Document of

The World Bank

FOR OFFICIAL USE ONLY

IZLE CO'PY

Report No. P-37713-YU

REPORT AND RECOMMENDATION

OF THE

PRESIDENT OF THE

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

TO THE

EXECUTIVE DIRECTORS

ON A

PROPOSED FERTILIZER SECTOR LOAN

IN AN AMOUNT EQUIVALENT TO USW9O MILLION

TO

VOJVODJANSKA BANKA-UDRUZENA BANKA

WITH THE GUARANTEE OF

THE SOCIALIST FEDERAL REPUBLIC OF YUGOSLAVIA

April 13, 1984

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

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CURRENCY EQUIVALENTS

Currency Unit 1/ Calendar 1983 2/ March 1, 1984

US$1 Dinar 93.831 Dinar 130.0

Dinar 1 US$0.011 US$0.0077

Dinar 1,000,000 US$11,000.00 US$7,700.00

FISCAL YEAR

January 1 - December 31

ABBREVIATIONS

BOAL = Basic Organization of Associated LaborCAN = Calcium Ammonium NitrateCMEA = Council of Mutual Economic AssistanceDAP = Diammonium PhosphateICB = International Competitve BiddingINA = INA Petrochemija, KutinaLDR = Less Developed RepublicMAP = Monoammonium PbosphateMDR = More Developed RepublicNPK = Nitrogen-Phosphate-PotashP205 = Phosphorous Pentoxide Content in FertilizerSAP = Special Action Program

SDK = Social Accounting ServiceTPY = Tons Per YearVB = Vojvodjanska Banka-Udruzena Banka

1/ The dinar has not been maintained within announced margins since July 12,1973. Its parity is reviewed frequently to ensure maintenance of externalcompetitiveness.

2/ Period average.

FOR OFFICIAL USE ONLY

YUGOSLAVIA

FERTILIZER SECTOR LOAN

Loan and Project Summary

Borrower: The Vojvodjanska Banka-Udruzena Banka (VB) in Novi Sad,Socialist Autonomous Province of Vojvodina.

Guarantor: The Socialist Federal Republic of Yugoslavia

Amount: US$90 million equivalent, including capitalized front-endfee.

Terms: Amortization in 15 years, including a three year graceperiod, at the standard variable interest rate.

Loan Objectivesand Description: The proposed loan would be made under the Special Action

Program for Yugoslavia and would assist the FederalGovernment in increasing the domestic availability offinished fertilizer for 1984 and 1985. It would alsoaddress policy and institutional issues concerningdistribution of fertilizer and the Government's effortsto modernize and rehabilitate the industry, therebyenhancing the Government's on-going FertilizerProduction-Consumption program. The loan would(a) finance sub-loans to fertilizer producers for the(i) import of raw materials, such as phosphate rock,mono-ammonium phosphate, ammonia, ammonia solution anddiammonium phosphate; and (ii) import of spare parts forfertilizer production facilities, such as corrosionresistant materials, stainless steel piping and catalystsfor ammonia production; and (b) finance sub-loans tofertilizer producers for technical and energy studies ofall the fertilizer plants, with the assistance ofconsultants, in order to assess their production andenergy efficiency and to make proposals for improvements.

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.

Estimated Foreign Exchange Costs:US$ Million

Raw Material 57.20Spare Parts 21.00Study 1.72

TOTAL BASE COST 79.92

Price Contingency 9.86

TOTAL 89.78

Front-End Fee 0.22

TOTAL 90.00

Estimated Disbursements:

FY85 FY86(US Millions)

Bank FYAnnual 50.0 40.0Cumulative 50.0 90.0

Benefits and Risks: Through the appropriate application of fertilizer, theloan will generate additional grain production of about1.3 million tons (80% wheat and 20% maize), thus helpingto reduce grain imports, especially wheat, which has,over the past three years, averaged about 0.8 milliontons annually. In foreign exchange resources, theadditional production of wheat and maize would representabout US$208.0 million equivalent. The majorbeneficiaries of the loan would be individual farmerswishing to purchase fertilizer on a cash basis and thefertilizer producers. There are several areas of riskin the loan. To reduce the risk, after the loan isdisbursed, that the systems for foreign exchangeavailability to the fertilizer industry and fertilizerdistribution do not revert back to the existing systems,the Government has (a) agreed to a mechanism which inthe future will ensure access by fertilizer producers toforeign exchange, and (b) provided an understanding thatfuture fertilizer distribution will be made on the basisof soil fertility and crop response. There is also apossibility that individual farmers may not purchasefertilizer on a cash basis to the extent anticipated,although this risk is slight in that the limitedfertilizer application by such farmers in the past

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has largely been due to insufficient availability offertilizer, rather than lack of demand for it. There isalso the risk that the Government might decide not toproceed with the recommendations of the technical andenergy studies, although this is remote given its statedcommitment to rationalization of fertilizer productionand its decision to borrow for the studies.

Economic Rate of Return: Not applicable

Staff Appraisal Report: YUGOSLAVIA: Fertilizer Sector Loan (ReportNo. 4649-YU), dated March 29, 1984.

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE IBRDTO THE EXECUTIVE DIRECTORS ON A PROPOSED FERTILIZER SECTOR LOAN

TO VOJVODJANSKA BANKA-UDRUZENA BANKAWITH THE GUARANTEE OF THE SOCIALIST FEDERAL REPUBLIC OF YUGOSLAVIA

1. I submit the following report and recommendations on a proposed loanto Vojvodjanska Banka-Udruzena Banka, with the guarantee of the SocialistFederal Republic of Yugoslavia, for the equivalent of US$90 million tofinance the import of raw materials and spare parts for fertilizerproduction, and the cost of energy audits and production studies in thefertilizer industry. The proposed loan would be made under the SpecialAction Program (SAP) for Yugoslavia and is designed to support sector policyadjustments and lead to more efficient use of existing fertilizer capacity.The loan would have a term of 15 years, including three years of grace, withinterest at the standard variable interest rate.

PART I - THE ECONOMY

2. An economic mission visited Yugoslavia in June 1981 and its report,Yugoslavia: Adjustment Policies and Development Perspectives (3954-YU), wasdistributed to the Executive Directors on November 2, 1982. Updatingmissions visited Yugoslavia during the last six months and this sectionreflects their findings. Basic data on the economy are given in Annex I.

Institutional Setting

3. The social sector in Yugoslavia, which includes government,enterprises and public institutions, plays the leading role in economic andsocial development. It accounts for 85% of GDP and employs over half thetotal labor force. The private sector consists predominantly of peasantfarms and small enterprises. Decision making at all levels is governed bythe principle of workers' self-management, involving a unique set ofinstitutions and instruments of economic policy. Responsibility forimportant social and economic decisions has increasingly shifted from thefederal level to the republics, autonomous provinces and communes.Concurrently, the control of workers' collectives over production decisionshas been increased by a restructuring of all economic organizations intolegally autonomous Basic Organizations of Associated Labor (BOALs) which arethe smallest units producing a marketable output.

4. In addition to this strengthening of workers' participation at themicroeconomic level, the concept of workers' management has been extended toencompass macroeconomic decisions. A set of instruments, called socialcompacts and self-management agreements, enables the participation of alleconomic agents in the formulation of macroeconomic policy, while maintainingdecentralized responsibility for policy implementation. These instruments

are used to supplement more conventional monetary and fiscal policy measures,particularly in the areas of prices, incomes, and employment.

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5. The 1974 Constitution also introduced a new framework for economicand social planning, designed to reconcile decentralized decision-making withconsistent and coordinated action. The system of planning first seeks toestablish, through a set of social compacts, a national consensus on themajor medium-term goals for the economy. Thereafter, plan formulation isbased on participation of all economic and social units, including governmentbodies. Once consistency is achieved, economic units enter into medium-termagreements on supply, demand and investment intentions. In case agreementscannot be reached by the prescribed date, state bodies at the relevant levelare permitted to intervene, but only on a temporary basis.

Economic Trends and Development Issues

6. The economic development of Yugoslavia over the past two decades hasbeen impressive, characterized by rapid economic growth and structuraltransformation. Between 1960 and 1981, GDP grew at an average annual rate of5.5% in real terms. The share of investment in GDP has been high throughoutthe period, above 30% in most years. With population growth at about 1% perannum, real per capita income more than doubled over this period. Per capitaGNP in 1982 is estimated to be US$2,840 at 1982 market prices. 1/ The pastthree decades have also witnessed the growing integration of Yugoslavia intothe world economy. Between 1960 and 1981 merchandise exports and importsgrew by around 6% and 8% per annum in real terms, respectively. However,Yugoslavia's export performance to the industrial market economies showedincreasing weakness during the 1970s, particularly after 1973.

7. While overall growth performance has been impressive, large regionaldisparities persist. The Republics of Bosnia-Herzegovina, Macedonia andMontenegro, each with two-thirds of the national average per capita output,and the Autonomous Province of Kosovo, with one-third, are officiallydesignated as less developed regions (LDR). The difference in per capitaoutput between the most developed region in the country, Slovenia, and theleast developed, Kosovo, is 6 to 1. These disparities reflect severalfactors, notably the greater incidence of low productivity agriculture in theLDR, their higher dependency ratios and their higher population growth rates,which averaged 1.2% annually during 1971-81. Since 1965 concessionalinvestment credits have been granted to the LDR through the Federal Fund forthe Accelerated Development of the Less Developed Regions and, together withsupplementary resources for social sector expenditures from the Federalbudget, these resources account for about 10% of the social product of theLDR.

8. Since 1954, employment in the social sector has increased by around4% per annum, facilitating rapid outflows from the agricultural sector.Despite this very good record, substantial productivity and incomedifferentials remain between the modern (mainly social) and the traditional(predominantly private) agricultural sectors. These differentials haveresulted in high demand for modern sector employment on the part of the rural

1/ According to World Bank Atlas methodology.

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labor force. Large numbers of Yugoslavs have sought temporary employmentabroad since the late 1960s. At its peak in 1973 there were about 1.1million external migrants. Since 1973, however, this trend has beenreversed, and returning migrants have added to the pressure on the socialsector to create new work places. Unemployment rates have risen rapidly fromabout 7% in 1971 to over 12% in 1982. 1/ The incidence of unemployment ishighly regionalized; in 1982 unemployment rates ranged from 29% in Kosovo to

2% in Slovenia.

Recent Economic Developments

9. Yugoslavia today faces perhaps its most difficult economicsituation since the upheavals which accompanied economic liberalization in1965. In many respects the difficulties facing Yugoslavia are similar tothose facing most middle income developing countries: higher oil prices andinterest rates, sluggish world trade and more difficult access tointernational commercial bank credit. The severity of Yugoslavia's economicproblems, however, also reflects structural deficiencies in the pattern ofYugoslav development which became increasingly apparent in the seventies. Inresponse, the Government since 1980 has concentrated on stabilizing theeconomy and bringing the balance of payments under control. The mainelements of the stabilization program introduced thus far have beenrestrictive monetary and fiscal policies designed to curb investment and toreduce inflationary pressure, and the more active use of exchange ratepolicies to encourage exports. Increased reliance has also been placed onmore frequent interest rate adjustments and the Government has introducedminimum or floor lending rates for banking system credits in most sectors,with these rates being adjusted progressively to equal the rate of inflationover a specified time horizon, which will differ by sector. At the sametime, imports have been scaled back in line with the revenues accruing fromexport earnings and more limited foreign borrowing. Yugoslavia'sstabilization efforts have been supported by the IMF in the form of athree-year SDR 1,662 million stand-by arrangement which was in effect fromJanuary 1981 to January 1984. Agreements have also been reached for aone-year stand-by of SDR370 million, which is expected to be considered bythe IMF's Executive Directors in late April.

10. As a result of its stabilization efforts, Yugoslavia has succeededin bringing the current account of its balance of payments from a deficit of$3.7 billion in 1979 to an e'stimated surplus of $274 million in 1983. Overthe same period, the current account with the convertible area has moved froma deficit of $3.3 billion to an estimated surplus of $300 million. Exporttrends have been erratic over the period, both in the aggregrate and asbetween market areas, with, however, a strong showing in exports to theconvertible area in 1983. Apart from strict demand management policies, thisperformance reflects a substantial realignment of the real exchange rate in

1/ These rates are not directly comparable to those in other countries.They represent the ratio of registered job-seekers (including somecurrently employed) to the social sector labor force. The ratio ofregistered job seekers to the total resident labor force was about 9% in1982.

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1983, with a depreciation of approximately 25% against a basket of currenciesover the course of the year. Import levels have been cut in each year since1979, such that the nominal value of imports in 1983 was 13% below its 1979level, representing a real cut of approximately 31% over the period.

11. Yugoslavia's economic growth has slowed markedly since 1979, whenGDP grew by 4.2%. In 1980 it grew by 2.3%, in 1981 by 1.4%, and in 1982 by0.8%. Current estimates are that GDP declined by about 1.3% in 1983. Thisreduction in growth is partly a result of the controls on domestic demand,but also due to shortages of imported inputs. Mining and manufacturingoutput has been particularly affected. There have been marked fluctuationsin agricultural output. After stagnating in 1980 agricultural value addedincreased by 2.8% in 1981 and an estimated 7.4% in 1982. Fixed investmenthas also fallen markedly. Whereas fixed investment increased at an averagerate of 9.5% between 1975 and 1979, it declined by more than 6.0% per yearbetween 1979 and 1982. Despite these slowdowns in investment and economicgrowth, Yugoslavia has been able to continue creating jobs in the socialsector. Social sector employment increased by 3.2% in 1980, 2.9% in 1981 and2.3% in 1982. Generally speaking, employment growth has continued to be mostrapid in the LDR, where the incidence of unemployment is more severe.

12. One of the major goals of the government's stabilization programhas been to reduce the rate of inflation. Despite significant declines ininvestment and real domestic demand, however, inflationary pressures havecontinued. In 1980 and 1981 inflation accelerated to 30% and 38%respectively. In an effort to bring inflation under control, the authoritiesintroduced temporary price ceilings on a wide range of goods in July 1982.This policy met with only limited success, however. Retail prices increasedby 30% in 1982, and by about 58% in 1983. As a result, a temporary pricefreeze was reimposed at the end of 1983. The persistence of inflation hasbeen due to a combination of factors. The efforts of the authorities torestructure the pattern of relative prices to promote more efficient resourceallocation, stimulate agricultural production and rationalize energy use haveall put upward pressure on the price level. The increase in internationalprices since 1979 and the cumulative effects of the substantial depreciationof the dinar have also considerably increased domestic production costs.Nominal personal income growth has also proved difficult to control, althoughthere have been significant reductions in real personal incomes (totalling25%) since 1979.

13. Yugoslavia's adjustment efforts have been complicated by adversedevelopments in the international capital markets. Increases in prevailinginterest rates since 1979 helped push interest payments from $0.8 billion in1979 to an estimated $2.2 billion in 1983. Principal repayments onmedium- and long-term debt were an estimated $2.7 billion in 1983. Whilethere is recognition of the magnitude of Yugoslavia's adjustment efforts, theinternational commercial banks have tended to adopt a cautious positiontoward increasing their exposure. This has partly been due to adversedevelopments in other parts of the world and partly to liquidity problemsexperienced by some Yugoslav banks. However, following the successfulconclusion of the 1983 and 1984 debt restructuring (para. 17), the

international commercial banks are expected to slowly return to limitedfinancial transactions with Yugoslavia, some of which may be in the form of

co-financing with the Bank.

Medium-Term Prospects

14. In the second half of 1981, a special high level "StabilizationCommission" was established to devise a framework of policy and institutionsto guide Yugoslavia's medium-term adjustment efforts. The final report ofthe commission was issued in July 1983 and has been adopted by the FederalAssembly. The commission's recommendations call for a decisive shift towarda more open economy, export-led growth and increased resources to the exportsector through reductions in domestic demand and active exchange ratepolicies; they also aim at a moderation in domestic inflation. The perioduntil 1985 is seen as a transitional phase, oriented to completing the mostcritical of the ongoing investments and to abandoning those which are nolonger viable, with the aim of creating the basis for a different investmentcycle in the 1986-90 period. Even over the longer term the orientation istoward increases in the productivity of factors of production and lowerinvestment and output growth than in the past, with a more sparing use ofexternal capital.

15. Since slower growth will make it more difficult for the socialsector to generate additional employment, emphasis is on the development oflabor intensive activities, including small-scale enterprises and theincreased use of shift work. Finally, the reduction of regional disparitiesremains a major objective of Yugoslavia's economic planning. Financialtransfers between regions will play an important role in this process, withstress on encouraging social sector enterprises in the more developed regions(MDR) to make direct investments in the LDR. The initial experience withsuch joint ventures is encouraging and a number of such projects have beenlaunched. They could make a significant contribution to the overallefficiency of production within the LDR by facilitating the transfer oftechnological and managerial know-how within Yugoslavia.

Creditworthiness

16. Traditionally, about three-quarters of the debt contracted byYugoslavia was provided in convertible currencies through commercialsources. The bulk of this was in the form of suppliers' credits, althoughfinancial credits from commercial banks were also of importance. In responseboth to unsettled conditions in international capital markets and to thebalance of payments difficulties faced by Yugoslavia, there was a significantdecline in commercial financial credits to Yugoslavia after 1980, and grossmedium- and long-term capital inflows declined sharply from $4.6 billion in1980 to $2.3 billion in 1982. Total medium and long-term debt, outstandingand disbursed, is estimated at $16.1 billion at the end of 1982, virtuallyunchanged from 1981, while short-term debt at end-1982 stood at about $1.7billion. During 1982, there was a substantial decline in foreign exchangereserves, which at the end of the year amounted to $1.7 billion, or roughly

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one month of imports of goods and services. Taking account of gross workers'remittances, the debt-service ratio averaged 16% between 1976 and 1981, whilethe debt-service ratio in convertible currencies averaged 19% over the sameperiod. In 1982 the estimated aggregate debt service ratio climbed to 22%,reflecting the increase in interest payments on floating rate debt, and thedecline in exports. Similarly, the debt service ratio on convertiblecurrency debt rose to 28% in the same year.

17. In light of the inadequate reserves position, the thin pipeline offinancial credits, the depleted stocks of imports, the liquidity problemsencountered by some Yugoslav banks in 1982 and the consequent unwillingnessof commercial lenders to maintain their exposure, a major multipartitefinancing effort involving certain OECD countries, international commercialbanks, the IMF and the BIS was carried out in 1983 to assist Yugoslavia inmaintaining orderly debt repayment and to improve its foreign exchangereserve position. Agreements were reached on a foreign assistance packageamounting to about $4 billion in gross medium- and long-term commitments andin the deferment of payment on short- and medium-term principal debt comingdue in 1983. Agreements in principle have also been reached between theYugoslav Government and OECD creditor countries and international commercialbanks for a restructuring of medium-term principal debt falling due in 1984.The agreements will be formalized following the approval of the 1984 stand-byagreement with the IMF. While Yugoslavia's liquidity situation may remaindifficult in the near-term, both the aggregate and the convertible currencydebt service ratios should decline somewhat over the next few years. Givenits past debt servicing record, pragmatism, and demonstrated capacity toimplement firm stabilization policies when these are called for, and thecommitment of the Government to continue doing so in the future, Yugoslaviaremains creditworthy for a substantial level of Bank lending.

PART II - BANK GROUP OPERATIONS IN YUGOSLAVIA

18. The proposed loan would be the 84th made to Yugoslavia by the Banktotalling about $4137.61 million, net of cancellations. 1/ Approximately 32%($1324.04 million) of the total has been for 24 loans in-the transportationsector - 12 for highways, 8 for railways, 2 for ports, and one each for anatural gas pipeline and an oil pipeline. In addition to the transportationloans, there have been seven for power, six for water supply and sewerage,three multipurpose loans (two of which include substantial irrigationcomponents), and one for telecommunications. In recent years, Bank lendinghas increasingly focussed on the agriculture sector for which 17

1/ The 82nd and 83rd loans to Yugoslavia (Loans 2339-YU and 2340-YU),totalling $7O.O million for the Seventh Industrial Credit Project, wereapproved by the Executive Directors on July 26, 1983.

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loans, totalling about $1034.40 million (25% of the total), have been made tohelp increase productivity and production. 1/ Twenty-one loans, amounting toabout $535.72 million (about 13% of the total) have also been made forindustry with the aim of augmenting overall value added and opportunities foremployment. Two loans were made for tourism and the first Bank loan for airpollution control was approved in 1976. A first SAL of $275 million was madeto Yugoslavia in June 1983.

19. Due to the shortage of local funds arising from financial con-straints, Yugoslavia's disbursement performance deteriorated somewhat in1981. Following a subsequent implementation review of the whole loan port-folio with Borrowers, project execution accelerated. Yugoslavia's performancenow compares favorably with Bank-wide averages. Annex II contains a summarystatement of Bank loans and IFC investments as of March 31, 1984.

20. The interrelated objectives which the Bank has pursued recently inits lending to Yugoslavia are to: (i) expand exports and improve theefficiency of import substitution; (ii) enhance the efficiency of domesticinvestment with a view to increasing production with the more limited invest-ment resources available; (iii) improve access to capital markets; and(iv) reduce unemployment, particularly in the LDR. Not every Bank operationcan address all these objectives nor be entirely oriented towards the LDR,but a basic thrust of the Bank's activities in Yugoslavia continues to betoward their development. Given the complexity of the Yugoslav system(paras. 3-5), however, the process of evolving acceptable solutions to policyproblems is cumbersome. As a result, the Bank has been concentrating itslending operations in areas where its institutional and policy coordinationimpact is expected to be greater. Accordingly, a shift to more program,sector, and SAP operations as with the FY83 SAL (Loan 2326-YU), has takenplace to help consolidate and strengthen policy and institutional changescritical to Yugoslavia's long-term structural development, while at the sametime assisting the Government to overcome its immediate foreign exchangeneeds. In addition to the SAL, SAP lending to Yugoslavia to date includes asupplemental loan for the Middle Neretva Project (Loan 1561-1-YU) and reviseddisbursement percentages for the Tenth and Eleventh Highway Projects (Loans1678-YU and 1819-YU, respectively), and for the Montenegro EarthquakeRehabilitation-Port of Bar Project (Loan 1768-YU).

21. A persistent foreign resource gap looms as the major impediment toYugoslavia's ability to maintain its growth momentum and to address thecritical issues of unemployment and regional disparities. The Bank has helpedattract additional sources of credit through co-financing arrangements andthe establishment of new banking relationships. The Bank intends to continueemphasizing co-financing, recognizing, however, the commercial market con-straints that Yugoslavia is facing. Until then, the Bank is likely to remainthe principal source of long-term external capital.

1/ Project Completion Reports (PCR) have been prepared for the FirstAgricultural Credit Project (1129-YU) and for the Agricultural IndustriesProject (894-YU).

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22. Yugoslavia's debt to the Bank in 1982 amounted to about 10.5% ofits total debt outstanding and disbursed and this ratio is expected to remainfairly stable. Service on Bank loans as a proportion of total debt servicewas 6.6% in 1982 and is projected to be about 10% by 1986.

23. IFC started its involvement in Yugoslavia in 1970; since then, IFChas made 19 investments in the country and, as of September 30, 1983, IFC'sportfolio amounted to $358.2 million gross and $172.2 million net of partici-pation and repayments. The basic objectives of IFC in Yugoslavia are to:(a) assist priority subsectors in industry and natural resources development;(b) encourage foreign investment on a joint venture basis; (c) foster techno-logical transfers; and (d) mobilize other financial resources in addition toIFC's own funds.

PART III - AGRICULTURAL SECTOR

Role and Performance

24. Agricultural performance during the five-year plan periods between1961 and 1980 failed to achieve targeted levels, averaging 53% of estimatedgrowth and never exceeding 80% in any five-year period. 1/ As a result,demand for food products has outstripped local production and increasingly,food has had to be imported, particularly wheat, oil crops, protein nutrients,etc., creating additional demands on the country's scarce foreign exchangeresources. From 0.6 million tons in 1977, cereal imports increased to about1.4 million tons in 1980 with wheat and animal feed accounting for about90%. Agricultural exports declined, with their share in total export earn-ings dropping from 13% in 1976 to 11% in 1981. During the 1976-80 Planperiod, agriculture grew by only 2% per annum with crop production only 0.4%against planned growth of about 5% per annum.

25. For the Plan period 1981-85, the prospects for achieving projectedgrowth estimates in agriculture appeared no better. The original plan pro-jected agricultural growth at 4.5% per annum, with the social sector growingat 6% and the individual sector at 4%. Agricultural exports were projectedto grow at 10% per annum with imports to decline at 5%. Despite some respitein 1982, with production increasing 5% over the preceding year, exports haveshown no improvements and for 1983 the country has already announced agricul-tural imports of 1.4 million tons. The shortage of fertilizer has had anadverse affect on agricultural production. As a result, agricultural growthrates are being revised downwards and will benceforth be prepared on anannual-plan basis.

1/ The principal lessons from the PCRs referred to in the footnote on page 7are that greater attention must be focused on (a) enhancing social sectorenterprise efficiency, and (b) on improving the productive capacity ofindividual farmers, where the greatest production potential lies.

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26. In addition to social sector inefficiencies which the Governmentplans to address in the context of its Stabilization Program, one of themajor impediments to a rapid increase in agricultural production has stemmedfrom the Government's long-term policy to associate individual farmers intothe cooperative system in order to organize agricultural production moreefficiently. Such integration has not progressed as quickly as planned.Accordingly, at the end of 1982, the social sector held about 19% ofYugoslavia's arable land, the cooperative farmers only about 36%, and thenon-contracting individual farmers about 45%, with large regional variations.In the Republic of Slovenia, for example, the non-contracting individualfarmers held only 9.7% of arable land while in the Province of Kosovo theyheld about 78.0%. Nationally, the estimate is that about 1.2 million of 2.6million farm families are not contractually associated. In the StabilizationReport, approved by Government authorities in July, 1983, it is recognizedthat the process of association has stagnated primarily as a result of in-appropriate incentives and inept cooperative management. Traditionalsuspicions towards the social sector in parts of rural Yugoslavia are diffi-cult to break down and it can require years before the perceived benefits ofassociation are accepted.

27. Specific measures to rectify these deficiencies in the longer-termwill be adopted in the context of the Stabilization Report recommendations.Since the nature of the association process will take time however, theGovernment recognizes the need to realize the agricultural potential ofYugoslavia's non-contracting individual farmers if in the short-term itintends to meet its agricultural production targets and improve the country'strade balance. The disproportion in the allocation of farm inputs betweenthe social, cooperative and non-contracting individual farming sectors is afirst area the Government intends to address, particularly as it relates tothe allocation of inorganic fertilizers.

Fertilizer Production and Consumption

28. The current 1981-85 Fertilizer Production Plan, in its first twoyears, failed to achieve its planned targets, mainly due to foreign exchangeconstraints in importing raw materials for fertilizer production. In 1983,only 2.6 million tons were produced, which was the same level as in 1982,against a target of 3.1 million tons. During 1977-81, domestic consumptionrecorded an annual increase of about 3% per year. While overall fertilizerconsumption in the social and cooperative sectors increased, the quantitiesavailable for the non-contracting individual farmers declined from 243,000tons in 1977 to 93,000 tons in 1981. In 1982, only about 50,000 tons offertilizer were made available to them. As for the social sector, it isgenerally agreed in Yugoslavia that fertilizer application/ha is adequate andadditional application of fertilizer would not result in any significantincrease in production of grain. On the other hand, while the cooperativesector consumes about 60% of the total fertilizer available for the domesticmarket, its application rates are below the social sector. This is alsoreflected in present yields. Additional fertilizer for this group wouldprovide some increase in yields. The largest potential increase from

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additional fertilizer application, however, would be from the non-contractingindividual farmers. Thus, the critical impact of increased fertilizer use bythese farmers requires special recognition at the policy level during thepresent period of economic stabilization since this represents a low-cost,quick-yielding means of increasing output--a major objective of the Stabili-zation Program.

29. Government officials indicated, however, that, due to the shortageof fertilizer in the country, it suspended in 1983 the past practice of pro-viding residual fertilizer to non-contracting individual farmers through theretail shops of trading agencies; the bulk of the fertilizer is being madeavailable only to the social and cooperative sectors including associatedfarmers. Failure to provide fertilizer to non-contracting farmers howeverhas had, and would, if continued, have serious implications on grain produc-tion and, in turn, on the Stabilization Program.

Fertilizer Distribution

30. Fertilizer is sold by the producing plants at a fixed price, toagrokombinats, which usually have some financial interest in these plants.The agrokombinats act as wholesalers for a specified geographical area.Those farmers who associate contractually receive fertilizer from thecooperative village shops or from agrokombinats' organizations dealing withcontractual farmers for payment in agricultural produce. Before obtainingthe fertilizer, the farmers sign a printed contract.

31. At present, the Government relies for all agricultural inputdistribution on agrokombinats, cooperatives, and to a minor extent, on theretail shops of Yugoslavia's 29 trading agencies which continue to marketother agricultural inputs and small tools on a cash basis. This leads to apolicy favoring the social and cooperative sectors as agrokombinats/cooperatives have little interest in assisting farmers unwilling to associatecontractually with the social sector. This is evident in the case offertilizer distribution and consumption, where the distribution/consumptionpattern bears little relationship to either the distribution of land or grainproduction. At the same time, the non-contracting farmer has no effectiveaccess to either formal credit or extension services; his association withthe social or cooperative sectors is what renders him eligible for creditconsideration. Thus, the Government's present policy of inducing cooperationthrough limiting access to credit and inputs is, in fact, hindering achieve-ment of much greater production in agriculture.

Fertilizer Producers

32. There are 11 fertilizer producing enterprises located in fiveRepublics and two Autonomous Provinces. Many of these facilities wereconstructed 15-20 years ago. Historically, Yugoslav nitrogen production hasrelied substantially on imports of ammonia, nitrogen solutions and ammoniumsulphate for further processing into calcium ammonium nitrate (CAN) andnitrogen-phosphate-potash (NPK) fertilizers. Between 1975-82, Yugoslavia

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imported and exported finished nitrogenous fertilizer products, being a netimporter of urea (25% of urea production) and a net exporter of NPK (16% ofNPK production). Of the total existing capacity of 608,000 tons of finishedproducts (CAN, urea, and NPK/MAP) approximately 177,000 tons of nitrogen pro-duction is based on imported intermediates. Facilities now under constructionwould more than double current domestic ammonia production capacity from457,000 tons to 1,080,000 tons of nitrogen, and finished nitrogenousfertilizer production capacity from 609,000 tons to 1,186,000 tons by 1987,leaving a deficit of some 105,000 tons of primary nitrogen to be obtainedthrough imports. As for phosphatic fertilizer, Yugoslavia has traditionallybeen a net exporter. Present primary phosphate production capacity is546,000 tpy P205 1/ against a finished NPK processing capacity of 314,000tpy P205' With the completion of facilities under construction, primaryphosphate production capacity would increase by 1985 to 856,000 tpy P205against a finished processing capacity of 519,000 tpy P205. Capacityutilization for ammonia and nitrogen processing plants compare favorably withinternational industry standards. Capacity utilization for the phosphoricacid industry, as against an expected industry norm of 90% over the period1970-81, has averaged approximately 75%. Ammonia production is almostentirely natural gas based, of which about 40% is imported. The phosphaticfertilizer industry is based almost entirely on indigenous sulphur sources.There are no commercial phosphate rock or potash deposits in Yugoslavia.

33. Fertilizer producers are structured largely along regional lineswith the development of capacity initiated by the needs of the Republic/Province in which the enterprise is located. The producers within eachregion have strong links with agrokombinats or cooperatives through long-termagreements under which most of the fertilizer for domestic consumption issold. As a result, agrokombinats often provide long-term financing forcapacity expansion, necessary foreign exchange, and on occasion, even pay-ments to offset losses of the fertilizer enterprises. The regional basis forcapacity development has worked quite well for regions with access toregional raw materials (Croatia, Vojvodina, and Serbia for natural gas;Serbia and Vojvodina for sulphuric acid). In other areas, however, thedesire for regional self-sufficiency has tended to distort development.While there is an elaborate mechanism for providing needed information andoverall coordination, in practice, investment plans with strong regionalbacking (including financing) generally pass the various screening levels.

Production Economics

34. The existing ammonia plants have very high energy consumption andthis has adversely affected their economics. Indeed typically, about 85% ofthe production costs in Yugoslav plants are for energy. As compared to thepresent imported ammonia cost of about $175 per ton CIF (expected to rise to$255 per ton by 1990, in 1983 prices), the direct economic production costsof ammonia in the three existing plants range from $246 to $283 per ton

1/ Includes straight phosphate fertilizers.

- 12 -

(excluding depreciation, interest and capital charges) with a weightedaverage of $262 per ton. The newest ammonia plant will have an economicdirect production cost of about $198 per ton, indicating that even this plantwill be only marginally economic in the long-term, and unlikely to generateany meaningful returns on the original investments. Financially, the cost ismasked by the low price charged for domestic natural gas. Under SAL I, theGovernment has agreed to increase these prices to world market levels overthe next few years. There is nevertheless, a strong likelihood that most ofthe existing ammonia plants could be economically rehabilitated, if energyconservation investments were implemented. As to their downstream ammoniaprocessing units, economic direct production costs are well below economicbenefits (the import parity price). Hence, the financing of imports ofammonia and ammonia-related intermediaries for production of urea and CAN isjustified on economic grounds. The financing of imports of phosphate rockfor the existing phosphoric acid production is economically justified sincethese plants utilize low-cost domestic sulphur. However, in the case of thenew INA phosphoric acid plant, based on higher cost imported sulphur, andscheduled to commence production in 1984, the economics are less favorable.As a result, the Government has indicated its intention to ensure that,before phosphate rock is procured from the loan proceeds, fertilizer plantswill obtain quotations for the supply of phosphoric acid. Only if processingthe raw materials is more economic than importing the acid, would the plantimport the phosphate rock and sulphur.

Prices

35. Domestic prices of finished fertilizers have been brought in linewith world market prices. In 1980, the Federal Government abolished theprice subsidy for the domestic market and prices were raised. In January1983, domestic sale prices of urea, CAN and NPK were raised by 53%, andanother increase of 50% is expected in 1984. This year's increases will easethe financial situation of the producers but it is necessary that the presentmechanism for determining domestic fertilizer prices be continued under theproposed loan and that the country does not revert to the system of applyingfederal subsidies for fertilizer (Guarantee Agreement, Schedule 2, Part B(l)).

Foreign Exchange Requirements/Allocation

36. The shortage of foreign exchange for imports of raw materials hasbeen a major constraint to increased production. In 1982, to produce about2.6 million tons of fertilizer, the total foreign exchange requirement wasabout $229 million, of which 60% was from convertible areas and 40% from CMEAcountries. The total foreign exchange requirements for imports of spareparts were about $25 million, of which about 80% was from convertiblecurrency areas. Until 1982, the major source of foreign exchange for thefertilizer industry was from export of finished fertilizer and from theexport revenue of agrokombinats associated with the producers. Between1977-79, about 11% of the total domestic production was exported to earnforeign exchange essential for the import of raw materials. In 1980, whenthe foreign exchange crisis first reached serious proportions, exports rose

- 13 -

to about 20% of total fertilizer production; however, in 1981, they declinedto about 12%, an indication of the Government's concern for ensuring domesticavailability. Fertilizer exports either reduced the quantity available forthe domestic market, or if exports were reduced to increase domesticfertilizer availability, the industry failed to obtain the necessary foreignexchange to import raw materials, resulting in reduced fertilizer production.Both alternatives adversely affected agricultural production. The Governmenthas recognized the need to rationalize the allocation of foreign exchange forthe fertilizer industry in order to increase domestic production and, inturn, the availability for domestic consumption.

37. In January 1983, a Social Compact was entered into by the FederalExecutive Council, the Federal Chamber of Economy and the Republican/Provincial Executive Councils and Chambers of Economy, under which 20% of theforeign exchange proceeds from agricultural exports, excluding meat and fish,is automatically allocated to the fertilizer industry for the purchase of rawmaterials. It is expected that this will ensure the availability in 1984 ofabout $50 million in foreign exchange to the fertilizer industry. In addi-tion, in December 1983, the Federal Government, under its "Foreign ExchangeAllocation Policy for Priority Items", allocated $100 million for the importof raw materials for fertilizer producers and indicated that increasedamounts will be allocated for 1984 and onward, if the foreign exchange diffi-culties continue. Finally, and most significantly, the Fertilizer Producerswill have, through Vojvodjanska Banka, access to the foreign exchange revenuesearned from exports by agricultural Agrokombinats, which in 1983 were esti-mated at US$1.3 billion. After other commitments, up to US$200 million couldbe available for fertilizer production. Execution of a Self-Management Agree-ment between Vojvodjanska Banka, (the Borrower), Agrohemija, the FertilizerProducers and the Agrokombinats, ensuring that the Borrower has access toadequate amounts of foreign exchange, would constitute a condition of Loan

Effectiveness (Loan Agreement, Section 7.01(b)). During negotiations, it wasagreed upon with the Guarantor that the fertilizer industry will continue to

receive all of its financing requirements (Guarantee Agreement, Section 3.06)and that the Borrower will continue to have access to foreign exchange for

the recycling or roll-over of fertilizer sub-loans until June 30, 1989 (LoanAgreement, Section 5.05).

PART IV - THE LOAN

38. In response to the Government's request for assistance to thefertilizer sector, the Bank, recognizing the critical importance offertilizer for the revival of agricultural production, sent a review missionin January 1983. Appraisal took place in May 1983, although this was followedby a number of subsequent missions to resolve outstanding policy issues. TheStaff Appraisal Report No. 4649-YU, dated March 1984, is being distributedseparately. The key features of the loan are described in the Loan Summaryand in Section III of Annex III. Negotiations were held in Washington fromMarch 12 to 20, 1984. The Yugoslav delegation was led by Mr. BrankoJovanovic, Deputy President of the Federal Committee for Agriculture.

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Objective/Concept

39. The loan would assist the Government in increasing the domesticavailability of finished fertilizer for 1984 and 1985. It would addresspolicy and institutional issues pertaining to domestic distribution, byensuring individual farmers accessibility to incremental fertilizer on a cashbasis without requiring production or marketing contracts with the socialsector, as well as assisting the Government in modernizing and rehabilitatingthe industry in the long run through the financing of technical studies todefine a program for improving production economics. The loan would providethe foreign exchange to import raw materials and spare parts for the produc-tion of the incremental consumption requirements, estimated to increase by15% per annum in 1984 and 1985 for a total of 850,000 tons. Of this, about680,000 tons, would be made available for sale through the retail shops ofparticipating trading agencies to individual farmers for cash. This amounthas been derived taking into consideration the relative fertilizer needs ofthe social sector, the cooperatives and the non-contracting individualfarmers. The increased application of fertilizer by these farmers wouldyield the optimum results in the immediate future. The balance will be usedin the cooperative sector, where the increased application is economicallyjustified.

Description

40. The loan is designed to finance foreign exchange requirements forincremental imports only and would include the following: (a) Sub-loans tofertilizer producers for raw materials; phosphate rock, intermediates suchas MAP, DAP, ammonia and ammonia solution for incremental production esti-mated at 0.85 million tons of finished fertilizer; and for critical spareparts and essential catalysts; major items would be corrosion-resistantmaterials for sulphuric and phosphoric acid plants, stainless steel pipingand catalysts for ammonia production; (b) sub-loans to fertilizer producersfor technical and energy studies of fertilizer plants to assess their operat-ing and energy efficiency and identify measures and investments to reducecosts.

Cost Estimates

41. The loan represents the convertible foreign exchange requirementsfor incremental domestic production in 1984 and 1985--US$57.2 million for rawmaterial, US$21.0 million for spare parts, US$1.72 million for studies, andUS$9.8 million for price contingencies. The cost of consultants is based onan estimated requirement of 190 man months comprising about 110 man monthsprovided by foreign consultants, at a total cost of $12,000 per man month,and 80 man months provided by local consultants at a total cost of $5,000 perman month. Cost estimates are based on March 1984 prices. Price contingen-cies for raw materials have been calculated on the basis of projected inter-national inflation rates for fertilizer raw materials of 9.8% in 1984 and in1985, while price contingencies for spare parts and consultants services havebeen calculated on the basis of projected international inflation rates of3.3% in 1984 and 8% in 1985. The front end fee on the Bank's loan wouldamount to $224,439 and would be capitalized.

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Procurement and Disbursement

42. ICB would be used for raw materials and spare parts, except forthose items of a value equivalent to $100,000 or less per contract, whichwould be procured following bids from at least three qualified supplierseligible under the Bank's Guidelines, and for proprietary spare parts agreedwith the Bank which may be procured through direct negotiation with suppliers.The aggregate of such contracts would not exceed the equivalent of $8.0million. Consultants services to be financed under the loan would be procuredin accordance with the Bank's Guidelines for the Use of Consultants. Localconsultants may form joint ventures with foreign companies to carry out theenergy studies. Procurement of all fertilizer raw materials would be coordi-nated by Agrohemija, the Business Community of Fertilizer Producers, so thatthe benefits of bulk purchases would be achieved for the same materialsrequired by more than one fertilizer company. Procurement of spare partswould be made via the purchasing department of the relevant fertilizer com-panies under the supervision of Vojvodjanska Banka to ensure that Bank pro-

curement Guidelines are adhered to.

43. The loan is to be disbursed over two Bank fiscal years (FY85-FY86),starting in the first quarter of FY85. Since items to be financed by theLoan are all quick disbursing, the disbursement profile is not typical. Thefirst tranche would total $50.00 million. The second tranche, would consistof about $40.00 million. The release of the Second Tranche, about June 1985,would cover the period July to December 1985 (see para. 56). Disbursementrequests would be supported by full documentation.

The Borrower

44. The Vojvodjanska Banka - Udruzena Banka has been selected by theGovernment as the Borrower under the loan. Because of its involvement inpast Bank credit projects, it is conversant with the Bank's requirements, hasa nucleus of trained staff able to undertake appraisal and supervision, andhas gained experience in implementing nationwide projects. Vojvodjanska

Banka, an apex bank, consists of sixteen basic banks and has its headquartersin Novi Sad in the Socialist Autonomous Province of Vojvodina. Appraisal andsupervision of sub-borrowers would be undertaken by the Borrower's ForeignOperations Department, which by September 1, 1984 would hire an additionalappraisal officer to handle the proposed loan matters (Loan Agreement,Schedule 5, Part A). The financial position of Vojvodjanska Banka is satis-factory and is being closely monitored by the Bank in connection with theexisting credit projects (Loans 1129-YU, 1801-YU and 1477-YU).

On-Lending Procedures, Terms and Conditions

45. The eleven fertilizer producers would submit loan applications tothe Borrower through its basic banks. The proposed Loan proceeds, whichwould be channeled to Vojvodjanska Banka, would be on-lent to the fertilizercompanies in accordance with lending procedures and terms and conditions

satisfactory to the Bank (Loan Agreement, Section 3.02(a) and (b) andSchedule 5). In order to avoid duplication of work and to speed up sub-loan

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approval, Vojvodjanska Banka would appraise each sub-borrower and prepare anappraisal report. The Borrower would ensure (Loan Agreement, Schedule 5)that:

(a) management, organizational and production facilities ofsub-borrowers are appropriate for the timely production offertilizer;

(b) sub-borrowers generate sufficient cash flow to cover debtservice, local claims and appropriate investment levels;

(c) documents and clearances necessary for foreign exchangelending are obtained by the sub-borrowers, the basic banks andRepublican/Provincial authorities and/or Federal authorities;

(d) sub-borrowers have the Yugoslav Social Accounting Service(SDK) prepare and audit the income statement, statement ofchanges in financial position and balance sheet, in accordancewith generally accepted accounting principles and submit themto the Borrower at the end of each fiscal year.

46. Sub-borrowers would receive the loan funds in foreign exchange, butthey would repay Vojvodjanska Banka in Dinars at the exchange rate prevailingat the time of repayment. The Borrower would then convert the Dinars intodollars from the sources of foreign exchange described in para. 37. Theduration of sub-loans for raw materials and spare parts should not exceed 12months; and for technical studies four years, with one year grace period.Funds would be on-lent at the same rate as that charged by the Bank, plus aspread of about 1% to cover administrative costs. This is considered anacceptable rate of interest given that the sub-borrowers would bear theforeign exchange risk.

Technical and Energy Studies

47. An assurance was obtained from the borrower that it would requireconcerned fertilizer producers to complete the studies, in accordance withthe terms of reference finalized during negotiations, by March 31, 1986 andfrom Agrohemija, that the results of these studies would be reviewed with theBank (Project Agreement, Section 2.06 and Loan Agreement, Schedule 5, Part B,Para. 6(c)). The proceeds from the loan for these studies would be on-lentto the fertilizer producers by the Borrower in consultation with Agrohemijaunder terms of an agreement between the Borrower, Agrohemia and the 11fertilizer producers. Execution of such an agreement would be a condition ofeffectiveness for the proposed loan (Loan Agreement, Section 7.01(a)). Basedon the findings of the technical and energy studies, a plan of action wouldbe prepared by December 31, 1986, outlining the investment and other measuresrequired to rehabilitate the fertilizer production units in order to placethem on a sound economic footing (Project Agreement, Section 2.06).

48. Agrohemija would also be responsible for the selection ofconsultants and the coordination of technical studies, the monitoring offertilizer production and distribution, and for assisting the Borrower in the

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supervision of procurement of raw materials and spare parts. A ProjectImplementation Working Group would be established in Agrohemija to organizeand coordinate the technical studies. The terms of reference for the studies

and the scope of work for the group were established during negotiations.The establishment and staffing of such a Group would be a condition for loaneffectiveness (Loan Agreement, Section 7.01(c)). At the Federal level, aLoan Implementation Committee would be established (Guarantee Agreement,Section 3.05). The Committee would consist of representatives of the FederalCommittee for Agriculture, the Federal Secretariat for Finance, the FederalSecretariat for Markets and General Economics, the Federal Chamber ofEconomy, Agrohemija and Vojvodjanska Banka. The Committee which wouldcoordinate different aspects of loan implementation would be chaired by theDeputy President of the Federal Committee for Agriculture and VojvodjanskaBanka would serve as a Secretariat.

Monitoring/Reporting

49. Agrohemija would be responsible for monitoring and reporting on theplanned production and distribution targets and the technical studies(Project Agreement, Section 2.03(a)(iii)). In monitoring fertilizer produc-

tion and distribution, Agrohemia, in close cooperation with participatingtrading agencies, would report, on a periodic basis, the progress made inachieving the plarned targets, with distribution broken down by social andcooperative sectors and farmers buying on a cash basis, by fall and springseasons, and by Republics and Provinces. Based on the existing system forrecording fertilizer sales, monitoring can be readily undertaken to determinequantities sold to non-contracting individual farmers. Agrohemija wouldsubmit these reports to the Borrower, which, after careful review, wouldforward them to the Bank within 30 days after the end of the period.Progress reports on the general execution of the project and on the studieswould be submitted to the Bank on a quarterly basis within thirty days afterthe quarter concerned (Loan Agreement, Section 3.03).

Accounts and Audits

50. The Borrower would maintain a separate account for sub-loan dis-bursements and other expenditures under the Loan (Loan Agreement, Section5.01). It would have its accounts and financial statements (balance sheets,statement of income and expenditures and related statements) for each fiscalyear audited in accordance with appropriate auditing procedures consistentlyapplied by the Yugoslav Social Accounting Service, an independent auditingorganization acceptable to the Bank. The Borrower would furnish to the Bank,not later than six months after the end of each fiscal year, certified copiesof its financial statements audited as above and the report of the SocialAccounting Service (Loan Agreement, Section 5.02).

Marketing Arrangements

51. The incremental fertilizer production financed under the loan wouldbe distributed by agrokombinats, cooperatives and trading agencies. A totalof 680,000 tons, equivalent to 80X of the incremental fertilizer domestically

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available in 1984 and 1985, would be made available to individual farmers ona cash basis through the retail shops of the trading agencies. A self-management agreement between the Borrower, Agrohemija and the fertilizerproducers would make available the agreed quantities of fertilizer in 1984and 1985 to the participating trading agencies for sale on a cash basis andexecution of this SMA would be a condition of Loan Effectiveness (Loan Agree-ment, 7.01(a)). About 170,000 tons, equivalent to 20% of the incrementalfertilizer production, would be sold to the cooperative sector for applica-tion. During negotiations, domestic fertilizer production targets for 1984and 1985 and domestic consumption targets for 1984 to 1989 were agreed towith the Guarantor and assurances were obtained that the Guarantor would takeall steps necessary to achieve these targets and to ensure that the abovedistribution would be followed (Guarantee Agreement, Section 3.04 andSchedule 2). This agreement on distribution ensures that fertilizer will notbe exported until the fertilizer requirements of the domestic market aremet. An understanding was also obtained from the Guarantor that the futuredomestic fertilizer distribution system would be determined in accordancewith the recommendations of the scientific and research services inYugoslavia and on the basis of soil fertility needs for different crops, inorder to optimize fertilizer utilization.

Economic Justification and Benefits

52. The proposed loan would assist Yugoslavia to increase the avail-ability of fertilizer to the domestic market, resulting in a total incre-mental production of 0.85 million tons of fertilizer for domestic application,which should permit an increase in grain production of about 1.3 milliontons, mainly of wheat and maize, in the shortest possible time - an importantobjective of the Government's Stabilization Program.

53. Of the estimated total incremental grain production (about 1.3million tons), wheat would constitute about 80% (1.0 million tons) and maizethe remainder. The increased wheat production, in particular, would assistthe country in reducing wheat imports which, in the past three years, haveaveraged about 0.8 million tons annually. The expected additional maizeproduction would enable exports to both Eastern Europe and convertiblecurrency countries to be increased. Both of these items together wouldresult in foreign exchange resources of about $208.0 million.

54. The major beneficiaries of the loan would be non-contractingindividual farmers (about 1.2 million farm families presently without officialaccess to fertilizer) and the fertilizer producers. Even with a modestincrease in their present fertilizer application, the incomes of suchfamilies would increase by about Din 4,000/ha or about Din 12,000 ($100)since, on average, each non-contracting farm family owns about 4 ha of whichabout 3 ha are under grain production. The present value of net benefitsdiscounted at 16% and 20% would be Din 3,660 and Din 3,000 respectively.Both these returns are fully satisfactory.

55. There are several major areas of risk inherent in this type of loan:

Foreign Exchange: Although the Bank would assist the country overa twc year period in meeting foreign exchange requirements for

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increased domestic availability of fertilizer, unless the necessaryforeign exchange were to continue to be made available to thefertilizer industry thereafter, the situation could again revert to

the present one. As stated in paras 36 and 37, however, theGuarantor has agreed to take all steps necessary to ensure theachievement of revised domestic production targets for 1984-85 andconsumption targets for 1984-89; an appropriate mechanism would be

set up whereby the Borrower would continue to have access toforeign exchange for fertilizer sub-loans until June 30, 1989.

Distribution: While there is no guarantee that the fertilizerdistribution arrangements would be continued in the post-loanperiod, sustaining the operation of an effective distributionsystem for agricultural inputs would be one of the major issuesaddressed in a possible second SAL. In addition, an understandingwas obtained during negotiations that future domestic fertilizerdistribution would be based on soil fertility needs for different

crops so as to optimize fertilizer utilization.

Non-Contracting Individual Farmers; It is possible that individual

farmers may not purchase fertilizer on a cash basis asanticipated. Based on discussions and statistical information,however, this risk is low since these farmers are well aware of theeconomic benefits of fertilizer application.

Rehabilitation: The restructuring of the fertilizer industry, as aresult of the technical and energy studies of fertilizer plantsunder the proposed loan, could have social implications. Forexample, uneconomic units might have to be closed down. Thefertilizer industry is capital-intensive, however, and theunemployment consequences of any shutdowns would be minimal.Furthermore, the Government recognizes the importance ofrationalizing fertilizer production and its decision to borrowunder the proposed loan, for financing such a study, is an

indication of its serious intent.

Weather Conditions: The benefits of increased fertilizerapplication are very much dependent upon weather conditions. Theshort time period involved in the loan and the urgent need toincrease grain production render weather conditions of specialconcern. No policy precautions can be taken in this regard,however.

PART V - LEGAL INSTRUMENTS AND AUTHORITY

56. The draft Loan Agreement between the Bank and Vojvodjanska Banka-

Udruzena Banka, the draft Project Agreement between the Bank and Poslovna

Zajednica Proizvodjaca Vestackih Djubriva Jugoslavije "Agrohemija" - Beograd,the draft Guarantee Agreement between the Socialist Federal Republic ofYugoslavia and the Bank, and the Report of the Committee provided for in

Article III, Section 4(iii), of the Articles of Agreement of the Bank, are

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being distributed to the Executive Directors separately. Special conditionsof the loan are listed in Section III of Annex III. Special conditions ofeffectiveness for the proposed loan (Loan Agreement, Section 7.01) are that:

(i) the agreement between the Borrower, Agrohemija, and the elevenfertilizer producers concerning implementation of the technicalstudies, availability of fertilizer to the trading agencies and thepreparation of periodic reports on the fertilizer sold throughretail shops has been duly executed;

(ii) the agreement between the Borrower, Agrohemija, the fertilizerproducers and the agricultural agrokombinats ensuring the Borrower'saccess to foreign exchange has been duly executed; and

(iii) the Project Implementation Working Group has been established andstaff appointed thereto, on terms and conditions satisfactory to theBank.

Special conditions of disbursement of the second tranche of the proposed loan(Loan Agreement, Schedule 1, Para. 4, and Guarantee Agreement, Section 3.03and Schedule 1) are that:

(i) about 1.5 million tons of fertilizer have been made available forthe domestic market in the fall of 1984 and about 1.7 million tonsmade available for the domestic market in the spring of 1985;

(ii) about 240,000 tons of fertilizer have been made available to thetrading agencies for sale, on a cash basis, to individual farmersfor the fall 1984 and about 200,000 tons for spring 1985; and

(iii) adequate progress has been made in carrying out the technical andenergy studies.

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

PART VI - RECOMMENDATIONS

58. I recommend that the Executive Directors approve the proposed loan.

A. W. ClausenPresident

AttachmentsApril 13, 1984Washington, D.C.

-21- ANNEX IPage 1 of 6

YUGOSLAVIA - SOCIAL INDICATORS DATA SHEETYUGOSLAVIA REFERENCE GROUPS (WEIGHTED AVERAGES) /a

MOST (MOST RECENT ESTIMATE) /bRECENT lb MIDDLE INCOME INDUSTRIAL

196OZ/b 1970-b ESTIMATE-b EUROPE MARKET ECONOMIESAREA (THOUSAND SQ. N)

TOTAL 255.8 255.8 255.8AGRICULTURAL 148.2 146.3 142.9

GNP PER CAPITA (US$) 380.0 820.0 2790.0 2453.6 11112.7

ENERGY CONSUNPTION PER CAPTTA(KILOGRAMS OF COAL EQUIVALENT) 858.0 1558.0 2402.0 1580.8 7500.6

POPULATION AND VITAL STATISTICSPOPULATION,ttID-YEAR (THOUSANDS) 18402.0 20371.0 22516.0URBAN POPULATION (X OF TOTAL) 27.9 34.8 43.1 47.8 78.2

POPULATION PROJECTIONSPOPULATION IN YEAR 2000 (MILL) 25.8STATIONARY POPULATION (MILL) 30.0YEAR STATIONARY POP. REACHED 2070

POPULATION DENSITYPER SQ. EM. 71.9 79.6 87.3 82.0 139.0PER SQ. KM. AGRI. LAND 124.2 139.3 156.4 157.2 514.2

POPULATION AGE STRUCTURE (Y)0-14 YRS 30.5 27.4 24.5 31.9 22.4

15-64 YRS 63.2 64.8 66.7 60.9 66.065 AND ABOVE 6.3 7.8 8.8 7.2 11.6

POPULATION GROWTH RATE (Z)TOTAL 1.2 1.0 0.9 1.6 0.8URBAN 3.6 3.2 2.9 3.4 1.4

CRUDE BIRTH RATE (PER THOUS) 23.5 17.8 16.7 25.0 13.8CRUDE DEATH RATE (PER THOUS) 9.9 8.9 9.0 9.1 8.9GROSS REPRODUCTION RATE 1.4 1.3 1.1 1.7 0.9

FAMILY PLANNINGACCEPTORS, ANNUAL (TilOUS)USERS (X OF MARRIED WOMEN) .. 59.0

FOOD AND NUTRITIONINDEX OF FOOD PROD. PER CAPITA(1969-71=100) 85.0 93.0 117.0 108.4 112.4

PER CAPITA SUPPLY OFCALORIES (7 OF REQUIREMENTS) 128.0 130.0 140.0 129.6 134.4PROTEINS (GRAMS PER DAY) 95.0 93.0 101.0 92.3 99.0OF WHICH ANIMAL AND PULSE 29.0 32.0 39.0/c 34.6 61.4

CHILD (AGES 1-4) DEATH RATE 11.2 4.b 1.8 10.4 0.4

HEALTHLIFE EXPECT. AT BIRTH (YEARS) 63.2 66.7 70.8 67.2 74.9INFANT MORT. RATE (PER THOUS) 91.9 55.5 30.6 71.4 10.7

ACCESS TO SAFE WATER (%POP)TOTAL .. 33.6/dURBAN 42.4/d 62.07..RURAL *- 12.37..

ACCESS TO EXCRETA DISPOSAL(% OF POPULATION)

TOTAL .. ..

URBAN .. ..

RURAL .. ..

POPULATION PER PHYSICIAN 1620.0 1000.0 680.0 1094.8 553.6POP. PER NURSING PERSON 630.0/e 410.0 280.0 762.5 182.9POP. PER HOSPITAL BED

TOTAL 200.0 180.0 170.0/f 334.0 119.8URBAN 90.0/e 100.0 100.071 216.0 143.2RURAL 1040.0/e 1600.0 1840.07..

ADMISSIONS PER HOSPITAL BED .. 17.3 18.2/f 20.0 17.7

HOUSINGAVERAGE SIZE OF HOUSEHOLD

TOTAL -4.0 3.8 3.8/fURBAN 3.3 3.2 3.3/f.RURAL 4.4 4.3 4.17.

AVERAGE NO. OF PERSONS/ROOMTOTAL 1.6 1.4URBAN 1.7 1.3RURAL 1.5 1.5

ACCESS TO ELECT. (% OF DWELLINGS)TOTAL 54.5 87.9URBAN 92.7 98.4RURAL 36.1 80.1

_________ -________________ __ __ __ --------------------- ----------

- 2 2 - ANNEX IPage 2 of 6

YUGOSLAVIA - SOCIAL INDICATORS DATA SHEETYUGOSLAVIA REFERENCE GROUPS (WEIGHTED AVERAGS) /a

MOST (MST RECENT ESTIMATE) lb/b /b RECENT lb MIDDLE INCOME INDUSTRIAL

1960L-=- 197W0- ESTIMAT-b EUROPE MABRET ECONOMIES

EDUCATIONADJUSTED ENROLLMENT RATIOS

PRIMARY: TOTAL 111.0 106.0 99.0 102.2 101.5MALE 113.0 108.0 100.0 107.2 103.3FEHALE 108.0 104.0 98.0 97.9 103.3

SECONDARY: TOTAL 58.0 63.0 83.0 56.5 89.2MALE 63.0 68.0 86.0 63.4 84.5FEMALE 53.0 58.0 80.0 48.9 86.0

VOCATIONAL (% OF SECONDARY) .. 26.4 24.2 22.4 18.3

PUPIL-TEACHER RATIOPRIMARY 33.0 27.0 24.0 24.7 20.2SECONDARY 13.0 22.0 18.0 22.1 14.4

ADULT LITERACY RATE (%) 76.5 83.5 85.0/g 69.7 98.9

CONSUMPTIONPASSENGER CARS/THOUSAND POP 3.0 35.4 84.7/h 52.9 356.5RADIO RECEIVERS/THOUSAND POP 84.9 165.9 207.4 165.5 1085.4TV RECEIVERS/THOUSAND POP 1.4 88.3 192.4 124.2 449.5NEWSPAPER ("DAILY GENERAL

INTEREST") CIRCULATIONPER THOUSAND POPULATION 70.3 85.3 103.0 96.3 331.3

CINEMA ANNUAL ATTENDANCE/CAPITA 7.1 4.5 3.5 2.9 3.5

LABOR FORCETOTAL LABOR FORCE (THOUS) 8302.0 8838.0/i 9485.0/i

FEMALE (PERCENT) 3 5.0 35.9 36.1 34.5 36.1AGRICULTURE (PERCENT) 63.0 51.0 29.0 40.7 6.2INDUSTRY (PERCENT) 18.0 23.0 35.0 23.4 37.8

PARTICIPATION RATE (PERCENT)TOTAL 45.1 43.4 42.1 42.0 45.5MALE 60.0 56.6 54.6 55.2 59.0FEMALE 30.9 30.6 30.0 29.1 32.5

ECONOMIC DEPENDENCY RATIO 0.8 0.8 0.8 0.9 0.8

INCOME DISTRIBUTIONPERCENT OF PRIVATE INCOMERECEIVED BY

HIGHEST 5% OF HOUSEHOLDS 16.4/ 15.1/k 13.1/bHIGHEST 20% OF HOUSEHOLDS 41.571 38.77. 43.1LOWEST 20% OF HOUSEHOLDS 6.97/ 6.67k 6.67b .. 5.5LOWEST 40% OF HOUSEHOLDS 19.0 h 18.47k 18.771 .. 16.5

POVERTY TARGET GROUPSESTIMATED ABSOLUTE POVERTY INCOMELEVEL (US$ PER CAPITA)

URBAN ..RURAL ..

ESTIMATED RELATIVE POVERTY INCOMELEVEL (US$ PER CAPITA)

URBAN ..RURAL .. .. 530.0 409.0.

ESTIMATED POP. BELOW ABSOLUTEPOVERTY INCOME LEVEL (1)

URBAN .. ..RURAL ..

NOT AVAILABLENOT APPLICABLE

N O T E S

/a The group averages for each indicator are population-weighted arithmetic means. Coverage of countries among theindicators depends on availability of data and is not uniform.

/b Unless otherwise noted, "Data for 1960" refer to any year between 1959 and 1961; "Data for 1970" between 1969 and1971; and data for "Most Recent Estimate" between 1979 and 1981.

/c 1977; /d Percent of occupied housing units with piped water; /e 1962; /f 1976; /g 1975; /h 1978; /I Includingmigrant workers abroad; 7] 1963; Ik 1968.

Nay 1983

- 23 - ANNEX I

Page 3 of 6DEFINITIONS OF SOCIAL iIlICATtOR

Notes: Although the data are dra- from atorcee generaiiy judged the most eohrtsiead reliable, it should else be oe htte a ech eessoaicomparable becaus oftelc :feadardled defiuditouu atd cutoe.pus ued by different uotrieo it coltlgthe data. The Is na ar,eethb ,usfltdesribe orders of _ngottadr, ld Ict treds,ad icaacele tertait saJ.e doff-eroca he-ee

The reference. ators. are (1) ube ea- c-coy groop of,t .b s..j.. uon. tryae III acotr igop ah eumeehat higher aoerge irome thee the -Iotry group of thessbjectto....try (eacept foe eHigh Icotee" Oil Exportes gruspehere "Middle, ...os Norh Aftric aud Middle aEt"' Is tbesen he.a..e ofstograe-eiuOf flttle) the eefceec greet data the --ergoa ae popolatite teighted arilheett s.ans for each udacesur sod shee otly oboe aajrity ef she.. tslel_a is group .e data foe cha ludcator iore the rocerage of coent,t Ie....egthidtsesepnsu the tealtabilityp of data aIdisetaI-om attemm haetarised it r-laclg e-ragea of ete indicator to oete.These an-rges are eelp usfu rtopariOg the ae eeldctre asm me h aer n

dEA (thousan d sek.lBreaie e habis-Paaatt dinaded by tuahr of prsatstlsgTousi - To ta1 aurfate urea cmPriabeg latd are atd Inlaud oseore; 1960, phaIosqaiidto a d eital school attin yaa.

Agei-Iltn-1 - CEtieate of aittolorea teed temporarily orpraosytleedfml rduate .. ...es aslta.tte-ds prby ca - esee nf9or crop, ptua, aket.. aolth.nhe gardena or to Ie. falt;lh,ttln.ti ate

190ad 180 dae PePo1atien Pee 11uspata1 ted - etatl, aeham, aed rural - Pepalatle festurhac, cod eara1)ditieded hy the icreaeuia obeg of bepital beds

GNP PIt CaPITA (US$) -GNP per papita etareta ortee.t sarht prices, a_itablein alcalpleegeeladaeiledhsIa cellte h sur1ouaricomehoba Worlid moat atlas(19 79-ti hasis); rbliteieuoes d ptasaeenblamsspeasei tfe

iMbO, 1978, aud 198k dote,by at lea toet hscie sshihets pr-idlog prtett,ally catedla1

;. -I "' " _l-, 1, "I ~ ~ ~ ~ ~ ~ ~ ~~~cae rcou acided. RunaI hospItals , hreas'r,ibuelodehatanprimay" etrgy (coal and _iet,ptoom,etrlgealhyt- ula sistanrt, trse lef,nt)eitofe epseg ndsa n

audIachrml leticity) i klgoeof cue1

equlcaleetd par.- cait; enie htedrag of---I e -ffca failtis Per bytl s purposes* tObO~~~~~~~~16, 1970, oud1980 date..P,orba;""t hsIta. itu fd.;b riclulgecr. ad cra

.. d ~~~~~~~~~~~~~~~~ ~epleald, local ur rota bupti ndmdclan aentytsesyPOPLAIOTN gap VITAL STATISTICS ipceh.dheptl arelecode tely tdela1 toa.d ttr

Todtal ropolatloo, Mad-Year (thocoando) - Au cf JuLy 1; 1960, 1970, aod 1981 adm.issious pet taitel~ ted. ITlsdd u.mhe Oof dmsosn rdahr

dots, fromftoa) bBtoosp-1...I.italo dinided by the n-oabr of beds'

dltfereot dfo-iu o raora ma yffect otmyaoability of dsa t.11AOmog otories; 1960, 1970, etd 19f1 data HOUSNGaole Olotbl cttsprhaead oa.ohe aa

Peuale1rujecftio- -to -- 1to r Al htehl ofcouit ofI aPr. groa hof ..i.ml teceslolgqsaMNtatalpooatt byaotd aseaud their .. e. it' n fertility. the Su bid o tutthlpaps

oae.Projetio prtaaa o mrale rtes aprie ufthre ecgthmeir f eroa utrom-iotl eren adrualsotganubrtrlerela ..e.io lieePctatoy at birth ioceaaog ith cuferp pr o hpeson per room tnalahn ndttlocpedceetaa

peart. Te parameers foe fertility ltotylobo he ed otocu, a tieporte. ~. . o yRo -f .di

euruttattemattscessatt. his is ahIeved tip afterfootilttray eaI (j ,-te fooperet hatldrues -, _laclie tuthe rpiatmaut evelof omt ne roendttlo rats, thee Pimar soe p-itta,y male and female - d --oloal mal atIeml

~~~~~fertility rae-o oydeeotle . coutr.s...ba.neealsdaatouer-dmet ayteced 08pelysTear otatiunary popeloElnish teathy -. the. year .. obet sntofary sinc 000ppl aehlsorbe htofii colaa

popoi-lsuem att til Yhrechd.f lecoudyary dofooopr- total,. male an fate omutd saeg;ecsdrPoeolaticu et.lty --- ctil...oIqoircat eat oo yar o aptoa rmr imrttfar t. he.- Mtdytar opulaIon er oqare klo meer (50 hecaree of ponide gemeal, rnataual, r tepberttalui_tloitarthaa fetotal aea; 190, 197, aud 980 daa. puplot1 ealb.. of ID tu. 17yer ofago orapod:c oss e

Per- lb. e.borce ni. loud t- opoed-a ahece I forafOcitre lan gtergi eeeduuly; 1968, 1970 oud1980 data. Vucatitel eerollaeet (perceu of secoedIry).d Voatiotal lestisAtlOa

po ai t; 16, 1970, an pd1981 data _-. To.Pli-l-tacbee etl - priary and fs.t.ooda ry-Toa seed ents en -tle .I

fopotte rothe tapol.tporcnc - toha -. i aona gth raho of u:rha Mol llerc rate (pretI ieat dsu(bet ra n rt)a

pose pupuluotoc; 1981, 1970, and 190of1p data. -tol_, Cl It 5 P',9el tIgg

Items Ieruluctle tate-Intage touer of doghuereaoman til hearftoPilitaryahlflas

PaY- plunmadcopcOos.At- t (tohad) ..ta tIbre cpots ts u , ItIfet aafercc ee a no-ty he .topaaie. fi_msprogram YT - btei tr (ret- th orau ptiatuff T ec er oe-uaosI

PaiyP'utu-sr preto ate aeo 'reoaeo re eea pi sc e thuad puuitiun; enciod ..m toiemd Treeler

oilmarIedtono n tneaaeorcp. eacacq.lrceateniperthntad yputsto) Oho-thearoagff1ahtTITO lclcaeo 'ol geea ..aetoasao" letC toe d basay.....diay

at 1960odcte 1970 all fed19uiit,Pnotoe edoedtdt e0dIy fIrapasa eo fu ieaek

cuff e a196tea artItac ) agrgte~ benocio fof eriach r coonor is mo 11hle2to17Feults,ge f

1970e ottoa aesrae prd Pce prcoogt;1r-h,17.ad18dats. IAO980dDt I_P0-P0CCe .u..Po ata Supplofcalries(cctofreimea9-Cptd fret Total Iabo Fore thedad)-ltetslyatv eeus mid re

oPePlrts, ae 60egr It7 stock Net -aple emulueoranmai fed, oe,tma-b 196, 1970 ll and 1 th81 data. _. d

age al teadistrhotia of ppuistot, o a grom hng 1 pretfor tst idosry(pttet)- I.aht ..e .it yitin, Tron ttosim,mseat aem

- palse peoteto, of ahlcb9--6 O 190 7, grat shoe 7 he1 atslpoes heeib,17,tdl91dt.Teeartee n10sutoptt as.tada ith a t arc lsrta tho of 75grm ofrtota pereteh e 3gem e et agt -ast ttntr oftepplto,an5 e Ietea

Thrd96ri 0Pe lonp 91h,17 e 1 980 dta. -cetodc Oajdenr dait RatopOefi p gaate ne 5 n 1sd crI

deetoed fro ePutoal .. -du90 n17,ed 198lado to ras e day;t1981-k, 197 a...d. 1977Hdata. IttClef~~~~~~~or DIIatTotChild age 1-b) eathtate (per t.. nsatd) f tldah o tdonatd On I -c-illeebo I p:riothe e Incme letranoathp.and bled)-IiIe b ihs

ag 'r I - er,c bire ntI g tOifema dvlpo eto,rcotD perroeriget,P -porst prOdeoeen ted potat O aree e

year ofage perkhousau hoe hiths; 190, 1978ted 198 data. bsulotepct. etpioctiett nei isthen" IttI'd ienl belteallah aoioldaAfccia of oft lWater ..rce of unath-o")- total urban, aofoa -po t rreoal dqaeditpa ueta o-fn euemtai o

matr Oppl (ooodt rate outac ..et or autreated ot,Isimtegtlaffv teverty -to - local (It ret cata .- ar.blt ndrJ e

sanitary tells) at P'reae of ther reptle-O popolaItousf. It at peoratupbli isom u he- toPu1tirp. Oe lvlisTindfuete oafrm . oaema h uciacIftbeo eIdhtb eatoutahie acuass of that fTVRtmared (Perlta eo booePvry noelvl(aes rehaua. I- rurlaesrttabeacaeol Implyj that the i buetfeo.n rua - Prtotof. pop palee (rh_ and rurl)th are abml

Id",ersro the hoi-holl do ot-have-i apend a idproplrito..e pusTof poe

indexO lay~ in fecigOefmly etrtnstoa- d-hrofpti-s (tutr , rbe, a....a.)sered ysoreelispooalio pepcennagsu of their ocepectira pop~~~~~~odaen. O . ractot dieposadi

ma tPtuleth colttiu ao dipoal,oit o--ibou t-ateet.o OtaItoc aol Mota The pstn ridohu-adecoI aloaceeca h-ete-Pretyteaorth11aofpO cot mcaclylsad eaethsdipataaprities and siollar Iosoailauiotno . dOfifaitp 1903t

- 24 -

ANNEX IPage 4 of 6

YUGOSLAVIA - ECONOMIC INDICATORS

Population: 22.7 million (mid-1982)GNP Per Capita: USi2,840 (1982)

Amount Annual Growth Rates (1)(million US$ at (at constant prices)

nIditcator current prices) Actual Projected1981 1978 1979 1980 1981 1982 1983 c/ 1984 1985 1986 1987 1988

NATIONAL ACCOUNTSGrDoss domestic product a/ 68,005 8.5 4.2 2.3 1.4 0.8 -1.3 1.5 2.9 3.7 4.6 5.2

Agriculture 8,136 -5.4 5.4 0.0 2.8 7.4 -2.1 1.0 2.0 2.0 2.0 2.0Iniustry 27,897 9.2 8.5 3.2 2.2 -1.1 1.3 2.0 3.0 4.0 5.0 6.0Se-vices 23,814 11.3 3.1 -4.6 0.0 0.8 c/ -4.0 1.0 3.0 4.0 5.0 5.5

Coosumption 44,884 13.8 3.0 0.6 -1.7 0.5 -2.1 0.4 1.9 2.8 3.7 5.4Gross investment 24,155 -1.8 11.4 -6.4 -0.5 -1.3 0.0 -2.7 4.1 5.1 6.8 5.4Eg?nrts of GNFS 15,448 -0.2 12.7 10.4 0.5 -11.5 0.1 7.7 4.4 4.7 5.1 5.4Imyorts of GNFS 16,482 0.6 18.4 -8.6 -10.8 -15.3 -3.6 1.2 3.5 4.1 5.5 6.1

Gro-c national savings 23,209 -0.2 2.0 3.0 -6.0 -0.6 1.1 - - - - -

PRI CE SGDP cleflator (1980 -100) 140 65 79 100 140 181 254 - - - - _Exch6nge rate (Dinars per US$) 35.5 18.6 19.0 24.6 35.0 50.3 92.8 - - - -

Share of GDP at Market Prices (X) Average Annual Increase (1)(at current prices) b/ (at constant prices)

1960 1970 1975 1980 1985 1990 1960-70 1970-75 1975-80 1980-85 1985-90

Gr3su Domestic Product a/ 100.0 100.0 100.0 100.0 100.0 100.0 5.9 6.5 4.1 0.8 5.0Agriculture 22.5 16.1 13.8 11.1 12.9 11.2 3.3 2.9 2.0 2.0 2.0Industry 42.2 37.4 44.3 40.5 40.9 41.9 6.3 8.3 7.5 0.1 5.5Services 29.0 38.1 33.1 35.8 36.2 36;9 6.9 4.7 4.9 -0.6 5.4

Consumption 67.2 72.8 74.3 68.3 65.9 65.3 6.5 6.9 6.3 0.3 4.8Gross investment 36.5 32.3 33.5 35.8 27.5 28.7 4.7 5.5 5.4 0.4 5.9Exports GNFS 13.9 18.5 20.2 20.6 31.5 32.2 10.2 6.7 5.2 -0.4 5.4ImpIorts GNFS 17.5 23.5 28.0 24.7 24.9 26.1 9.8 6.7 5.0 -5.5 6.0

Gr-ss national savings 32.6 29.6 25.6 32.3 33.1 33.7 5.3 6.2 3.2 - -

As I of GDP1960 1970 1975 1980 1981

PUBLIC FINANCETotal revenues 27.9 33.1 36.8 34.0 32.3Toial expenditures 24.1 33.2 37.2 34.6 31.6Su-plus (+) or deficit (-) +3.8 -0.1 -0.4 -0.6 +0.7

1960-70 1970-75 1975-80 1980-85 1985-90

OTHER INDICATORSGNI growth rate (Z) 6.1 6.7 6.0 0.2 5.3GNI' per capita growth rate 5.0 5.8 5.1 -0.7 4.4

ICOR 5.4 4.6 5.6 53.7 5.7Import elasticity 1.6 1.0 1.2 -6.8 1.2

a/ At market prices; components are expressed at factor cost and will not add up to total due to exclusion of net indirect taxes.b P Projected years at constant 1972 prices.c / Etimate.

16671? EMENA IC

April 11, 1984

- 25 -

ANNEX IPage 5 of 6

Population: 22.7 million (mid-1982)GNP Per Capita: US$2,840 (1982)

YUGOSLAVIA - EXTERNAL TRADE

Amount Annual Growth Rates (Z)(million USS at (at constant prices) d/

Indicator current prices) Actual Projected(1982) 1978 1979 1980 1981 1982 1983 e/ 1984 1985 1986 1987 1988

EXTERNAL TRADEMerchandise exports 9,923 1.4 1.6 11.0 4.3 -8.6 1.8 8.3 6.0 5.3 5.3 5.3

Primary a/ 1,816 3.3 -0.8 3.0 -19.5 -12.9 5.7 8.8 6.3 5.5 5.5 5.5Manufactures bi 8.107 0.8 2.4 13.5 11.0 -7.7 1.1 8.1 5.9 5.3 5.3 5.3

Merchandise Imports i2,810 -1.3 18.0 -10.5 -12.3 -10.0 -3.4 -1.9 3.6 4.7 5.9 6.6Food 714 -24.3 56.9 -7.8 -17.8 -8.2 -10.4 1.9 3.8 5.3 6.7 7.7Petroleum c/ 3,298 10.4 10.6 -3.1 -9.4 2.8 -2.0 1.4 2.0 3.2 3.9 4.2Machinery and equipment 2,968 -0.2 24.7 -19.3 -26.4 -14.8 -5.2 -2.0 3.8 5.0 6.3 7.1Others 5,830 -2.1 10.8 -7.9 -8.4 -13.7 -1.7 2.0 3.7 4.7 5.9 6.6

PRICES (1980 - 100)Export price index 117 73 84 100 109 117 113 116 126 137 149 163Import price index 112 70 83 100 110 112 111 116 124 135 148 160Terms of trade index 104.5 104.4 101.2 100.0 99.1 104.5 101.8 100.0 101.6 101.5 100.7 101.9

Composition of Merchandise Trade (Z) Average Annual Increase (Z)(at current prices) (at constant prices)

1960 1970 1975 l980 1985 1990 1960-70 1970-75 1975-80 1980-85 1985-90

Exports 100.0 100.0 100.0 100.0 100.0 100.0 8.1 5.7 2.9 1.7 5.3Primary a/ 49.6 29.4 19.5 22.0 14.6 14.7 - -1.3 4.2 -4.1 5.5Manufactures b/ 50.4 70.6 80.5 78.0 85.4 85.3 - 8.1 2.3 2.6 5.3

Imports 100.0 100.0 100.0 100.0 100.0 100.0 9.0 7.4 4.0 -5.0 6.6Pood 9.1 7.2 5.5 7.2 4.7 5.0 - 5.0 8.7 -6.4 7.6Petroleu c/ 5.4 4.8 12.3 23.6 20.2 19.6 - 8.2 8.7 -0.7 4.0Machinery and equipment 36.8 33.2 33.9 28.0 27.9 28.4 - 9.4 1.8 -8.9 7.0Others 48.7 54.8 48.3 41.2 47.1 47.0 - 6.0 2.6 -4.0 6.6

Share of Trade with Share of Trade with Share of Trade with Capital Share of Trade withIndustrial Countries (M) Developing Countries (Z) Surplus Oil Exporters (Z) Centrally Planned Economies (M)

1965 1970 1975 1981 1965 1970 1975 1981 1965 1970 1975 1981 1965 1970 1975 1981

DIRECTION OP TRADEExports 40.1 53.3 34.0 31.0 17.4 13.6 16.8 17.0 0.4 0.7 2.1 3.0 42.1 32.4 47.1 49.0

Primary 61.0 70.2 54.0 - 9.1 8.2 8.9 - 0.2 0.2 1.9 - 29.7 21.4 35.2 -Manufactures 24.0 41.9 26.0 - 23.8 17.2 20.0 - 0.6 1.0 2.1 - 51.6 39.9 51.9 -

Imports 55.3 66.1 47.5 50.1 16.0 12.7 15.7 15.3 0.1 0.1 0.6 9.1 28.6 21.1 24.6 28.1

a/ SITC 0-4b/ SITC 5-8c/ SITC 3; includes lubricants, coal and electricity.d/ Projected years at constant 1972 prices; for historical years,base year prices are those of the preceding year../ Estimates.

1669HENEMA lCMarch 27, 1984

- 26 Annex IPage 6 of 6

YUGOSLAVIA - BALANCE OF PAYMENTS, EXTERNAL CAPITAL AND DEBT(US$ millions)

Po,lation: 22.7 million (mid-1982)GNP Per Capita: USi2,840 (1982)

I.locator Actual Projected1978 1979 1980 1981 1982 1983 */ 1984 1985 1986 1987 8

BALANGE OF PAYMENTSExports of goods and services 11,446 14,526 18,098 19,642 18,088 16,854 18,659 20,637 23,129 26,014 29,427

of which: Merchanaise f.o.b. 5,671 6,794 8,973 10,205 9,923 9,914 11,140 12,744 14,629 16,793 19,278Im.ports of goods and services 12,702 18,187 20,389 20,588 18,712 16,580 18,103 19,767 21,675 24,311 27,555

of woich: Merchandise c.i.f. 9,988 14,019 15,064 14,528 12,810 12,154 12,979 14,414 16,456 18,992 22,058Nit transfers - - - - - - - - - - -

Ct-rent account balance -1,256 -3,661 -2,291 -946 -624 274 556 870 1,455 1,703 1,872

Private direct investment - - - - - - - - - - -MIj loans (net) 1,719 1,346 1,924 548 -187 1,181 -241 209 -251 -779 916Ocher capitsl b/ -204 1,173 499 636 -201 -1,510 -173 -540 -752 -557 -619Change in reserves -259 1,142 -132 -238 1,012 55 -456 -279 -321 -459 -1,945

international reserves c/ 3,245 1,968 2,567 2,687 1,675 1,622 2,156 2,434 2,756 3,215 5,159Of which: Gold (official valuation) 69 73 78 78 78 78 78 78 78 78 78

Reserves as months imports 3.1 1.3 1.5 1.6 1.1 1.2 1.4 1.5 1.5 1.6 2.2

EXTERNAL CAPITAL AND DEBTronss disbursements 3,057 3,891 4,596 3,107 2,314 3,660 3,316 3,206 3,914 4,005 4058

Official credits, public andpublicly guaranteed 369 519. 676. 712. 471. 1,136 1,816 602 479 475 458

Multilateral 180 318. 308 218 344. 340 552 436 446 453 454IBRD 180 294. 281 218. 330. 280 552 436 446 453 454

Bilateral 189 201 368 494. 128. 796 1,274 166 63 22 4Private creditors and non-guaranteed 2,687 3,372 3,920 2,395 1,843 2,524 1,500 2,604 3,435 3,530 3,600

Yugoelav export credit (net) (-105) (-150) (-215) (-234) (-177) (-157) (-200) (-260) -(129) (91) (-225)

External debtDebt outata.ning and

disbursed d/ 11,353 14,177 16,237 17,348 17,830 18,385 19,695 19,948 19,194 17,922 18,287Undisbursed debt 1,671 1,393 1,212 1,783 1,441 2,418 2,585 2,702 2,781 2,836 3,010

Debt service e/Total service payments 2,029 2,582 3,357 4,008 4,006 4,875 5,835 5,729 6,800 7,229 5,543

Interest f/ 495 821 1,281 1,987 2,049 2,155 2,197 2,376 2,102 1,951 1,851Payments as 2 exports 18 18 19 20 22 29 31 28 29 28 19

Average interest rate on new loans (2) g/ 6.1 7.5 15.0 12.5 14.5 10.8 10.8 10.8 10,9 10.9 11.0Average maturity of new loans (years) 16.8 14.9 8.9 11.7 9.6 7.4 8.0 7.9 7.4 7,4 7.1

a/ Estimates,2! Includes net use of IMF credit (drawings lags repurchases), net use of short-term credit and changes in bilateral

balances.r! Including gross foreign assets of commercial banks.dt

External borrowing reported in the historical balance of payments is not consistent with external debt data.e/ Debt service excludes amortization and interest on export credit extended by Yugoslavia.T After 1980, includes charges on use of IMF resources.

Public and publicly guaraRteed debts only.

1 ibl9H

EVERA, 10April 12, 1984

- 27 -

AX, EX II-age I of 3

THE STATUS OF BANK GROUP OVERATIN1S IN Y 1OSLAVIA

As of March il, 1134

A. STATEMENT OF BANK LOANSUS$ millionAmount (less

Local Fiscal cancellations)Number Year Borrwer(s) Purpose Bank Undisbursed

Forty-five Loans Fully Disbursed 1534.0

916 1973 Naftagas Gas Pipeline 59.4 4.61360 1977 Management Organization Multipurpose:

"Metohija" Water 54.0 17.51469 1977 JUGEL and Six Electric Power

Organizations in each Second Powereach Republic Transmission 80.0 2.8

1477 1978 Vojvodjanska Bank