sewerage Project: US$130.0million loan of April 14, 1980; Effective Date: October 8, 1980;Closing Date: June 30, 1983. After initial delays, the projectis now advancing at a good pace and is expected to be completed bythe end of 1984.

1824 CEEE Power Distribution Project: US$114.0 million loan of April 14,1980; Effective Date: July 15, 1980; Closing Date: September 30,1984. After some initial delays, project implementation is nowproceeding satisfactorily.

1839 Second Urban Transport - Porto Alegre Project: US$159.0 millionloan of June 2, 1980; Effective Date: December 9, 1980; ClosingDate: December 31, 1984. The project is proceeding satisfactorily.Some problems concerning procurement have somewhat delayed theimplementation and procurement schedule.

- 40 -

ANNEX IIPage 13 of 14

1850 Third Minas Gerais Water Supply and Sewerage Project: US$139.0 millionloan of July 18, 1980; Effective Date: May 28, 1981; Closing Date:June 30, 1985. This project is proceeding satisfactorily. Mostworks are already committed, and physical execution is progressingon schedule.

1867 Northeast Basic Education Project: US$32.0 million loan of July 18,1980; Effective Date: May 12, 1981; Closing Date: September 1, 1985.Project implementation is delayed by about nine months due to delayin effectiveness and in transferring resources to project statesduring Calendar year 80. Part of the delay is expected to be madeup for during Calendar year 81 and Calendar year 82. A substantialimpact evaluation effort being mounted as part of this projectshould yield knowledge of educational determinants vital to otherwork in the education sector.

1877 Minas Gerais Second Rural Development Project: US$63.0 millionloan of September 15, 1980; Effective Date: December 16, 1980;Closing Date: December 31, 1985. The project is proceedingsatisfactorily. However, previous plans for co-financing havefallen through and the availability of local counterpart funds hasslowed project implementation.

1895 ELETROSUL Second Power Transmission Project: US$125.0 millionloan of October 6, 1980; Effective Date: December 16, 1980;Closing Date: December 31, 1984. The project is proceedingsatisfactorily.

1924 Ceara Second Rural Development Project: US$56.0 million loan ofJanuary 14, 1981; Effective Date: July 7, 1981; Closing Date:December 31, 1985. The project is proceeding satisfactorily.

1939 Electric Power System Coordination: US$54.0 million loan ofJanuary 14, 1981; Effective Date: August 5, 1981; Closing Date:December 31, 1985. The project is proceeding satisfactorily.Procurement is in progress.

1965 Third Urban Transport Project: US$90.0 million loan of June 5, 1981;Effective Date: October 20, 1981; Closing Date: June 30, 1985.Some delays have occurred in the appraising of the remaining AGLURBcities. Corrective measures have been taken to bring this componentback to its original schedule during the recent supervision mission.The pavement program in low-income areas (PROPAV), and the institu-tional component are progressing satisfactorily.

1970 Multi-State Water Supply and Sewerage Project: US$180.0 millionloan of May 18, 1981; Effective Date: December 15, 1981; ClosingDate: June 30, 1985. Project execution is advancing satisfactorilyand no majot delays are envisaged.

- 41 -

ANNEX IIPage 14 of 14

1989 Alcohol and Biomass Energy Development Project: 'JSS250.0 millionloan of June 12, 1981; Effective Date: November 10, 1981;Closing Date: June 30, 1985. All ports of the program areprogressing satisfactorily, although the production componentmay suffer temporary delays due to financial stringency at thenational level.

2015 Piaui Rural Development Project: US$29.0 million loan of August 10,1981; Effective Date: February 5, 1982; Closing Date: December 31,1986. Although project start-up has been somewhat delayed becauseof the late arrival of funds for the first quarter, implementationis thus far proceeding satisfactorily. Good progress has beenachieved in hiring staff and consultants, and in the land redis-tribution program. Overall, project administration is function-ing well. Start-up difficulties have slowed progress in small-scaleirrigation, water supply, and the establishment of the State LandInstitute; design and procurement procedures employed for ruralroads need strengthening.

2016 Second Agricultural Research Project: US$60.0 million loan ofJuly 8, 1981; Effective Date: December 8, 1981; Closing Date:December 31, 1987. Minor start-up delays have occurred as aresult of less than optimal counterpart funding. Also, recentGovernment restrictions on hiring are necessitating specialarrangement by EMBRAPA of exceptions.

- 42 -

ANNEX IIIPage 1 of 3

BRAZIL

MARANHAO RURAL DEVELOPMENT PROJECT

SUPPLEMENTARY DATA SHEET

Section I - Timetable of Key Events

(a) Time taken to prepare project: 16 months

(b) Agency which prepared project: State of Maranhao withassistance of INCRA and COLONE

(c) First presentation to the Bank: April 1980

(d) First mission to review project: June 1980

(e) Departure of Appraisal Mission: August 1981

(f) Completion of negotiations: May 7, 1982

(g) Planned date of effectiveness: September 1982

Section II - Special Bank Implementation Action

None.

Section III - Special Conditions

(a) Agreements to settle the claims of irregular occupiers ofover, 60 ha in the Alto Turi area to be reached not later thanDecember 31, 1983 (para. 42, Section 2.01(b) of the COLONEProject Agreement);

(b) Satisfactory model plans for interim management of landsrecovered and for redistribution and for payment options forrecipients of land would be provided by November 30, 1982 (para.42, Section 3.01(d) of the Loan Agreement, Section 2.01(c) of theState Project Agreement, and Section 2.01(b)(v) of the COLONEProject Agreement);

(c) INCRA would maintain an agreement to provide technical assistanceto ITERMA for the duration of the project (para. 42, Section2.01(d)(iv) of the State Project Agreement);

(d) Annual achievements under the land component would be no lessthan agreed minima and agricultural land recovered throughthe project would be used exclusively for project objectives(para. 42, Section 3.01(e) of the Loan Agreement, Section2.01(c)(v) of the State Project Agreement, and Section2.01(b)(iv) of the COLONE Project Agreement);

- 43 -

ANNEX IIIPage 2 of 3

(e) Input supply agency would hire a consultant to assist inimproving its administrative capacity and state would providesatisfactory details of the management and cost-recovery criteriaprior to construction of stores (para. 46, Section 2.01(e) of theState Project Agreement);

(f) Detailed plans for the protection of forest reserves and for theimplementation of reforestation programs would be presented(para. 48, Section 3.01(f) of the Loan Agreement);

(g) The state road agency would provide adequate and trainedpersonnel for maintenance of project financed equipment, andwould enter into road maintenance contracts with municipalitiesprior to beginning construction with the exception that for worksbeginning in calendar year 1982 such agreements would be requiredas of September 30, 1982 (para. 50, Section 2.01(g) of the StateProject Agreement);

(h) Recommended measures for improving health administration would beimplemented by June 30, 1983, and disbursement for the healthcomponent is conditioned on completion of staffing of regionaloffices and health units, and establishing urgently neededdiagnostic facilities for tuberculosis and leprosy in the Baixada(para. 52, Section 2.01(i) of the State Project Agreement);

(i) Beneficiaries of the water supply construction program would forma user association prior to construction to help cover operationand maintenance charges (para. 52, Section 2.01(j) of the StateProject Agreement);

(j) Adequate credit for working capital and investment will beprovided by the Federal Government on a timely basis (para. 54,Section 4.01 of the Loan Agreement and Section 2.07 of the StateProject Agreement);

(k) Government would ensure that measures to protect two Amerindian* reserves near the project would be carried out (para. 55, Section

4.07 of the Loan Agreement);

A (1) In its plans and programs for expanding the provision of supportservices and rural infrastructure the state would give priorityto the subproject municipalities not covered by the Vale do MedioMearim project, and the Bank would be allowed to exchange viewswith the state on plans for the ongoing subproject prior toimplementation (para. 56, Section 4.03 of the Loan Agreement);

- 44 -

ANNEX IIIPage 3 of 3

(m) Project accounts and the Special Account in the Central Bank willbe audited by independent auditors satisfactory to the Bank(para. 66, Sections 4.05 and 4.06 of the Loan Agreement, Section2.11(a) of the State Project Agreement and Section 4.02(a) of theCOLONE Project Agreement);

(n) Conditions of effectiveness are that at least ten thousandhectares of land (including lands claimed by 3 of the 15 largestirregular occupiers) in sub-area one of the Alto Turi sub-project would have been recovered and that the respective sub-project land funds would have been established (para. 41, Section6.01(b) and (c) of the Loan Agreement).

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