RESTtllCTED ( ~ ~

K~~~~Rep 0 l t ri o P (1DI) 1 If middot

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This rOfiOrt was pr~PQfd for us within thlJ Allociutlon Ii May not b0 pubmiddot IIshed nClf may i~ be quoted CIS ffipretlsnHng tho Assodation views Th9 Auoclatlon occ~~ na fosponlbility for th0 accuracy or compIQt~l1~t8 of t~ cont~mta of th~ repor

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IN1ERNATIONAL DEVELOP~iENT ASSOCIA1]ON

REPORT AND RECO~il~AENDATIONS

TO THE

EXECUTIVlt- DIRECTORS

ON A

PROPOSED DEVElOP~1ENT CREDIT

TO TIlE

HEPUBLIC OF HONDUltAS

FOR A

HIGHWAY PROJECT

~Aay 3 J 1961

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INT~BNATIONAI DEVELOPfENT ASSOCIATION

REPOIT AND REGONHENDATIONS OF THE PRESIDENT middotTO THE EXEcDrrV1fnntECTORS ON A PROPOSED DEVELOPHENT CREDIT TO THE -~~ middot~middot-~~iEPt1BLIC OF ~IOITDURAS FOR AmiddotHIGI1~AY PROJECT -----

PART I INTRODUCTION

10 I sllbmit herelrnth tho iollOlnng Report and Recommendations on a propoied Developmerlt Credit for [Ul amount in various currencies equbtaJent to $90 million~ to the Republic of Honduras to help finance a Highway Project

2 ~ ~he Honduran Goverl111lent has approached the Association for Ils2Iistelce in financing its Hieh1gt1ay Progran1a Ny recommendation is that this assistance be for the construction of the extension of th8 le~~tern Hi~lnny related feeder roads and highway fImintenn(c anti pIannin15

) ~he Bank han liwd~ four loans to Honduras t c-o for highllaysem

and Lio fo electric pmfe totalling $199SJOOO equivalent of -lhich the middot)orcton now ontscanding and held by the Bank is $17637000 GqllivJent

4 ~he proposed cXt3dlt Nuuld be the first financing to be undert~ken by the Assoc)atlofla

PAftI II Er~ONONIC JUSTIFICATION I~OR AN IDA CREDIT TO HOlDURAS

5~ The Bank I smost iecent econondc report on Honduras (11 60~60) which ~S distributed on H~ ~1 1960 noted that Honduras is amoi1g

tht~ leclst -ieveloped of the Latin American countries BetttTeen 80 8nd 90~~ of jts area is mountatnous and rugged tecrain has made corrununieations diffic11t Although only one quarter ()f the country is under cultivation ihH prr)portion of rural population is the highest in the vJestern Hemisphere In transportation facilitics pmier degree of industrial izatiOI)~ 8 3 rleJ~ as health education and sanitary faciliti2s Honduras lags behind almost all other countries 0 the -olestern Hemisphere 0 Per capittl income about $185 is one of the 1ow-st iu Latin America e

6 ~ In reCl~nt year3 lltd th help fro~ the Brulk Hrnd other external sOQrces Honduras has begtul to provide some of the basic facilities needed for economic grovlth and grodng poliJical stability as Hall as improved lJanagement of public finances ~Xe helping creatB an

j ~middotl

iL~I5~ ~

INT~BNATIONAI DEVELOPfENT ASSOCIATION

REPOIT AND REGONHENDATIONS OF THE PRESIDENT middotTO THE EXEcDrrV1fnntECTORS ON A PROPOSED DEVELOPHENT CREDIT TO THE -~~ middot~middot-~~iEPt1BLIC OF ~IOITDURAS FOR AmiddotHIGI1~AY PROJECT -----

PART I INTRODUCTION

10 I sllbmit herelrnth tho iollOlnng Report and Recommendations on a propoied Developmerlt Credit for [Ul amount in various currencies equbtaJent to $90 million~ to the Republic of Honduras to help finance a Highway Project

2 ~ ~he Honduran Goverl111lent has approached the Association for Ils2Iistelce in financing its Hieh1gt1ay Progran1a Ny recommendation is that this assistance be for the construction of the extension of th8 le~~tern Hi~lnny related feeder roads and highway fImintenn(c anti pIannin15

) ~he Bank han liwd~ four loans to Honduras t c-o for highllaysem

and Lio fo electric pmfe totalling $199SJOOO equivalent of -lhich the middot)orcton now ontscanding and held by the Bank is $17637000 GqllivJent

4 ~he proposed cXt3dlt Nuuld be the first financing to be undert~ken by the Assoc)atlofla

PAftI II Er~ONONIC JUSTIFICATION I~OR AN IDA CREDIT TO HOlDURAS

5~ The Bank I smost iecent econondc report on Honduras (11 60~60) which ~S distributed on H~ ~1 1960 noted that Honduras is amoi1g

tht~ leclst -ieveloped of the Latin American countries BetttTeen 80 8nd 90~~ of jts area is mountatnous and rugged tecrain has made corrununieations diffic11t Although only one quarter ()f the country is under cultivation ihH prr)portion of rural population is the highest in the vJestern Hemisphere In transportation facilitics pmier degree of industrial izatiOI)~ 8 3 rleJ~ as health education and sanitary faciliti2s Honduras lags behind almost all other countries 0 the -olestern Hemisphere 0 Per capittl income about $185 is one of the 1ow-st iu Latin America e

6 ~ In reCl~nt year3 lltd th help fro~ the Brulk Hrnd other external sOQrces Honduras has begtul to provide some of the basic facilities needed for economic grovlth and grodng poliJical stability as Hall as improved lJanagement of public finances ~Xe helping creatB an

j ~middotl

iL~I5~ ~

atmosphere in yh-Lch a more satL3factoy rate of grmmiddotth i3 possj bie Gross national prod1ct has grmmiddotm in the past decade by an average of ulmo3t )l per year but opulation has increased by more thall 3b annud~Llr leaving onJy a Gl1a11 and un~attsfactory net gain Eorcover this gain hBS accrued largely to CClUTlc tcial agriculture and to the urban sector rf tho population rather than to the 80~ of the popllation living on the land and having a per capita incomo belm-r f~lOO The achievement of arnore satisfactory rate of groHth iill require investment and capitnl imports on a substan tial~y higher scale trwn ha3 occur r ed in the past And for sGrIe time a hiGh proshyportion of such investmenLs will have to be in basic facilities ~lich are essntial but Hill not quickly bring about incceasc[ in production and income

7 The BankTs report noted that the National Economic Council and the Ninistry of Financ e had drmm up an econorl1ic deve1op11ent program fo the years 1960middotmiddot63 requiring public investl~ent of about $7~) ml1iol In thJG program highHay construction and maintenance Hee eX9fC ~ed to absorb approxirnately Ll5 of the total and hydco shyelc~ctric d ~velopment telec Oi1Trllmi cations agricuJ t1n~ _ a Wl port nJ

ai r port cOlstruction accOlnt c d for no ~t of t1C remainclc c Sxp8ns ion of health ecblcation and soeial welfare facilities Has not inclilded in the pro ~ram but Has to middotb provided for in the~ gr01middotring current budget ~ I Ide-d the groth of exrcnditures in these fi l31dsJ together Hi-Lh risin ~ r- ovision for s ecvicin~ the public dobt account for th(~

Hhole (middotr tIe projected inGrea~)C in current outlaysgt Public u2v(lop~ert

exr)enditur ~s at the prograr1J1ecl level HouJd represent a substanti_al increae 0 fer those of the 50 f s but llGuld strengthen the economic inrrastruc~ure rather than yield irrcnediate increases in output for dOlnestj c c mSmiddotlmption or cx)ort

8 ~n assessing th~ resources available for financing this prl)gram t J2 dank t s report expressed rrisgi J)_ngs regarding their adequ2cJ 2 i C1 (onc~_udGd that IItbe GOTel~nTellt nay t~l(~refore have to potpoc 2 s )rJ~0 parts of the pro~rcU11 b(70n(~ 1963 ltgt Sine then the cO~~ts c f mmiddotny projeurocts ~n the pl~ogrCl have increased i-wreovergt events hav ~ conirrecl the difficulties tmiddotrhich the Gove rr0tcnt tlas

expected t J encounter in contributins a sUJstantial p2rt of the finance reTJirecl Continuing efforts to i~crease tax reveYlt1ues are being frustcJted by the very lOH incoie of the rural m2_~S of the popUlation as vell as by the difficclties -hich tl1e banana industry is expEriencing Because banana prc~uction has been reduced by disease blmJdmmiddotms and marketing difficulties the industry paid very little in taxes in 1960 and is expected to pay nothing in 1961 IndeEd the problem of providing investm~nt funds has become so great that Honduras has ask(~d for budEetarv supuort from the United 5tates Government for this ~le2 fl1is s110rtfall in public savings has Jtve1oped agaj_nst a back~rOlU1d of heavy pressure on the derrl( -~ middot middot middoticalJymiddotmiddotmiddotelected Government to step up its inv8stJ1ent

3

progr1m to a 1evel yhich Hill yield a lr~ore acceptable grohith in output ruld incone o

9 In order to achieve a 2~~ or 2-12 annual groHth of pl~r eapica income ~_nstead of tho present l~~ total investnllt middotrould have to be increased to around 1~~6 of ~ross national product comshypared to the 12$ average of tho 50so This could be accomplished if domestic savings Here snppJ_cmented by g0vernrnen t borroHings of around ~15-~~20 million per year for productive projects in the next ~)everll years and if the GOV81l1lent pursued fin~lIlcial and fisca~l

polie Los designed to stimulate private inmiddot i~stllent Borrolring at this r atr almo0t double that of the pas ~ fe~ years is not improbable i n th~ l ~ght of projects and programs now under discussion

10 The present externll debt of Honduras to tals S3tJ 3 million rirtu111middot 3)1 of it borrowd in th2 past five years anel much of it not y~t disllUrsed Of this total the debt repayable in foreign eurr(~i1cy mTIounts to about ~~21 06 l1ilLion3 Serviee on this debt repre 3en-s about 4 57 of estimated foreign exchaniS8 C2rn-JlgS in lQ()1 and about ~~) in 1965 How)vcr sorvicing the pr8senlJ 21 ~ ~quires 9 of bu ~get revenues and conmlTes 3Cjr~ of )ublic savi~l~s Clnd 10 of na ~io a1 savings Q This is nlceady a heavy chaJ~e on I-hndulas I fin(nria- resources ~

11 Honduras could not at the present staee 01 her development ~afe1r bcrroH on conventional t8-ms the amounts required to obtain lt1 [l cti~i~actolY rate of grmmiddotth r~he eV11uation of the ratio of debt service Lo foreign exchanTe earninGs must be qualified by factors ihich are significant to Hondlu0S position As pointed out in the econonic reI1ort Honduras balance of payments 903i t i cn depends Tii ainly on exports of bananas (SO-55 of the total) and coffee (15 of tlw total) for neither of ~ Jhich are prospt~cts good The rate of Erortrl of export earnings over the next few years is at best nct likely to exceed the rate of gr0~th of populatioDo To achieve even this cate of groi-rth would require the solution by the banana cCJmpanies of difficult disease and rrlmkcting problems i-dlich have been depressing banana m ports in recent years) The unceltain outlook for bananas and coffel aJfects not only Honduros ~ foreign exchange earnings but also her budgetary and public savings prospects It is these prospects rhich today constitut~ the more important limitation upon Honduras I abili ty to undertake public investment and to borrm-1 on conventiona1 terms shy

12 In vieH of Honduras very 1011 level of development and low per capita income af the uncertainty and 5101 grolrth of exports now in prJsprct of thc~ffect of 3ervicing substantial public external borro middotmiddotrin~middot on the bUdGet and on public savings I regard it as 8ppro~)riEtc for IDA to rnake funds avail2ble to Hondur-s at this time inclu(linC assistance for expenditures in domestic curr ency~

PART III BACrltGHCIJND AlD DESCHIFTImI OF THE P~1-0POSED C~1EDIT

13 For the past five years Honduras has actively considered extendi 1g the Itestern HighlaY from its present termnus Santa nOSl

de Copa l to Nueva OcotepequC and the border -nth El Salvador a distnnc3 of about 100 krl1~ The Government attaches high pl~iority in its inv 3st -nent program to this Proj Bet

14) n~liminaIY engtneeling studies of this highHay Gxtension were Xi lan~ed by the Danks HichHay Haintenance Loan of 1955 (N0 il IJ5-middotHO) ~ Design tu-iies middotrere financed by the Bank l s HighlJay Construction Loan of 1958 (N middot) 195HO) H71ich also fincmced the constrl1ction of culverts andbri 1ge3 on the Festern HighHay be-reen Chameleeon and Santa Hasa de Copal It HaD b101m that tte Extension ]QuId traverse rugged tela5n but o[he l d(~tailed plans lere completed in 1959 the ~0)t estimates prov3d ~o l)e unexpectedly high ~ The Government inttr A- 1l 2J)tlsultanrs to r3vil ~1 Jtandnrds and tllignI~12nt in an attempt to reduce costs and also to remiddot-j8middotH the (~conomi( justification-)

1S ~n Decem()Oi 1960 3 r1ission visited EondurCls to apprais l j t1 (~ Extensil_n Project ~ Lile Nission found that certain tecbnical studies of aliGlment anci soil conditions 1erI1-31n to be completed but that the cost i1 clllding -~d~quate leservcs for uncertaintie 3 and contingencies J

vrould b ~ justifir~cl by the economic benefits

16 Negotiations began on April 1) 1961 1-nth a Honduran I-1ission cons Lstj ng or ~~r Jorge Bueso Arias 1inister of EcolorJY and Finance- Hr lTuan Hjlla Bermudez Minister of Public ~orks and Cornnunications Hr Carlos H lviatute Secr8t~ry General of the National Economic CcnmciJ and ~rr Jorge Bogran Fial1cs Director General 0f the Department of Highuays

Descri~ion of the Proposed Credit

bull17a Purlose To assist in financing the cost of (i) construction of about 100 kilometers of cll-1middoteather highHay-shyfrom the present terminus of the Hestern HighvIay to the El Salvadcr border (ii) construction of feeder road~ in the lestern neGion (iii) continuation fOl tvlO years of a hightmiddotJaY rnaintenc1nce prog12Jll Civ) and a ilghvTaY planning survey

tmiddotmiddot

BOlTocmiddotec The L ~ (r- ~ic of Honduras

Amount The ecuivaJent in varjous clIrenc ies curre~cies of $9~0 million~

Term and Amortization The term of the Credit would be-- -__-__--___------- shy50 years Hith no an10rtization for 10 years from September 1 1971 one-half of 1 of the prineipal amount vJould be reu3yable semimiddotannually for Gfl1

ye~r~ and 1~ s 8rni-aml~a11y thereafter to Harch 1 2011 G

34 of Its per annUil1 on the principal ~1Jn()Unt of the C8clit disbursed and outstonding

Hareil L and SeplCrrl)e ~_ i

PART IV LEGAL IHSTiUJrIErYfS AND LEGAL ADTHOHITY

15 tt3ched is a draft Develcmment Credi t A[reenE~nt betHe8n th~ As~oci ltLm and the Hepublic 0 f Io1duras (No ~ J~) Since this lo1Jd be t w first develo9l1ent creci5 t to he granted by the AssociatLon the clrc~ ft lgrerent includes certa ~n Dlovisions that HOltld be generally applicable to de~eloprnent credits ~ade by the Association to its members it is prop)sed to codif)r these in DeveloDment Credit R2gulations Thich Vlill scon he distributed to the Executive Directors for theLr considershyation Th~ provisions of the draft Agreement follmr in substance the normal pattern of loan agreerents (including Loan Regulations No3) between the Ba1k and Hs members for projects of this k5nd except that

(a) no provision is made for a negative pledge on the BorrowerE assets

(b) ~he BorrOl-rer is not required to deliver bonds to the Association

(c) no interest is payable on the Credit but a service charge at the rate of 34 of 1 per annum is charged on the principal amount of the Credit Hi thdrawn and outstanding and on the principal amount of any special commitments by the Association (Section 209)

9 ~

(d) among the events of suspension lmd~r the draft Agreerrent are

shy

6

~( _I i defaults in paYlnentr tl1deJ any loan agreement

or guarantee agreerent betdeen the BorroHer and the Bank and

I bullbull )

~ Jl any SUsp31sion of the right 3 ofimiddoti thdrawal under a loan agreement be tHeen the BOtTOHer and the Bank or under a loan agreement Hith the Bank guaranteed by the BOrrOi-l8r because of de faul1 on the part of the BOlr011eI

(Section 5 02( c) and (d))

190 The folloYling provisions of the draft Agree~Tient are of special interest

(a) Hithdrmmiddotlal~3 from the Gredii~ Account shall be made e1theL in the turrencles expended on the Project or in any freely convetible currencY7 as the Association shall elect (Section 2 03(c)) this provision is intended to give the Association sufficient tleJ~ibility to nse its availabie resoulces but the Association viII lilake re2sonable use of its option so as to dib1JJsc currencles IJhich can be ea~dly used by tlH~ Borrmler

(b) npayments of the principal of the Credit sha]J b(~ made in dollars and the amount repayable shall be the equivalent in dol_ars of the currencies loTi thdralm trom the Credit AccOlmt J

determ]ned as of the respective dates of middotiith draigtwl (Section 2ll( c)) 0

(c) if at a later date withdrat-lal and repayment conditions Hhich 1I0uld be more favorable to the Borrower are provided for in the Development Credit Regulations of the Association they would be made applicable to this Agreement if within one year from the adoption of the Regulations the Borrolier should so request (Sectio1 214) o

20 The Recommendation of the Committee provided for in Article V Section led) of the Articles of Agreement of the Association will be submitted to the Executive Directors befor~ the meeting at vhich the proposed Development Credit wiD be con~ciered

21 The Credit will not become effective un~l the Agreement Sf has been rVtified by the Congress of the Republic 9Jf Honduras 0

BOlTocmiddotec The L ~ (r- ~ic of Honduras

Amount The ecuivaJent in varjous clIrenc ies curre~cies of $9~0 million~

Term and Amortization The term of the Credit would be-- -__-__--___------- shy50 years Hith no an10rtization for 10 years from September 1 1971 one-half of 1 of the prineipal amount vJould be reu3yable semimiddotannually for Gfl1

ye~r~ and 1~ s 8rni-aml~a11y thereafter to Harch 1 2011 G

34 of Its per annUil1 on the principal ~1Jn()Unt of the C8clit disbursed and outstonding

Hareil L and SeplCrrl)e ~_ i

PART IV LEGAL IHSTiUJrIErYfS AND LEGAL ADTHOHITY

15 tt3ched is a draft Develcmment Credi t A[reenE~nt betHe8n th~ As~oci ltLm and the Hepublic 0 f Io1duras (No ~ J~) Since this lo1Jd be t w first develo9l1ent creci5 t to he granted by the AssociatLon the clrc~ ft lgrerent includes certa ~n Dlovisions that HOltld be generally applicable to de~eloprnent credits ~ade by the Association to its members it is prop)sed to codif)r these in DeveloDment Credit R2gulations Thich Vlill scon he distributed to the Executive Directors for theLr considershyation Th~ provisions of the draft Agreement follmr in substance the normal pattern of loan agreerents (including Loan Regulations No3) between the Ba1k and Hs members for projects of this k5nd except that

(a) no provision is made for a negative pledge on the BorrowerE assets

(b) ~he BorrOl-rer is not required to deliver bonds to the Association

(c) no interest is payable on the Credit but a service charge at the rate of 34 of 1 per annum is charged on the principal amount of the Credit Hi thdrawn and outstanding and on the principal amount of any special commitments by the Association (Section 209)

9 ~

(d) among the events of suspension lmd~r the draft Agreerrent are

shy

6

~( _I i defaults in paYlnentr tl1deJ any loan agreement

or guarantee agreerent betdeen the BorroHer and the Bank and

I bullbull )

~ Jl any SUsp31sion of the right 3 ofimiddoti thdrawal under a loan agreement be tHeen the BOtTOHer and the Bank or under a loan agreement Hith the Bank guaranteed by the BOrrOi-l8r because of de faul1 on the part of the BOlr011eI

(Section 5 02( c) and (d))

190 The folloYling provisions of the draft Agree~Tient are of special interest

(a) Hithdrmmiddotlal~3 from the Gredii~ Account shall be made e1theL in the turrencles expended on the Project or in any freely convetible currencY7 as the Association shall elect (Section 2 03(c)) this provision is intended to give the Association sufficient tleJ~ibility to nse its availabie resoulces but the Association viII lilake re2sonable use of its option so as to dib1JJsc currencles IJhich can be ea~dly used by tlH~ Borrmler

(b) npayments of the principal of the Credit sha]J b(~ made in dollars and the amount repayable shall be the equivalent in dol_ars of the currencies loTi thdralm trom the Credit AccOlmt J

determ]ned as of the respective dates of middotiith draigtwl (Section 2ll( c)) 0

(c) if at a later date withdrat-lal and repayment conditions Hhich 1I0uld be more favorable to the Borrower are provided for in the Development Credit Regulations of the Association they would be made applicable to this Agreement if within one year from the adoption of the Regulations the Borrolier should so request (Sectio1 214) o

20 The Recommendation of the Committee provided for in Article V Section led) of the Articles of Agreement of the Association will be submitted to the Executive Directors befor~ the meeting at vhich the proposed Development Credit wiD be con~ciered

21 The Credit will not become effective un~l the Agreement Sf has been rVtified by the Congress of the Republic 9Jf Honduras 0

6

~( _I i defaults in paYlnentr tl1deJ any loan agreement

or guarantee agreerent betdeen the BorroHer and the Bank and

I bullbull )

~ Jl any SUsp31sion of the right 3 ofimiddoti thdrawal under a loan agreement be tHeen the BOtTOHer and the Bank or under a loan agreement Hith the Bank guaranteed by the BOrrOi-l8r because of de faul1 on the part of the BOlr011eI

(Section 5 02( c) and (d))

190 The folloYling provisions of the draft Agree~Tient are of special interest

(a) Hithdrmmiddotlal~3 from the Gredii~ Account shall be made e1theL in the turrencles expended on the Project or in any freely convetible currencY7 as the Association shall elect (Section 2 03(c)) this provision is intended to give the Association sufficient tleJ~ibility to nse its availabie resoulces but the Association viII lilake re2sonable use of its option so as to dib1JJsc currencles IJhich can be ea~dly used by tlH~ Borrmler

(b) npayments of the principal of the Credit sha]J b(~ made in dollars and the amount repayable shall be the equivalent in dol_ars of the currencies loTi thdralm trom the Credit AccOlmt J

determ]ned as of the respective dates of middotiith draigtwl (Section 2ll( c)) 0

(c) if at a later date withdrat-lal and repayment conditions Hhich 1I0uld be more favorable to the Borrower are provided for in the Development Credit Regulations of the Association they would be made applicable to this Agreement if within one year from the adoption of the Regulations the Borrolier should so request (Sectio1 214) o

20 The Recommendation of the Committee provided for in Article V Section led) of the Articles of Agreement of the Association will be submitted to the Executive Directors befor~ the meeting at vhich the proposed Development Credit wiD be con~ciered

21 The Credit will not become effective un~l the Agreement Sf has been rVtified by the Congress of the Republic 9Jf Honduras 0

PRT V APPBJ1ISAL 01 T1E PROPOSED CREDIT

22 ~ detailed apprai 3ul of the Project (TO (IDA)2) is attached (No 2))

23 ) A principal factor impeding the development of the Honduran eC()TlOrrty has been the laGk of an adequate transportation systen The propose i Extension of the middotJestern Highl1ay is en essential link in the cre cdiol of a national highHUY n)tHorko It middotrill stimulate the devtlloF 1en t of the regions s er ved by th1 -lestecn HighHay and contriblte to the roHth of the economy 18 B Tho1e G

24i I he Extension Imiddotrill tr averse a heavily populated region not nOil 9CC ~ss ~Lble by road prodncts of the region nO-i move mainly by 11l11lfJ jac and to a limited ~)xtent by air trarlsport As a result of the Jac ot access to mnrkets agriculture of the region has been r est ric ed mainly to subsistence fruming The construction 01 the Exte 1sinn and of feeder roads 1 Hill stimulate agricutmal production on l1nd~ i nOH farmed and will open neli lands to 3ettle~ontmiddot I t ~lt1 the poli~y (If t ohe Government of HoncillraCJ to promote the agricultural dev(~lopnent and proper use of middot(he lands made accessible by the roads to bB c(nstrUcted To that end the Government has given assurances that it will give special attention to developing and implementing a prog-am to ensure that Govermnent lands to be opened to settlement will be made available in ux-lits of economic size and to provide thE agriGultural research extensio1 credit marketing and other servi~es needd to achieve the farming potential of the Regicn

25 lhen the Extensiltm is completed it 10111 provide a new and shorter route betHeen S1 Salvador and the rapidly developing region north of Santa Rosa including t~e area of San Pedro Sula - an in~portant popuLation center ard Honduras most productive area It h~ll effect

large economies in the cost of transporting goods shipped between thes middot~ regions aid further encourage the increase of production on land3 served by the existing Hestern High-1ay By tying in l-lith a hightray which n~11 link Guatemala and El Salvador with Honduras the Extension lIrill contribute to the economic integration of these thre~~ countries

26 Substantial progress has alrea~ been made in achieving the purposes of the high~ay maintenance program HOl-Jever certain additional special equipment ar~ the continuation of consultants t services for a period of two years Hill help the Hi~h~y Department to meet its increasing Iaintenance resonsibilitiesJ and to perpetuate the progress made in routjne maintenance operations~ The highlTay 91anning survey is needed to enable Honduras to plan the furth e1 developmmiddot~nt of her high~7ay syst -111 on sound lines 0

LI

a

27 To guard against uncertainties in preuroent quantity fstirnate s of Hock 0 be don~ in the construction of the Egtiension an 8llm-JC11Ce of iJ 5 inilJion equivalent has been included in the cost estimates Ag

~ontingency item of 22 has haen included as protection against price Lnc8 a3e1 cUld any unforeseen concli tions tha t n1lY occur 101 Should the f inal cot 8stimates risfl aboie or fall belo1 the amount allocated for t he EKteil~31on the feeder ioad program could b~ laried accoYding11c

~~8o The estimated total cost of the ProjfIt in equivalent to about $1 L5 million of Hhich about $815 liril1ion is in forelgn xch_nge 111 tho Crodit AgrfCrrent -the Govcrnnent agrees to provide as n-aded all funds required over and above thl propo5ed ~9 milliol Crfdit t) cltIIry out the Project For the Go~ernment to proride this cmtire 8 iount (estimated at t he equivalent of about $h 5 million) fiCHl

the (ldG -t 1S needpd ~)ould le~luir- e a substantial reduction in other road (~on 3trllction and publie iJorkG during the nexJ thrz0 to fOll yearS l or tilis le lSOn the Government has requested and expect~ oon GO obtain ~ lOcH o ~ 32 5 million frot the Inter-Auexican Development Bnnk on tcn7G of rcpaynen-~J nruch more favorable than conventional t(~rms to help cover )art of -~he costs of the ProJect If thi3 loan is obtained the Government middotmiddotlOuld need to provide the equivalent of aboJt $2 0 0 million froPl bud~eti1ry appropriations for the Projeet )

29 The Government Hill be making expenditures from appropriations on otl1er necessary highHay conGtr1lction and substantial annual expendshyiturES on highray maintentU1Ce o Over the next four years the Government Tmud be financing frorn budgetary appropriations about 30 of its hi~hshyuay construetion progran over 85 of its maintenance program and about h6 of tle ~ombined construction and maintenance programs

30 Studies of the Extension have been prepared by engineering (~onsultants who are beinG retamed by the Government to supervise

its construction to prepare the feeder road program and co supervise the mat ntenarce program Consultants will also be engaged to carry out the planning survey under terms of reference satisfactory to the Association The construction 1-rork in the Project will be carried out under contracts a1-1arded on the b~~ais of international corrtpetitive bidding

PART VI COl~LIAJ CE ~lITtI= AR1ICrzS OF AGREE-1ENT---- ~-~-----~-~----~--shy

31e I am satisfied that theproposecl Development Cledit l-iould I~onrply vL th th(-~ Articles of AgrlJf~P1ent of the Association~

9

PAlT VII

320 I recoHncnd that the Association make available a DeveloiJrnent Credit to the RCfUblic of Honduras in an ammmt in variouo currelcics equivlt~ent to U~S~ t9~O million~ for a total ter11 of 50 yeamiddots~rlth service charges at Jll of l~~ p~r annum ond on 8l~ch other terms as 8r8

3pecifj-ed il the a~taehed draft nevelopment Credit Agreen-ent and that ihe E~ ~CUtiv8 Dirscor3 adopt a Hesolution to that effect in thH focm ttrc~(Jd O0 ~ 3) )

HA B Iliff Vice President

for Eug~i1etltgt Black Pr(s idmt

tJasilington D Co May) 1961