Document of FILE The World Bank FIL ' FOROFFICIAL USE ONLY Rq.W No. P-277 2-PAN REPORT AND RECOMMENDATION OF THE PRESIDENTOF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC OF PANAMA FOR THE COLON URBAN DEVELOPMENT PROJECT May 30, 1980 This dount has a rerted dirbuts ad may be usd by recipknts only i the peWmxn of I Ithr dal dutdes. Its ce..ts may not otherwe be disdlood withou Wodd Bank auterddtlm. Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized
Transcript
Document of FILE The World Bank FIL '
FOR OFFICIAL USE ONLY
Rq.W No. P-277 2-PAN
REPORT AND RECOMMENDATION
OF THE
PRESIDENT OF THE
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT
TO THE
EXECUTIVE DIRECTORS
ON A
PROPOSED LOAN
TO THE
REPUBLIC OF PANAMA
FOR
THE COLON URBAN DEVELOPMENT PROJECT
May 30, 1980
This dount has a rerted dirbuts ad may be usd by recipknts only i the peWmxn of IIthr dal dutdes. Its ce..ts may not otherwe be disdlood withou Wodd Bank auterddtlm.
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CURRENCY EQUIVALENTS
Currency Unit = Balboa (B/. 1)US$1 = B/. 1
Note: The issue of Balboas is restricted to coins;the U.S. dollar (US$) is accepted as currency.
FISCAL YEAR
January 1 - December 31
UNITS AND MEASURES
1 meter (m) = 3.28 feet (ft)1 kilometer (km) 2 = 0.62 mile (mi)1 square kilometer (km ) = 0.386 square mile (sq mi)1 metric ton (m ton) = 1.1 US short ton (sh ton)
ABBREVIATIONS
APN - Autoridad Portuaria Nacional (National Port Authority)BNP - Banco Nacional de Panama (National Bank of Panama)BLADEX - Banco Latinoamericano de Exportaciones (Latin American Export Bank)
Caja - Caja de Ahorros (Savings Bank)CFZ - Colon Free Zone (Free Zone)COFINA - Corporacion Financiera Nacional (National Finance Corporation)GDP - Gross Domestic ProductGNP - Gross National ProductIBJ - Industrial Bank of Japan, LimitedIDAAN - Instituto de Acueductos y Alcantarillados Nacionales
(National Water and Sewerage Institute)IDB - Inter-American Development BankIFC - International Finance CorporationINAC - Instituto Nacional de Asuntos Culturales
(National Cultural Institute)IRHE - Instituto de Recursos Hidraulicos y Electrificacion
(Institute of Hydraulic Resources and Electrification)LIBOR - London Inter-Bank Offer RateMIPPE - Ministerio de Planificacion y Politica Economica
(Ministry of Planning and Economic Policy)MIVI - Ministerio de Vivienda y Urbanismo (Ministry of Housing)MOE - Ministerio de Educacion (Ministry of Education)MOP - Ministerio de Obras Publicas (Ministry of Public Works)RENARE - Instituto de Recursos Renovables
(National Parks Authority)USAID - United States Agency for International Development
FOR OFFICIAL USE ONLYPANAMA
COLON URBAN DEVELOPMENT PROJECT
LOAN AND PROJECT SUMMARY
Borrower: Republic of Panama
Amount: US$35 million equivalent
Terms: Payable in 17 years including 4 years of grace at aninterest rate of 8.25 percent per annum.
Co-lenders: Private banks led by the Industrial Bank of Japan,Limited (IBJ).
Project The Project is divided into five major sub-projectsDescription: as follows:
(1) Urban Employment: extension by 35 ha of the ColonFree Zone's existing 57 ha duty-free commercial area,and first phase (35 ha) of a general purpose industrialestate catering primarily to assembly operations andlight manufacturing.
(2) Urban Renewal: construction of a retail mall and abus terminal.
(3) Housing and Social Services: urbanization of a 118 hasite (Puerto Escondido) and construction of 4,025dwelling units (about 300 in downtown Colon and theremainder in the Puerto Escondido); construction ofcommunity facilities in Puerto Escondido, and provisionof home improvement credits.
(4) Regional Infrastructure: improvements of the Port ofCristobal; improvements of the Colon access section ofthe Panama City-Colon Highway; establishment of aregional education center and construction of recrea-tional facilities to serve Colon.
(5) Technical Assistance: consulting and extension servicesrelated to the regional development program, projectmonitoring and evaluation, urban transport operationsmanagement, port and railway development and profes-sional development.
About 4,000 low-income families would benefit from thehousing component and about 8,000 new jobs would becreated by the Free Zone expansion. These two figuresare not additive since substantial overlap between thetwo components is expected.
This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be disclosed without World Bank authorization.
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Estimated Cost: ---- US$ millions------ % ForeignLocal Foreign Total Exchange
A. Urban Employment
Commercial Estate 4.16 10.19 14.35 71Industrial Estate 7.33 5.31 12.64 42Interest during Construction 6.58 5.22 11.80 44
Rate of Return: 21 percent for those components of the project whichhave readily quantifiable benefits and which represent
87 percent of project costs.
Staff AppraisalReport: Report No. 2903-PAN of May 20, 1980.
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT
REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE IBRDTO THE EXECUTIVE DIRECTORS ON
A PROPOSED LOAN TO THE REPUBLIC OF PANAMAFOR THE COLON URBAN DEVELOPMENT PROJECT
1. I submit the following report and recommendation on a proposedloan to the Republic of Panama for the equivalent of US$35 million to helpfinance the Colon Urban Development Project. The loan would have a term of17 years, including a four-year grace period, with interest at 8.25 percentper annum. The Project would be co-financed by a group of banks led by theIndustrial Bank of Japan, Limited (IBJ). Private bank participation wouldbe for a total of US$70 million which would be arranged through a series ofloans. The private bank loans would be to the Colon Free Zone, with theguarantee of the Republic of Panama.
PART I - THE ECONOMY
2. A report entitled "Panama's Development in the 1980's: A SpecialEconomic Report" (2306-PAN) was distributed to the Executive Directors onJuly 31, 1979. Country data sheets are attached as Annex I.
3. Between 1955 and 1973 GDP grew at an average annual rate of 7 per-cent. Services, manufacturing and construction were leading sectors, theirgrowth being stimulated by the buoyancy of world trade, the emergence of Panamaas a regional banking center, and a strategy of industrial import substitu-tion. In contrast, the average annual rate of growth since 1973 has beenabout 2 percent, and real per capita GDP has fallen. Panama's open economyhas been seriously affected by the sharp rises in petroleum prices since1973, and by the recession in international trade in 1974-75 and its slowpace of recovery thereafter. Preliminary estimates suggest that recentlythere has been a mild recovery in the economy, with growth reaching 3.7 percentin 1978 and 4.9 percent in 1979. This recovery has been associated with in-creasing activity in the services and construction sectors.
4. The Government's three main concerns since 1968 have been toeliminate rural poverty, to increase national control over the economy,including the Panama Canal, and to create new sources of economic growth andexports. Social programs in health and education were extended to most areas,and an agrarian reform program was initiated. Major investments were under-taken in transport, tourism, international commercial infrastructure, watersewerage, and power, mostly to provide support for expected private activities.Power and most of telecommunications facilities were nationalized. New Stateenterprises were created for export crops such as sugar, citrus, and bananas;and a State-owned cement plant was built. Self-sufficiency in basic food-stuffs such as rice, corn, and beans was also accorded high priority.
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5. The Government's social programs have had considerable success in
enhancing the quality of life in Panama, especially as reflected in mortality,health and educational indicators. Infant mortality declined by 20 percent
between 1968 and 1976, while fertility rates fell from 131.3 per thousand in
1971 to 114.0 per thousand in 1975. Access to potable water for the ruralpopulation increased from 43 percent in 1970 to 63 percent in 1976. The
proportion of the population enrolled in schools of all types increased from
less than one-quarter to over one-third between 1968 and 1978. Despite theseachievements, estimates indicate that some 21 percent of the urban and about
30 percent of the rural population continue to live in severe poverty with
access to employment being inadequate to ensure satisfactory nutritionalintake and decent housing.
6. The Government's economic programs, especially those involving directproduction and incentives to the private sector, have had mixed results.
Agricultural production programs have led to self-sufficiency in rice buthave had less impact on output of beef, milk, and beans. State production
of sugar has increased exportable output but the enterprise has operated un-profitably. State enterprises in cement and tourism have also been unprofit-able and together with that of the sugar operations their deficit has been a
continuing burden on the fisc. On the other hand, some projects like the
Colon Free Zone and hydro-electric installations have been quite success-ful, in the first case by increasing earnings from export of services, and in
the second by reducing the burden of rising petroleum costs. The climate forprivate investment has been affected by uncertainties relating to Governmentlabor policies and by widespread price controls on consumer goods.
7. The high level of outlays for economic and social infrastructure
coupled with the substantial losses of State enterprises resulted in significant
increases in the public external debt, despite periodic efforts to strengthen
the public finances. The public sector deficit increased from 4.6 percent of
GDP in 1970 to 18.5 percent of GDP in 1976. Measures taken in 1977--new taxes(including a 5 percent value added tax), significant increases in utility rates,
and a freeze of civil service salaries-- reduced the deficit to 13.4 percent
of GDP in that year. However, in 1978, the public sector deficit rose to 15.4
percent of GDP due to a faster rate of project implementation, higher interest
costs, increased outlays under an emergency employment program introduced
late in 1977, and the increased deficit of the state sugar operations. In 1979the deficit fell to 11.1 percent of GDP largely as a result of a reduction in
investment. In spite of the improvement, the actual deficit was slightly abovethat expected by the Government and the ceiling established in an IMF StandbyAgreement. Increased revenues were offset by higher interest and oil costs,thereby continuing the virtual absence of public sector savings during recent
years. Deficits of State enterprises in sugar, cement and tourism continuedto weigh heavily in public sector finances.
8. At the end of 1978, Panama's disbursed external public debt was
US$1.9 billion or just over 80 percent of GDP. Loans from commercial financial
institutions and suppliers' credits accounted for 65 percent, the remainder
being equally divided among multilateral, bilateral, and bond holding sources.During 1979 the disbursed public external debt rose by an estimated US$193million. Public external debt service in relation to GDP has been estimated
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at 13 percent in 1979 compared to 7 percent in 1977; and in relation to public
revenues has been estimated at 37 percent in 1979 compared to 27 percent in
1977. These reflect both the rapid growth in the debt and the impact of
recent increases in the interest cost of debt held by commercial sources at
floating rates tied to 7 IBOR. Because of Panama's unique financial structure,
characterized by the absence of a Central Bank and by the use of the U.S. dollar
for domestic transactions, foreign exchange flows into and out of the economy
are unrestricted. Capital flows are ever. more important than export earnings
in determining the availability of funds for servicing the external debt of
the economy. The Government's ability to service the public debt ultimately
depends on its ability to generate savings in the public sector or marshall
new borrowings to refinance payments on past ones.
9. Early in 1980, the Government of Panama took a series of actions in
an effort to reduce the public sector deficit toward a goal of 8 percent of
GDP in 1980 and 6 percent of GDP in 1981. These measures included increases
in taxes on gasoline and cigarettes and in maritime and corporate registration
fees, improvements in income tax administration and the elimination of income
tax exonerations for shrimp boats and processing plants. Also included were re-
ductions in current and capital transfers to decentralized agencies and public
enterprises, which in turn adjusted or will adjust prices, remove or reduce
subsidies, and/or adjust operations in order to absorb the reduction in
transfers. Already the prices of 19 basic items including milk, bread, and
tomatoes, mostly distributed through the Agricultural Marketing Institute and
rental rates charged by the State Machinery Pool have been increased. Some
profitable agencies, e.g., the telecommunications company and the Colon Free
Zone, have been required to increase their transfers to Central Government.
The emergency employment program--Plan de Urgencia--orginally introduced in
November 1977 with 1,059 workers but which rose to 17,146 by the end of
February, 1980, has been discontinued as of the latter date. In conjunction
with favorable sugar prices which will reduce the deficit of the state sugar
company, and a major increase in canal revenues, these measures appear suffi-
cient to realize the targetted reduction in public sector deficit for 1980,
despite pressure of rising salary, interest, and energy costs. However, the
1981 target may be difficult to achieve without specific action to reduce the
chronic operating deficits of State enterprises. The Government is investigat-
ing the possible sale of its cement plant and is committed to seeking ways to
rationalize sugar operations after the current crop ends in June. The Inter-
national Monetary Fund will be supporting the Government's economic program
with a two-year standby, under which Panama will become eligible for support
amounting to US$130 million.
10. Given the need to restrain the growth of the public external debt
and the poor prospects for increasing public savings substantially it is
unlikely that public investment can provide the major impulse to Panamanian
growth within the near and intermediate future. The strategy for recovery
and growth of the economy now requires that private capital and entrepreneurs
provide the buoyancy in economic activity which the Government can no longer
provide. New opportunities have indeed been created for the private sector.
The high level of public investment over the years has provided an expanded
physical infrastructure and a relatively skilled labor force. Investments
in hydropower are reducing Panama's dependence on increasingly-expensive
imported petroleum. Tax incentives and financing facilities for industry arereadily available. In agriculture, recent increases in support prices andprovision of credit facilities are designed to realize the potential forincreased production and exports of bananas, grass-fed beef, fresh fruit,cocoa, and coffee, and for replacing imports of vegetable oils and dairyproducts in local consumption.
11. The prospects for growth also depend on the use of land and facili-ties reverting to Panama and on the higher earnings to be received by Panamaunder the new Canal Treaty. Implementation of the treaty began on October 1,1979 and will be completed on December 31, 1999, when the Canal and allancillary facilities will revert to Panama. Already the ports of Balboa andCristobal, two abandoned airfields, much valuable land, and most serviceoutlets of the former Panama Canal Company's supply division have reverted toPanama. The reverting land makes even more feasible a spatial orientationin development strategy which emphasizes the metropolitan area, boundingthe Canal and traversing the isthmus from the Atlantic to the Pacific, as thebest site for activities to take advantage of Panama's excellent geographiclocation. The Government is actively planning the conservation and furtherdevelopment of infrastructure in this area for expanded private sector activi-ties which would generate employment, revenues and rents adequate to pay forthese public investments.
12. Although the longer-term outlook for the Panamanian economy seemsfavorable, given its geographic advantages, a low population/land ratio, andlarge hydroelectric potential, the medium-term outlook will depend on thepublic policy approach to certain critical domestic issues and on the perfor-mance of the international economy, specifically regarding trade, financialmediation and other services. The critical domestic issues include the growthof the public external debt, the relative roles of the public and privatesectors, and the climate for private investment--especially as regards pricesand wages policies. The Government is now keenly aware of these issues. Ithas developed and is continuing a dialogue with businessmen, and has recognizedthe need for a more flexible approach to price control and the need to reduceits direct involvement in activities which not only compete with the privatesector, but often operate at a loss. Recently it has acted decisively toreduce the public sector deficit and slow the growth of the public externaldebt. The effect of these actions will be reinforced should the recentresurgence in growth continue. The Bank will be monitoring the impact ofrecent measures and is continuing a dialogue with the Government as it seeksto reduce the losses of public enterprises, while encouraging higher growth andgreater employment. On the basis of the fiscal measures recently taken by theGovernment, its open and frank participation in a dialogue with the Bank, andthe favorable longer-term outlook, we consider Panama creditworthy for Banklending, provided it abides by the targets it has set itself in the fiscaladjustment program for 1980 and 1981.
PART II - BANK GROUP OPERATIONS
13. The Bank has to date made nineteen loans to Panama totalling US$278.2million (net of cancellations). Of these, nine loans for US$107.4 million,are fully disbursed (two for roads totalling US$13 million; one for an airport
project for US$20 million; three for agriculture totalling US$4.4 million, twofor power for US$46 million and one for ports for US$24 million). Ongoingoperations include two projects for livestock credit; one for fisheries; onefor development of tropical trees, one in development banking; three in thepower sector (for generation, transmission and distribution); a project tohelp develop the water supply and sewerage sector; and one for highway mainte-nance. The most recent loan, for a power distribution project, was approvedby the Executive Directors in December 1979. Execution of Bank-financedprojects has, on the whole, been satisfactory, although delays and costoverruns occurred particularly with respect to the Tocumen Airport and theSecond Power Projects, both of which have now been completed.
14. IFC has made three investments in Panama. The first was a commitmentin 1971 to acquire US$0.3 million of equity in the Corporacion de DesarrolloHotelero, S.A. and to lend to the Corporacion US$1.2 million to build a newinternational hotel. This project was satisfactorily completed. The secondis a commitment approved by the Executive Directors in December 1977 to lendUS$2.4 million and acquire US$1.4 million in equity in Vidrios de Panama, S.A.,the first glass container factory in Panama. The project has been completed andoperations were recently initiated. The third is a commitment to acquire US$2.5million in equity in the Banco Latinoamericano de Exportaciones (BLADEX), aregional export bank proposed and promoted by the Government of Panama. AnnexII contains a summary statement of Bank loans and IFC investments as of April30, 1980, and notes on the execution of ongoing projects.
15. Bank lending to Panama is designed to support the Government'sdevelopment strategy particularly as regards the further development ofPanama's service industries and the diversification of production andexports. Specifically, the Bank assists those sectors in which it can makea special contribution in terms of (i) developing policies and institutions,(ii) removing infrastructure bottlenecks, and (iii) better utilizing thecountry's natural resources. In addition, we hope to assist the Governmentto address the needs which will result from the transfer to Panama of theareas adjacent to the Canal. The project now under consideration provides anintegrated approach to the development of Colon, a city whose growth wasconstrained by its location within the former Canal Zone. Other projectsunder active consideration for Bank lending are a second water supply project,which would support the rehabilitation of the water and sewerage systems indowntown Colon and in Panama City, a project which would assist in therehabilitation of the Canal ports of Cristobal and Balboa and a secondindustrial credit operation. The Bank is also considering a governmentrequest for financing the promotion of exploration of energy resources(particularly petroleum) and technical assistance for energy sectordevelopment.
16. Both the USAID and the IDB have lent substantial amounts for agricul-ture and for social services (including family planning in the case of USAID).Past lending patterns are likely to persist, at least as regards the socialservices, because the Government prefers to borrow on concessionary terms forthose sectors, while utilizing assistance received on harder terms for projectswhich are expected to result in more immediate economic benefits. In additionto agriculture and social services, the IDB is financing road construction,industry and telecommunications, sectors in which it is likely that it will
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continue lending. The IDB also participated with the Bank in the financing of
the Fortuna Hydroelectric Project. USAID will concentrate its efforts on man-
power training and projects oriented toward environmental protection. Both IDB
and USAID are also likely to lend for energy, the latter for research on alter-
native sources of energy other than petroleum and the former for rural electri-
fication.
17. The Bank's share of Panama's pub]icly guaranteed external debt out-
standing and disbursed was 5.6 percent at the end of 1978 and the Bank's
share of public external debt service is projected to be 3.8 percent at the
end of 1979. These percentages are expected to drop slightly in the 1980s.
PART III - THE URBAN SECTOR
Socio-Economic Characteristics
18. Panama's comparative advantage lies in activities which take
advantage of the country's location and indeed the commercial and service
sectors (international banking, transshipment, warehousing and insurance)
have accounted for much of the growth of the economy in recent decades. These
sectors are expected to constitute, along with export-oriented industrializa-
tion, the main source of future economic growth. The development of commercial
and service activities has contributed to a high level of urbanization.
Fifty one percent of the total population of 1.8 million in 1979 live in
urban areas (communities of more than 1,500 people). The population is concen-
trated along the corridor bordering the Panama Canal; particularly in Panama
City, the capital, which is located on the Pacific entrance to the Canal, and
to a much lesser extent in Colon, which is located on the Atlantic entrance.
These two cities and their environs form the transisthmic Metropolitan Region,
which contains about 80 percent of the urban population. This urban population
is growing at an annual rate of 3.5 percent, somewhat higher than the national
rate of 2.7 percent. Population growth, has, however, been concentrated in
greater Panama City.
19. Despite the high level of urbanization there is an absence of
local government machinery. This is explained by the centralization of the
government. For example, most taxes, including property and local improvement
levies are collected at the national level. All public services such as
water and sewerage, power, telecommunications and fire and police protection
are provided by national agencies financed either through tariff charges or
government transfers.
20. The heavy concentration of urban population in Panama City and Colon
accounts for the Government's decision to give priority to the development of
the Panama City-Colon Metropolitan Region. This decision is also dictated
by the magnitude and intensity of the region's problems. These are most
apparent in Colon, where economic stagnation and a poor investment climate
are, in part, a result of the distorted spatial development pattern of the
city. Manzanillo Island (downtown Colon) was an enclave within the former
Canal Zone and the city's suburban expansion took place in areas beyond the
jurisdiction of the former Zone. These are at a considerable distance from
the city center and from the main sources of employment.
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21. There have been considerable efforts in the past to address urbanpoverty problems by increasing access to services and construction of housing.Health statistics show the success of these efforts (for example, the deathrate from intestinal diseases declined from 38.8 to 25.6 per 100,000 inhabitancsin 1971-1975). Housing problems remain severe among the lower income groups.The existence of rent control has tended to discourage private participationand government efforts are constrained by insufficient resource mobilization.The proposed project would channel private savings to low-income housing throughthe participation of Caja de Ahorros, a well establi_hed savings institutiondescribed below. Also, the Government has agreed to measures to increaseresource mobilization (para. 26). The program for the development of theMetropolitan Region which is part of the technical assistance of the proposedproject, would include a review of the impact of rent control and recommenda-tions for possible changes.
Colon
22. Colon had a population of 67,800 in 1970. Its population, descendedmainly from migrant Caribbean workers employed in the construction of theCanal, has maintained cultural traditions separate from those of the rest ofPanama. This distinctiveness has tended to breed a sense of isolation accen-tuated by Colon's spatial configuration. Population densities average 294inhabitants per hectare in central Colon and rise sharply to 1,500 in thetenement districts. It is estimated that the central city population declinedslightly in the 1970's as a result of suburbanization, and that the populationgrowth rate in greater Colon has been lower than the national average becauseof outmigration. About 38 percent of the population falls below the relativepoverty threshold (family income of US$2,205 per annum). The major sources ofemployment in Colon have been the Colon Free Zone and the Port of Cristobalwhich account for 75 percent of total employment in the city.
23. According to a 1975 estimate, 60 percent of all dwellings inColon fall below acceptable structural standards. This proportion would riseto 80 percent if overcrowding were taken into account. The bulk of thehousing stock comprises slum tenement buildings in which households renting asingle room form the major tenancy group. Rental housing accounts for 88percent of all dwellings in Colon. Forty-five percent of rental payments werebelow US$25 per month in 1978, and households with monthly incomes underUS$165 devoted roughly 15 percent of their total expenditures to housing.Since the immediate postwar period, when defense-related contracts in theformer Canal Zone declined sharply, the economy of the city has continuouslydeteriorated. This is shown by the rate of unemployment, which was 18.7percent in 1950, 21.5 percent in 1960 and 17.4 percent in 1970, and is cur-rently unofficially estimated to fall in the 25-35 percent range. The pro-portion of unemployed persons without previous employment experience has risenfrom six percent in 1950 to 19 percent in 1960 and 30 percent in 1970.
24. Despite such initiatives by the Government as the construction ofa Free Zone and an oil refinery, Colon has failed to participate in the rapidgrowth of Panama. Moreover, the migration of members of its business andprofessional classes to Panama City diminished the community's capacity toreverse its secular decline. Colon's depressed state, and the related problemsof unemployment, poverty, delinquency and urban blight, allied to increasinglyheated protests of official neglect and unequal treatment by the Government,lent urgency to the formulation of programs and projects for the city.
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The Government's Program
25. The Government response to these problems was to create a programfor Colon which seeks to attack the causes as well as the symptoms of urbanpoverty through a long-term, multisector, approach. The reversion to Panama of
the former Canal Zone territory on the immediate outskirts of Colon providedthe opportunity to promote the integrated development of the hitherto isolatedcentral city and its suburban hinterland. The Government requested the Bank toassist in designing a program that could serve as a basis to identify issuesrelated to the Metropolitan Region as a whole. The Bank has worked closelywith the Government in the development of this program, which focuses on two
objectives. The first is to immediately address the needs of Colon, such asthe provision of jobs in productive activities and of housing. This forms thebasis of the proposed integrated urban development project. The second objec-tive is to prepare a development strategy and related policies and programsfor the Metropolitan Region as a whole, using the Colon sub-region program asa prototype.
26. The proposed project is expected to bring improvements to land usein the Colon area and includes the urbanization of areas in the former CanalZone. Private developers on Manzanillo Island will benefit from this urbaniza-tion since publicly-financed programs will have been instrumental in releasingtheir land for redevelopment. To recover the cost of this betterment, theGovernment would not later than one year after completion of the project,revise the assessed value of real estate in downtown Colon in order to levy theappropriate real estate tax (Section 4.03 of the Loan Agreement). The valueof real estate has been frozen in the recent past as a result of the deteriora-tion of the city's economy.
PART IV - THE PROJECT
27. A report entitled "Staff Appraisal Report of the Colon Urban Devel-opment Project" (No. 2903-PAN) is being distributed separately. The mainfeatures of the loan and project are found at the beginning of this report andSupplementary Project Data are given in Annex III. Each project componentwas prepared by the agency implementing it, in some cases with the assistanceof consultants. Negotiations were held in Washington from May 5 to 8, 1980.The Government, the Caja de Ahorros, the Colon Free Zone and the NationalPort Authority were represented by a Delegation led by Dr. Orville Goodin,Vice Minister of Finance and Treasury.
Project Concept
28. In great measure the success achieved in restoring urban economicgrowth and generating new sources of employment in Colon will determine therate at which low-income groups improve their housing conditions and accessto urban services. In Colon, as in many other cities throughout the world,the attainment of a certain minimum level of income sufficient to establishthe household's capacity to meet mortgage repayments remains a sine qua nonfor access to low-income housing programs. With this in mind, low-incomehousing has been explicitly linked with the economic development of the city.The housing development will be associated with new investment in the ColonFree Zone which will be financed entirely by private banks.
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29. It is recognized that to reverse the secular decline of the area and
to broaden its economic base, a wider range of urban services must be provided.
The educational system, in particular post secondary institutions, must play
an important role in the provision of skilled workers. Higher household
incomes mean increased demand for public transport and recreational facilities,
particularly among low-income groups. In addition, the growth of container
traffic to the Free Zone makes it important that the Port of Cristobal be
better equipped for handling containers. Correspondingly, the increased
volume of traffic generated as a result of the industrial activity will place
added congestion on the roads. The project therefore includes a number of
components which are designed to improve the efficiency of the urban and
regional economy.
Project Description
30. Since 1978, the Bank has assisted the Government in defining a
program, which has formed the basis of the proposed project. Specific objec-
tives of the program are: (i) to revitalize Colon as an economic growth
center; (ii) to alleviate poverty through investments which emphasize employ-
ment generation; (iii) to improve the provision of urban services and urban
management; (iv) to develop a prototype urban development programming and
management capability for eventual use at the level of the Metropolitan
Region; and (v) to identify urban policy issues that cannot now be adequately
addressed at the local or subregional level and prepare further investments
related to the project. The project, which has been designed to avoid
adversely affecting the environment, is divided into five major sub-projects
as follows:
(1) Urban Employment: extension by 35 ha of the Colon Free Zone's
existing 57 ha duty-free commercial area, and first phase (35 ha)
of a general purpose industrial estate catering primarily to
assembly operations and light manufacturing.
(2) Urban Renewal: construction of a retail mall and a bus terminal.
(3) Housing and Social Services: urbanization of a 118-ha site (Puerto
Escondido) and construction of 4,025 dwelling units (about 300 in
downtown Colon and the remainder in Puerto Escondido); construction
of community facilities in Puerto Escondido, and provision of home
improvement credits.
(4) Regional Infrastructure: improvements to the Port of Cristobal;
improvements to the Colon access section of the Panama City-Colon
Highway; establishment of a regional education center and construc-
tion of recreational facilities to serve Colon.
(5) Technical Assistance: consulting and extension services related
to the regional development program, project monitoring and evalua-
tion, urban transport operations management, port and railway
development and professional development.
31. The project would be implemented during 1980-83. The Bank loan
would finance the low income housing and community facilities, the bus
terminal, all regional infrastructure except the port improvements and a
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small portion of the recreational facilities, and the technical assistance.
Private banks would finance primarily the urban employment sub-project and
the related retail mall and port improvements.
Urban Employment
32. The urban employment sub-project would be carried out by the Colon
Free Zone. The sub-project is designed to create about 8,000 new jobs, a
large portion of which are expected to be filled by workers from low-income
groups in Colon. It consists of the development of two separate parcels of
land in the expansion area across Manzanillo Bay from the existing Free Zone
(one as an extension of the Free Zone's duty-free commercial area and the
second as a general-purpose industrial estate catering primarily to assembly
operations and manufacturing). The expansion of the commercial area would
satisfy existing demand for these facilities, while the construction of the
industrial area is designed to satisfy the demand identified in a feasibility
study carried out by independent consultants.
33. The commercial area, which has an estimated cost of US$30 million,
is an extension of the 13-ha site currently being developed, and would be
occupied primarily by duty-free warehouse and commercial operations, similar
to those already established in the Free Zone. About 3,000 additional full-
time jobs would be created.
34. The industrial area, which has an estimated cost of US$26 million,
would fully urbanize 35 ha of the 250 ha earmarked for assembly and manufac-
turing operations, while an additional 58 ha will be levelled and 70 ha
cleared of vegetation. Land development and building construction would be
carried out in phases during the project implementation period. Free Zone
estimates, which are based on a feasibility study prepared by an independent
consulting firm, show that this implementation schedule would provide facilities
in accordance with effective demand. Of the 35 ha that would be fully urbanized,
about 5 ha would be occupied by buildings constructed by the Free Zone for
rental, and the remaining 30 ha would be leased as developed land to firms
constructing their own buildings. About 5,000 additional full-time jobs are
expected to be created. The Free Zone would prepare, by June 30, 1981, a
proposal for sewage collection and disposal in the Free Zone development in
consultation with the National Water Supply and Sewerage Institute. The
proposal would be approved by the Bank prior to carrying out the works
(Section 2.05 of the Free Zone/APN Project Agreement).
Urban Renewal
35. Because of several years of neglect and inner city decay, Colon has
lost much of the visual charm that had characterized the city until the mid-
1950's. A major aim of the project, therefore, is to stop the rapid physical
deterioration of the central city, to create a favorable investment climate
for private sector entrepreneurs to undertake complementary urban renewal
projects, and to develop an attractive environment for tourists. In order to
accelerate the process of increasing additional commercial activity in the city
center, the Free Zone will transfer to the new retail mall a portion of its
retail duty-free sales from the existing complex. In addition, a bus terminal
would be constructed. The sub-project will involve investments of US$6.5 million.
It is estimated that about 350 additional full-time jobs will be created.
- 11 -
Housing and Social Services
36. The low-income housing and community facilities sub-projects would
be carried out by Caja de Ahorros. The Ministry of Housing (MIVI) would
design the works, carry out the procurement and supervise construction on
behalf of Caja under contractual arrangements satisfactory to the Bank
(Section 2.03(b) of the Caja Project Agreement). The sub-project aims to
increase the low-income housing stock in Colon within a reasonable distance
to employment. MIVI, which has considerable experience in building low-
income housing, will prepare the details of the process for selecting potential
beneficiaries. The selection criteria would be agreed with the Bank (Section
3.03 of the Loan Agreement). The requirements to qualify for a loan would be
established by Caja using their standard operating procedures which are
acceptable to the Bank. These procedures set a maximum limit for mortgage
payments of 25 percent of the family's average monthly income from all sources.
In designing the shelter options which would be available in the low-income
housing site, every effort has been made to avoid income stratification, and
to encourage families with different incomes to live in the same zone.
Therefore, Caja has agreed that at least 60 percent of the shelter options
would be for families whose income falls in the bottom four deciles of the
income distribution of the Metropolitan Region. The remaining 40 percent, at
the discretion of the Caja, would be for families whose income falls between
the fourth and sixth deciles (Section 2.04 of the Caja Project Agreement).
37. Development in Puerto Escondido would take place in three phases of
31 ha, 46 ha, and 41 ha, respectively, over four years, making a total of
118 ha during the implementation period. Gross densities would be in the
order of 170 people per hectare. This is acceptable given the topography and
environmental conditions of the area. The housing development in downtown
Colon would be carried out over two years. The analyses of the Puerto Escondido
and downtown developments have been based on a general site plan. The details
of the first phase of the Puerto Escondido development have already been agreed
with the Bank. However, no disbursements would be made for phases two and
three of the Puerto Escondido development until the Bank has been furnished
with a detailed plan, satisfactory to the Bank, for each of these phases.
Similarly, a satisfactory detailed site plan would be furnished for the housing
development in downtown Colon before disbursements are made for that site
(Schedule 1, paras. 3(b) and 3(e) of the Loan Agreement). The detailed plan
would include a description of the works to be performed, a schedule of imple-
mentation, housing options and estimated costs. The site for the 118-ha urbani-
zation is located on land which reverted to Panama under the Canal Treaty. A
condition of disbursement for this component would be that the Government takes
all action necessary to make available 118 ha, for use in the Puerto Escondido
development. Land would also have to be made available in downtown Colon prior
to disbursements for that housing site (Schedule 1, paras. 3(d) and 3(e) of the
Loan Agreement). Caja would prepare, by June 30, 1981, a proposal for sewage
collection and disposal in the Puerto Escondido development in consultation with
the National Water Supply and Sewerage Institute. The proposal would be approved
by the Bank prior to carrying out the works (Section 2.08 of the Caja Project
Agreement).
Regional Infrastructure
38. The sub-project is aimed at improving the efficiency of the regional
economy. Its estimated cost is US$25 million and includes the following spe-
cific components: (a) an extension of the existing container handling
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facility of the Port of Cristobal; (b) widening and strengthening the 9 km Colon
access of the Panama City-Colon Highway between Colon and its suburb of Cativa;
(c) establishment of a regional education center to consolidate the activities
of three existing education institutions, and to provide training facilities for
the Free Zone in a single complex; and (d) provision of recreational facilities
to serve Colon consisting of the construction of a park to be located on the
shore of Lake Gatun, and the restoration of a historical tourist attraction
located in the vicinity of Gatan Lock, both near the city. The Government
would make the appropriate site available before disbursements are made for the
regional education center (Schedule 1, para. 3(f) of the Loan Agreement).
Project Organization and Administration
39. The Government has established a High Level Commission to coordinate
the project. The Commission operates much along the lines of regional develop-
ment corporations in other countries, and is empowered to determine the priori-
ties of Colon and to channel resources accordingly. The Commission is headed
by an Executive Committee, which is chaired by the Vice-President of the
Republic, and consists of a Managing Director and of the Ministers of Planning,
of the Presidency, and of Housing, the Governor of the Province of Colon, and
the Managers of Caja and the Colon Free Zone. The Government has agreed
that the Commission would be retained with its present powers during the
implementation period of the project (Section 3.06 of the Loan Agreement).
40. Each of the implementing agencies has had previous experience with
similar programs in the past, and would be responsible for all of the required
programming and budgeting of their respective components, including the design,
bidding, procurement, construction, as well as the project-related co-ordination
with other participating agencies. Each agency would carry out with its own
staff the detailed engineering of its component except for the Free Zone which
would hire consultants to carry out the detailed engineering. Each of the
agencies would provide the necessary personnel for staffing the facilities once
they have been constructed. The High Level Commission, in coordination with the
Free Zone, which will be the Borrower for the co-financed portion of the project,
and with Caja, which will oversee the sites and services component, will coor-
dinate the work of the different agencies involved, an arrangement which is
satisfactory to the Bank. The implementing agencies are as follows:
Components Implementing Agency
1. Commercial and Industrial Estates Colon Free Zone (CFZ)
2. Retail Mall Colon Free Zone (CFZ)
3. Port Improvements National Port Authority (APN)
4. Bus Terminal Ministry of Public Works (MOP)
5. Low-Income Housing Caja de Ahorros (CAJA)
6. Community Facilities Caja de Ahorros (CAJA)
7. Home Improvement Credits Caja de Ahorros (CAJA)
8. Regional Education Center Ministry of Education (MOE)
9. Road Improvements Ministry of Public Works (MOP)
10. Recreation Facilities:(a) Fort San Lorenzo National Cultural Institute (INAC)
(b) Lake Gatun Park Ministry of Public Works (MOP)
11. Technical Assistance Ministry of Planning (MIPPE)
- 13 -
41. In addition to the requirements imposed on each agency and specifiedin para. 40, the National Port Authority has agreed that after completionbut: before operation of the improvements in the container facilities includedin the project, it will implement a revision of its tariff structure forcontainer activities at Cristobal so as to ensure that the revenues earnedyield a satisfactory economic rate of return for such activities (Section 4.04of the Free Zone/APN Project Agreement).
Cost Estimates and Financing Arrangements
42. The total cost of the project is US$133 million, including contin-gencies, of which US$63 million, or 47 percent is estimated to represent for-eign exchange costs. A detailed hreakdown of costs is given at the beginningof this report. The Bank loan would finance items 4 through 11 listed inpara. 40 except item 10 (a). The Government would be the Borrower for theproposed Bank loan. The private banks would finance items 1 through 3 (US$62million) as well as those portions of items 4, 6 and 8 through 11 not coveredby the Bank loan (US$8 Million). The Borrower for the private bank loans wouldbe the Colon Free Zone. The financing plan would be as follows:
% ofUS$ Million Project Cost
Colon Free Zone 8.1 6Caja de Ahorros 19.2 14The National Port Authority 1.0 1World Bank 35.0 26Private Banks 70.0 53
133.3 100
43. The financing arrangements include a proposed co-financing whichwill be arranged by the Industrial Bank of Japan, Limited (IBJ). This wouldbe the first Bank-financed urban project in Latin America involving co-financingwith commercial banks. IBJ has given Panama and the Free Zone, which willbe the Borrower for the proposed commercial loans, a commitment to arrange aseries of loans totaling US$70 million during the implementation of theproject, and has indicated that it will exercise its best efforts to obtainoverall terms which would result in a final maturity of approximately 15 years.The first loan, for US$15 million, would have a term of eight years includingfive years grace and interest at LIBOR plus 1.25 percent. The maturitystructure of the initial loan is less favorable than the desired overall termsbecause of prevailing conditions in financial markets. However, IBJ expectsto compensate for the maturity shortfall on the US$15 million loan in itssubsequent loans which will total US$55 million. The Government believes, andwe concur, that these arrangements are better than could have been obtained inthe absence of co-financing, under current conditions. In order to ensurethat the terms of the future co-financing loans are appropriate for theproject, the Free Zone will consult and seek approval of the Bank prior tocontracting such loans (Section 2.06 of the Free Zone/APN Project Agreement).The Bank would enter into the standard Memorandum Agreement for co-financingloans with IBJ covering billing procedures consultation, and exchange ofinformation regarding the project. A condition of effectiveness of the
- 14 -
proposed Bank loan would be that the Free Zone has obtained the IBJ initial
loan on terms and conditions satisfactory to the Bank and that the Bank benotified by IBJ that all conditions precedent to the initial disbursementunder the IBJ initial loan agreement have been fulfilled (Section 6.01 of theLoan Agreement).
44. It is estimated that about 77 percent of total project costs wouldbe recovered from the ultimate beneficiaries. investments in community facili-ties and certain items of urban infrastructure, which total US$14.3 million inthe case of the housing and social services sub-project, together with certaininvestments in regional infrastructure and technical assistance totallingUS$16.5 million, account for the remaining 23 percent. They are viewed asbenefitting the Colon Sub-Region as a whole, and are treated as a transferof resources not recovered from the project beneficiaries.
45. The estimated cost of the 371 man-months of consulting servicesto be provided under the project is US$3 million, or an average grosscost per man-month of approximately US$8,000 (excluding price escalation andcontingencies). This average cost is considered reasonable given the typeof expertise required.
Lending Arrangements
46. The sector agencies shown in para. 40 will be responsible for theimplementation of the bus terminal, regional education center, road improve-ments, recreation facilities, and technical assistance components. TheGovernment will on-lend to the Caja that portion of the loan to be used forthe housing and social services components on the same terms as those on whichthe Bank lends to it. The Government would bear the foreign exchange risk ofthe Bank loan, as is the case in all operations involving credit in Panama.The Caja will be indemnified by the Government against defaults on mortgagesin those cases where normal recovery procedures prove not to be feasible.This is consistent with private banking practice for portfolios of this type.Prior to disbursement for the housing and social services component, theGovernment and Caja would enter into suitable contractual arrangements(Schedule 1, para. 3(c) of the Loan Agreement).
47. Loans for the purchase of dwelling units would bear interest at 12 per-cent per annum over 17 years, which is consistent with Caja's average lendingrate for houses of this kind, and which provides an adequate spread over itsaverage cost of capital. The interest rate charged would be reviewed at leastevery five years. Caja would finance up to 100 percent of the value ofthe houses. Caja would reserve the right to repurchase any house within thefirst five years of occupancy should the existing owner decide to sell. Thepurpose of this policy is to minimize the pressure on land speculation.Changes in lending criteria would be agreed with the Bank. The Caja is thelargest single mortgage institution in the country and the rates charged forthis project are consistent with rates charged for similar types of lending.Wholesale prices in Panama rose by 7.1 percent in 1977; by 5.5 percent in1978; by about 18 percent in 1979 and are projected to increase by 14 percentin 1980 and 1981 and to decline to about 10 percent in subsequent years.Under these assumptions, the proposed interest rates would be positive.
- 15 -
Urbanization costs relating to utility infrastructure, streets and roads aswell as a rental charge for land would be collected in the form of a tax over25 years at an interest rate of not less than 12 percent (Section 4.04 of theLoan Agreement).
Caja de Ahorros
48. Established in 1934, Caja is the oldest savings and loan associationin the country. It is governed by a five-member Board of Directors appointedby the President of the Republic. Caja has broad powers for offering a fullrange of banking services. In addition to its central office in PanamaCity, which is responsible for its policy formulation, project design, andconstruction supervision, the Caja operates 25 regional offices locatedthroughout Panama, four of which are located in Colon. Caja is auditedannually by independent auditors acceptable to the Bank.
49. Caja can finance mortgages of up to 80 percent of the assessedvalue for commercial properties and up to 100 percent for residential proper-ties. Mortgage rates for residential properties are divided into threecategories: (i) loans of US$10,000 and under pay interest at 12 percent perannum plus a fee of 1 percent per annum (usually waived for lower incomegroups); (ii) loans from US$10,001 to US$16,000 pay interest at 12 percent perannum plus a fee of 1 to 2 percent per annum; and (iii) loans of more thanUS$16,000 pay 12 percent plus a fee of 3 to 4 percent per annum. Because ofits efficient management, the portfolio of Caja shows only 1.3 percent arrearsof 9Q days or more.
50. The financing requirements of Caja during the 1980-83 period areestimated at US$256 million. This amount includes an outlay of US$44 millionfor the proposed project, other lending operations of US$194 million, liquidityrequirements of US$11 million and other investments of US$7 million. About55 percent of requirements would be financed from repayments of principal,31 percent from depositors' savings and 14 percent from other borrowings. Theproposed Bank-financed component is quite small relative to Caja's overallinvestment program, representing about 17 percent of total expenditures duringthe 1980-83 period. Caja's overall operating performance is expected to bestrong throughout the period. The average cost of capital to Caja is ninepercent. Caja has indicated that it intends to maintain its policy of obtain-ing, on the average, a minimum interest rate spread of about two percent overthe cost of its capital. This spread is considered adequate.
The Colon Free Zone
51. The Free Zone is governed by a ten-member Board of Directors. Onemember is appointed by the Ministry of the Presidency and another by the Ministryof Finance; six members, including the manager, are drawn from the businesscommunity. The Minister of Commerce is the Chairman of the Board. Althoughthe Free Zone was established in 1948, it was not until 1952 that it openedfor business, with 10 companies on six hectares of land. By the end of 1979,the Free Zone, which generates most of its business through real estate rentals,had fully developed 44 hectares of land, 70 percent of which was covered bywarehouse-type buildings and display offices. The facilities were fullycontracted to 350 companies with almost 250 others using the service ofFree Zone based redistribution agents. The Free Zone now employs just over5,000 workers.
- 16 -
52. The Free Zone had US$22 million in total assets as of December 31,1979. Of its total resources, about 77 percent or US$17 million was in theform of paid-in capital and retained earnings, 18 percent or US$4 million wasin the form of long-term debt, and four percent or US$1 million was in theform of short-term debt. In the past, investments in land and buildings weremostly financed on a cash basis from net earnings. This accounts for therelatively small amount of long-term debt outstanding. As shown by thecurrent ratio, which has averaged 2:1 over the last three years, theliquidity position of the Free Zone is quite strong. The Free Zone isaudited annually by the Office of the Controller General.
53. The estimated capital requirements of the Free Zone during the1980-83 period total US$93.2 million. This amount includes the proposedindustrial estate sub-project of US$20.8 million, the commercial estatesub-project of US$23.4 million, the retail mall sub-project at US$4.6 million,interest during construction of US$11.8 million, the on-lending of US$ 9.8 mil-lion to APN for the port improvement sub-project and USS7.7 million to thegovernment, completion of works already in progress of US$8.6 million,other investments of US$4.3 million, and an increase in working capital ofUS$2.2 million. About 13 percent of the requirements would be financed frominternally generated funds, two percent from prepaid rents, 10 percent fromexisting commercial loans, and 75 percent from the proposed co-financingoperation. To protect the financing plan and the Free Zone's future financialviability, the Free Zone has agreed that during the period of implementationof the proposed project, it would (a) set tariffs not later than September 30,1980 and thereafter which would be sufficient to: (i) generate revenues atleast equal to the sum of all operating expenses (excluding depreciation andother non-cash operating charges), debt service requirements, taxes or paymentsin lieu of taxes, cash dividends and other distributions of retained earnings,and capital expenditures not covered by long-term debt; (ii) yield a reasonablereturn in real terms on the value of the facilities included in the projecttaking into account the value of the land on which such facilities have beenbuilt and the level of charges in effect in other free zone of the Caribbeanarea; and (b) not undertake investments which would result in annual expendi-tures in excess of US$1 million over the proposed project and other ongoingprojects unless agreed with the Bank (Sections 4.02 and 4.03 of the FreeZone/APN Project Agreement).
Procurement
54. Contracts for the supply of equipment and materials in excessof US$250,000 would be awarded through international competitive biddingin accordance with Bank guidelines. Contracts under US$250,000, open alsoto foreign contractors, would be awarded on the basis of local competitivebidding procedures acceptable to the Bank. For bid evaluation purposes,under international competitive bidding, a margin of preference of 15 percentor the value of the applicable customs duties, whichever is lower, would beallowed for materials and equipment manufactured in Panama.
55. Contracts for civil works above US$2 million (except for the housingand social services sub-project for which the figure would be US$1 million)would be awarded through international competitive bidding in accordance withBank guidelines. Civil works contracts valued at US$2 million and under,
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(US$ I million and under in the case of the housing and social services sub-project) would be awarded through local competitive bidding open also toforeign contractors, using local procurement procedures acceptable to the Bank.Because of the large number of competent local contractors, it is expectedthat all such contracts would be won by local bidders.
56. MIVI has traditionally used direct contracting which appears to havekept construction costs low. MIVI, on behalf of Caja, would initially callfor competitive bids for the housing and social services components. However,in the event that MIVI were to demonstrate, to the Bank's satisfaction, thatcompetitive bidding was resulting in higher costs, the Bank would agree to theuse of direct contracting (Schedule, para. C.2 of the Caja Project Agreement).The execution of earthworks by the Ministry of Housing's own forces would berecognized as acceptable by the Bank for those works for which retroactivefinancing is proposed. This procedure was agreed to because of the urgency ofstarting civil works in the 1979/80 dry season.
Disbursement
57. The proposed Bank loan would be disbursed over a four-year periodas follows:
(a) 60 percent of total expenditures for all materials, equipment andcivil works; and
(b) 60 percent of total expenditures for technical assistance.
58. Retroactive financing in an amount not exceeding US$1.8 million isrecommended for expenditures incurred from October 1, 1979 for (a) engineeringconsultants, (b) earthmovement and grading, (c) technical assistance. Con-struction works were begun early in order to take advantage of the 1979/80 dryseason.
Economic Justification
59. The economic rate of return for those sub-projects that have readilyquantifiable benefits and which represent 87 percent of total project costsis 21 percent. The rate of return for the industrial estate (16 percent ofproject costs) is 30 percent; for the commercial estate (19 percent ofproject costs) is 14 percent; for port improvements (nine percent of projectcosts) is 14 percent; for road improvements (eight percent of project costs)is 40 percent; for the retail mall (four percent of project costs) is 23 percent;for the low income housing (30 percent of project costs) is 16 percent; andfor the bus terminal (one percent of project costs) is 49 percent. A sensi-tivity analysis for the quantifiable components indicates that the rate ofreturn would be 17.4 percent with a 15 percent decrease in benefits and16 percent with a 25 percent increase in costs.
60. Costs of home improvement credits, the regional education center,recreational facilities, schools, clinics, parks, other community facilities,and technical assistance (which represent about 7 percent of the total costof the project) have been excluded from the quantitative analysis because ofthe difficulty of quantifying their benefits. The facilities will ensure
- 18 -
that the new community of Puerto Escondido has access to the same relativelyhigh levels of health and education services already available in other partsof Colon. They will be provided on a least-cost basis taking into accountminimum national urban standards. The benefits from the home improvementloans will depend on how the housing stock is upgraded and the rate at whichthese loans are utilized. The regional educational center is important to theproposed integrated Colon urban development project because it serves to up-grade the skills of the currently-unemployed population. The recreation park,only six miles from the city center, is designed to preserve the ecologicalenvironment of the lake and its surroundings, and be available for use byresidents of the area, particularly grade school children on school fieldtrips.
61. During the construction phase (1980-1983), the project is expectedto generate 3,000 construction-related jobs. Upon full completion of theproject by 1983, it is estimated that 8,000 additional permanent jobs (full time)are to be created in the Free Zone. Even with a low multiplier of 1.15 to 1.20,this will represent a 40 percent increase in the number of employed in Colon.It is expected that despite the potential for increased commuting and immigra-tion, a substantial part of this expansion in employment will go to existingresidents of Colon, primarily the poor and unemployed. To facilitate theemployment of people from Colon the training center component would includea job placement service.
62. As mentioned above, about 4,000 low-income families would benefitfrom the housing component and about 8,000 new jobs would be created by theFree Zone expansion. Although it is expected that a large proportion of thepeople obtaining jobs will also be beneficiaries of the housing development,it is not possible to quantify the total number of beneficiaries of theproject inasmuch as some housing beneficiaries may not be new employees ofthe Free Zone and, conversely, some of the families in the housing developmentmay have more than one member employed by the Free Zone expansion. At least60 percent of the houses will benefit families whose income falls in thebottom 40 percent of the income distribution scale. It is also expected thatmore than half of the Free Zone jobs will go to existing residents of Colon,primarily to the poor and unemployed.
Risks
63. Panama has little experience in the planning of urban projects and inthe coordination of multi-sectoral activities. A High Level Commission wasrecently established to coordinate the project, but the risk exists that itwill not be able to adequately control the various agencies involved. On theother hand, the Government--at the highest levels--attributes priority to therevitalization of Colon and this urgency has been transmitted to the implementingagencies which actively participated in the preparation of the project and which,therefore, now have a strong stake in the project's success. The Free Zone, untilnow a purely commercial operation will, under the Project, diversify the scopeof its activities by undertaking industrial operations. There is some risk inthis diversification, but studies commissioned by the management of the FreeZone indicate that there is considerable demand for the new type of operation.
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PART V - LEGAL INSTRUMENTS AND AUTHORITY
64. The draft Loan Agreement between the Republic of Panama and the Bank,the draft Project Agreements between the Bank and the Caja de Ahorros, andbetween the Bank and the Colon Free Zone and the Autoridad Portuaria Nacional,and the Report of the Committee provided for in Article III, Section 4(iii)of the Articles of Agreement are being distributed separately. Specialconditions of the loan are listed in Section III of Annex III. A specialcondition of effectiveness of the proposed Bank loan would be that the FreeZone has obtained the IBJ initial loan, on terms and conditions satisfactoryto the Bank, and that the Bank has been notified by IBJ that all conditionsprecedent to the initial disbursement of its loan have been met. The followingwould be conditions of disbursement: (i) in respect of the housing and socialservices sub-project, that the Government has entered into contractual arrange-ments with Caja for the transfer of funds for the execution of this sub-project;(ii) in respect of each of the phases of the Puerto Escondido development andthe site in downtown Colon, that the Government has made available the landrequired and Caja has furnished to the Bank detailed site plans satisfactoryto the Bank; and (iii) in respect of the education center, that the requiredsite has been made available.
65. I am satisfied that the proposed loan would comply with the Articlesof Agreement of the Bank.
PART VI - RECOMMENDATION
66. I recommend that the Executive Directors approve the proposed loan.
Robert S. McNamaraPresident
AttachmentsMay 30, 1980
- 20 - Annex I
TIABLE 3A Page 1 of 5PANAMA - SOCIAL INDICATORS DATA SEEETL
PANAMA REFERENCE GROU?S (ADJUSTED AYQAGESLAND AREA (THOUSAND SO. QL ) - 2OST RECENT ESTIMATE) IA
TOTAL 75.1 SAME SAME NEXT HIGHERAGRICULTURAL 17.2 MOST RECENT GEOGRAPHIC INCOME LNCOKE
1960 b 1970 a ESTIMATE L REGION /c GROUP Id GROUP /a
GNP PER CAPITA (US$) 370.0 790.0 1290.0 1124.4 1942.6 3075.3
ENERGY CONSUMPTION PER CAPITA(KILOGRAMS OF COAL EQUIVALENT) 448.0 683.0 885.0 943.1 1646.7 2518.6
POPULATION AND VITAL STATISTICSPOPULATION, HID-YEAR (MILLIONS) 1.1 1.4 1.8URIAN POPULATION (PERCENT OF TOTAL) 40.5 48.1 51.4 59.3 51.2 72.1
POPULATION PIOJICTIONSPOPULATION EN YEAR 2000 (MILLIONS) 3. 0STATIONARY POPULATION (MILLIONS) 4.0YEAR STATIONARY POPULATION IS lEACGED 2065
POPULATION DENS ITYPE. SQ. EH. 14.0 20.0 24.0 23.5 2U.2 33.5P?. SQ. Tf. AGRICULTURAL LAND 76.0 89.0 105.0 80.5 100.5 91.3
POPULATION AGE STRUCTURE (PERCENT)0-14 YRS. 43.7 43.9 42.2 40.9 35.4 33.3
POPULATION PER PHYSICIAN 2700.0 1550.0 1270.0 1841.9 1343.2 981.8POPULATION PER NURSING PERSON 3460.0/f 1420.0 14U0.0 933.7 765.0 397.8POPULATION PER HOSPITAL 3ED
INCOME DISTRIBUTIONPERCENT OF PRIVATE INCOMERECEIVED BY
HIGHEST 5 PERCENT OF HOUSEHOLDS .. 17.8 .. 23.7
HIGHEST 20 PERCENT OF HOUSEHOLDS .. 52.7 .. 58.7 57.6.
LOWEST 20 PERCENT OF HOUSEHOLDS .. 2.1 .. 2.9 3.4
1,OWEST 40 PERCENT OF HOUSEHOLDS .. 9.5 .. 9.9 11.0
POVERTY TARGET GROUPSESTIMATED ABSOLUTE POVERTY INCOMELEVEL (US$ PER CAPITA)
URBAN .. .. 335.0 265.6
RURAL .. .. 170.0 185.1
ESTIMATED RELATIVE POVERTY INCOMELEVEL (USs PER CAPITA)
URBAN .. .. 424.0 396.3 550.0
RURAL .. .. 424.0 308.1 403.4
ESTIMATED POPULATION BELOW ABSOLUTEPOVERTY INCOME LEVEL (PERCENT)
URBAN .. .. 21.0 35.2
RURAL .. .. 30.0 46.6
Not availableNot applicable.
NOTES
/a The adjusted group averages for each indicator are population-weighted geometric means, excluding the extreme
values of the indicator snd the most populated country in each group. Coverage of countries among the
indicators depends on ava.ilability of data and is not uniform.
/b Unless otherwise noted, data for 1960 refer to any year between 1959 and 1961; for 1970, between 1969
and 1971; and for Most Recent Estimate, between 1974 and 1977.
/c Latin America; /d Upper Middle Income ($1136-2500 per capita, 1976); /e High Income (over $2500 per
capita, 1976); 7 196 ,; /g Age 10 years and over.
May, 1979
-22 - Annex IPage .3 of 5
otesM ltog the data are d-a foesue generally judged the sot esothordtativs and reliable, it should aso be noted that they mg oot be interne-tinly ooprble boausie of the leek of staherdioed definitions and conpts used by diff.eret cOontries in collecting the data. The data -r, scoetbeleseuseful to describe orders of .sgnitde, lindicate trends, so&d oheraterioe crain Jo,jo differences betose ~ncootrie..7zThe t g s uy r so for eah indicator arepopuation-eiebted geoetrlo ~sen, -cludinig the entrese velus of the inicaitor end the meet populated
oeuniiFiiliPriiTfrito lack of data, group areragee of all indIcators for Capital Surpios Oil xporters and of indicators of Acre.. to Water ond Excrete'ipsL,I osn,Icm Distibtonen=ovry for other o-ruty groups .re puPo1atho-cei9tgtd ge,sftroc meaa withoutoniisofteermean.ed
the sat poplated reentry. ic h crrs fountotree ess th idctrs dpend. on a-ilabilro aaedI ot nform. ostice ous be esercisedin relaiog enrages of one indicator to anothe. These ."rge. ore met nuaf. an cprooiatioeoatf 'epete valesch ncoparing the -.alus of oneindicator at o time aseos the counitry eWndrference gr,pus.
tl surfaceareas compis ing lend -ezr nd inland eaters. tother of people (otel hn n ua]sre yeceadsoe,aw -iustssrvi - Most resent satiaste of agrirnltura1 area osed temprarily percentages of their respective poUations. tooeta disposal may include
or peemenestly for crepe, Pstares, xarket and kiteha garden or to the colletion end disposal, nith or citbout trsatet, of he- anrrstalie fso. end nests-eater by sater-ho esystesms or the use of pit prides sad siler
installations.0: M CAP~ ~ tiP pe capita. estimates at currxnt maerket prices, Pnoultbca dpsr oW.yi.ien - Ppjzation dirtied by otter of practicig phyalioism
liIdul.Iaed%(by S soe-onvrion thod an World Bank Attn (1976-78 hasis); qualfe frrom a os,ica school at university level.1960, 1970,-sd 197a dat. Poplation per Horsing Persona Population divided by otter of practicing etels
SUIT CIWCt7 N P CAPITA - Annual, cOonsumption of o-merreial songY sd teals grmute -urnea, pratical nurses, *ed asoietmet morass.(coal and lIgnite, peroleum, astral gas an hydro-~ nuclear endgnu- Peculation per hspitalt hod -itotal. bhe d. and rural - P Aplation (total, urban
thePrLMmaleeticity)1 in -t& kilogramhof coa eqivl nt perapita 196o P`d= -= rl)diided by thi epcieotr ofhopital beds' ailblah in1970,and 176 dt.. i k1lresaiIf oo1 qi -- t pr teit. 960,public sod private general and speciali-ed hostpital end rehabilitation cesters.1970, end 1976 data. ~~~~~~~~~Hospitals are establishments permanetly staffed by at Iseat .se ptysician.
PORjTATION nAIL VITAL STATISTICS Establishmnts providing prictipally custodial care are act included. RuralTntlPplais.tt-eimilos As of July i; 1960, 1970, and hospitals, howevr, include A.nth ed madical centers not pereastiy starred
1977 data - byapyi Ia (htbyamdical ass-tent, -crs, ldeife, etc.) oich offer
!Prben P,clto (preto ttl atio of urban to total Ppopltion; in-patbnt acr -ai,ed proids a Ilmted range of medical facilitis..different l deInItioso, se area ma ffect comperhbility of data Admissions per Hospital led - Tocal number of adeissio.s to or discharges frosg= conres p 17,en 95daa opitals divided by the ue of bed,..
Population inra 2tW - Current Population projections are based on tWouIS195ttlpoplaio byaead :ec end tbsir sertality end fertility Aversedc foueod(esn prhueod oa.atn and rurlf -
ratee. Projection paaaesfrnralt as opie ftoeAhueod -onsstof a grop of olo,iduloob hare living quater endlevI.elsassuin lieepecte-cy *i birth inceasing sith coutey's their main mel.A braroer or lodger may or may not be included In thePer cpta incom eni, end feeIls life expectancy stahiliciig at hoseehoid for statIstical purposeS.77.5 Yese.- The parmters fcr fertil-Ity rate also have three is-1i Averag outer of persons pe,m- Ztta b-hn end rura - Average oumoberax-ting declne in fertility socrding to incee leve end pest of persons Per roo is s _uben, sndrua occpied c etoa slig
ram ly_pIss g perfornenn. tech countr-y lo then assignedi one of these respectively. Deelings coclude on-pernanet nIrtutrs end unoccupied parts.nine cocinationsi of sertailty and fetnility trends for prjcsAcce.ss to Electricty (prcent ofdelos ttl chn Od rural-Ion
ventlo.a Id_ehlsog cth electricity inaco qotre as perretgce of
dSti=so oupuItico- n stationary popuIati-m then is no groh tota, urban, end rura d-elliogs repectively.since the birth rats is equlL to the death rate, and ala the agestructure ream constant. This is achieved only oftar fertility rates EiXOATIONdecline to the replwrmet leve of unit set repruohrtion rate, obe AdJusted EDirIent Patioseach geneatio of' n rePlaces itself roantly. The stationsry popo- Primacy ochol - tota,sleed female - iross total, sale and female enrol-lation sins o estmatd on the basis of the projected hbarsctsritics aet of I al ges at teprimary leela pe-cotage of respective primaryof the poplation in the year 2OOO, ned the rate of decline of fertility schonol-age populations; -- realy tincludes children mged 6-il ear hotrate to replacemet level aduted for differen lengths of primary eduatire; for cntimith
fear stationar rpu"latio to reached - The year ten stetiom..rY poPulation universal education -lseot may enced 100 percet -- o nose pupilonic eba been reahe- are below Or chore the offiCial school age.
Pmpulatbos Dens ity -odenody scholi- total saead -nle - Compted- sIboc;oco -ony
Per sq.A. - id-pea populntiom per squar kilomter (100 h-etres) of edctlo reure -ceo four year of epprorec pi-isoy :r.ocrotico:total area ~~~~~~~~~~~~~prorides gSnsral suctio... , or teaher traicing intrucciono for popilo
per- so n. giulu land - Computed as shove for sgrbcaltural land USuAllyIof 12 to 17 years of ee; correspondenecure.r gocerllyonly, ecluded,
Pnotaltion use itrutore (percet) - Children (0-lb years), erkio9-.ag Vocational sao et(psr-st of oco-dary) - osit.mnsiuIn nlude15 eas,ad 5rtrd -u er and er npercetage of Hid-year technical, Loduotri.i, or other program ohich operate indepeode-tly or a
pplto;16.0, i970. end 1977 data, dPepartmet of recondac institutioss.Pnoplation Groatb Hate (pe-eet) - total - Annal co-rth rates of total mId- Ne.il-teacher rat io rmr, an=.dl secoodur - Total otld.otto e-rolc is
year ppuLatoc.. for 1950-6, 1900--TI, endt 1970-77. prieecy an- eodr eesdvdd by ott rso teachers in tie corre-Ppltion ircoth Rote (.peret - urban - Anouci druoth rates of orbs spondlag levels
popoatins or 150-0, 96070, end IWO-fl Adult literacy rate (pvrc-t( ) ieaesut hct edndoirt-rde Mott Pae per. thousd) - Annual Li- hirthn per thousand of sod- aperoetoge of total sdult Ppopujtloo sgeo 15 Year sod o..er.yea popultion 1960. 1970, end 1977 data,C-d a5 (5o 5 send) - Annual deaths per thouand of Hid-year C0flRsuraIlH
ml lolc 1960197U,sn7d1977 data. Passenger care (per th-ocnd pcoelt.tioc( - P-ocger car coprise utor o-rsaoose ppr.durti.P" Rt-Acerage nomuer Of dsiightors 5 tantl bear seating lose than eight pIrs...; eldec anbumece, hearses and ellitary
in her -orm- rspr"doti- period if ohIII ri. cspresent age- vhcespecific fertility rstes; u-ualy fir-year enrages ~Odiog is 1960, Padlo R-te-rro (eer thousno Po,ultion) . All typec of recivers for radi,1970, and 1975. broodrarts to geneal.uli1 e thouand of population; e-cludes unlicense.d
FaiyPloio -h toreror Annual (throsende) - A-.u.I n..ter of recivers In countries end in yeara then -egiot-tIr oIf radii sets .as inoresor ofbirth_-cotrol device under suopicee of catirnal folly effect; data for recti yearn say rot be -op-ral niece nit coutries
p1500img prgren. abolished licening
Famly looiog- ders(pecet o erned rose) -iPercentage of married TV Reciver (per thouand Mpopsintlo) - TV rocei-r for ir-icat to generlrosen ofchl-harn 1g (15-o h.r)nb s birth-cotrol devices public per thouand populatin Icldes unlicense.d TV recivers incrnioto nil maried nuns icnes age group. end in years 5 henrisrto of TV sets -a to effort -
POOP AND e¶JTRITTCS5 Keospap~~~~~~~~~I"f er f1-Ire tio- (per thoueo -raio)- ibu- the overage t. ltoFOOD AND MMITTOR ~ ~ ~ ~ ~ ~~ ~~~~of'dily general loet osseppe, teflon' o r poiodicol p1oli-aticn
,nder of Food yr`OocirprCet (16-li I) ode of Per captatee d primaily t recoding genera o-e it is conIdere.d to is daily'annual. prootc of elifod -c-ditir. Prdrto ccu isne td if it appe.arct leant four timesaserfeed sod I on calender year basis. iomdities covr priotary gwd.i Cinem Annual Attendance per Cpgitc ocr Pou - sued or tIe. cuber of tickets(e..g.-siaen i,,etead of sogar) .hich are edible sod -otais Iutrients sold daring the yer ilubgam -oit to s,,ve-inc icn.- sod soils(e.g - cffee and tea are occluded). -Aggregate produotion of each coutry -nito.
isbaedon nestioe ac :,producer price., cights t-
Per c-pit. suel of caoie 'peret It rocr:nn)-Cmuedfo t 'cRCtenr 'fftvlo .se food soupelle evilcole in ootry per caPita To-tal lbr coco thousands) -tonmcat ci-c Persons, un-ludlg sre,e
per icy. Av i.sis rupplirs coopi domestIc prod-tloo, tap-rts less foroo and -nepicyd lo,t -oldo orcco tdents,et. Itofot
erorts, sod ohoogI I toook . Ret oupplie occlde animal feed, seu, t aroo atrietae o comparstble.qusntit-e soId is food proeosioag, sod losoe io diot,ibotico. Require-. rsJj- e " ecelofrCo- as poroe-oge of total le.rytoo-_ee_tyoerevtttmtd toy PRO tomoed on posii -ca rd. for oveal -ciotoe~otetoI lbor foo ofradr-, torvotrY buntot and
acivtyso bati cnidein'g evrretltemperatur, body -egat., fishing no p-r-etog of total isbio fre.-Iego and -c diorbutin of pouato, n a1osiog 10 p-roet for rtndsyl ~percet) - labor forc ci nosing ,catufo,oointrocaste st rocoe.hol lood el-ovitt, stor and g-c to pe-ctag of total loPr fre
Pery vpito sosply of -rci xran per da)-Protete c-t-t of p-c Par'ilcl o PaePrco Ittl osl,ad ConnIe - P-vt:ciption orospit ten upplyof food pr day. Net opply of foo is desloe.d an -cticity vod!tes-, ar opue oto1tal ae o fn orfoc spr
shove. Vqiensfor, all coutries et trine y IJDA proide for t osntage of total, -oat and femal pops.i-to of til Igeov-pootiveiy;ouinm nlos-r of6 gc ea of totni proteto Per day ann 20 gram of 1960, 1-970, end 1975 dto. Thes ar tIl ~ p vati.toxti-e votes -flectiog
sosIsdplepoen,o bo Igsseoudh naIpoen Igo-.e tc-t-u of toe population, and 1og tier trond. A fc estimatesMes otandard ar lose than those of 715 groin of total protein and ore from sn~ioosl Icoroc23 gros of animal pro trio,. to sovrage for the -cId, prcpoe.d by rAP tor..o i.doxDpndenc Ratio - Ratio f popultion under 15 sod 5 and ovr-
to he hir iirldFood bccr.the todor `orc in ago grop of 1-5-cl pear.Per caiaootc uply from anmlad poise- P-.si. copply of ford
s-ir-d from -,t-J. sod pu...e togospr bay. IBO 0DThfliC ild ge I-- Okrtality St re t OsLn) - Anul deaths Per thousad Percentage of-dot Icmibtoi-tba d ot) - ReceIved toy rioes0 eg grop--P fer, o ild-c it thisIg doP; for soot oe- 0 - I percet,richest PP p--ot, pooroc.t 20 per-sv, and provot u5 peroe..t
opoo,g cOo-ntt- ostc drired fro Lilfe ta Ie.r of houelds.Ml.
HEALTH PIVEPT' 705G7T 3RCoTytlueiocao. t Brhter)- bvrge -e of year of lofe Ionv Abocut Povery locrlor 7100c on- t 2- - c- iccr.
Itton ~ torto- *03,170. ad177. into. Absolute povery incom -001 is 0tox iore rv 11-uI tocrtrolo 't 'per hohusund) ,-.Anua -train of t-fant -oe n urtoalyseut 1cvucvsot.tofo cinnts o
yor of Peg pe--sn oe ito fodablv.
Orovo to Ife dterprooto oniolo)-tta ran o crl Os-eve rclotilv PovetY loc- 1c-ce I00 oc-trdo -- gra sod coralt
oaf, -ncopolyinldetros sofsc. --t-r or un-trr Pit perons.1 booms of toe country. l-oa level Ic levid fo the rura lo--Iuooctsmoted rater tori no clot from prot-cto bOrebolec., oprtngs, cito sdjsstnct for ligh-r coot of living toibs reo
sod caiterypelt: novovostseo ofthro resjpect-ive ;p-putuo- to Psims ocostdloOoI oe ty bo- leve --vvvtt -utan sodaurban Ire tviol flo tcutlo or stndcs Ictoed sot -y -1,M. r,rs.I -Percentof otoc ubnadrre i r osl or
20 sc rs fro douse n-Y vs oriderd us o-ug tsthin r-assaiix.lsovesoftstht house In rura ors - -eso-bicle acros -cld Imol
tint te tosed Ccor-mer.r of the tousebld 00 cOt s.- -s spends d....ic sod Socual laositorspropcroice... yes- of vhs day' or -oting tie fo`lys soccr ... d IIomi na -irad Prjoioelpa--tnc
Aiguot197
Aunex I
-23 - Page 4 of 5
PANAMA - COUNTRY DATA
GROSS NATIONAL PRODUCT IN 1978 (Prel.) (Current market prices) ANNUAL RATE OF GROWTH (%, constant prices)
MONEY, CREDIT AND PRICES19'2 1973 1974 975 1976 1977 1978
(Million B/. outstanding end period)
Money and Quasi Money -/ 440.4 506.4 596.4 622.1 732.3 791.0 894.4Bank Credit to Public Sector 16.3 6.1 71.4 219.0 313.0 3i5.C 204.5Bank Credit to Private Sector 703.5 965.1 1229.3 1279.2 1301.8 1369.7 1427.3
(Percentages or Index Numbers)
Money and Quasi Money as % of GDP 33.9 34.4 32.5 32.2 36.5 37,1 38.0General Price Index (1975 = 100) (wholesale) 62.0 67.3 87.7 100,0 107.8 115.5 121.8
Annual percentage changes in:General Price Index (wholesale) 8.5 10.5 30.2 14.0 7.8 7.2 5.5Bank Credit to Public Sector (change) -4.0 -63.0 1070.0 207.0 42.9 0.6 -35.1Bank Credit to Private Sector (change) 33.1 37.2 27.4 4.1 1.8 5.2 4.2
Note: In early 1979, the Government revised downwards slighTly its estimates of GDP in current prices. While the ratios onthis page reflect the new GDP estimates, the real increases used stem from the old services, which has not yet beenrevised.
l/ Total labor force; unemployed are allocated to sectcr of their normal occupation. "Unallocated" consists mainly ofunemployed workers seeking their first job. Excludes collective settlements and indigenous population.
2/ Excludes financial intermediaries. Includes Government owned enterprises.3/ Cash basis.4/ The net external borrowing for 1978 was about B/100 million higher than that used for de-icit financing in 1978; itwas
be used during 1979. The puilic sector deficit was 15.4 percent of GDP in 1978 and estimated at 11.1 in 1479.5/ Demand, time and savings deposits only. The amount of US dollar- in circulation is unknown. Balboa issues are limited
to coins.
Annex I
_24 Page 5 of 5
PANAMA - COUNTRY DATA
BALANCE OF PAYMENTS MERCHANDISE EXPORTS (AVERAGE 1975-78)
of Panama Maintenance 12.0 11.91641-PAN 1978 COFINA Industrial Credit 15.0 10.71672-PAN 1979 BNP Tropical Tree
Crop Dev. 19.0 17.61778-PAN 1980 IRHE Power 23.0 23.0
Total (less cancellations) 278.2 123.3of which has been repaid 30.4
Total now outstanding 247.8
Amount Sold 9.2of which has been repaid 7.8 1.4
Total now held by Bank 246.4
Total undisbursed 123.3
B. STATEMENT OF IFC INVESTMENTS (as of April 30, 1980)
Fiscal Amount in US$ MillionYear Loan Equity Total
1971 Corporacion de Desarrollo Hotelero 1.2 0.3 1.51978 Vidrios Panamenos, S.A. 2.4 1.4 3.81979 Banco Latinoamericano de
Exportaciones, S.A. - 2.5 2.5
Total gross commitments 3.6 4.2 7.8less cancellations, terminations,repayments, and sales 0.3 0.0 0.3
Total commitments now held by IFC 3.3 4.2 7.5
Total undisbursed - 0.1 0.1
- 26 -ANNEX IIPage 2
PROJECTS IN EXECUTION 1/
Loan 901: Livestock Development Project; US$4.7 Million Loan ofJune 8, 1973; Closing Date: June 30, 1980.
The project finances cattle enterprises, including land reform settlementsinvolved in dairying, beef breeding and fattening, and technical services.Commitments lagged behind appraisal estimates, due mainly to initial delaysin organizing the project unit. The loan has now been fully committed and theproject is expected to be completed by mid-1980. Preliminary analysis of17 project farms indicates a favorable impact on technical coefficients ofproduction and income.
Loan 948: Third Power Project; US$30 Million Loan of December 4, 1973;Closing Date: June 30, 1980.
The project is designed to integrate three of the four isolated major regionalelectricity systems into a national grid. The project includes a 28 MW dieselgenerating plant (San Francisco); 230 kV transmission lines and associatedsubstations; a load dispatch center; 115 kV subtransmission lines and substa-tions, distribution, and consulting services. All major project items arecompleted. A minor portion of the subtransmission lines and substations arestill under construction and will be completed by mid-1980. Delays in theproject are largely due to initial delays in engineering, bidding and procure-ment. Project costs are currently estimated at 27 percent above appraisalestimates in large part due to inflation.
Loan 1280: Water Supply and Sewerage Project; US$12 Million Loan ofJune 9, 1976; Closing Date: December 31, 1980.
The project includes: improvement of the distribution facilities in thelow-income district of El Chorrillo in Panama City; construction of a watertreatment plant to serve Colon; improvement of the water treatment plant ofthe City of Chorrera; provision of water to the town of Arraijan and thefishing port of Vacamonte; purchase and installation of 30,000 water meters;technical assistance to improve the organization of IDAAN and to install anew commercial system. Project execution has been slower than estimated atappraisal due in part to changes in the management of the Borrower. As aresult of the changes, there were delays in the selection of the consultantsto carry out the engineering of the Colon treatment plant and the rehabilita-tion of the Chorrera treatment plant, the largest components of the project.Contracts for the Colon and Chorrera components have been let and construction
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 do not purport to present a balanced evaluation of strengthsand weaknesses in project execution.
- 27 -ANNEX IIPage 3
has now started. The expected improvements in the commercial system have bee.astarted: asset valuation has been completed and the billing and collectionsystem will be changed substantially by the end of the year. The company isfinancially sound, largely as a result of substantial increases in water ratesin 1976 and 1977.
Loan 1397: Second Livestock Project; US$8 million Loan of April 25, 1977;Closing Date: August 31, 1982.Panama (BNP).
The project includes financing for small-and medium-scale milk producers;to a state-owned farm (Programa Integral de Rio Hato--PRODEIRHA) for live-stock breeding facilities, and technical assistance. The project startedslowly due in part to changes required in milk legislation and staff changesin the project unit. Changes in the milk legislation involve a modificationin the method of determining the price paid to producers; the price of milkis now determined by the building standards of the farms; the modified legis-lation will require that producers be paid according to the quality of milkproduced. The legislation was approved last year and the Government is takingsteps to ensure its implementation. The Bank was informed late last year thatthe Government has decided to modify the PRODEIRHA component by carrying itout in five different research extension farms of the Ministry of Agriculture(MIDA), a proposal which is acceptable. Loan commitments for the small andmedium scale milk producers, the most important component of the project, areproceeding on schedule.
Loan 1398: Second Fisheries Project; US$7.5 million Loan of April 25, 1977;Closing Date: December 31, 1981.
The project includes the construction of ten new purse seiners, the replace-ment of five obsolete shrimp trawlers by five new boats, the rehabilitationof ten wooden shrimp trawlers; the relocation of six shrimp processingplants to the new fishing port at Punta Vacamonte; the development of freshwater fish and oyster farms, and technical assistance. The contract forthe purchase of the purse seiners has been awarded and the boats have beendelivered. The fresh water fish and oyster farming components are proceedingsatisfactorily. It was envisaged that the shrimp vessels would not be con-structed unless the expected reduction in the shrimp fleet materializedin 1979. The reduction on the fleet did not materialize and in additionthe purse seiners were procured below appraisal estimates. As a result,$2.4 million of the loan were cancelled in February 1980.
Loan 1470: Fourth Power (Fortuna Hydroelectric) Project: US$42 millionof July 1, 1977; Closing Date: December 31, 1983.
The project, cofinanced by the IDB (US$98 million) and suppliers, consists ofthe construction of the 255 MW Fortuna Hydroelectric Project, and associatedtransmission as well as technical assistance for organizational improvementand a training program for the Borrower. The underground civil works, which
- 28 -ANNEX IIPage 4
are being financed by the IDB, are underway. The contract for the maingenerating equipment, which is being financed with credits from suppliers,has been awarded (Skanska, Sweden) as well as for the dam and diversionworks (Aoki, Japan), which are being financed by the Bank. The project isstill expected to be commissioned by mid-1983 as estimated at appraisal.The organization and training programs, being financed by the Bank, areexpected to be completed in 1981.
Loan 1565: Highway Maintenance Project: US$12 million loan of June 30,1978; Closing Date: March 31, 1983.
The project finances equipment, spare parts and technical assistance requiredto implement a four-year road maintenance program, including improving equipmentmanagement, which would strengthen the maintenance capability of the Ministryof Public Works. The project started about one year behind schedule due todelays in fielding a team of consultants, instead of a consulting firm, as aconsequence of a change in government policy. A group of six experts is nowworking in Panama, and in two pilot provinces, with five more expected beforeJuly 1, 1980. Procurement of maintenance equipment is uinderway and deliveriesshould start in June 1980.
Loan 1641: Development Banking Project: US$15 million loan of January 23,1979: Closing Date: December 31, 1982.
The project would help finance the estimated foreign exchange component ofsubloans and equity investments for the acquisition of fixed assets and perm-anent working capital by productive private and public sector enterprises inthe manufacturing, service and tourism sectors. The loan only became effectiveon September 25, 1979 because of delays in obtaining Government guaranteescovering COFINA's exposure in several enterprises in excess of the limitsstipulated in COFINA's Policy Statement. The problem was resolved and subloancommitments have caught up with appraisal estimates. However, progress hasbeen slow in recruiting qualified middle management staff to make neededimprovements in COFINA's project evaluation work.
Loan 1672: Tropical Tree Crop Development Project: US$19 million loan ofApril 25, 1979; Closing Date: June 30, 1985.
The project consists of (i) long-term financing for the renovation of 1,500 haof coffee; (ii) long-term financing for the planting of 600 ha of coffee andthe planting of an additional 1,900 ha of cocoa; (iii) the planting of 1,000 haof bananas on land worked by three agrarian reform groups; (iv) the plantingof 3,000 ha of oil palm principally on land worked by agrarian reform groupsand the construction the first stage of an oil processing plant; anl (') con-sulting services to assist and train local coffee, cocoa and oil palm techni-cians and to assist in operating an evaluation system to assess the impact ofthe cocoa and coffee programs. The coffee and cocoa componen'ts are proceedingsatisfactorily. The banana and oil palm components have suffered delaysbecause of a change in management in one of the key implementing organizations,the Banana Corporation of the Pacific.
- 29 -
ANNEX IIPage 5
Loan 1778: Fifth Power Project: US$23 million loan of January 30,1980; Closing Date: December 31, 1983.
The project consists of a program designed to rehabilitate and expand IRHE'ssubtransmission and distribution systems in the 1980-83 period. The loanwas made effective on April 22, 1980. The project is proceeding on schedule.
- 30 -ANNEX IIIPage 1
PANAMA
COLON URBAN DEVELOPMENT PROJECT
SUPPLEMENTARY PROJECT DATA SHEET
I. Timetable of Key Events
(a) Project Preparation - Preappraisal
(1) Project prepared by: Implementing agencies with theassistance of consultants
(2) Initial request forBank financing: July 1978
(3) First Bank missionto consider project: October 1978
(b) Appraisal Mission Departure: October 1979
(c) Negotiations Completed: May 8, 1980
(d) Loan Effectiveness Planned: October 1980
II. Special Bank Implementation Actions
None contemplated.
III. Special Conditions
Assurances were obtained that:
1. the Government would, not later than one year after completion ofthe project, update the value of real estate in downtown Colonin order to levy the appropriate real estate taxes (para. 26);
2. the Colon High Level Commission would be maintained during theimplementation period of the project (para. 39);
3. the Port Authority would implement a revision of its tariffstructure for container facilities at Cristobal so as to ensurethat the revenues earned yield a satisfactory economic rate ofreturn for such activities after completion but before operationof the improvements in the container facilities included in theproject (para. 41);
- 31 -ANNEX IIIPage 2
4. the Free Zone would (a) set tariffs not later than September 30,1980 and thereafter which would be sufficient (i) to generaterevenues at least equal to: the sum of all operating expenses(excluding depreciation and other non-cash operating charges);debt service requirements; taxes or payments in lieu of taxes,cash dividends and other distribution of retained earnings and allcapital expenditures not financed by long-term debt; (ii) yield areasonable return in real terms on the value of the facilitiesincluded in the project; and (b) not undertake any investments whichwould result in annual expenditures in excess of US$1 million overthe proposed project and other ongoing projects unless agreed withthe Bank (para. 53);
5. MIVI would design tne works, carry out procurement and superviseconstruction on behalf of Caja for the housing and social servicescomponent under contractual arrangements satisfactory to the Bank(para. 36);
6. the Government would recover urbanization costs through a tax(para. 47);
7. The Free Zone would obtain approval of the Bank prior to con-tracting any of the loans required as part of the co-financingarrangement (para. 43);
8. the proposals for sewage collection and disposal works included inthe Free Zone and Puerto Escondido developments would be prepared inconsultation with the National Water Supply and Sewerage Instituteand would be approved by the Bank prior to undertaking any sewerageinvestments in the areas (paras. 34 and 37);
9. a detailed site plan of phases two and three of the Puerto Escondidodevelopment, satisfactory to the Bank, would have to be furnishedto the Bank before disbursements are made for each of these phases.Similarly, a satisfactory site plan would be furnished for thedwelling units in downtown Colon before disbursements are made forthis site (para. 37);
10. the Government would (a) enter into contractual arrangements withCaja for the transfer of funds for the housing and social servicescomponent; and (b) take all action necessary to make available118 ha for use in the Puerto Escondido development, and for thesite in downtown Colon before disbursements are made for each ofthese sites (paras. 37 and 46);
11. the Government would make available the appropriate site for theregional education center before disbursements are made for thiscomponent (para. 38);
12. a condition of effectiveness would be that the Free Zone has obtainedthe IBJ initial loan on terms and conditions satisfactory to theBank and that the Bank has been notified that all conditions precedentto the initial disbursement under the IBJ initial loan agreementhave been met (para. 43).
IBRD 14676,MARCH 19H0
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