.- ~ ~~ ~ ~ ~ ~ 2 DOCUMENT' OF INrERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTE RNYATIONAL [FVPI (LPk VN'J! A(Z(O( AlIn'T' Not For Public Use Repu.i No. 38 -BR THE ECONOMIC AND SOCIAL DEVELOPMENT OF BRAZIL (In eight volumes) VOLUME IV Th'EL MNORTHEAST !Nrx,L,fO'.ArVT E'FFORT I IL. .N~II.L LLfl. ± tiL LLJ ".IL I L,A F-11~ March 12, 1973 Lzitin Americ.- andthe crbbbean Departmnt [, i; ep,'iD prpaid fr vf;ca! use o)nly hy :lic Badnk G;:>up 1:, mdyv r;utb;plihd u or cited wtthoui Bank Group authorIzdtion The Bank (;roup does not accept responsibiIit) Ir the accuraLy or completeness of the report. CURRElICY EQUIVALL NT Currencv Unit: Cruzeiro. (Prior to M?ay 15, 1970, the currency unit w-as called the "Cruzeiro Novo" or ".New Cruzeiro", the adjective was dropped in May 1970, without any change involved.) Exchanze Rtets _+fective D cerFe- ib. 19?2 ~L~~"duO. U -~..L.'\ VI- . ,CL Buying Rate: US1.00 Cr$6,165 Aver'pe Exch-n7e Rates USl.CO = Cr$h.59L Cr$5.265 US-1 million = Cr$)i,59L,0O0 Cr$5,2F5,000 Cr$1 million USS217,675 US$189,215 ThIs report is based on the findings o f a .mision in February to March, 1972 to Brazil composed of: Francesco Abbate (Chief of Mission) Joseph Brooks (Fiscal Economist) Andreas Tsantis (Education Specialist) Marc Blanc (Transport Economist) Daniel Adams (Education Specialist) Ian aume (Population and Labor Force SpecialJst) >tanis Panagides ^Agricultural EconomiSt) Louis Kermann (Consultant - Agricultural Economist) Sa,riel Yohai (social Sectors) Maria Carola Machado (secretary) TABLE OF CONTENTS Page No. SILNIARY AND CONCLUSIONS ... ................... .................. i-ix I. THE PROBLE! ............................................... 1 II. RECENT PERFORMANCE ........................................ 3 A. )CONOMIC GROWTH ...................................... 3 B. INVESTMENT ........................................... 5 C. DEMOGRAPHIC GROWTH AND MIGRATION .... ................. 9 D. EMPLOYMENT AND INCOMES ............................... 11 E. THE AGRICULTURAL SECTOR .............................. 17 F. THE NORTHEAST INDUSTRIALIZATION PROGRAM .... .......... 22 G. THE TRANSPORT SECTOR ................................. 32 H. SOCIPL SECTORS ....................................... 34 III. THE NEW NORTHEAST DEVELOPMENT STRATEGY .... ................ 39 A. THE NATIONAL INTEGRATION PROGRA. ..................... 39 B= THNE PROTERRA .. ............ ==4'; C. SUGA'R INDUSTRY REORGANIZATION ........................ 50 IV. GROWTH PROSPECTS AND RESOURCE AVAILABILITY ........ ........ 56 A. PROSPECTS FOR GROWTH AND EMPLOYMENT .... .............. 56 B. INVESTMENT REQUIREMENTS .............................. 57 C. RESOURCE AVAILABILITY ................................ 73 Vr. T1,10 IC.ATIf: FR D Ev L P AID n.. . . . . . ... . .................. . ............... . .... . . 91 A. Tl__ CIAALLENGE FOR EXTERNAL ASSISTANCE . = 91 B. PROJECT AREAS ........................................ 93 STATISTICAL APPFNDIX SlIHAlPY ANJD CONCLUSION'S 1. The Northeasct, ith abtut 28 mill4on people, is the poorest rezion in Brazil. its per -anita D,')P, UTS180, is half of the national average. Moreover incorne inequality is suich that the per capita income of the poorest 50 percent of Northeast Tpopulation is about USS50. Social indicaturs, such as hiMh illiteracy, malnuitrition and inadequate health facilities also mani- fest the revion's urderdevelorment. Regional income disparity his been a ftinction of more thar just poor soils and recurrent drough"ts. An archaic land tenure system, urfavorable interregional termis of trade and neglect by puiblic policy until as recentlv as the late 1950's plaved major roles in hmprrering Northeast growth. 2. Until the t150es, federal ,rogras to aid the Northeast were l:trcr'1 con 'otrated on construct ion of hydraul1c works in an attemp)t to tewner tle ra-.-ges o drurght on aerrictiltural prod' :tion. Traditionallv, a seve-e croi7: has been recui-ed to spur the atuthorities into action. After the 1958 drought, a Nnrtbeast regional develogTent apencv ':1'DFENF) was created and the emphasis of federal programs was shifted to more cornrehens1ve regional development efforts. The thirust of the Government action in the Northeast during the 1960's was on heavv Investment in infrastructure, riainlv r-n,n-ort and mower, and on industris]ization, which was stitmutlated thrur-Li! an ireenlous inves't- rient tax incen-ive schemre (known as the Art. 5 4fS nrnP.ra). - v most stane.- ards, Northeast economic grow.th in the last decade, was impressive. Much o!' the credilt for the raind growtch of the Northeast durIng the 1ucy's is attri- butable to the considerable volume of federal resouirces trans..erred to the reRIon. Federal nolicies have not narrowed the reginnal gan, 'htiL hayv pre- vented the gan from widening. On the other hand, those Northe;isterners livirn at the subsistence level were not directlv affected in sionificnnt decree by the Covernment's regional development efforts, although cboir situation was alleviated to some extent bv inter-regional nicration. Cove-nment policies in the 1909's had little ir.pact cn 'ortleast novertv, rmainly because agricLlture was re1atcvelv neplected. The main battlenecks to agriculture develonment (highly skewed rattern of land tetutre, lack of cred.it, extensiorn and] research facilities, markering dieficiencies) persisted despite some improvement of the programs for dealing with then, in addition, the irndustrialization programr.a, which attainee significant prnnortions only In the late 196n's, was not able to generate s.'4ficient emplom.ent opportunities t, keep pn-u- trh the ranid growth of the urban labor forre. Thus, a pool of underemploved labor accumu- lated in the urban sector 3. As in 1958, the 1970 drought jolted thie Covernment into a major re- formulation of its policy towards the Northeast. The vulnerahility ef the Northeast economy was stressed by tthe drought. The limited role c, industry in absorbing surplus labor was recognized. It was decided that, for the time being, the main solution to agricultural underemplovment and povertyl must lie within agriculture itself. Two new dimensions were added to Government policy: labor mobility and agriculture. With the creation of the National Integratiorn Pr.ramr, n … I') 4.n 1070 a..d rhe Prora. of North/I1northe-at Land Redistribution and Agricultural Develonment (PRnTERRA) in 1971, 50 percent of the 34/18 inco-re tax cred'. resonirrez rorresnondinp to about 11SS280 nillion annuallv, were preempted and channelled to finance agricultural - ii - develo-renr and rela :ed infrastructtirv in the Northe.ist an! A,nazoTI :f1cr.., throut,h !07(-. Another pr4incinal com-tnacnent of ,' net,r reeionwl .Iew'opr.,t -traterv is a DrnRre-¶ to reorranize the Irefficient Northeast su.ar 1I:c. o -ether, these new I,rnrrans constitute a rn-tor effort io oaQe the 'roet ulnderenlovr-ent in the Northeast, ',v removin,r worpers fror ti1S are.- .iit-icultural frontiers and, more important lv, bv increasing ithe pror.dnu i x; workers re;naininL An the area. '4. '.L*2.l:v, - - 1 _.?Vt S ..I *UIf 4c .S . ..1 . . . *. . - its reiconal rolicies so a:; tr. bring theri Lo bear rore dirce; iv ..xI n 'Ic - t are - 0rrt,-Arr{i S ' 1., '.n,;t n 'r'r -. ., - such a Thange effective '5s stil! ar from navnv.ng e rs c-:tec. :i In .idd :tic.n :c .'e crn:;:C itipn of var...- rri-:c..-. ;.r- ; >:rtre ast , tr:e PIN is tinan:i;n' t-it, co;!structinri O, ;'o :t.' i' zI,v coionl;zar ion of areas a.i aren t-t these ro:,dp. icc' I vernr'en . '0:.'.: t21 national securitv ancl )oolitical ohijctI'ves of '70 Ama cnf rn.:.. .: n Nr'lfheacr i;r.ererTIfvTroAmnr grrb 1'r:. Fiac ct,e 'cnrd r,co n e . .- toe r tJr'. and the on. w n f rhe -roe,-e" ro7.-ctf.SJ 1:. oetar -'; .-re ri-e for il iarning an(: survevir:, cont.sriction n. rt. no l f C en to1 the rore easi). acces.]si"e I- n.1 m r--11 5r1 >'ar'o;''.a -,.. 0 nr:1a..s.-o!UCn. .- r. P'wav '.-.^an -'c ecci:'oryi C.1i ' .-. o IC-' --'at ion scrPr-e A *,- U:r :onstru .ion 'Ion-' - .0-:., '-.Cr. V:. c.al in, .aS,rivuittral evvrnnoln' A. us'..c,'r., C* -, Sc-: to c,-sc , C",-onvmnc .roJfiLis. .(orn'-'q--, : '' . e::t .n : .-.r: s- -'rdni r iC51' 'or nro rert :i^ x.i! tin, '-r.:-, et I : r.: ro'Ir':r C '.. .. \7razon Pe,:irr,. -.rEPlirminarv studles of rhe ConSttjo:7 Ct 3 :1- a .ri na. or i.Z.azs , wav have beeni uader:iaken. This *uouic rc .- ss:r,-- , ron ', tr-es: :r-. .,4r.n kr' northern berrier. Evidence .c ,- i-or _C :.C r -! ad-) e ? s iUd-I o -.--- pr.. -t 1h a -,or - eSi *e .cI - Covernment colonization sche:es r 1l. t'- neuw Ai.\- .c - o'.,. . . - -roceeding at a omucn slower pace than .:rl cinallv forecasrt-u, as i Licv still is I:; the process of detfnition. Rcparrning t'C iapvn. ..s such nrnrecrs, Brazilian authc-rities gradual lv are sh itinC *ros-0 a1n ac' hio' - te- which sin-plv al1ocatedi fixed areas for sett]l'r"n, to a systctcirr viKc -' IF. tS basic oh- iecti et the achievement of resettiti 'ami Iv in-onte t-r r,t,rr . nur-lher of different miethods of promot-in. settlement arE' hein!: used. Over rs:!'t few vears, there has been a great dea l of spont neoixs st'IAtlement alion the Belem-Br-isiia 'iighwav, which was larfzplv unsurceczsftii as settlers acouiri's no le,al tenitre and were not assisted either financial ily or technicaLiv hv trhe r;cvernment. Along the :iew Amazon highwavs, the (overnrmont has introduced limi ts on snontaneo:s set vtlemen t, a I , io u: h it1 ii 1 wl he ;lf i c t t o enf or cet-'ul oncri road qiecess has been orovided. The g.overnrenr a.lso has started to e'ra'- lI-h a controlled settlement in that area, Sesicies heino verv exnensivp (ovor ''S1O,OOO ner settitr), this particular srheme ahs r's an exnorhitant amonnt of liT-teda dministrative talent. Fortunately, the -overnment has undertaken lo experiment with an a'l ernativc controlled settle -eon mod(l similar to tilP - iii - lEfl-financed Alto Turi project in Maranhan, whtch rentesents a practical, low- cost approach to the prohlen, somewhere between the intensively administered schemes and undirected spontaneous settlenent. 8. Another issue in calonization policy is the relative desirability of the various frontier regions and tneir settlement over tine. The Centrnl-West and the frontier Northeast states still appear to offer the best colonization alternativre at nresent, in view cf their proxim±i.y to LI,rnrkets arnd the qualBtv of their soils. 9. Recardless of what mnlx of colonization technioues eventuallv cm2rpcrs and where they are applied, the greatest need appears to be for the Governmen,t to prepare itself nov for making adequate titling arraafemrents and for orient- ing settlers in terrs of thve cropping pattern and production techniques. 10. With regard to Northeast irrigation, the third comnonert of the PT., lt aIppeIars thatl the Government rightly wants to proceed cautiously, by fl-npLe- mentin; onlv a few clearly viable projects i the next few years. Althouch a larpe number of irrigation protects have been tentativeiy identified, the viability of many of then is douibtful owing to variouts factors, e.g., over- estimation of mirkets for high unit valiv? products. 11 The aim of PPOTFRPA, tromulgated in mid-1971, is to farilitate the access of Northeart peasants to the land, to create better conditions of rural emnlovment and to stimulate the grovth of agro-inIusRrv in 0he North and the Northeast. Not until lare 1972 were the lmrlencrting regrlatiors issued. The delav in the definition of the PRnTERRA illustrates tlhat technical andl administrative iinitations are serious constraints to irplementing: any Nnrtr/ N'ortheast agricultural developmtnrt strategv. it also shows the difficulty of strikin a balance UetW'e¾n m,3rket-oriented policy instruments -- such as cred,j price incentives -- and programs directed to structural factors -uch as unsat:- facrtnrv land trnurP, inadeauate research and extersion, poor rural education, etc. 12. Neverthelrss, PROTERRA mav bring about the first sc'1niflcant progres- in agrarian reforn to he made in the Northeast. In certain designated areas of that region, under-exrlcitcd lands in properties of 1,000 hectares or greater w-ll he redistributed to an estimated 15,O(Th families In 1971. Owners who coperate with PROTERRA by presenting acceptable programs for splitting up their estates will be exempt from expropriation and paid for the4r Jand in cash. The proeram thus seeks to place as much of the admInis- trative burden of 2ond reform as possible on the lardowners, hthus limitllfg the role played by INCLA, the Covernment agrarin reforn agency. Wnether this will prove to be compatible with the social goals of the program remains to be ceen, howe-ver. Alt-nouzh the limited technical capacity of INCRA is recognized, mo,e Covernment participatlon in the program m.ay be needdcl to avoid biases in the redistribtirion of land as well as to assure readv availability of extension services, inputs and credlit to the beneficiaries. FinallY, if the target fs to reach the maximum number of families within the existing financial constraints, compensation procedures should perhaps be molifted to lower capital costs to the Government. - iv - 1l. In terms of finar.cial resources, ti:e acrzeltt.rt. ( c edit ce"- oow:' of PPOTFFRA% is more irmorcant than its land re.-orr cor;ronenr. IlnvoIveE is- series of ciedlit lines for fertilixers, iinmroved seees, ian;: nO(ecna:iz;atrc,i.-, f;arm improve-ment and Pgro-industries. These credit lines 1-ear nninina; :ntt lC;:S rates varyinR from zero kfor tertilizersi Eo 1/ percent kror nro-ila;usrlLs). lS. PR('TFR).A "'.ns for rur,.ssive inie:tions. of st.Sdizeci that inr.reas'd use o unoaerii inputs ecenoanic a:;d t''; S i .I certain extent, as is demonstrated bv thc hig,h c o ' f1or. r . U _. or'-.er i:and * .s e of i di zed crc 2t ; -UI ' de*. n'-r' t . . tgnorcs two orehler's. :'he first i.; t'ze problem of .ee.i;v; e' :.t : crc mechanisms s noilv are nor cof e di or x ted -! "reIC -- 7'sk:.'; ec. :-r - to tre ma ior; tv of1 ui'al I farmrnrs. cr ther , nc, ::;v 'r.a' rn.r-, F -.: . -;; excrs;s credi2t demand ..nd in the r.tiov)1iny1; aIt¾'Cs e t r'r 7.1:*. hv thace wno ar.- FirsL in-o t-Ae crrec'it riarke L.h. .e :" r r , .ˇ ?*.¾'r the entire range of potential s 1sdized& ur'c' hr""CI -c';r ne;. :-.' s'ifficIent to jt 'uttfv a massive shnit in pr.r't c cv. tiie Sovernment '.s not vet instututiouiav ..r ;:.. on a- i . vcltime of research neec-"d in thc .:orrheasr. a'crrtc:..t;e., as-.ro.: .utional charges at tFe national c-vei arf. under cansi.:1 . 1 i ; . The su,ar id-ustrv rcc-. En± zarion program,, F, on t;- r. :- o: sbcidri zer crer'it for t"roiucers Wtn.o tourcc ",r . 7o -') i mni s at /or t^r c rttgrate ar. meicce ..; : :' .r; i..' - tant s :imul ur to e_hieve eccnouies o: scale threith r r.7.'. c' Lu tLed t,v thc fact thar the r-eFeC)n t T) eere r: ' er ', * ,,- t- r, , cc m ul - I xA ed producer pr'ices ic . O' rheas t'r.' . r:. . --c ...' -' I -'- rhe inter-recior,al production coF-t di flerenr1 ' : -c . :.....- Pt' . '( byt 197Q* Altn:.up,fh itupr.vet1ent o th.e e- - is a sine nunL non for tFe developme.ia: the ,- . ;-- the reorganization plonram does neect ta take mnre o- i. -t -:' the nroblem of the cane fielI and mil' w.rkers wh.-. . . . -. At least sorrc of the areas which have heerl 4e'; 2n' ' . the susar 7one. However, no effort is bein.: r:de ei t:er in ' iri-e ::i:t - sI ced suJv'ar werV:ers will he the rbeneficiar-ics ofr e re; o- o to dC' g: - - itiction and r:arketi in svstems that would perric the re::i s.. -i1:ute lint to h)L e.. loved in tehe? nroduction of other crops. Fhul si un t-or. is i.et ri'-tal;Ie ,a late o1 COU(tin.iLIoI oetwef'n Braziils l .r ; ; i I:S.: i...) wttlc, s aom,inisterinr the sugar reorganization orograin, and l" 'tA, the aprarian reforr2 ae,encv, i6. The recent reorientation of the Covernnient's reeional develorTenn r.rate'gy is certaini", a step in thie right dlirection. For the first tine, (;overnment programF are tacklip. on an appropriate scale the or-hlems o& Xcrth- dast agriculture. It shouJd be e.nnhasized, towever, that the efficiercv .ci .onal development resource allocation Is imnedeef v two factors. The tirst i- the prsenrce of nurterotis loosely coordinated ai:ents p;nrtlcipr.tin.:. in tie' re,ional developren: process. The second is the shortaoo of technical talent in; agencies dealing with Northeast agricul tire. Fortt:n.-e]v, the Governrment ~.s aware of the problem and is working toward its sol t tuP. Finaliv, taerc is - v - a daneer that the desire of obtainrng qu'ck Droduction results nav ieonardize aidequate focus on stnrctural problems. If the ultimate goal ef PROTERRA is, in fac;, one of (.lleviatinp poverty, its emphasis should be on the rural poor. i7. Northeast development agencies, which are eneage.d in indicative plan- ning for NortheFst de-alorment ir the 1'70's, consider a 1(n percent regional growth target feasible. This reflects both the concern of the Government with narrowine the interregional per capita income gap and its anbitious national grc;:th targets. With an e-pectcd population growth of 2.4 percent, 10 percent regional growth would t.4-..hIe 6LIk Lthe 5 - Ler cap' ea ic, Lof C the L.iCLtL IF,y 1980. Exnansion of No-theast tndustrial and apricultural odtput will have to hp arrclpratpd il th1i recionnnl gr..wth ratn is tn hp arhievpd= 1p. Detailed analvsis of the demand for and supplv of Northeast agricuil- tural Dreducts suecests that the targeted 6.5 percent regional agricultural growth rate is feasible provided that ade-uate Covernment nolicies are imrle- mented. In addition to irproving the efficiency uf existing programs, along the lines surgerted in the preczding paragranhs, the Government might con- sidet the desirability of promoting interregional produLtion shifts. Labor- intensive crops such as sugar and cotton, which are grown both in the northeast andU '.n tLhe Center-Sou'-h, will Uecom.e increaslng lv inap-)[ropriate ll the Center-South where they are already encountering stiff comoetition from other prnducts (soybean, corn pasture). In the Northeast alternative a2ricult:ural opportunities ar? less attracrive and labor is abundant. 19. Despire the shift ir government policies, manufacturing industrv is likelv to remain the leadirg sector for reeional growth. NotwithstandSng its lack of carefully formulated priorities and the factcr bias ilp]ired by its capital subsidization, the 34/18 induistrialization process does not appear to have brought about serious resource aiisallocation. HavIng concentrated on resource-based activities, the industrialization progran successtully hroadened the region's economic base and exposed it generally to a modernization proccss. Newly installed subsidiaries or Southern firms have brought with them an inflow of eXperienced Senior maLnagerial staFf that is already providing a stimulus to local entrepreneurshin. Lack of local entreprenuerial capacity is the main cause of the failiurpq whil hhave ocrcurred AS a resul t nf rhe great iTrnv- ment ir rhe federal highway system which accompaniied ti.e industrie]ization pro- gram, transport costs no longer constitute a barrier to efficient development of Northeast industrv. The new firms have close linkages to the region, which is providing most of their inputs as well as their principal markets. Thus, fears that newlv Installed industries would be burdened by heavy transport costs would apn2ar to have been unwarranted. Despite S!ITDENE's efforts to dis- perse industrialization throughout the Northeast, most new firms are concen- trated in three main growth poles so that economies of scale and external economiAes are being exploited. 2fl. Howe"er, "'alor bottlomecl:s mutst be eliminate: h,-fore the growth of Northeast indus-ry becomes self-sustaining. Interindustry relations in the Northeast still are primitive due to the lack of suhconntra.tors, component suppliers, maintenance units, etc. Repional development agencies shouild pro- mote the installation of small and medium industrics which could exploit th.e linkages of the indtustrialization program. Another bottleneck facing Northeast -. V - t dstirv is the shortage of skilled rlue eollar workers ar well ;J.S of ;:II !C! level mannPower. Iion 'ullv. revional etucation reformi will respon(' to *hisi, r.. '1. Lookinz toward th- fu'ture, projects alreadv apprnved hv Sll h:F :;. vet in operation will accoutint for nost of the expected 15 percent increas : revio1.al rnanufacturing output throughout the mid-1970's. For new induFtr-:1, ,)rojects, SlFl`TwNr should tnrcreasinr.l y empnasize cxploltatiorn of r. . nn.;' n0 .r. re'-ourcrs (rrtnera] anid aericultural) as well as t;ie use c-:. . ''.' I-t is in this wav ti.at the reg.cn s comi arative advar ta-cs C.!;' .)-.' t.co nTis does not Tmoan that Northeast industry can be expecteci to reduce Si callc-V - !-'ae r...io,lal pocl o,f ur.derempicv. ;;rhan la.;or. P..ys.-.o-.; in0ustries necessarilv tenci to te canital intpri. ive. In .i v c.-i . C' . l1n(ustrv is to co-nete in the rc.st of Rra7 .i1 iS well .-iS ;hr.- ' . tee liCr,I (Uts in prarti ce, ver-r narrow. Labor a-sorotr on bhv ini is * ii-,rovveid econori!calIv. however, 'vy dirertnt, new tnvestmen; to >bo--i;.t tri indLlstrv branches suich as gar-ment production, applia:ice assemri,1,, etc. SiI .rnuld also > tve morn emphasis to pr,ducr1ton for exrort ahIroil. .c :.t inion of the Fede-al tovernment, (dllOWi;l duty-lr'e traa.-fr :n iT.. rc used Industrial cstHlishfnentr. on conriition tha at '. . one--: tl;eir output he e%ported) should have a positi,xe irinact oi' riortir.easc exc: L . *''. Pavid trowr;-i noh-ver , Js not sulj'.Ci2 0 itse . ; jr. I 7'rnV(erVent of th e clNli t. ?f life for the -orthe lSt r-.r r Aioterlr re. -'o. *-nd it ion iS t:i?t - rl r t4`c y mi-rT,hnsize th.t aimC "- .ir'. r-' :t-,I Ionrront o 1 t", orets rort airn r7 (ients I-.nnd reofr, ai ' . . - c-riented to a rarld increase in the ineomes of th1e pnocrest. qe-r ioes oi tn rontlation. M'igration to the Center-South can te c;<9 pecrCe( to 1r.t 4* - e-iaze the Northeast su-'r labor problerm. Ar.ot:er areoa :t o ;ncrv receiving ;Cove:n"menc a enti O.a ed U cat ion. ()'U:.n1 tl.V` tL thl' 0 ,-- tion anrd training syitem ot tL. Nor rheast !as iesnon.!ed impresw-vel .o t,o ,rowine national commitment to ducatton. :)Ds ,te these .a..ns, h.>xfev i- .'-,-re remain significant interregional anr! irtrarfo4on,t Jl *. it .es r-.. rte distribmit ion of educati onal onporrunities aotd ;ttainr-.enzra .': l .. i . . "'iciency anC qualit-: of the educition svstem. The same is tre o- . heaIth: onl. about 30 and 7 percent of Northea : ran J s 'S.' ,. hv adequate water Pi.d sewerage facilities, respe-ct lve lv, as conpareu > - '. *rf per cret in tbe Center-South. It is difftrtilt to see how locia _ ;:i:nts in the regton can generate the resources neededl to ov'-rcone che:;ie cdisparities, even gradualyV. 3. The massivt problems of adequate rates of job creation and exr.aosion >' social infrastructure would be simplif;ed in the futilure if fertiiit. anod demogranhic growth rates wtre reduced. There are indications that rerional rural-urban migration is reJucing fertility rates but mortality rates also Lnnear to the r!eclining in the Northeast. Brazil's Familyv Welfare Societv !Ir.-FtAr' I -- an ali'alidLCte oi tLhe InteinllatIonal Prtnfle I ParcInthoodi Feeration -- is active in the Northeast as it is elsewhere in Brazil. Recent relasn- of official a-t idtes toward fnm4l1, ,lanni-n -,rt-nn all i..ncr in ('roanize(! fnmilv nlanni o activitv in the futtire. At least Iurinp. thp d(cadir n; t!-e 170s. however, it is unlikely that regional fertilitv decline will hi' of sufficient m.agnitude to, saV, ease pressure on the srl'-)ols. - vii - 2)I. T 4 In ord- .to 1 t r4 .,.er nniirz l1 r it n nrp.r sectIons t: Ene Northeast s-eietv as well as to achieve the concomitant goˇal of reviop:il grotwh it is ne-essarv to increase thc- productrivitv of the existinr capital stock and to stin~ul.ate a ranid growth o' investment while improting the administrative structures. A 10 percent growth path is like'v to reotiire a 14 percent annual increase in regional investment. Mjreover, an increasin? share of the total investment btirden is likelv to have to be bo:ne by ti;e public sector. Governm'ent Investmenc -lans and an independent estimate of needs for education and feeder roads indicate a 22 pelcent rate on public sector investmeolt vrow-'th over the next 5) years. 25. The adeauacy of reso…rces to ,.eet suh public inves-.:…enn requireents is almost entirelv predicited on th'e flow of federal funds to the Northeas-t in the for- Jf direct fed-al investment a-d federal !rrnzfprs to the states- Fortunately, the strong tiscal situaEion which is expected to prevail at t national level for at jeast the next few vears bodes well for the timflv char.- nelling of needed federal resources to the Northe.st. Ilowever, the rerional need for transferred resources does seen tr be greater than the anounts pres- ently budgeted ,v the Federal Covernment. The S'ze of this gap between reeds and alreadv budReted allocation may he esti,zated at CrS600 million in 1Q71 prices annuallv over the 19'2-76 period. Unfortunatelv, it is precise1v tble social investment rrograms of the local governments whiich are nost likelv to be jeopardized bv failure to rili this gan. 26. The ncr,then-tcrn stat woAc tnwinow g orc are virti,1y)r H rif,. to the imposition of a valu.-added cax (1CM), are urging the Federal Coven-r- Tepnt tn mnkke sbh.stantial chanves in TCM administrat.on wntch would raise their share of cverall IC" collections. Since the ICM is paid to the state of origin of the product rather thar. to the state of destination, Northens' cons'imers are paving a substnntjal amount in IC! taxes to states located ou'- side the Northeast as a result of che interregional tr;'de oeficit. The North- east states are advocating that the IYrf revenues generared bh interstate trade be enuallv split between the exporting state and the importinig state. The adontion of stuco arrangement would certainly increase the reve ues of all North-ast state,, although in a very uneven wav. But since the bulk of BraziJ's interstate tradle takes pace 'n thn-e MOre Tffluen Cnc-ot UI splitting might well prove to be a verv inefficient wav of respondini. to the resonrce needs of the Northepastr RBort fronr an ndminisrrative and nolitical stando.oint, it may be desiranle to incrensp instead federal revenue-sharing with the Northeast bv increasing tute naqnitude if the sn-cp1led Speci.al Fund which pres- ently allocates 2 percent of fedt*ril income and sales tax revenues to thie Northeast. 1/ 1/ The Federal Government maintains two revenue sLaring funds, the Participa- tion Fund containing 10 percent of federal income and sales tax receipts, and the above-mentioned Special Fn-d which is destined alnost exclusively to the Northeast. Participacion Fund distribution also is welfare orien- td,p th N-rthast r-ALLin ao- t ., f perct of these reourcs. - vi ii - A An'. a.:d it fonn I tranrsfir oI re sorcos (wihether feder.i_ or statej t '.'ortas a1 i .-- ith'.r Ifirert!v I . v nirectit ar __i e.-'eense of thr t'.r St. 3 L The ad. voc ate,t of the - i rIher sIiat st such ias ".t P aIa, Iar. I:e * ,.r n rocluction tf 0501:! ,e aval :i I I t-v for ilveastieri t in the "enter-Sout ' 1eIhld inipair the rate rf growth of the overall !,razllian ecoronv and. i t:'n, :.:slrntior hv the Ccnter-Soutn of Northeast surnlus iahnr, as well as Ctu: ?r- nh rv';oe,rre rrans i t-t- to the 'orthe- t . Treir ,ir-.rent .!.-i.d ot Ia ' it t'he nronw:ctlvitv of aI!tal 1 fun,;s an, tre e::a'nn e' . ;; -. ~ ~~~ of -I or Ilc f und s for the I':!.'L PT'-FFPi,P/ crrr -o n * o, hi - .1 tSe -' rc.-( r f, ir tile aval I i I lrV c- f 'Lu-h rir-¶rr , i,r'v o T"OnI -rij r 0this sbrinking T -onid fa Il rr- .rI r: :I cII endt LI- a ; nvIstiiMont u -4i'C ~r--t:-., rle lion's shnare ot Vi/t resources .r ri ra r, m' pec';10> n. Se: . a-sures are: a shit o. al ''¾i.'l. c n turaf . rn'ects to r- .':-''''; g scher-e; and, more Im,porrantl'v, a -.' ur-' f'l ;1' C" li:-;,': c-orrin'tn' .r- (i 'a'!it2 funds to indusrcrinl proIccr .cot. A ,;,c'fr'rial or-e , sr, I ' funds is the Bahia -Ltre'eat ca,r;nle.. r -rr, *. ' ;:' ' ';r -. ,rrnect anrd its low labor aiisor-tion, at Sati ter nirti- ,.r'c'. . than prose-itlv env4 -a:ec , associated w'-ha iarger lo1i cw .-.',-; :i '' -T .-a .u t i I 4 . Another questlon which arises as a rAiil r of rth S!:i, t ' 'I r..rI'o not icy is the prosnective amount of resouirces rvailahbie to tit- lank ;f the :ortheast (BN,) . Hee-.ides Federal Crover-sment contributitc1 to the ban; 's ca i. I .. rrinciral sotirce of the BNB's loanable ftindr has heea une deposits of t..n V./'18 investment funds of the privaite sector. Tnese resources are held ir hlocked BNR accountc pendinp, S1;tF.NF aporoval of an 'nvestment project to which thLev may he ap:-lied. As a consequence of the diversion of 30 percent of 34/18 7;vestmen; funds for PIN, counied with more rarici arproval ;y SUDENF and in-pierentalfon by Investors of 34/18 projects, the 31./18 detposits are prolectid ;.- decline ;erv ral iniiv it the nexr rew vears. The 3,4/18 funds (20 pere c't) >.' erted to ?RrTFRRA will continme to he '---':ed in the BIQB which will .-.-*fer tFer ro the agricult:-al se,rt th-e. "floa." e.erin 'io tHis oreration is 1l.elv to be of retLativelv short term. Thus th e 'NI; 211 need to find addirtonal r-s--rces n orier to eyran(! indstrial cred..t. failf-ll tts mandate a- a dCV .lC'I enL bank, the BNBi also needs to he more *ressive in irs incdustro'f 3indling and more oriented towards the snall irmer in its aericliltural lending. - ix - 30. Overall, the outlook for this volurme of resourres whichl can be expec- ted to l,e mobilized outside the region to supnort Northeast investt-ent is good. This conclusion is haseJ on nrospects for continuaticn of ranid national econom- ic growth and of good fedora] fiscal manng2ement. These are t1,0 tLw'o main fac- tors affectin,' thl- flow of private and odtbllc savings to the Northeast. Pow- evr, gans in tce flaianclng of the nrolected reqional invesrr'ent program are likely to arise unless presently bidgeted federal transfe?rs are increased and reans are fotund r , rP t the B B' to ---- e-nvisaged levels. 31. External assistance So fnr has plavee a minor role in the develop- mene of the "orthea2t. It is unlikely that the role of e-:ternal assistance couild be expanded substantially in atiantitative terms. In any case, as indi- cated, r-L'c.ral Covernment funns will cover the hulk of re:Auirpd plublic- invest- ment financing. Moreover, individual nrojects suitable for e.tern-l financing tiot onlv are spar.;e but also tend to he small and to have onlv rinor fcreirn excnange cornponcris. This is not to say that, cuantitatively, external asc.is- tance cannot he significant. Some projects - such as the Bahia netrocher'ical ,"le -- are bulkl.v and, 'in a marginai sense adll investurt-t resources are imnor- tant. Rather, these comments are desipned to emphasize the fact that external assistanre can have murh greater qualitative than qunntitative i±vnrt. North- east repional developmient is .mneded by the lack of technical information rn resource potential and develonment methodolovv. It is in the fieleI of terh- nical assistance that foreignl aid can plav a major role for the development of the region. There is a clear need to increase the Nortlfeast's absorrtive capna- city by imnrovin't the onerating efficiercy of economic ard social institutions and by identifvinz, throurh research, the region's comparative advantages in agriculture as weil as in industrv. 3a2. Project lending has to he preceded -1 hb substantial assistance In proj- ect Preparation, in rnnv cases with a long lead time. Considerable technicnl assistance In thle orzani7ation an,di manad.emnent of' prolect iisti.,utionr:s i,i s-c- tors such as aPriculture and education will be needed. These problems and the relativelv small qi7p of individuial r,rn,ts should not dte-r official lendinz agencies from seeking to direct their lending to the following three prioritv areas: welfare nrojects (nutrition, low-cost housing, sewerage); production projects (arricultural credit, arro-industrv, feeder roads, tourism, industrv); and long-term projects (agricultural resenrch, education). An an- propriate mix of lending In these three areas is essential for the success of assistance in the Northeast. I. THE PROBLEM 1. The Nurtneast, with about 28 million people, is the poorest region in Brazil and its per capita income ranks among the lowest in comparison with other countries in Lat.n America. Social indicators suca as nign iiiteracy malnutrition, and inadequate health facilities also manifest the area's under- developm,ent . Table 1- SOCTO-rCnrOMTC TNfTCATORR Northeast All Brazil Lrdzil (1) (2) - _________-________ -___ (1) (2) % 1. Population, 1970 (million) 28.3 93.2 30.4 2. CDP at Factor Cost 1970 (USS billion equivalentj' 4-7 *3 5 14.9 3. Share of Agriculture in CDP, 1969 30.2 21.0 143.A' 4. Per Capita rnP, 1970 (USC equivalent) 166 33 49.1 v. Per Capita Income of Labor Force /1 1970 (USS ecuivanert) 408 832 55.7 6. rer Capita Income of Poorest 50 percent of Labor Force /1, 1970 (USS equivalent) 132 228 57.9 7. Per Capita K,Wh Consumption, 1970 106 355 29.9 S. Per Capita G>.snline Consumption (liters) 43 100 43.0 9. Per Capita Cer.ent Consumption, 1970 (kg) 46 97 47.5 10. Illiteracy Rate, 1970 (% Labor force) 54.8 29.7 184.5 !i. Enrollment Ratio, 1970 (% primary) 45 70 26.9 12. Percent of Urban Population Supplied w'iL Water, 190 n 51 5 13. Perc2ent of Urban Popuiation Served by Sewerage, 1970 7 26 26.9 14. Mortality Rate, 1970 (Per '000 population) 13.0 9.7 /2 134.0 15. Infant Mortality Rate, 1970 (Per '000 l.b.) 137.4 75.1 /2 183.0 '6. Life Expectancy, 1970 (Years of Age) 49 61 /2 80.3 17. Availabilisy of Medical Doctors, 1968 (Per 10,000 population) 2.3 6.2 37.1 18. liospital Beds, 1968 (per '000 population) 1.9 3.6 94.0 19. Protein Da'ly Intake, 1970 (as ; of minimum requirement) 75 n.a. n.a. 20. Calorie Daily Intake, 1970 (as % of minImr requirement) 77 n.a. n.a. /1 Labor force is 29 percent of total population in the Northeast, as against 32 percent in Brazil. /2 Only Center-South. 2. Relatively poor resource endovment, arciaic land tenure svste.. unfavorable interreglonal terms of trauje, neglect by Vublic uol..cv uncil .., recently as the late 1950's, are the main causes of Northe.sc's bacar;e Regional income disparityi has been a function of more than just poor Fioi !s Al adverse climatic condittions, such as recurrent drouilits and unprectictr.i-li ri r' of rainfall. The Northeast, which had been the a ffluenc regit n o'f B.i. the early 1800's, FroducIing ho Inajet ch:ns o Ii:dr Ur1C . a setLac;k due to a shift in Brazi l's c c.n-ora r:ivn t.iv.m ', . reC, :: export. The export-,{enerat:d e,C: o,,o,{mi o;t t r., l.iL;.,: S.l.-r ' South as coffee became the leading exvort conrio'iitv. hlius, the i cn,'e r<*r' -- tht sa.ez for the Norr`ieast as ve as for the Ccnor-So o - - .nore a:..;.. : reflected the relaticin beZween tihe ,orldi mar`.et pr .e c,o,  Crvfd .J:',.' of coffee pro :ctzoo i:: tsz CenLer-Scutrh. This. '1 tu.rn, >. . .r- :. overvalue& exc:S,nPe rate -:r suga ˇa*d r.otto:i proLucers in tCi .;tnn.st shifted oni,' marginall', to ccl.f.e -roductfo,o, a; it *;: nor part.- irt to the climatic cordit toti of the Norcneast. !,ence, when the prcr s u' i.. trialization began in -,razil, it wau concenltrated in tre .:t':.r--Sc.:L internal sawingS aere `e.n; sene..a.en e ind whe're domes i s . faster. Furthe rmore, Ter, 'or 12 inrar,et cotini E onr. `.or u .r i:n . ~ .. rO a poimnt i o .rv15iss;! htthr a :a:a;tC nC~f the existing Brazi!lian ex_:hange raze to exp.' ., sut. ar a: , cc- on :rnc . ! . the response waSn gre-ite-,t na the Sot neas . e. ;U .t O .... techniques in aflriculrure . coupied with lower tra ... i r a tt i. -. - (derived from esterhl i eccn rrics a,criifn; to ,asr v t ure :' -:;e C-.:-t-)' as a result of the jrivestrmnt i-ij. ar.lct C uc* s re. r !. -,o - ' support industrializa.cicn c' ttie tiG i;,) . 2 ;. r : rei.iti:e .i. L-._i- ital made sugar and cotteoe productio20 more ra-.ze: u;'.*. r ' ;. t,: 2.- :.r 3. To make mat ter!; tcr t:ie orZ2e:.t worse, t, .C< .!.. . u ;.JI; . sued by the Brazilian Government over trne >s-icd -e!'" o r; ro designed to pror-ote irport-subsrituL-..:;' I iI I. -. f ' . otvelopment of the Center-South regici. .t tie eyac.,t *.; . : :. OUttcome was a consequence of exchange and trale , o i . s. -1 Ff-I. rernal interregional ter-ns-of-trade for the :ortriS-at to rptC-t r.C: = industry of the Center-South absorbecd raw t.at er;ai rs' k tlO . :t .. 1 exchange for highly nrotected manufactArcd products. .he 'iortheas ; {nterregional trade deficits with the Center-South because lnort-:.n-,. t. policies constrained the supply of most manufactured gcoods to tk:ose pre>'e: demectically. The financing of thts interregional trade de'icit Wltlin i3rc;i rame from the trade surplus that the Northeast ran witn tne rest ot the wor!'. 1hus the surDlus foreign exchange earned in the Northeast fro;,i the region's exports to world markets was converteci into domestic currency to cover t'.e InterreFional trade deficit with the Center-South. Furthermore, the foreil,n exchange surplus generated bv the NortheaPst WaoFs.ed to finunce c: -nr o capital and intermediate goods to fuJrther the process of indistrialization in the Center-Soith. In the absence of the ,imnort-substitution nolirdes. the Northeast wouild have fared better at the tiie hv (.) exportinrg more of its .aw ra'erial produ1ction to th'e rest of the world rnther than supplving the de-ia:d of domestic industry in the Center-South; and (b) by using all the region's nut foreign exchange earrtigs to satisfv the regioni's demand for manufacturedi goods -3- and capital equipment through cheaper imports from abroad. Private capital flight from the Northeast to more remunerative investments in the Center-South was anoeher feature ol i1terreg'uon!l LIows. I A T.he most relev1n,t vef cure of the deg.ree to wdich regional econoni c disparity nad Jeveloped in Brazil by 1960, was that the per capita income in the Northeast was only 45 percent of the national average. With about 32 per- cent of the national population, the Northeast accountea for less than 15 per- cent of Brazil's GDP. Whereas agriculture accounted for 23 percent of nationa] GDP and employed about 54 percent of the labor force, in the Northeast it accounted for 40 percent of regional GDP and employed about 75 percent of the rcgional labor rorce. Productivity in the sector was low indeed. ?iorecver, as compared to 20 percent in the case of agriculture, industrial produc&ion 4n the No-theast made up less than "J percent of total industrial outpUtL Bra-Li.-. Although the Northeast contained half of the total population of Brazil in tlVc mIddle economi conditions of the subsequent hundred years both induced regional out-migration and discouraged the many foreign iTmirrjrants to Rrazil from settling in the region- so that by 1960 the nrcoor- tion of Brazil's total population located in the Northeast had declined to the above-mentioned 32 percent. II. RECENT PERFOR'ANCE A. Economic Growth 5. Brazila4n ao,nnrni r policies have only gradually cone to approach regional underd-velopment in comprehensive fashion. Until the 1950's federal programs to aid the Northeast were largely concentrated on construction of hydraulic works in an attempt to temper the ravages of drought on agricul- tural output. Traditionally, a severe drought has beet, required to spur the authorities into action. After the 1958 drought, a Northeast regional develop- ment ag0ncy (SUDENE) was created and the emphasis of federal programs was shifted to more comprehensive regional development efforts. The thrust cf the Government action in the Northeast during the 1960's was on heavy investment in infrastructure, rmainly transport and power, and on industrialization, which was stimulated through the mechanism of the Article 34/18 tax incentive (see 6. Althougeh lack of administrative capacity coupled with increasiag centralization at the federal level in the decision-making process since 1964 rrrevented SUDENE from coordinating efficiently the various Government agencies operating in the Northeast, by most standards economic growth in the last decade was impressive. This is confirmed by the following output data for key products. Table 2: REAL OUTPUT INDICATORS, 1960-70 Annual Growth 1960 1970 Rate % Principal Agricultural Products / (1960-61 100) Sugar Cane 10)0 131.7/2 3. Manioc 100 16 5.6.12 f Cot ton 100 118.5/2 2.; Cocoa 100 113.2/2 Beans 10n 172.0/2 ?.0 Meat Production /3 (1965 100) 100 116.7 3.1 Electric Power Produ-tion ('000 ?h) 1,600/4 3,S60 Io. Cement Pro'uction ( 000 tons) R 577 1,003 5.7 Natural Gas Production (million m-) 53C. 1,261 9.0 Petroleum Production (million barrels) 30 51 7.4 Salt ('000 tons) Is20 1,541 6.5 Lead ('000 tons) 71 249/5 15.0 Paved Federal Il±g-Ways (ktDj 1,433 6,2;' 15.9 !1 Accounting for 61 percent of value of total agricultural production tr 1969; series from 1960-61 to 1968-69. /2 Average 1968-69. /3 Series from 1965 to 1970. /4 1962. /5 1969. 7. During 1960-69, the growth of the Northe3st, at 6.5 percent per anouwo, was more rapid than in Brazil as a whole (5. *2 percent). Growth cae to a - I- in 1970, when the region was hit by a severe drought, whi.h caused a 17 perc^r.t re ducti-on i-n a-grlcu:C u ral p-trod uct ion . V-4 1- iral-4 -v..en r e prjet n- volving the construction of roads, dams, cisterns, and irrigation canals and employing nearly half a million workers substantially allev_ated the sr atAozi. Despite the large recovery in 1971 (a 9.6 percent increase in regional CDP), the Northeast has not kept pace with the accelerated growth which the rest of the countrv has experienced in the last few years (see Appendix, Table 1). in 1971, regional r.er capita GDP, at the equivalent of USS18O, was still only about 48 percent of the national average. Since the creation of SUDENE, there- fore, government policies have not narrowed the regional income gap. On the other hand, they have prevented the gap from widening. 8. Much of the credit for the rapid economic growth of the Northeast during the 1960's is. attributable to the considerable volum-e of resources (esneciallv fnr investment) made availahle tn the region frnm rhp rpet of Brazil. The transfer of resources to the Northeast has taken the form of (i) direct investment exnenditure by the Federal Go-:rnment and federal autarkies; (ii) transfers from the Federal Government ot the state and municipal govern- inents in the region; (iii) the Article 34/18 Investment Tax Credit funds, and (iv) the expansion 3f official bank credit in the region over and above the -5- increase of regional savings rAnfarpd by the official banking system. As federal taxes collected in the region have, by and large, usually equalled fl-dal current exnenditures in the Northeast, items (i) through (iv) repre- sent the total net inflow of federal resources. In 1970, this net inflow was USS840 million equivalent, amounting to about 15 percent of the gross regional product, or 55 percent of gross regional investment. This sizable inter- regional resou:ce transfer corresponded to roughly 2.2 percent of Brazil's GDP (see Appendix, Table 5). B. Investment 9. TFhe hbASi fnr a more ranid grrowth wan aRtahlished diiring the late 1960's when gross capital formation, at 25 perce:nt of gross regional pr.'uct, reached levels much higher than both the historical Northeast average 1/ and the level for Brazil as a whole. /i t~AccorduLng to Sainger (Inter,atloi,al DevelopmUerit, pg. 236) , tlhe investmi,en coefficient in the Northeast during the 19;9-50 period was as low as percent. Table 3: FIXED INVESTMENT, 1966-71 (In 1971 Cr$ millions) Average Annual Actual Estimate Increase 1966 1967 1968 1969 1970 1971 1966-7f (In percent) Total Fixed investment 4,908 n5 5,05 6, 70 7, ,,5 9N) Public Sector Fixed Investment 2,269 2,22 2,715 2,767 2,530 3,000 5.7 Federal 1,360 1,430 1,500 1,530 1,405 1,852 6.4 States 700 588 874 946 900 925 5.7 Municipalities 209 207 341 291 225 223 1.4 Private SecLor Fi;eG Investment 2,639 L288 3,688 4,2?8 4,470 4,500 11.3 SUDENE approved proiects 275 880 1.290 1.607 2.005 ,.940 48.0 (Art. 34/18 invest- ment funds) (120) (387) (568) (707) (852) (854) 48.0 (Supplementary funds) (155) (493) (722) (900)(1,123) (1,086) Ad.0 Other Private Investment 2,364 1,948 2-39 2,691 2,465 2,560 1.6 Sources: SUDENE; Bank of Northeast Brazil; and IBRD Missior. estimates. Public Investment 10. An upward shift in public investment contributed substantially to this increase in aggregate investment. A measure of the concentration of pub- lic sector resources in the Northeast is the fact that in 1969 public fixed investment there amoiunted to 11 percent of the region'3 GDP compared to 9 per- cent nationwide. Public fixed investment in the Northeast has concentrated on road construction and electric power. Important investment in mining and -7- a Inuf-- a c-.. rn n _ -h a v-_ le - in rO -k *, ,-s- -nd -in -* ant- ,- - - -- Cn the otner hand, direct invest..ent in agriculture and sociil infrastructure h-s been relat4velv small. 1Private Investrent Private investmer.t reached 16 percent of regional GDP in 1969. Im- pressive growth in private invest-ent was stimutilated by the investment tax 'redit mec..anism known as the Arricle 34/18 scheme. Starting .n 1962, Brazilian corporations were allowed to dedctu up to 50 percent of their income tax lia- _ilities for investment in SUDMNL-approved projects in the Northeast. Pending >fl' D .VptrOvalC of -ro,speJe.i:-e iCnvLestmentscnts, tlhese tax crelit Lunus are depos ited in non-interest bearing accounts with th., Bank of the Northeast (F..N3), Fregponaln Jievp1onntPnr bank established in 1cS4 with a malinritv of c'vernMPnr c:pital. The 34/18 deposits have constituted the major sour_.^ of BNo's loan- *ble funds. thus significantiy contributing to liauidity in the Northeast. These deposits grew very rapidly in che early and m-ld-1960's when the propor- Lion of firms using the investment tax incentives rose substanitially. Accruals tc BN'; skowed derr. in the late 60's whea the Northeast began to compete witih alternative allocations of 34/18 funds, as the schene was extended to invest- ments in the Amazon region as -.ell as in sectors such as fishing, tourist-, and reforestation throughout the countr,-. Thus, by 1970 the Northeast share in t-tai tax credit deposits had. deciined to 50 percent. Moreover, in tne La.-e 906J's the pace of investment approval and implementation increased, thus re- of d e-pit-- Jn thc. BN5. Recent- i;ta4-- wlth regard to fiscal incentives have further reduced the accrual of 34/18 pri- vate investrent funds to the N^,rtheast. rs diqt ssed helow; with the creation of PI': in 1970 and PROTERRA in 1971, 50 percent of all investment tax credit resources oave been earmarked for government-directed investment in North/ Northeast as;riculture and relatedc infrastructure thrcugh 1976. 12. The 34/1.R scheme led to sizeable interregional resource transfer, a,; ahout "In percent of deposits were made by Sao Paulo and Pio firms. In addition to the tax credit resources themselves, investing firms had to pro- vide additional funding on their owni account for approved investments. These . Lerpart fundUs averaged about 31 pJce of tI e -- / 1, J res-L uce applied .- approved projects. The main beneficiary of the incentive scheme was manu- facturing in-.'strv. Dlespite the extension of the 314/18 mechanism to arricul- ture, telecommtunications and power prcjects starting in 1966, manufacturing captured about 80 percent of all investment funds. The share of manufacturing investment in Northeast gross capital formation grew from 9 percent in 1965 to 20 percent in 1969. '-:ternal Financinc 13. External financing agencies have "ot been able to lend as much in t.ie eNortheast as they would have likedC. Project lending for the Northeast has had to be preceded by substantial assistance in project preparation, in , .q AC.% .i ' 5_ 1A - A O tF _Arons.4deA _ tehia AssisA; tanc 1e in C.th A;e t |J .M-. z lan e-4,, c Vs C LI_.x Aa,.- ................_i,laS \aa ,nm,A--,l ,,X4, L {I; 9-biF ,Ir l'j5: 'r'rQri;!1: 196Ch 1961 1I f. 196t3 1,f, 19 5 1966 19S 7 1.t Totn1h Ft'14 Se-tor Investment 1 1,299 1,627 I0 1, tbl )J6 LL2$L 2,2? 2,5 71 Ac;i. ul turr! 9' 7 7 91 6< 7P 99 9_ ',J ITIndu s-. r V5163 97 6f 6(,o BC1 3 0o`2 1 006 103)i 12L I.; Mar.uf.-ctur ing 1i I '9Z;'. Oon s truc t,iorn _ _ . _ _ _ . Mir.erpl 'xtr.ti.or ?9F 7 3 2f5 32f L2 08 l0 39? ; _lectri-i ty nm) S>ter :upply 15! 169 167 307 5,,5 51:' L99 (2' 5-' S¢ r v i.- s 1 90':J 752 6] S 1 76 1,68 - 1l " ',o.rje rc9 - _ _ _ _ _ _ _ Tr nFtpo: l,, Storag and Co7.ununir:-tions 3§a 50( L13 27 172I 67.3 685 /i 9 u' Fin.nrcia] Inter.edicat on 10 6 21 29 31 3L ,5 Comnr.ur:ity :n'r. Public Services ,C' 2l:7 2f,L 31. 327 375 9 614 393 &06 _92 ---------- -------= ( ercent)--- - _ Ratf-o of Pul,Iic Sector I;nvestment in Nort";east to Oross Regional Product at F_ctor Cost 1.5 8.0 9.9 8.6 7.9 30. 3]].2 9.9 11.1 1C., Sourc-: 3UDs_;a, Aspsersoria Tecnice. .irganLzation and managemenr of project institutions in sectcrs such as agri- culture .,nd education was needed. The large transfer of funds by the Fcieral Goverr.ment from the Center-South to the Nu.tneast created a situation in some sectors in which external financial assistance was not needed. 14. I To date, the United States Agency for International Deve2op:nent 'USAID) and the Tnt-r-American Developmenit Bank (IDB) have provided the Dulk of official external resources flowing into the area. Since the early sixties, "SAID and the IDO hare made special efforts to d-velop and finance prcjects in the region. USAID has maintained a large resiient mission in the Northeast -gear^-1 to techni.al a. ar,istnce and project finar,.ing. By the erLU.l oi 19, had. committed more than $300 rillion of loans and grants for specific projects in the Northeast Tts nrocgramn is now hpin' nphnpd our. TnR omi ttpd i22 -il- lion in the Northeast up to the end of 1971. Both institutions have c.2cn- trated their project le.uing in the Northeast on road construction, elecrric power and industry. Largely because of the role played by these external financing agencies, the IBRD has financed only two pLrely Northeastern proj- .'cts in recent years, 1/ namely a $25 million indus-rial line of credit to the BNR made in 1970 and a $6.7 million lo;an for land settlement in Maranhoa nade in 1972. However, a substantial part of recent iBRD highway and eclication loans will be used in the region. C.r-ar.eg{aph4 c Growth and '^4 2,r3tion -/ 1,. rne 1970 census sheds considerable light on trends in popul:ltiuu, :;igration, employment and income distribution. A rate of natural dero2raplic increase of 3.0 percent for the region has been reduced by out-migration to give a total population growth of about 2.5 percent per annuni through t!;e six- ties. Although this is ;lower than tot Brazil as a whole (2.9 percent), it implies a relatively greater pressure on resources on account of the much lower .ncor-e levels in the Northeast. Fertility in the region appears to have de- ,lined slightly in recent years, although to a lesser extent than elsewhere in LriZ --- -centL thanges in of f tial act4tudes tlowards faml-.y pla are lis- cernible and this may signal a greater scope for familv planning activity in the future. Irfant mortalitv rate is still, on the order of 150/1,000, and rhe overall mortality rate still relatively high. Thus, there is a great potential for reduction in mortality rates. The need for fertility declines is, therefore, greater in the Northeast if future population growth is not to exceed the national average. 16. Northeast population movements during the sixties have been charac- terized by sizeable migration to the Southi as well as by internal rural-urban migration. Despite relatively rapid economic growth in the cegion, about :.7 .i-lio peopI.Le let. the Northeast d4iL..g the 1Cf, '=70 period as against abut 1.0 million in the previous decade. This implied a sharo increase in the mi gratinn ra e. 1/ In 1950, the IBRD made a S15 million loan for the Paulo Afonso electric power project. 2/ Full treatment of the subject is given in Volume V, Annex I. Tab:Le 5: -RTICLE 3)I/:l6 TiLX CliDIT ru: ,:h, :F.c.iTU.-AsT (Irn CrS millions at urre-nt p:rines.) 1562 I9t;:1 . - ; 196( 19(J7 .';r< 3 bit 19570 13'71 Deposits of Ty. Credit Resources In Bank of :.ortheast Brazil (BN-H) Accruals 5.' 7.7 j7.3 IL5.L 226.6 351.:1 L56.7 6i.o.6 859.3 777.6 F sb;urserrents - -0.' -5.2 -6.7 -4,3, 3 -176.7 -,62.2 -LiC.0 -732.L -cb. 2 Net Flow During Year '.7 7,' 32.i 1 1.C.7 1('3.3 172.1 a:30.5 19i.8 6.9 -76.6 (Year-End Deposit ialrnce) (5.7) (l.1) (L5.2) (135.9) (369.2) (55L.t) (672.1) (662 .) (9 2 .8) (913..... 2 Source: See Appendix T'able 3. - 11 - Tabic 6: '1('TC'ATION PATSC _I (percent) 1950 1.8 1960 4.6 1970 6.0 /I Intercensal out-migration as percentage of total popula- tion in terminal census year. Followlng thie historlcal patte..., more than 60 percent;cl Lo orteast ml grantL have settled in the industrialized states of Sao Paulo and Guanabara. Signifi- cantly, the share of migrants going to the North and Minas C-erais has declined while the share going to the Center-West has increased sharply (to 20 percent), the latter most probably relating to the opening of the Belem-Brasilia highway. 17. In the 1960's, the urban population in the Northeast grew at about 4.7 percent per annum, of which about 1.8 percentage points were due to the migration out of the rural areas. 3.s 2.5 million people moved from the coun- tryside to the cities, rural population increased only by 1.3 percent per year. 18. Qsualitative information on the migrants, both internal and external, is quite sparse. The most that can be said of them is that a majority are young (less than 0) Jand only re'ry few are over 50J . Of thAIose w*hl1o leave the rural areas most are women; women aze mo:e dispensable to the agricultural produtirnn nrnoss- nf thnse who leave the Vnrthpasr tn tnake a lnng and un- certain journey to other regions in search of work, most are men. Sixty per- cent of the resilual to be absorbed into the urban areas of the Northeast con- sists, therefore, of women who presumably very largely seek domestic service and relatively low paying tertiary boctor activities. This is one reason why significant structural change within tUse Northeast, in terms of the share of labor being absorbed outside agriculture, may not bring very great changes in average incomes. These matters are taken up in later sections. 19. MIULch tM' little 'Ls .L n± w. about the m at- .iflOn. pr ooess anU the peple involved to be able to give more than a very generalized eassessment of its imnact nn the develnnment nrocPRe- Howevpr. it ls rertafnlv true- that as major poles of industrialization have developed in the Northeast as well as elsewhere in Brazil, migration has transferred labor out of agriculture to facilitate this growth. 7urther, it seems clear that the migration out of the Northeast has considerably reduced the regional labor surplus and might also have raised the average incomes of those remaining in the region. This last effect will have been enhanced by any remittance flows back to the Northeast by migrant workers employed in other regions. 20. 'rMgraLion, of course, has its costs. To the extenit t[at the ULgLn tion shifts the labor force from rural to urban areas, I- imposes a cost in terms of the social overhead required for urbanization. To the extent that the increase in per worker productivity resulting from rural-urban migration - i' - is less thar. this cost, such migration i'aposes a net bur'en on society. A recent esticnate shows that the provision of urban amenities for a iow income worker in the.- state of Guanabara costs society an amount equal to about 5 per- cent of the minimum. wape. is raises the question of whether it would h. better to redirect migrat_tn. to are,as w,here net costs -- aAdit4ona a overhea(d minuS increases in labor productivity -- could be mmini ized, e.g, to frontier areas fi the Northeast itself (Maranhao) or in the Northi. ThC iI; and PROTERRA programs of the Government constitute a response to this J* ti? 21. A second set of costs ar sing from the mri-:ration result fro. 7.ts effects on the labor force remaining in the fortheast. .;ecause of t:le apc-se:: selectiveniess or the outntigration, the average age of the donestic population has increased and dependency ratios lhave risen, more particulir>y in the r;:r.1i areas. 5oth the male/female ratio and the iabor force partlr:i !c_on rate a fallen quite sharply. Since, also, it scul2ri- lik,ly that thase wo.kers w,jo grate wiLI.t L111LL LU 0Jt U vLZUVC quVttli.v in te.s o' e.hi.a `un an;) 'i iL,i tive, there is some resulting deterieratio,n in the. average cu.-ality of thc v;- maining labor force. 1he fact that rel;arivyel% high sal aris -re -urrent lv pai;: to attract bet:er grrade labor (technicians, supervisor', etc.) L*:;o enterprises in the Northeast is partly a reflection of this Leniiency. 22. Finally, there arc the substantial private c. .;ts borne by tt- A- grants and their families which are not requited by the mirket wage. Currt:. government programs 'or tht Nortlheast e:nmias iini rural development refitrct t recognition of this fact. As yet, howev.r, these pmgrtams have only a %.nar,.-.: impact on thie migration floos. D. - mnrlov-.ent a; d. Lncc,.es The Employment Problem 23. The employrment problem in the Northeast, is best char-icer*ei iov t`.! fact that about 70 percent of all money earners have monetary incznr-.:- ; the average legal mir.imum wage ror the region (53_!( per year in 19Ji). In lhe organized sectors, about half of the industrial workers and one-third of th: service workers earn less tnan rhc minimum wage. Orpen unemployment rates are low, lower than in :he South. The generally low rites of education and literacy sr,.ply preclude a h;-gh proportion of would=be work-seekers from for.aLly en-er-n- the ranks of those waiting for or actively looking for work. Further, absolute novprtv tepn,d tn fnrre m.nv labnr force mprehbrq tot aerpr mn,ro1r,fl inornm vyield- ing activity rather than to pursue the search for productive erployment. 24. There are various estimates of the size of underemployment in the Northeast. Based mostly on tine number of work hours, tne most optimistic estimate (National Household Survey) indicates a 1970 underemploymlent rate of about 19 percent for agriculture and 25 percent in the urban sector, giving an overall rate of 21 p.ircent, as againsc 14 percent for Brazil as a whole. For the Northeast, this implies that about one mi;lion members of the 5.2 million - 13 - agricultural labor force and about 800,000 among thle 3.2 million in nonagri- culture are underemployed. Other estimates of und-remployment in agriculture are ava±lableC . IBas on an in. i, n coe -U DN planC .JU Z mentio - f igure of 2.6 million workers, equalling about 50 percent of the agr4cultural labor force; -n hbeinc' ndrPrT,nlnvPid in 1970. The u,ndeprpnlovment- backog in the ':ortheast is likely to be anywhere between 1.8 million %nd 3.4 million. Be- tween 1968 and 1970, the National Household Survey also shows a slight drop in both unemployment and underemployment. Too great a significance, however, should not be placed on these declines. They may simply be cyclical. More important is th^ structural change which is implied by intercensal shift of the labor force from agricultural to non-agricultural activities. As the agri- cultural labor torce increased by only 0.4 percent per year during the sixties, its share of the region's total labor force sharply declined from 70 percent in 19(:''` to 6z percent in 1973. WitLh steady increases in agricultural output over most of the decade, which are associated with increases in cultivated areas, unermjomtn in agr|1zZicFvf b u ltur ma_ t hav decrased 25. Durine the last decade. the nonagricultural labor force increased by 3.6 percent annually. It cannot be assumed, however, that labor which trans- fers into the urban sector is autonatically employed at such higher income levels than previously to qualify it as fully employed. Rural migrants have been attracted so the towns by the urban amenities, the chance of finding work at higher wages, and the difficulty of obtaining land or steady work in agri- culture rather than by actual employment opportunity. The degree to which la- bor transfers into urban jobs results in substantiai income gains wii depend very much on whetler these jobs are in the organized or unorganized urban sec- tors. "n-ere 's r.o reliable ir.foy-mation to s'aw t1he extent to which urban sec- LU L LI IL L . L1 d Le ~L. I.dl H L'bLU It LLL LU t L.iC I UUdi b tor emplovment growth involves the expansion of low as against relatively high inromte ace-ivit-ies. There is some evidpence, however, t-hatf newj f;ll eployme)vnnt, opportuniries have failed to keep pace with the growth of the urban labor force. Against an incitease of one million in the urban labor force over the 1960-70 period, "organized" manufacturing employment incrensed by 40,000 (1.4 percent ani.ual growth rate) mainly as a result of the significant industrial investment stimulated duritig the last five years by the 34/18 scheme, whici: more than off- set a concomitant decline in textile employment. Moreover, due to the rela- tively recent origin of the 34/18 schene, the secondary employmeit effects of industrialization (through supporting service industries, etc.) night not yet hiave 'ad tiL.e Lo becor,e everidt by 17'. NevertLheless, t`-e empLoyr,en; problem does appear to be a major development issue facing both tie incentive scheme as well as regional -s1sv4 income Growth and Income Distribution ^6. Mission estimates of the growth in regional product suggest that over the decade 1960-70 per capita GDP in the .ortheast grew on average by 3.3 per- cent per annum, faster than Brazil as a whole, thanks to the impact of migra- tion on population growth and to the fact that regional growth was as rapid as overall Brazilian growth during the period. - 1)4 - 27 According to census figures, growth in real per capita monetar-- in- come, at 3 percent annually, was about as fast as growth in per capita region- al CDP. During the decade, urban incomes seem to have increased much 1ore rapidly than agriculture incomets, thus reflecting sectoral output growth dif- ferentials. Which incomre brackets henefitteore- over, judgments as 'o changes in absolute incorme levels are -:iade dif'' '(-lt proble-is with deflating censtus income figures qulcte(d in curr-ent cruz-iros b; other technical difficulties. 1/ N.evertheless, the 1W60 and 1970 censuses -- dicate that the real monetary Tncomes of the poorest SO percent of tne lamor force fincreased by only about 1.6 percent annually over the decade. In 7') the average income of tSlis poorest 50 oercent of thet regional population v's eqnuivalen ot to -nSZ1 to b share.- with en avera^e of f.'. depen,!-ts. T!1AuE the monetary per cap1r:i income of the five lowest deciles was about USS/ '. If non-monetary incrome 1s added,. total per capita income of the poor woulU probably be around USS50, as mentioned in several studies on the rural secctr. 28. Incomes of thie richest 1') percent, on the other hand, grew . percent annually. 'vidence also su4gests that growth of income of tie ni '. percent (6th to 9th -ecile) was only at anout 1.4 percent. Tlhese res i1t tierefore, tenO to confirmr a broad :orrelation between incoire levels and I,r'-Lth, at least orie t.v e:t trees of the distrib ution. Unfortu.1ac .'I, ; cenTsus data on incomes do noct coer tele entire decad mind, therefore, i,re i-c compara!ln ,St-, Interc-ns . ''a ovenents 4in recent ye..: s in,, trends. Real nwnaor r jitur< wa;ie r,te.; increased ar an avera;ge ani t .: rate of 3 percent since 1c-i(5 ("inii-tr, co' Lahcr data) while agr!cu1r'ir -r - rates declined slig,tly during c':is sa.ie perio-' ('Var as Foundation cataj. -w) the other hand, in a r sgin s.c:. as ti:t N0rtheas . 'chore wage earners .u-c..: for only about 2', percent of tre ar, -cuitulri l.-ibor force, ai;ricultur:ii wi t data are hardly representat:ve o i*nco':es o' the a,;ricultutal sectecr. 29. The no mere than marg,inal improvement in the welfare of t ic- por,r(-r segments of the Northeast population is confirmeu by the fact tnat th e prc, tion of the labor force earning less thaT: tne real 19Fa^ mninin:u:' wage !7S / .43_15 eq i alln ) d c ine lig A j _tly fro U1.. p_A'rc__._r _ t in 10c - ^ 0 1 _ ___b.. "" - '' '1J U hL A1Ct. ;J. L V _ L Vl'. UU -,t I'L :IL *11 1 U'J LU U I p rct t'n . 1 70. There are also marked differences berween sectors. As shown in til Ea;'Y below, progress was substanriaj in industry arid mnargina1 in agric.ultre, accords closelv with the estimates of relative income growth in rural versus urban areas, and wiTih the general knowledze that the development of the aixtie.;. i.e., since the InceDtion of S!,DF.;E, has heavily favored industrialization. 1/ Fuller treatment of data limitations, technical problems and their implications in given in Volume V, Annex I. Table 7: ABSOLUTE INCOME LEVELS AN7 INCOME DISTRIBUTION IN NORTHEAST BRAZIL. 1960-70 Average Income (1970 Cr$ per Month) Annual Share of Income . 1960 1970 ' Increase 1960 1970 Poorest 52? percent 43 51 1.6 1PY.6 16.2 Midddle 40 percent 126 144 1.4 43.2 36.7 Richest 10 nercen 44 5.1 347 . TOTAl 117 1 57 3 0 100 G 1-0 n Cini Coefficient/i .49 .56 Agricultural Sector 84 94 1.1 Urban Sector 158 248 4.6 Regional Minimum Wage 166 123 % Labor Force Earning less tian 1960 _1 _ _ _, n o mxltirau rc wI7'e Co °j (Agriculture) (94) (93) (Industry) (8R) (69) (Services) (63) (62) ' of Labor Force Earning less than 1970 Yirnimum Wage 70 /1 Inequality indcx ranging trom zero (most equal distribution) to one (most unequal' distribution) Source: C. Langoni: Distribuicao da Renda e Desenvolvimento Economico do Rr.rsi1. .Tt2lv 1972. 30. A5 in most Latin American countries, Northeast income distribution is very skewed. In 1970, the top 10 percent of the labor force received 47 percent of t'-:e income wh4ie the share of the poorest 50 percent was only 16 percent. The Northeast displays somewhat more inequality than the richer regions of Tlrazil. In addition- the 1960 and 1970 censuses indicate some reconcentration of Northeast income during the decade, as was the case for Brazil as a whole. 31. In recent months, there have been various attempts to explain the causes of income inequality and income reconcentration in Brazil as well as in - 16 - the Northeast. j/ The conclusions of these studies aire fully arinalyzed ir, thle Main Report. With specific regard to the Northeast it should be noted that educational sectoral age and sex differences expllan much of tHe nbserved4 income equality in 1Q73 and of the income reconcentration which took place over the last decade= Of these variables, education appears to be the most significant one. 12. In the Northeast, a rapid expansion of the labor force with traininn above the primary level was not accompanied by a comparable reduction tn tie number of workers without education. Thus, a more skewed distribution ok ecu- cational attainments emeroed bv 1970. Table 8: EDUCATIONAL ATTAMNMENTS OF NORTHEAST LABOR FORCF ,In percentage) 1960 1970 Illiterates 61.7 54.r Prim.ary Schu-- '!, . 3f.9 Junior Hifh School 2.3 3.9 Senior Hiigh School 1.1 3.0 Hligher Education 0.7 1.- 10'L)O 100.0 33. Variations in income growth betwie.e economic sectors is a s t;n-ii- cant determinant of the overall deter4orntio7i in equality d(' ing the perilo. The principal factor here, as already describe! above, is the widening of tir! income differential between agriculture and industry. Overall reconcentrr.tion was also siguificanL]y influenced by increased income inequality in thn u~:'!ui sector which was only partly offset by a sligiht in..provement in lricome distri- bution in the rural sector. 34. Ile foregoing supports the hypothesis suggested by the preceding sec- tion: first, reduction of ural uideremnloyment rwinjn to the constancy of thre rural labor force and growtn in agricultural output, and second, reconcentra- tion of urban incomes owing to the increasing share of profits in value added which seem to have accompanied 34/18 financed industrial development and to the limited number of jobs created by this development in the highwage indus- trial sector in contrast to the rapid pace of rural-urban migration. I/ C. Langoni "Distribuicao de Rendas e DesenvolvirTnento Economico do Brasil", July 1972; A. Fishlow "Brazilian Size Distribution of income" Americari Economic Review, May 1972. - 17 - 35. Illustrative of the hieher decree of income concentration in the Northeast is the fact that the richest 10 percent of its labor force get 47 percent of total money income (see table in para. 29 above) against an average 42 percent in the Center-South. Apparently, the stage of development in the region is such that institutional factors severely restrict access tc education and to productive employment, sharply differentiating in an income sense a minority of the urban labor force from the majority of workers engaged in trad- itional pursuits in both urban and rural sectors, characterized by more or less homogeneous inputs and generally low productivity. By contra.,t, in the Center- South, personal characteristics can have mnOre play and social mobility is greater. This is borne out by the fact that although the Northeast has a more equal distribution in in agriculture than to most other regions, the distribution within the urban sector in the Northeast is more unequal than elsewhere. All this suggests that in devising programs to alleviate Northeast Doverty one should not limit one's concern to the rural sector, but should take into ac- count as well the pool of underemployed labor which has accumulated in the wrban sector. E. The Agricultural Sector 436. AgriclAture was little emphasized bv goveC.,ent regional development policies during the 1960's. The main bottlenecks to agricultural developreenc -- h10h1v skewed nattern of land tenure. lack of rrelit- extension and re- search facilities, marketing deficiencies -- remained, despite some improve- ment of programs for dealing with them. Agricultural activity continued to be bound to the traditional methods, sometimes extremely primitive, of rainfed agriculture and extensive stock raising. No appreciable gains in crop yields took place, although land under cultivation did increase far more rapidly than farm employment. There was a 4 percent per year increase in cultivated area in the Northeast as a whole, with rates of about 9 percent in the Maranhao and Piaui states. Increases in production corresponded to the increases in cultivated area. 37. I Ith few evctontsinn crop yields now run. subst-antialy, hplnow thoeP obtained in the rest of Brazil. A major factor in the persistence of low yields is the low nutrient content and acidity of soils. NeverthelL_s, there is practically no use of fertilizer or lime on crops other than sugar cane. Uncertain and sparse rainfall is another lirtiting factcr in some zones. The geography of the Northeast is dominated by a relatively dry, drought-prone area known as the Sertao, comprising over 50 percent of the total area of the Northeast but containing only 20 percent of the region's rural population. About 20 percenc of the region's area is in Zona da Mata and Agreste, where rainfall is generally abundant and the rest is in the westerrn border states of Maranhao and Piaui which have sufficient rainfall. But uncertainty as to the tlime of onset of the rainy season is a maJor problemt eve ithe- supposedly well-watered areas. 38. It has been shown that weather influences production techniques toward low-yield, low-risk choices. In many areas of the Northeast, moisture - 18 - constraints may seriously li,it crop response to the use of fertilizers. Under conditions of water deficit, fertilized plots may yield less than unfertilized plots. The same applies to new seed varieties. Many of the specific causes of low crop yields and low livestock productivity have not yet been identified s at i., fac tor i I r, ch resear cha is needIed i.f adoeuaCte solutions are t Ue pr0-D scribed. 39. Agricultural developnmient has been hamnered by farm tenure parc.riv; which have imrpeded the efficient use of land and have not facilirate.: the preservation of soil pro(ductivity or encouraged investment either by lanucw'-er, or tenants. 4O. The Northeast is characterized by' hit¶h land concentration in -he han.- of trhe few. Slightly over one percent of the rural establishrents have 35. percent of the area, while 45.2 percent have only 2.3 percent of the area. 'gh_y-_.one .,ercent of the rural esta51'ske-uents of the "orthe,ast are Clagss'ied4 r% L ?uILY ILe Ut tI Ut Lil IU dl C IJ& U tL: . Ll SU ltb tt CdLt as minifundios, (not sufficient to maintain a familv with 2.5 labor force mem- bers); such m-nirfindinz nocipvin 18Aq percenr of the area. Th.cse i-..:lcate the ?iandicar under which the sr;ali farmers work. Their far-.s are sc s-mall they must try to squeeze every square meter into production year after year. Thev cannot allow any of it te lie fallow, and thlis can have only olt2 result: a lowering cf productivity unless there is a replenishment of ti-U 'lUis and minerals. 41. Only one-fourth of male a,ricultural workers are owner-aoDe.tc-!. The remaining landless workers are share .roppers, tenants, sruatters or w.) .e laborers. Sharecropper drrarn;ements arlecL a larc-e prorortion of a'rltltirural land. The relative bnrgainint pouoer of the landlord is an importan- fietor in the deten.,lination. of the stLt Uj',*LL sshare,s. tn iUan-,: ;re.;s "he slhare cropper is under obli'ation to sell his s.Iare eith-r to the landlord or to -i party des1gnat-ed by him. RIsulti g li-A ts n, e:!ee to ma;kp t ec- i cZ-s 3S t:: when to sell have a decisive effect on the S.i:r!-cr)per oo ' e- rn. Aenan cy arrangements apply mostly to large farr-s. ,ihcre a contract of tenanc-g i s.id to exist or. a small farm, it generally differs little froc snarecro:.):t-: Tenure is also linked to access to credit. Under !,ra/iliami ban:.. prace, real estate is the preferred collateral. Hence, tenant farmers wishing to norrow are at a disadvantage. 42. Land tenure affects not only the distribution of agricultural pro- duct 'Out aljso resource allocation. Significant u-derutilization of iland in lar,s estates prevails throughout the Northieast. The major improvement which lanr' rPqiQrrfihtinn cnoull hringn about is the incorponrarion int-n production of formerly unused land together with better labor utilization. 43. Large farms showz a significantly higher land to labor ratio compared to small farms but lower value added per farm hectarc. The usual explanation for the more intensive land use by sma2 farms as compared to large farmns as- sumes that large farm owners are not profit maximizers and they hold land for prestige and political reasons. A more plausible explanation, however, is to he found in tho land and labor distribution and the response and market behav- ior that it provokes. Small familly farms maximize tue total output which in - 19 - tu'r. is shared among the family members. In these circumstances, the wrage rate is the average p;oduct which the family member receives and not the marginal product. The average yield, which is higher then the marginal product, sets the economic minimum below which wages will not fall in rural areas. Farm workers will not leave their own farms if the market wage will not give them a rate at least comparable to what they can earn on their own farms. Profit maxi- mization by larger farms will, under these circumstances, lead to low land and labor use since they hire labor up to the point where its marginal product is equal to the golng wage rate, equivalent to the average product (rather than the lower marginal product) prevailing on the small farms. This theory is con- firmed by the established fact that labor on small owner-operated farms accepts in fact a shadow wage by w 'orkng ve.;y l ong hours, m5ch longer than as a hired laborer. 44. Available evidence 1/ shows that larger farm size is not accompanied by increasing returns. Under prevailing non-mechanized production practices, machine indivisibilities, which ofteu yield large-farm economics, are not sig- nificant in the Northeast case. In the labor surplus context of the Northeast, these machines, in many cases, may not be so'nially profitable if capital and labor are shadow-priced. Even when they are profitable, these machines could in principle be supplied on a rental basis, so that their availability need not depend on farm size. Large size and efficiency are net synonymous, parti- cularly .n thi e casene of lUserite LandU ow-nLershJp. e potenitLIy greater effi- ciency of a more knowledgeahle large-scale farmer appeaLs to De counterbalanced! by the small-scalefa-r.er's more direct iitnrest and mo,,re inte.ncive use of land. 45. The foregoing suggests that a more equitable land distribution couicl increase agricultural productivity in the Northeast. It is true that static comparisons of efficiency do not take into account the problems wihich would be involved in moving the present situation to one of smaller family farms. The disruptive effects of land reform, such as lower investment and discon- tinuity of production, are not dealt with in the available literature. Iiavin, established the potential benefits of land reform, the policy maker must turn to an investigation of how reform can be accomplished in such a way as to mini- mize these disruptive effects of speculation, fear and uncertainty. It is in th4sc n hat 1 dredistributon by itself is not a su.fficient condition to agricultural development. Agri,ultural Credit 46. Despite the recent expansion of credit to Northeast agriculture, the regional distribution of credit is still an issue. It is estimated that, at present, the Northeast, which accounts for about 21 percent of nationial gross agricultural product, is receiving only 11 percent of total agricultural credit. Tnus, while for Brazil as a whole, credit as a percentage of gross agricultural product was 37 percent in 1970; the corresponding figure for the Northeast was 19 percent. 1/ Cline, Economic Consequences of a Land Reform in Brazil, North-Holland, 1970. - 20 - 47 lnti 41 roreantiv t sct of the credi Ft l ,, hoan vnnAn nm4 1 oh 1 o for noper- ating expenses and marketing. There was a lack of long-tern, financing for cap- ital improvements, which are basic to increased farm productivity in the cases wlhere technology i.s; proved out. Ranging from a low of 7 percent in the case o' "modern input" financing to a high of 17 percent official agricultural credit interest rates were the same -- i.e., subsidized to the same extent -- as in the rest of the country. Then, following the 1970 drought, the National Mone- tary Council introduced a special line of agricultural investment credit as 7 percent interest nhich was later incorporated tito TROTERRA (see ;Psra. VWU) 48. The great majority of small- and medium-scale farmers are not reacoed by institutional crpdi-t sources. When they 4o receiv credit' it-i sal from expensive, nen-official sources such as middlemen, merchants, brokers aui' landlords In 1970 bank loans to Northeast atrifrulrure nu-,hered 13W-000 as compared to a total of 2.2 million agricultural establishments (i.e., one credit for each 16.5 farmers). Although loans to cooperatives havq increased, it is estimated that due to tiheir weak mana,-ement about 50 percent sf the Northeast cooperatives do not receive bank credit. Of total bank c;e-lit made available to cooperatives in 1970, only about 9 percent went to coore:atives located in rhe Northeast. yven including cooperative credit, t`ierefort, it is unlikely that moie thani one of eve-v 15 agricultural establishments beneiittd from agricultural credit in 197P!, against a national averag(e of one of every lour. L9 frs,4lia"n haners end- inrc nn the d-mand sid.e explaining problemn. of small-holder credit; i.e., the conservative n.tire o0 small farm opprators. their unwillinrness to chanze or assume debt r`sis. UICL* lack of knowledge of how to use credit, the ah;eilce of profitable investment ,,Icernatives on their farris and their fear of deal'ns with formal credit aree CieS. However, the constraints on the .tupplv side appear to be equally severe. The banks concentrate their funds in large loais to minimize average admitzis- tration costs. They also try to minimize operutional risks bv lendinig mainlv to those operators with high equity credit ratios. The fact that the banks ar.- required to charge less interest on smaii than on iarger ioans is anotner in- centive to make large loans. The access of the small farmer to ins3it TrCona' credirt sources is further hnmpered hv ,e-rirwn,t-hinloe, rpnttiromonts Sct,, nz land ownership, consent of the landlord, or reliable co-signers. Credit fror- the banks often involves delay and the completion of many formalities too com- plicated for the unrophisticated small farmers. 50. Across the board interest rate subsidization available to all users may have contributed in another way to credit concentration. Negative interest rates create excess demand and in the rationing process, funds will be mainly absorbed by those whie are first into the credit market. 51. An analysis of the agricultural loan portfolio of the BNB, which supplies ah'dout one-third of total .'iortheast aL:ricultural crediLt, suggests that not cnly has the distribution of agricultural credit not been improved, hut there even nay have hben snme recncentnratinn in recent years. From 1960 to 1967, BNB steadily increased the number of loans to agriculture as well as total value loaned. About 29.000 individual agricultural loans were - 21 - made in 1967 This n,,rnber decreased verv sharply, however, nuor the fnllowing four years and in 1971 only 12,000 loans were made. From 1967 to 1971 the BNB eliminated from its portofolio about 10,000 of its 19,000 clients who had borrowed sums less than 50 minimum salaries, the demarcation point for the above-mentioned interest differential. Some of the decrease in small bor'ower aumbers was due to drought conditions and to some shifting of small borrowers to cooperative source of credit. At the same tine, however, the BNB increased the number of agricultural loans in the 1,500 minimum salaries class more than threefold. These data strongly suggest that Brazil's recent credit policy hias little positLve impact on credit problems of small- to medium-sizedi faLmS. 52. Lnfortunateev, the agricultural credit por.hsntefce meaningful change in the technology of Northeast agriculture. Usually, credit is used to finance traditional forms of agriculture rather than being used to finance other production inputs such as improved seeds, fertilizers, farm chem- icals and storage. Only by combiring production inputs and technical assist- ance can the credit program be maAimized. (See Chapter V.) Extension and Research 53. Regional disparities also prevail in extension and research expendi- tures. These expenditures have been expanded in the Northeast as in other parts of the country in recent years. in 1970, however, less than 700 field workers provided technical assistance to about 87,000 farmers or 4 percent of the total, against 10 nprrpent for the rest of Rrazil. Morpover, thp nprrpntage of indi- vidual agricultural credit operations accompanied by extension services was 3.7 percent in 1970, as against 5.1 percent for the rest of Brazil. 1/ In addi- tion to the extremely low coverage, Northeast extension services suffer from weak linkage between research efforts and extension staff, as in the case for the country as a whole. 54. Again, the percentage of research expenditure to gross agricultural product is much lewer in the Northeast than in the rest of Brazil. Moreover, inadequate institutional structure iS a r,,ajor weakness in the existing system.. A multiplicity of experiment stations pursue uncoordinated programs which are inadequately funded Parallel with this institutional problem, the seletion of research projects has not responded to economic criteria. The system has tended to ignore problems requiring multidisciplinary approaches. particularly where economic and natural sciences should be interacting. Although the sensi- tivity of fertilizer use, as well as of a seed variety or farming practice to water, is an extremely important consideration for the Northeast, there has been little concern for this characteristic in the experiments. Finally, some of the existing experiment stations in the Northeast are located at sites where soils and other ecological features unduly restrict the geographic area within which research findings may be reievant. Also, large areas presenting distinctive 1/ Excluding Sao Paulo where -- due to the state's own extension service the percentage was much higher. 22 -- environmental problems do not have stations located in theni. The lack ot integration with the extension service is another shortcoming of the prescl.t svstem. Marketing and Prices r5. Deficiencles in the marketing system constitute one ofth ao *. IJLu L iLt LA It~L~ ~±I ~I UI &. ULAULA & I I i_A j - JVL factors inhibiting Northeast agricultural development. The agricultural -tector is f reqruentiy sub4ected to gut a cnd short-ages hot-h gogcraphilicaIlly an]A over time, because of inadequate transDortation facilities, lack of storage facilities and inefficient terminal markets. 56. Government price support activities in the Northeast have been far from commensuirate with the region's importance in the nation's agriculture. Only 10 percent of the price support program's total outlays in 1971 were made in the Northeast. The main problems impeding the performance of the program in the region are: the lack of knowledge of the program on the part of producers and the fact that t l othe roneylender is the m.,ain beneficiary of the program rather than the small farmer who has to transfer to his creditor the nossession of the cron urior to harvest. 1/ 57. Input pricing is another major problem. Because of distributional bottlenecks, lack of feedier roads, etc., farmgate fertilizer prices in the interior of the Northeast are between two and five times higher than prices prevailing in the rest of Brazil, which, in turn, are as much as two times the international price. r Th1iie NIortheads IIdu-strUL 1 tion FL Lriugiram, The Economics of the 34/18 Scheme 58. During the last decade, Northeast Brazil has experienced a spurt of industrialization in response to a system of incentives administered by SUDENE. SUDEUE stressed from the start the major importance of encouraging rapid industrialization in order to increase the opportunities for nonfarm employment and to raise regional income levels. Another important objective of SUDENE's industrialization policy was diversification of manufacturing output iln order to achieve a regional structure .nII Lile £ILLCLUE.UIdiLa aIIU capi- tal goods fields whlich would approximate that of the rest of the country. 1/ This of course relates to the poor distribution of agricultural credit. If the small holder or sharecropper had access to such credit, he would bDe Lfree to seb'L at thIe support price or [Ilg-iller. DeJIpendent as hLe is, however, on non-official credit sources the small holder/sharecropper can be forced by such creditors to sell at lower nrices. - 23 - 59. .-,e mUain lnstrumeLnt of t- rindustrialization policy was a powerfui incentive introduced in 1961 known as the 34/18 scheme. By depositing equiva- lPnc fiunda in the B-n.k of thp Northeast (RMR) BRn...414 corporations ay offset up to 50 percent of their income tax liabilities each year. SUDENE uses a point system in determining the degree of priority of proiects submitted for approval. SUDENE may authorize the releas,e of these funds for financing projects undertaken by depositors, or by other private entrepreneurs up to a maximum of 75 percent of total equity capital involved. 1/ In cases where no loan financing is involved, the:efore, the minimum required contribution from the investors' own resources would be 25 percent of total cost. Since -he Bank of the Northeast may make a loan up to 50 percent of the total resources required for a SUDENE-approved project, the "own resources" required ror SUDENE-approved projects may be as little as 12.5 percent of the total when loan fin-ancong is included. This powerfull investlrlent incentive is supplemL,ented by several others conceded by the Federal Government, official banks and the Nlortheast states. These additional incentives inrltide exemption from federal income taxes, and from state sales taxes (ICM) during the early ycars of the 1/ Points are awarded according to plant location, essentiality, use of regional inputs, import substitution, broad-based ownership, labor absorption and labor participation in profits. Depending on priorit' as indicated by the points attributed to a project by SUDENE, 34/i18 tax credits may be used up to 75 percent, 60 percent, 50 percent, 40 percent or 'IO percent of the proJect's total on.-llo-a. financ.irg. - 24 - project and access to official working caf)ital finance. 1/ Finally, individ- uals are allowed to deduct up to 50% of their taxable income on condition that they invest it in registered shares of incornorated enterprises installed in the Northeast (so-called Art. 14 incentive). 60. The 34/18 scheme has created a capital market -- separated frum tile other capital markets in the country -- in which ve.ture capita i can b' t.i i'ut the access of new Northeast enterprises to 34/1 , capital if; not .'JStL!S.. In theory, cost is dete4-.ied by- the r-t!rn on alte-rn-at_ve prncts w-c:": 34/13 deposits may be investe.d. In practice, Lf the depositor is not tie pro- iect sponsor, he usually receives nonvoting pref?renti.l share . which are not transferable for five ye2rs arnd normally earn a nominal div.dend race oi' between 6 to 12 percent per annum. A,ddcd to t!his cost -o the ne.4 eriterpri- in some cases is a brokerage fee for briumgin., trne dIepositor to)ecrier with thlm project sponsor. Pnhtil recently, the brokerage fee his been in tlw- 5 to 8 :uer- cent range, generally shared cually by the depositor and the Droject sponsor. 1/ All new Northee-st manufacturing firms are -ranted at least 5Cm per,ent "icomUe L exetLilon f7or* 10 years. If the firm, pioneers a new pr__t , the tax exemption is increased to 100 percent. In both cases, the ex- emption ran be extended to 15 years for flrms locared in the noorer states. Approved projects are also eligible for loans from the !NhN. Its terms, although still concessionary, have been hardening in recent years. Until tre end of 1968, BSiB loans were extended at nominal Inter- est rates of 14 percent. In 1969 the interest rate was raised to 20 percent. In 1970, in connection with xi IBRD loan, the system was changed to permit full ex-post monetarv correction of loans of more tnan five years term and a m.aximum real Interest rate of 8 percent. vost bar- rowers, however, chose to use loans of less than five years, on which m.JoneLary correction was not appikeU. L.1 ll-, in I 'A -the UI-' BNI s applying monetarv corrections on loans of more thar. one year term, fol- lojina a n n n ati0 rule imnnposd hb f-he Monntrrv Cn,,n-i I The vnorhpn states have added a series of Incentives. For five years a'ter tna-al- lation, firms can deposit up to 60 percent of their state value acc tax (ICM) liability in a state development bank, from which these funds can be drawn as "own capital" for approved investment projects. State banks have also provided loan and equity financing, albeit to a limited extent due to their scarce resourc-s. This, however, has enabled some investors to contribute as little as 6.25 percent of their own funds in 34/18 projects. Most states have set up industrial parks which provide a variety of services, such as access transportation, electrical substa- tions, water supply, telecommunications, housing, schooling and commer- cial centers. Tboe mwst f-m.ous is the Aratu Park, whic!: accounts for about 40 percent of Bahia's industrial production. In Aratu, as of January 1972; 39 industrial nlants were in nroduction. 29 under construc- tion, and 80 in various stages of study, financing, etc., with options for location in the park. Total investment in CrS3 billion and che num- ber of jobs created is 21,000. Other industrial parks have had varying degrees of success. - 25 - ince 19 70, however, t!:e dem-.d for 3-4/18 funds has exceeded the suppIy and this brokerage fee has increased sharply. If the project sponsor is not well known he nays now as much as 30 percent to the broker who can put him in touch with a willing depositor. The system discriminates in favor of those large Brazilian firms, whose own tax credits are sufficient to finance the installa- tion of branches tn the Northeast or who have the renown to be able to mobil- ize depositor capital readily. In these cases brokerage fees are eliminated or, at least, minimized. 61. Promotion of industrial development in underdeveloped regions, rather than countries, is hampered by the ii;applicability of instruments -- such as tarif' prote1.iLol -- frequentl-y -Ue in _IdL lU COs- . -1- Pbi f und -i-n of regional development banks, usecJ elsewhere to stimulate regional develop- mont prohav1, 71, so woulda1 have beon insuffi rc4int to inAdcen pril.te nnonto rneiaC to move into the Northeast. Brazil has fou.nd a way out af this dileina as the 34/18 mechanism represents a rather ingenious way of channelling public funds into the urderdeveloped region while having the decision about the use of the funds and the operation of the resulting enterprise wholly in private hands, except for the SUDENE approval. The 34/18 scheme has been effective during the last several years not only b,ecause it is so massive a device btit also because it nas been coupled with drastically improved federal tax enforce- ment. Once some investment was attracted the market gained dynamism and the system became self-propelling. 62. The 34/18J0 tax credit mechanism is a far more powerf;;l instrument than the income tax exemptions. Income tax exemptions for new industries make a nrofitahle ventuire more nrnfitablre: but- they do nothing to redueti the loss to an enterprise in case the new venture turns out not to be profitable. The tax credit mecthan1ism, on the other hand, by drastically reducing the amount of equity the entrepreneur has to supply for a givein venture, auto- matically reduces the size of a prospective loss. If uncertainty about future costs and markets rather than the sheer absence of profitable investment opportunities is the principal obstacle to .ndustrial investment, as it was in the Northeast, the 34/is scheme is ideally designed to overcome the obstacle. 63. -'reover, the lax credit m,echanismu presents varlous advantages over tariff protection. Unlike tariff protection, the 34/18 system shows very rlearlv the .ost- of indus5_tria1 nromotion to nolicyv makers and therehv insures a periodic reexamination of the continued need for paying these costs. In addition, the tariff protection equivalent even of the substantial capital subsidy constituted by the 34/18 scheme and associated tax exemptions is low, sinice the firm must still meet variable (labor and materials) costs which in most manufacturing operations exceed capital remuneration by a wide margin. Using a 2.0 capital-output ratio, which has been the average for SUDENE-approved projects through 1971, a 10-year average life of equipment, and further assuming that the average 44 percent contribution of 34/18 funds to firm's capital is free, the firm receives in effect a subsidy equivalent to effective protection of a moderate 15 percent. Thus, the combirhed effect of all the fiscal incen- tives is 'lo per,mit Northeast fir,s to produce 2 cot ------ percent hihe Sea the Center-South firms and still be equally profitable. - 26 - 64. In the context of the Northieast siti-;ion, however, it seems more appropriate to rclaLe the amount of the subs'dv to -ross sales rather than to valiue* adde,'~. Using thie L same example tho C, II--- proIILI ULtectioII (t su1bsidis sales) afforded by the regional '.zcentives is, in fact, a mere 6 percent, since inefficiencies (in re lation to the Center-South) may be generated outside the firm (external diseconomies) as well as insi(de the firm (as reflected in the value added). This does not mean. however. that inve*t;ient in the Nlort'ne*.sr is not ftnancially attractive. ALs the Table below snows, while proceccio. is low, differential returns or, capital are hi If. l' t'te ::ortneast erccr-r, ;' is as efficient as his counterpart in the Center-';ourh, niq retturn equirv mav be as much as three times higher (47 percent against 14 perc.ent in th.e example). 65. In tihis cor text, it is i nterest n; to c-te that rfr r r' 'urL-te 1st "average" firnrs the IC" exe.nption is pro')aivlv more ir!porta:;t ti ,a - e 3t.'i' Ca4 r_ I s.} .1.s i "I I.;. Ie . . k.-. . 1tA_...t i . 4:,n e ,n 4,, in the Table on p. 27). The impact of IC"- exempticn in thle finances of ';rt;.. stnteq IS exa:ninpl in rhapter TV-C he lew The nre1ir:1nar: conci s1sio:; is 1:at there is no r.reat danger of serious I sall ocation of resources rtesu' ttin 1.> the 3L./15 mechanism and t':e other re,;ional incent:L-es except in zi.c ..s- hiighly capital intensive industries, where the import 'utv eiiiivl1e;tt of z incentive package can be 'f.irly hipim. For examp'c, for a!, inouscrv W..:. capical--output ratio of 5.0 tue res-ilttin noninala protection woul'd be r - cent and the effective protecrim!l as hbi;;h as 2'4 percent. It cihl he 'ct. however, that the higjhest avera e c3pital-output ratio by siibsector ior > ..l:- approved projects tnrou1gh '^:h ho. e 2:. (nmet.; inuus cries). ;- * .v '.- ex,a;;Iilee subisidl'es )O enoeu b=-u tu.-!e-X i. tii-.s 'is-a-i'-;r et;:er rtr-i le where in Bra. ii. Visx-a-vi the o;:tsi.'e erl the:. :;iac t.-ri .r ; cIin, I1; h -I nA.-l Tins CO:.,-i o ,f ,-O 1r, '_ r: r. r. !,- lished Center-Souto firms openitng branches ii; tlie l'orcie wst. Capital Intensity i6 . The 34/12 scheme has beetu crit irizei because, bv w're as.: tile availability of cheapi capital to entreprenreurs, it favors c ..ii tnl- rat;ier than 1 hor-inten-ive production technijqt:c's in a reiion vith a nt-;!v-,, labor-surplus prohlem. 2/ Some analysts hold that whcen a metihod is souighIt t'- "iII activate inveStLnentL decisions it is simply More i ICLCIeL Lu >ULb _UjId capital rather than labor. Spending on capital pre-dates spending on labocr aun! a subsidy of any given S1Z.4, .r r_, ,- more t _. 4. "5 s_lm.-I_.ng the investment decisions if it is aDplied wholly to capital than if it were spread in some fashion over both ca'rval and labor costs. Hlowever, evidence suggests that despita the capital bil^ oF the 34/18 system, the technologies of the firms that chose to become establishe/ (25) (30) 5 (Net Profits) (145) (70) Total Subsidies 75 Return on Riqity (W) 46.P lh.0 Effective Protection (%) (Total Subsidie3/Value Added) 15.0 Nlominal Protection (%) (Total Subsidies/SilesJ 6.2 / For Northeast firms, average shares of 34/18 resources, sponsors' own resources aind loans in SUDENE-approved projects in 1963-71; for Cunter-South firms the prevailing 1:1 debt/equity ratios as found by the 1972 Special Induetrial Mission. / Assuming a 10-year life of equipment. / For Northeast firms, 17 percent rate cn value-added and 60 percent exemption; for Center-South firms 15 percent rate. For Northeast firms, having easier access to official institutions (BNDE, BNB) 8 percent real interest rate; for InTer-S)outh "r-rms 10 pr-cen. / For Northeast firms, 50 percent exemption on the 30 percent Federal corporatae incomP taxa 6 The extent of the 34/18 subsidy is shown on the "Interest"l line below. - 28 - country. The average investment approved by S[-DENE. during 1967-70 was about l-SS10,000 per worker, 1/ somewhlat nigher than the corresponding tUSi3,00 ifer the whole country. Most of the difference, however, can be explained Dy (a) predominance of investm.ent in new plants rathier th-an 4n exanio -f --sir; firms in the case of the 34/18 projects; (b) predorLinance among SUDE');`-.ipPFoveC. oroiects of local subsoil resource-based indtistries such as chemicals .ind metals, which are capital-intensive by natuire; and (c) over-invoicin_ of n- vestment costs by the proiect sponsers In order to reduce th.e'r cywi cui,tri:t:- tion. 6 7. Apnarently, therefore. the inpact of tne 3!/1Jf scheme on caneit.' intensity has in practice been marginal, as the choice of techniques in :h? cases where there is any, is influenced by nore irpo rtnnt factors sui .-i a oua .-i.tv co-iperition wit'h the rest of irnai1 a:;d ti,e worl(d uand li-.t.' ax -- a bJi]ityv oi' s;illepd manp&er. Fa-tor price is tortions, as wcl' as t,.4, ..- tion of irmported tochnologv to the needis of a labor-rich econcl-ly see-- nntionna rat'r th3n rregina nr ol e-c; In sectors like che:'icils a,. ru:et; 1:s tlat r oor verar: 1or-c i: east industr- the spectrur. of techniqiies is vr-yv narroKw!. How.-v.-r, .n tri ; cf ncn -su!)soil resource based' activitti2s, there is sc(ue f£r iJ'pro-: . f.icrurin:-, e,-)lovment growth ; :Irectini; invc-sr-ent to l1az,r- r'-t:;s v('; try branches (e.r;., lr-,etnt i rc-.sLry, electrontc ccnponents, watc- ces, e;. ts the point svsteni aiopjtco( ",' SUD'.Li t.-r ratinr an.i ar-rovi:ig l:,vsr - jpcts is ; lased tcoards capital inte;isitv, t!;is oi-ortunliv n os :lt -C'n .;, L 1 -I ivdI1 elg c . 1ihe P .,t S -.-- .L , r.. ; k 'r.- re-cr cI - Ic LJ -i ! rne'iate gcod; industries tl:it are gen; r y cal.iC.- I in c:te'.s ive. .S di -. irit-r,r n air-; at Aevell,l *' : r.,r ¾.. e i a r.- ' i V *i, ' A: i;. iustry struc cure. C; -Jtn t':. c:nce r:. a t '.e :c1;5 ':ent p r.e C e!- C ':ortr:east. ni-il capital intensity is i_ si` undes ramIle. otnu- thiln-; e vial . 'Tis is doubly so, if inl f-lct sui-1h in---11 r .ts do not hnve r , .r4t a!vanntane in the Northeast, and arv prcfit.:is ix i'.' n al over other types of product. 69 . On the other hand, tne Northeas t mtv not Presently have a o .- advantage in labor-intensive products. It i' ve.icnn that re.ativelv In. :w.cus nio not invariably raean low laboor cOstsi, sirce proiuctivity may he r tively as low. Wages in the "ortheast are arOund (1- percent lover thin in this differential. Wage/productivity comparisons can be made in terms of resOertive shares of waees in v-iiiie ad(;ed. If !rezil .1S a whole had an fn- doustrial structure similar to the one prevailing in the Nortlueast, the per- c.ntage of wages and s3laries in Brazil's manuf.facturing value LIdedi would be I/ This is derived from the average project cost shcy.4n on Appendix Table less an estimated 15 percent for workinig capital. In the case of BN3- financed projects in 1969-71, the average capital cost per job was about US$a2,0JJ. - 29 - 21.5 percent. 1/ Presently, wages amount to 23 percent of value added in the Northeast. 2/ 70. With the development of industrial skills and infrastructure it can be expected that the manufacturing costs of some labor-intensive Northeast industries might fall below those elsewhere in Brazil and eventually elsewhere in the world. One thing which is needed is expansion and improvement of facilities for educating dLIU training the labor force. Also, the SL'DENE point system should be modified to give greater weight to job creation. The point QV:tDom c:h^vs1ld st- loAct :Zim tn hnal rt ho ,Ioavn of -41zlt-el i ntanc i t- nx, th. region's industrial sector as a whole to that which would result in the absence of the 34/18 program. The 34/18 Operation Through 1971 71. It is appropriate at this point to present a picture of the indus- trial projects which have been approved by SUDE:lE. Between 1963, when the 34/13 scheme started operating, and the end of 1971, about 800 projects with a total investment value of 1971 Cr$12.4 billion (corresponding to about !S$2.3 billion) were approved. About 60 percent of the projects were approved dur- ing 106F.1- and, allowing for a 4-51 year average lag, mUost of 'hem had not been completed by the end of 1971. The 20 largest projects, about 4 percent of the tntal; nrcontp'd for more t-han 30 npree?nt of nvpr-all inVPqtm nt u.1I,p Slightly less than 70 percent of total investment value is accounted for by four industrial branches; chemical industries, 22 percent; metal industries, 19 percent; textiles, 13 percent; and, non-metallic minerals, 13 percent. Seventy percent of the investnent was concentrated in intermediate goods, 25 percent in consumer goods and 5 percent in capital goods. Despite SUDENT.'s efforts to spread the benefits of industrialization throughout the Northeast, some 71 percent of approved investment value is located in three states: Bahia, 39 percent; Pernambuco, 23 percent; and, Ceara, 9 percent. The program- med composition of the total investment financing is shown, year by year, in Appendix Table 29. The 34/18 funds have played an increasingly important role in total pro4ect f4nancing, averaging about 44 percent. Fi-m' wn resources accounted for 31 percent (much higher than the theoretical minimum 12.5 per- cent under the SlJDENE's point system), the remaining 12.5 percent corresponding to official bank loans and foreign loan financing. 1/ Calculated on the basis of the actual shares of wages in value added prevailing in Brazil's industrial sub-sectors in 1969 according to the IBGE's industrial sector survey of that year. 2/ This straight comparison could oversimplify the issue because it assumes the same capital intensity in the Northeast and elsewhere. Lower per worker productivity in the Northeast may be attributed to lower capital intensity in the region, despite the high cost of the new industrial jobs. - 30 - 72. Before the starting of the 34/18 operations, Northeast industry was characterized by inefficient small units, rudimentary technological processes and low quality products. Lack of entrepreneurship, the small size of the regional market, lack of external economies, poor infrastructure and low labor productivity have traditionally hampered the growth of Northeast industry. High transport costs protected obsolete Northeast industry from Center-South competition. 73. The ingenious 34/18 scheme was highly successful in mobilizing and tr7ansferring resources to the reg or. 4 nd- in f4- - ln t he s e4- reources e investment in manufacturing industry. Despite some failures, the region's economic base has been broadened, the industrial structure has been diversified and the whole region has been exposed to a modernization process. The sub- sidliaries of Southern firms have brought with them an inflow of experienced senior managerial staff that has already significantly improved Northeast entrepreneurship. Lack of local entrepreneurial capacity is the main cause of the failures that have occurred. The family nature of local enterprises is, however, gradually losing ground. As for infrastructure, the federal highway system has been greatly improved in length and quality, thus reducing siharply intra-regional and inter-regional transport costs. Transport costs no longer cLz;,istLute either ntr.,.ctiLn for Lrt a tuariter. -l the Uvel pvCmLienLlL OL Northeast industry. 1/ Substantial progress also was made in power and tele- communications; Plcptric genpraring rnapaityv Prnnnded 4_5 fnld diiring the 1960's. It is in the field of interindustry relations that conditions in the Northeast still appear to be primitive due to the lack of subcontractors, component suppliers, maintenance units, etc. SUDENE and BNB could help small and medium industries in fully exploiting the linkages of the industrialization program. Another bottleneck facing Northeast industry is the shortage of skilled blue-collar workers (e.g., plumbers, electricians, sheet metal workers, toolmakers and repair mechanics) as well as of middle-level manpower in such areas as accounting and office management. 74. Higher production *osts resulting from manpowejr and management shortages are cor,pounlUelu ly thlle smaller scalle of operat.ons of most Northeast firms. Moreover, while there has been abundant loan and equity capital avail- able to 34/1° firms, many of them have suffered from delays in project approval b'Y SUDENE and, more recently, in capturing 34/18 funds. In order to cover th. financial gap during project implementation, those firms have had recourse to short-term, high-cost financing, which in many cases, has impaired their finan- cial viability. 75. Very little is known about the actual performance of firms that were established under the 34/18 system. Since very few of even the small proportion of projects already completed have had a full run-in period, there 1/ Among the firms interviewed transport costs (on input, as well as on output) were below 3 percent of total production costs. - 31 - does not as yet exist an adequate empirical basis for such a judgment. This should be an area of further research in the future. IBRD analysis 1/ of the prospective profits anticipated by 467 new enterprises approved through the end of 1968 showed an average ratio of profits to total capital investment of 32 percent. A Brazilian study showing a 22 percent expected average internal rate of return on roughly 400 industrial investments approved by SUDENE during 1960-69 confirms the IBRD finding of high prospective profit rates. 2/ AItog -. ---. of thi4s inves tment is --in mad by f'. I led es,abl-Tished1_ n,L.JU&4 191 lUtiSt. .L 1.55± MaC .CI .± C U =u U) .Y LU L-Il OXL CCIUY VCS tUtU ±S CU elsewhere in Brazil and experienced in their lines, and consequently competent to estimate costs and sales, it is likelv that diffirulties in providlng skillrd manpower and in capturing 34/18 funds must have prolonged the period required for the new plants to achieve the efficiency levels implicit in their profit projections. 76. SUDENE-approved industrial projects have been characterized by high abandonment rates, reflecting the difficulty of obtaining good information with which to pre-evaluate their feasibility. An idea of the Northeast firms' financial performance can be derived from an analysis of BNB's industrial loan portfolio. As of April 19i2, 24 percent of total loan portfolio was in arrears more than 3 months or had been rescheduled recently. But only 19 percent of the portfolio was in weRD super- vision mission to BNB as being uncertain or poor. Poor managerent was the main cause of the firms' finanrial difficulties. Inadenuate acrounting; delays in project completion owing to technical problems or difficulties in obtaining 34/18 resources, marketing problems, as well as delays in raw materials supply for new products were frequently mentioned as factors adversely affecting firms' profitability. 77. Finally, a survey conductec in 1970 bv SUDENE among 154 projects completed by the end of 1968 showed: (a) sLxty percent of the LiLLi were operating at Iful capacity; 22 percent at 70 to 99 percent of capacity, and the remainina 18 percent at below 70 percent of capacity. (b) About 50 percent of the firms working below full capacity attributed it to lack of working capital, 21 percent to raw material problems, 14 percent to demand constraints and another 14 percent to manpower and marlceting problems. (c) The actual labor absorption was 90 percent of the forecast and average capital cost per job was around $12,000. 1/ Appraisal of Banco do Nordeste do Brasil, DB-52 (1969). 2/ E. L. Bacha et al. "Analise Governamental de Projetos de Investmento no Brasil", IPEA, 1971. - 32 - (d) The Northeast market accounted for 60 percent of the sales. against 35 percent the Center-South and 5 percent exports. (e) Despite generous tax exemptions, federal and local taxes paid by new firms in one year equalled about 30 percent of the 34/18 financing. 78. What emerges from the SUDENE survey is that there is some excess capacity among the newly established Northeast industrial firns. It is hard to believe, hoever, that the main cause of it s lack of working capital. Although credit shortage prevailed during the stabilization years (1964-67), short-term credit availability was adequate by 1970, at the time of the sur- vey. The f'.ct that the firm was still in the run-in pcriod, in some cases, or insufficient planning, which led to some overinvestment, in other cases, probably were factors more important than the alleged lack of working capital to explain why the firm was operating below full capacity. 79. Another interesting finding of the survey relates to marketing patterns. It has been frequently alleged that the Northeast market is inade- quate even for subsidized industries and that these can exist only by selling their products to the rest of Brazil. The data with r' peLL to actual markets clearly refute the charges made. Further, another survey 1/ indicates that the new firms are expected to have close linkage to the region. which will provide most of their material inputs as well as their principal market. Fears that the program will generate a great deal of uneconomic transportation to and from the Northeast would appear, therefore, to be unwarranted. C. The Transport Sector During the 1960's some of the major transport bott]encks that vere impeding Northeast development were eliminated. The federal highway systei was substantialllyss improved in length and quality and "here iOs a1. present no major bottleneck to interregional flows. Between 1960 and 1970 the lenjth of paved highways increased fourfold, thus reducing sharply inter-regional transport costs. By 1975 when the present construction program is completed, very few federal highways presenting any economic interest will remain un- paved. What remains to be done now is to complement the primary system with an improved rural roads system in areas that have been neglected thus far and that have an important agricultural potential. Preliminary evidence suggests that in these areas the high costs of moving preducts from the farm- gate to primary assembly points are responsible for a large share of high marketing margins. The same applies to farmgate price of agricultural inputs. B2NDE w't th fiaca sLipport of USAID in the form of alS2 ilo on is engaged in the financing of a US$80 million nationwide program of feeder ronaA Pcntru,irinn= Althougoh this nrnoram in Pnnpriallv dirprtpd to the North- east and Center-West states it is understood that the present resources will 1/ 1969 IBRD Appraisal Report. - 33 - be far from sufficient to cover all Northeast needs (see Chapter V). Construc- tion and maintenance of feeder roads should be handled at the state level, either by the state highway departments (DER's) or by semi-public corporations (consorcios rodoviarios), such as those already operatirg in several North- east states. In addition to extending and strengthening these local opera- tional enterprises, there is a need for a national or at least a regional intersectoral committee to formulate, coordinate and co.itrol a transport pro- gram to meet the developmental objectives of the Governr.ent in the Northeast. SUDENE, as the main development agency in the Northeast, could play this role if 't received strong support of aand collaboration fro. both "he Natlional Highway Department (DNER) -- which should get more involved in this domain than it nresentlv iR -- and RNnF (Ranco Nnrional n.-e tpe vol4n1Vmenton F nnnmfico) 81. The Northeast cities of Recife, Salvador and Fortaleza are experi- encing urban transportation problens. These problers have largely to do with existing ports in the oldest parts of these cities and with the lack of bypass for thru traffic. To remedy this, periphieral highways are being built (Recife) or studied (Fortaleza). Recife and Salvador are also in the process of developing Urban Transport Master Plans. 82. Tne Northeast railwav network was designed primarily to reach isolated inland cities. The geographical layout of the network, as welt as the very poor condition of alignment -d roadBeds and the obsolescence of rolling stock explain much of the inefficiency of the Nc:theast and railway network, especially on long-distance hauls. The 1969 Brazil Transport Survey recommended the closure of part of the Northeast railway system, which was uneconomic. 83 For social and national security reasons, the full program of line closure recommrended by the Transport Survey bas not been strictly implemented; in fact, a new line was opened to traffic in 1972. The regional railroad system is incurring heavy deficits; its operating ratio current expendirures/ current revenues is about 4. Given the present network size and rates, traffic on the NE system remains much too low …o ensure t…he econo,ic a;d financial viability of its operation. No changes are expected in the near future thiat coutld modifv the nresent nicture: (i) nrosnective trn'fir increases are not important; (ii) rates cannot be revised upward since the railroad would then certainly lose traffic to the roads, (iii) the remaining lines to be abandoned under the current RFFSA program are few compared to the total network; and (iv) planned personnel reductions are marginal. If the Government is not prepared to close down the uneconomic li-tes presently under operation, then the Transport Survey's recommendation concerning "normalization" should at least be followed more strictly. This would require that the part of the railway deficit attributable to maintenance of uneconomic lines for national aecur'ty and social reasons be-'C-1 cear - r and IhI I adreA- A ci1i I I 1 jL eC 1.')VI Y L'I TI L IL I 1 :U .1I ItI 1,L 2= quate compensating transfer be made to the railway by the Federal Government. 84. in the Northeast, shipping, both coastwise a-d deep-sea no longer holds tCie privileged position it used to have when there was no highway com- petition and all goods transittecl the ports. Although half of Brazil's ports - 34 - are located in the Nortlh and Northeast, they handle only 18 percenit of the total traffic and 7 percent of the international traffic. I:ost of the ports are small, with poor natural conditions, and they have obsolete equipment and organization. A modernization effort is underway consisting of: (i) build- ing specialized terminals (for sugar in Recife, for salt in Areia Branca, for oil products in Salvacor); (ii) constructing new port facilities or extending the old ones (the new port of Itaqui, to replace Sao Luis; tle improvement of RecifeI ; (-ii) creatiLng muixed econo-Uy companies to replace L L LrgLUd, over- centralized administration of the National Ports and Navigabi2 Waterways De- partment (DNPVN) management (Sao Lulsl/taquti flielem- 1.1icuripe). ,85. Any further important new infrastructure investments should await the results of ongoing and future studies. The modernization effort which thte Government has addressed itself to should deal more urgentl- with the specific problems of general cargo. Contrary to liquid bulk traffic (petroleum and oil products) and dry bulks (salt, grain, sugar), general cargo traffic is declining steadily as a result ot the truck competition, especially on thie North-to-South hauls. This decline will continue unless mthe competitiveness of coastwise navigation on long lauls is restoreu yv means of its interitIO 1 in an intermodal transport system. Conditions for this rehabilitation in- clude: (a) fostering the development of ioint truck-cabotage companies. offering door--to-door services; (b) granting shippers more freedom in the use of port accomodarions and easing from them the burden of DNPVN port regulations; (c) increasing the reliability and speed of coastwise transport; and, (d) tenforcing the regulation of saillng schl-ledulCes. H. Social Sectors lealth 86. The health picture in the Northeast has been improving in the last decade, although not at the speed required to cope with absoilute needs and regional disparities. Despite the persistence of communicable diseases and the lack of basic sanitation, there has been a reduction i- - and infant mortality rates, but the latter is still at 150 per thousand; high enough ton stimulatp hich ferrilifyv and thus to hp an imnort nt hbrtlepneck to the achievement of a more stable rate of population growth kt lcwer fertility and mortality rates. While the number of hospital beds has incrersed propor- tionally faster in the Northeast than elsewhere in Brazil, this increase has not been accompanied by a similar increase in the number of doctors. This points to one of the region's main health problems, the underutilization of existing facilities. - 35 - 87. Although some improvement occurred in recent years, malnutrition is one of the region's most pressing problems. It largely accounts for high pre-school mortality rates. B'.B studies indicate that calorie deficiency over the whole Northeast population averages 25 percent per capita. The poor- est one-third of the population suffers a calorie deficiency of more than 50 percent. 88. Water and sewerage services are still very inadequate, thus COIL-6t. tuting a principal cause of disease and disability. Significant progress however, has been r-ade in water, supply. T!:e share of uarbanpouainsple with water increased frcm 19 percent in 1960 to 30 percant in 1970. (The lat- ter connares with 50 percent for all Brazil.) The BNl s presentlv financinig a water supply progranm which, if implemented according, LO sche(iule, should meet en percent of the Northeast's urban requirements by 1980. One problem that the program may encoutnter is the unavailability of state counterpart funds. This issue is further discussed in Chapter IV. The proportion of the urban population served by sewerage facilities is not only very low -- about 7 per- cent, as against 26 percent for all Brazil -- but has 'een decreasing in recent years owing to the rapid growth of the cities. In the two main centers of the Northeast, Recife and Fortaleza, 25 percent of the population live in favelas. 'Water an' sewerage availlabuilly s much scarce. in rural areas There, only 0.6 percent of the population is supplied with water (against 2.4 npernnt? fror Brail as a whnoe) and mere n.2 percent is served by sewpreae Svy- tem against 0.5 percent for Brazil. This also reflects the priority that in the allocation of scarce resources urban communities r :eive since they con- front much larger and more difficult problems. Education - 89. Ouantitatively, the education and training system of the Northeast has responded impressively to the growing national conmitment to education. Between 1964 and 1970 enrollments i in th1Le fuormal educat'Lo[ systeu, increasedU a an average annual rate of 5.1 percent at the primary level (grades 1-4), 12.9 percent at the ginasio level (grades 5-8), 15.7 percent at the colegio levl (grades 9-11), and 18.3 percent at the higher level. The primary and colegio enrollment growth rates surpassed those for Brazil as a whole. Vocational apprentice;hip training provided in the Northeast by t"e national associations of industr; and conmmerce (SENAI and SENAC) also increased substantially. In addition, in its first year, Brazil's national literacy campaign (s0BRAL) involved 75 percent of the Northeast's municipalities in programs of adult education. By mid-1971 the Northeast accounted for 360,000 or 42 percent of the adults successfully made literate by MOBRAL. 90. Despite these gains, however, there remain significant regional disparities regarding the distribution of eAucation cpportunities and attain- ments as well as the efficiency and quality of the education system. Enroll- ment ratios for the relevant age grnuns in the Northeast are lower than for 1/ Full treatment of the subject is given in Volume V, Annex II. - 36 - Brazil as a whole at all levels of education, amounting to on&y 45-50 percent of the primary age groups versus almost 70 percent for all Brazil. W4itlh slightly less than one-thirc. of Brazil's population, the Northeast accounts for about one-half of the country's 15 mill]on illiterates over 14 years of age. 91. A co.parison of educaton efficincy s ta 81 pce primary school students drop out before completing grade four in the Northeast, compared to 64 Dercent for all Brazil. Due to wastago in the systpm rau,se by repeaters and dropouts, it takes eleven school years to gr3duate one student from four years of primary school in the Northeast, compared to eight years for Rrazil at large. 92. Secondary level education dropout rates are much lower than for the primary level but still show a similar disparity betweer, the Northeast and all Brazil. A seiective examination imposed on students moving from the pri- mary to the secondarv level has contributed to lower dropout rates in secondairy s chools. bout .,n.e-half of prir.,ary gradu'ates continue to secondary ScrF.Oi in the N'ortheast. 93. Com,,arisons between the Northeast and all Brazil should not obscure the disparities within the Northeast itself be:ween urban and rural areas. Enrollment ratios, literacy and labor force education attainments, and (in most Northeast states) education efficiencies are all lower in thie rural areas than in the urban areas of the Northeast. In terms of these indicators, the rural areas of the Northeast also compare unfavorably in most inst..nces with rural areas in Brazil as a whole. CUoIIL[LJuting to thte low ef--icincy U1 *LC .NoLrtheast S education system is the fact that at least one-half of primary and secondary school teachers are nqualified- Mnct teahers are par ime and f hold another job or teach ;n several sclhools. Another contributing factar is the lack of sufficient physical facilities (70 percent of primary schools hiave a sitnle classroom) to keep students in school for more than a few hcurs each day. Most primary and secondary schools operate on a triple-shift basis. In addi- tion the curriculum at both levels is crcwded and difficult and textbooks are rare. Socio-econcxic factors, such as seasonal agricultural work and distance to school in the rural areas, also undoubtedly conrtibute to the sys- tem's inefficiency. 95. Manpower data required to evaluate the response of the formal education system. to thUC*e needs of the econo.r; Is lacking, a.itough i mailn criticism of the present system is that it is too theoreticall- and academi- callv oriented and thus limits the adaptabilltyv f gradu,atep antf drnnnots to jo1 tasks in the labor force. Academic and university oriented streams accounted for approximately 80 percent of secondary school enrollments in 197fl. The percentage of total enrollments in the indu',trial andl commercial streanq declined slightly during the 1960's (amounting to 12 percent of .zinasio and 23 percent of colegio enrollments in 19701. Enrollments in - 37 - agri-iicrural streams acrsunt for less than one npercet of enrollments- There has been no regional education development strategy to parallel the Government's regional development projects and plans. 96. Between 1964 and 1970 total public education expenditures in the Northeast increased at an average annual rate of 15.5 percent, with education expenditures at all levels of government making substantial ga'ns. The growth in expenditures was not enough, however, to improve the Northeast's share of total Brazilian public education expenditures. Wit', more than 20 percent of Brazil' en lrulli'Lents, the North':east in 1970 accounted for only 14 percent of total national public education expenditures, the same share it accjunted for in 1964. Interregional differentials in per student expenditure may be explained by lower teacher salaries in the Northeast, (which is, in turn, re- flected in lower productivity) and by a smaller teacher/student ratio prevail- ing in the region together with very limited educational materials. 97. Recent trends show that the states have been corrnittJng to education an increasing share of their budgetary resources and that reliance on these resources has grown in compa_. )n to that on transfers rom the Ministry of Education. An average of 92 percent of the states' budgetary resources devoted to education, as well as a considerable povtion of federal transfers for education, go to meet recurring costs, main2.y salaries. With the present lim,ited availability of funds the states cannot affor0 . to devote any signifi- cant amount of their own resources to capital investments in education. 98. Federal and state authorities are well aware of the ao-ficiencies in the education system. Recent reforms enacted by the Government are intended to: (i) change the structure of the education system by combining the primary and ginasio levels into an eight-year course of basic education; (il) expand education opportunities at th'lis now level ro iLiclude 90 percent of all 7-14 year olds bv 1975, while reducing the incidence of repeaters and dropouts through improved efficiency; (iii) end premature specialization by providing exploratory pre- vocational courses only during the last two years of the eight-year basic cycle; and (iv) orient curricula and enrollments at the colegio level to job opportunities, providing adequate profe_sional train- ing to students who will not continue to Ligher education. no. The imSple.entation of these reformns rests with the indivdual states. Consequently, the reforms' success will depend largely upon the states' nhvsical and financial constraints. Feder.-1 assistance will be channelled through the Education Salary Tax, an earmarked transfer mechanism, - 38 - and seve.ajL Northeast states will receive additional assista,,ce furoru USUD through a nationwide US$50 million loan as well as from otner external sources. No cost estimates for the reforms have yrt hppn derivpr-d the are to be determined on the basis of results of a school mapping and inventory of exist- ing facilities now being conducted by the states as part of an evaluation of thetr education systems. 100. There is a clear need to strengthen state education planning units and to relate planning at the federal level to state and regional disparities and prioritics. National education objectives may not be consistent with state and regional development needs, and national enrollment targets have ilittle meaniLng Lfor states with below-average enrlJlU,,In ratios, such as those in the Northeast. 101. If the Northeast states were not to increase the present share of their budgetary expenditures devoted to the current costs of primary education and the growth of primary school enrollment -'ere to continue at the rate achieved between 1964 and 1970, the mission estimates that by 1975 the operat- ing costs of the system would greatly exceed the availability of budgeted resources. In addition, larger expenditures at the secondary level will be required simply by virtue of the larger flow of students admitted from the primary level. The combined impact of current and capital expenditure for primary and secondarv education on state finances is further discussed in Chapter IV. It suffices to note here that the strain on state financial re- sources resulting from the past rapid expansion of the eeduca ion sYrs-e. su gests that the Federal Covernment should give serious consideration to in- creasing the share of its resources which it transfers to the states to rovor education expenditures. 102. The rapid growth of secondary and higher education enrollments has reduced the shortage of middle level and professional manpower, although the situation is still critical in some areas> A faster and more efficient re- sponse to increasing manpower requirements is, therefore, necessary. Because of the overwhelming attention devoted to the new basic education cycle, upper- level secondary education appears to be neglected by state strategy. As lon1' la iLgratton continues to be an important so'lut ion. to the .NLorth'least em11ployment problem, resource allocations to the education sector should be responsive to prevailing migratory patterns, and the mprhanism-s of compensctory f,,nd trlans- fers for education should often be reviewed to reflect these patterns. Current federal resource allocations for basic and secondary education are based on criteria that favor slightly the poorer states, but they do not take into account the benefits that the richer states receive from the inflow of manpower that may have been educated at the expense of the poorer s ates. - 39 - IIIe ThF NEW NORTHEAST DFVELOPMENT STRATECh 103. As in 1958, the 1970 drought jolted the Government into a major reformation of its policy towardi the Northeast. The vulnerabiiJty of the Northeast economy was displayed by the drought. The limited role of industry in absorbing surplus labor was recognized. It was decided that the main solution to agricultural underemplc"ment and poverty must lie within agricul- ture itself. Two new dimensions were added to Government policy: labor mobility and agrLculture. 'WitI L te creation of '_ Nat'onal IntegraLilon Pro- gram (PIN) in 1970 and the Program of North/Northeast Land Redistribution and A-r'cultural Develo-ment (POOTEERPAI in 1071, 5 percent of the 36/18 in- come tax credit resources, corresponding to about US$280 million annually, were preempted and channelled to finance agricultural development ancl related infrastructure in the Northe3st and Amazon regions through 1976. Another major component of the new '-cional development strategy is a program to re- organize the inefficient Northeast sugar industry. Together, these new programs constitute a major attempt to ease the agricultural underemployment in the Northeast, partly by removing workers from this area to new agricul- tural frontiers and partly by increasing the productivity of workers remaining in the area. A. The Natinnal Integration Program 104. In 1970, the Government created the National Integration Program which :s preempting 30 percent of the investment tax -redit resources and applyin? them in (a) construction of the Transam.,,nica and Cuiaba-Santarem highways; (b) colonization of areas adjacent to L.ese roads; and (c) construc- tion of various irrigation works in the Northeast. The 1971-74 budget for the three schemes is as follows: - 40 - Table 10: 1971-74 PIN EXPENDITURES (In Cr$ millions at constant 1971 values) Total Actual Projection 1971 1972 1973 197/4 Value Discrihution Total 518.7 690.0 757.5 831.0 2,797.2 100.0 Transamazonica and Cuiba- Santarem Highwavs 363.0 213.0 280.0 350.0 1;206.0 48.2 Colonization Program Along Trans.mazonica and Cuiaba- Santarem .lighways 30.0 175.0 175.0 175.0 555.0 26.9 Irrigation Programs for Northeast 71.9 227.0 227.0 227.0 752.9 26.9 DENO(:S = Irrigatilor, (719 I 8.0 0) A (82.0) (82 01).0" f1)(3 17 .9) I * , .7j "U VJ ku V I "U4. V./ -JI I .7J Transfers to PROTERRA - Trrigation (-) (6.0 (50) (65.n (I 1 15.0 Transfers to PROVALE - Irrigation (-) (80.0) (80.0) (80.0) (240.0) Other Projects/ 53.8 75.0 75.5 79.0 283.3 10.1 /1 includes --- inter alia -- aerial mapping and surveying project and the construction of river wharves. Sources: Ministry of Planning; and IBRD mission projections. 105. The construction of the Amazon highiways is much more advanced than the other two components of the PIN. Between 1972 and 1974, the Government will invest over US$200 million for transport infrastrucrur-. in the Amazon region, a figure 50 percent higher than the original estimate as a consequence of the uex-n.ected amount of earth movemvent and drainage works requirLd. 106. The C,vprnment bnlanred the national secura'ity nA ndpoliti4c-1 oh,-e-iv,e of the Amazon roads against the Northeast underemployment problem. Had the second obiective been oreponderant. the nature and the phasing of the program would have been different: more time for planning arnd surveying, construction periods spaced out, priority given to the more easily accessible pre-Amazonian region in Maranhao and Para. A 1,000 km penetration road such as the Maraba- Altarira first section of the Transamazonica highway can be economically justified as a component of a colonization scheme. A 5,00r km construction program in areas where the ecological and agricultural environment in unknown, is more difficult to defend c- economic grounds. Moreover, highway investment - ',1 -- does not seem to be a ,.ecessarv coi,ditio.n for prospect nz and exnloiting mineral resources i.n the Amazon reijon. Prospecting can be achieved as in ithe cas of the Ca,a dJas i.. J-.. ore deposlt w.lt.u: ilther, ofi roaLdl access to the site and, fo- most i.'nerais, highwav transport would be too exrensive to b' considered. The h',,ll transport* onsts esu"tincg fr he loct ion of Amazonl subsoil resourc:es are a major decerrernt .o Lheir exploita, ,on and only large2- scale Production can offset these costs. 107. The zwo Ainazo-,.lai highwavs -- the Tran;arkizuonica and the Cuiaba- Santarerm -- appar?ncly are eventualiv cc' be part of a l.r er network wi,ich would; provide all weather road access cL Brazil's northern an(d wrestern borders. The National llighwav Departnent (rIN'E4) has undertaken prl] iminary studies of the construction of the Peririetral Norte, a 4,,f(W km long peripheral highway whic-h will -un along the northernL and western borders of the State of Aumazonas, touching Brazil'F houndaries wzith the G,ufands, Vcnezuela, Colormbia and Peru. The Un'1ng of on,atrcn as well s the w oure ,of financi,n have not as yet been decide l. It 1s hoped . iat any actien w-J. 1 b'? deferred until tAlere is more evidence of 'lhe economic iustification of this massive additional road project. 108. C overnent colon'zation schemnes alonrs the new Amaz.on highwy.vs are proceeding at a much slw-er ,ace t'`arl -irigpn_lly furecast. Against a target of 100,"00 .nm'1iics settlid :, 19714, 1.200 fami:ios were settler' in 1971 and 3,000 are expected to Se settled in 1972. Settle-ient policy in the Amazon regior. is sti;: in rthe process of definition. As a planning basis for such pro)jects, Brazilian au.horicies are graduallv shiftinp froir the ad hoc system a ,, Cj,, ,, r . -_~ -_ -_ -r _ hIIch sLi4p A .l.JcCtelt f xe.. areas - ±01111 fLor setttliefen to a sVstt,Li' W.ilvh' has as its basic - h:juctive the achievement of resettled famJly income tar,ets. 109. A numl.er of different methl.is of promoting sEttlement are being uLsed. .Over the past few yearS Lhere has beet, a great d-al of spnntaneous settlement fullowing the opening o. iite~ roads, noLa!hiy along the Belem- Brasilia highway. As settlers acquired no legal tentiie rights and were not assisted either financially or technically by the Governmert these settlements have been characterized by rapidly declining yields and eventual abandonment of the lana, or its transformation into low-yieLding grazing areas. Along the new Amazon highwav, the Government has introduced limits on spontaneous se;;lier.-ent, althoug-h) i; will be dJLicficul to er,.orce th'e,, fully once road' al~~u ~I it*WIj UC ICU LL l IL CELIIILUL 011 access has been provided. Also, the Government has started to establish a controlled settlement near Alt,amira in the State of Para. Each settler is given about 50 hectares of cultivable land and the Government provides housing and amenities in well-planned residential areas. Besides being expensive (over USS10,000 per settler), settlements of this type receive a high legree of administrative supervision and rely heavily for the-r economic viability upon the settlers' capacity to achieve high-value crcpping patterns. 110. The Government has undertaken to design and experirent with other settlement models. At one time the Government statt!d that it was its aim to settle 700,000 families in the Amazon region over the next twenty years. - 42 - If this target is to be approached, costs both in terms of finance and of the overnment's. imited administrative capacitv will have tn be kept as low as possible. ill. One such alternative model is that selected in the IV3RD-financed Alto Turi project in Maranhao at a per settler cost of only US51,700 and an annual family income target of USS600 plus subsistence. This represents a practical, low-cost auproach to the problem, soriewhere betwcer the hivthly ad- ministered scheme mentioned above and undirected spontaneous settler'ent. Tre pattern worked out for the Alto Turi project is also the starting point for the preparatton of a new project in the Amao7n, tupon which tne Governrent anu IRRD/FAO cooperative program personnel are now working. 112. Although officially financed and administered settlerrent will be crucily11 m nrert-nnt in nrnrintlno o'nprnl .cOnlngijraj coniitlrr.s dut .n3t ad,J w coffIr: Vn.riX'jnJ 1 a mios; LorthL east areas, the 5re." wbere coffee can grow are genera.ly free from coffee rnst and Creeze. 163. Turning tn export crops which do zot conne.e e the Center-South, pros ets fa-,- frr"asig cccca expoits are also W'a a.le. World demand for 1/ To7 fu.ther 6-'r1s e^- M&.In Report. 2/ One. L.u-drcc qniie c.aur thcula-cd brgs in P?70-71. cocea products is ]ikelv to contirue to expand at the present 5 Dercent er-wth rate. At the sarne time Brazil, whose prodiuction is totally concentrate(' ir Slahia, rav he able to keeD its share in the worldl market if t;e CPF'LAC cotna tree rehiabilitation program proves to be successful. flue to the present low level of world stocks and the substantial incrense in word; roductinn whiChI is estimnated to he necessarv to mnintain suTpPlv and df--ind in halnince, cocoa peric-es are feewcete U I lCUC;L-.> ;(1:lTlL 1yLt .,r , . -l. is tile a-;t, :rjzil 's rcrcc grofllict ion hns been haripered: b)y viol ent f hictulations inl es:- ncrt nrices.at1d t1erefere, in rreducers r returlns. Th, Goivxper-t 'i I StIllIV t;1h' feasibil tw of establ .shin-, n a:iniriuru prict pro;,,rnT for COCC;1 a-s is ir'nlier! in the PROTV.RRA decree (set, para. 73 above). As a first step. the n:resent 1 percent export tax could be mule variable to ref]ec-ct chlan:-e--1 in oyort prices;. The c.isheu, nut is anothoer e\:nort product with exe]1e:a U-- -;in'1 prospocts. There is also grent potentri£l! for ot':.-r cron-; :io nesit ' i; ht i :i t:.- ':ortiieas t'; e::xort trade is ml i rnl : Ses arne, sunf loftwt, i ni seapple and! other tretpi cal fru't-i (fre:'en r-a;nlzo, tropical fruit ccOCt;il, etc.). In add ition to tne expansion of exterrtla Iand inter.a !o'-ln. i -otr wit'siturion couldf bhe a source of cutpt I-re,-,h. Imports f1er other C rt.,-L . of 3irnzil, hcowever. .rohn.'.- account 'o- oe1,'y about 5 ppere,it of Nort:lc-)-.t ..P7 '?o-- for i-rt . -hst,'-lt-ticn i. -{crz i!! t'Ie ,-,-ix ef ri-o vn-.r !' r:i -ind! me.u t. Thiere ire inudication-. th;ut t:i!- re. ion 's de ficit i a bee: prociuc t i mayv i,roe *ucre.rpusinly critiecalt. Arproxisuatelv 1) to 2D ptrceit of the tr,.: *c,-f consu-,^' in the re-ion is supplie-! by i veli uments of livt crattle. Ass,, - i,^ th-i t c l-s ti citv of r.--an: for fresh i) v is around 0.7, as; re-eait srt ti.i roi nt ouit, an-l fiurt:ior assumi:w a popular l ion r-,rth of 2.1. per,(e-it and i)ucort p.r -irit. tru t¾ oC 7.' :.ern.it, ;,ort-t-uqr d *lt-an:' o freshl hit-- ijil! doul le i'1 ten vearsc. It is hone' t"ri tie Interest of intor-ation lenl!i:l " 3erCieje suIch as I" an!d( TIRPi, in ti.e (i e:;to- ser-or rva.' fIbip tnu norrhenast in ov(r-- cr-iliu tao ,.n:^ d*e'icit. 'h'le -e-r crit .H deterTenr to :lli--j nro-hni-rfv:- in :ost of rCe ';orrl-ezist 1-i sI'orr:i- of sinlc-ent food -tn riTi- t'e Ile 1 ;- us.^naI ,4rv npriod(t. The prohienl,- reriluir.- lo,li,-r.-Inle Inti,:lv, lc,:'lu! -r.ri--r to "nr.d .'nsq-'rs. Agpin. thi ecenor - fo:i- i n t of -err4lizin- .-sFres e nre..; .rn7in rod!:ictfv1t% ev , fn not .cer ;,in'n t oe 'ort.reatrt. Tvi.ence to date ir atie.nts tWit phor;-'iuorulun is t.e r-osr crr rica. elercInr an-I tiat n-ore neods tc b e knc'An ahout its iuse un-der n' 1 - Frcroet soil and climnt ic situntions. There is ne a pri.:ri oconomi( rea-son whv rhe '!ort:ieast sholild become self-stiffc(t-nt in foodstuffs, hiut import- sul-Mtittition activitv such as neat proditction cont]d inmprove the use of land arcd lal.or. d,espite its low labor absorption. Turning to the supply side, the 6.5 percent expected growth in de- rand for Nortleasst's a'lricuiturai produhcts comnpares with a .; prcent ion:-.- term growth rate of tne sector. Acceleration of the rate of agricu,ltlr.a1 r o;;tlh In lir- w4th pro,ected, demandt should -e feasihle particul3rly *n vioz of the recent lv formiliated government prograns. The ra?i-i growtn of thie iri'ri'Cu Itirra! sertorl however. crnnrot he sustained onlv bv hrinfninn mere land under cultivation. If land usa.. contioucs to increise at 14-4.5 perrent per -var, a lan1i deficit will appear in some of tihe Northe;ast states hy 1(1HC and in most of thrn hby 199r). -aranh;io, Piaui and nahia, on the other hind, offer land available for cultivation that, at this rxpansion rate, is not l-oin- to be exhauisted until the end of tthe century . However, infrastrr,c- ture in these states Is lackln and little is knmon about their soil perforrmance. - 61 -- 1'5. Productivity gains bccome, ther-efore, necessirv. There are some crops, such as sugar, cOtton anf _ccoa, whose yields can Increase with! tne introduct'on of improved, disease-resistarit varieties. In addition, selec- tive use of fertitizer- in'Lr 'LandlsI wLith su.;able soil tor.ditionJs and w.ater availability may lead to increased oroductivitv. Moreover, agrarian reform, should b.inrg ah--;.:t mcre int-nsive se of lan a under farming and the impact of the irrigation prograD.s should also be felt during the 1970's. Further g2ins froni cxp.anded cultivation and marginally 11nrove'l productiviry can he entianced b'; irnprc;enents in transport, storage and narketin, facil- ities which will rfeouce the enor,nous wnstage of apricultural products no') being experieace4. SumMaVi7ing the prospective im-pact of thle de-elon-ient program on agricultural oa.r,t;t in the Northeast, it apao.rs that, iuit>c"rt special efforts, the rate of growrth could rein-iin at historical lev.ls (A-/4.5 percent). A cencertpt! effort o.1i research, exten4ionn. smwerviscd crrleit, lntrastructure 'feeder roads and srorage) and agrarian reform couli lvea to -n increase of the growth rate to 6.J percent. Manufacturln 1n('Oustrv 166. Despite the s,i .-- in gSvernri--nt policies, 'r.aifnctorin- in-nistrv is likellv to renain the leadling sector for re::ioenal -I ot th. SUDL:T and 1BN:2 con- side; a manufacturIng growth of i5 percent per annuim fensi'ble. At present, about 72 pprcent of regional industrial productfon is directed to the North- east market and the renaining 'S ncrcent is experted to the :-est of lDr.?ziI or ahro.-d. On the lernan(i sid-e, constraints shoul. not anpe.ir as incomves, and, therefore, demandl for industrial qeoo's, growth i the rerion, and illprove(! efficiencv as -ell as better transport infrastrircture ficilitate the l(:cesc to markets o-i side the region. sy 19iO N'ortheaEt ,opielat0ion wiiL ile aronun, 36 million, half ivinr, in the cities, Jit:!h ani income per canita of 537'), on Ith assuI;IA,p:'-nt .h... ) nal !) _i11 ,;ro;; .lt an aver.;ge ann.%ual rate oL1 percent. Using the historical demand elsticity of 1.4, che expected growth rate of demand for manufactured goods i5 aroulnldi 14 per -it. The cornmptiti 've- ness of 'Northeast industry should improve suibstantinilv in the next few years, as niny enterprises that were established during the 1960's will have completed their run-in period. In additlon, an improvement can be expected in external economips such as infrastructure and inter-indrrstr.- relations, as well as in the quality of the labor force and manangeinent. Un(Oer these circemstances, 15 percent per annum increase in regional exports of mar ufactures slhouli be feas- ible. As to interregional exporcs, tne Northeast shooldi he able to increase its share in the manufactured goods market in the rest of Brazil, which is ex- p(eecte.;d -eG rw-V bvat leaISt le) pte-LCUfnt per Zannu,:, iIIn the lext severial years. Criticism of the .14,l,1 scheme has sometimes att..ked the idea of interreoionral exp.orts ade from 34/13 pro4ec-s, presumablv from a helief that suhsdzed competition for sales to the rect of 9raz7.1 was in so-e ray more unfair than suich competition within the Ncrtheast. Interr2eional ex:orts, hotever, are a valuable sign of the projects' econoric viabilitv. It means that the firm is relatively efficient by Brazilian standards -- the fiist step towtard competing, in the wiorld market. This applies particrlarly for prodticts such as tex- tiles, non-ferrous metals and chemicals. As to e.:r,orts abroad, the point system will be reviseH shortly by giving more emna'is to prodtiction for exports. Sl F%.NE has been recently very active in stimulatin; man'ifactitrec' ex'.ertc Lnrolil rthe creation of varioiis exnort nrnmnr ion crPiters Al rou,! sti'l nt verv low levels, NJortheast manufactured products, s;nch as teyt li -. shoes, toe .-renimilications equipmtent, air con(ditioners, etc., are alre.-dv te'rn- exporte-dt to Eurone, Africa and North Amrerica. At pres-nt. Northe3st maniif.ncruredi imports, from thp rest of Brazil and abroad, corresponil to 5N nercent of the regional market. A production grAth rate of 15 percent ac- coritannied by a similar increase In re:ional exports woul! hde co-sistent witih n r ecl ne tn tile inpo.-t share of tne Nort:neast market to serie percent bLi lvi0(. Import substitution, therefore, is not likerly to pl: .y a major role i: ..- flev.%lornent _r Noties __ dust ..rv duin t_. he {5. L:! '- ;t' Vl , ,p, t_- L (11 ..UI[ LlJeI,lt . * LI(IU3L[LV (1 tIi LIlyE LiI It' I t'I , 1 7.7 r- t4phe c,snn1v sirip the inrrease in mTrinufaruirivii gro,ss vnl,ti a that rlte pro-erts annrroved! throu:n 1'171 m;7v be expe(teti to piod :e£ iS e - r ated to hi;- -ibout 1/. nercent p)er anniui,i fretri 1"rf9 to 197(., co-ired to a r.-te of 5. percent for tCe perio(d l'l f-9. This pror,ertion is b-ised on the an.- su:-r :ti that nrojects ap.roved tirreudi 1971, most of whi-ch !..ive not st-rtef -tretict ior vet, wil l operalte at "5 percent c in-aci tv. 1/ Th? si::f- pr.!-.t i( n s "-s' a lso so e- irierezst ll- (develonr-e; ts with r spect to the altted strutcture of inrdustr!al outnut whicih may be anticinated fron the projPcts approved b- Sl 12;r thius fir. The relI-t-l yc snares of the so-ca It-,' tra K tional and tie 'ore ,ylvlram£ic it:.ustrics hue .' renaev `)eon ch'iii n ir- in favcr of tht i taetor. i;n nro jecti els inlicatc Litht this process will he ac-color CeL; and t:-t in coi co( li. te s t ru ic turi of i- usr; in t, ic ':rrth I s ili'7'zr c ro :iver; f i -d one thin ti'at of -ear!ier ye trs an( thierefore l, 1. vilu:eribl1e te tr --'er.rr cri.; -. in :u ar p- i 'tr!.,r st crt. r= 1 . . "~e - r(ln:- nt.:. ro(i:cts to hc .a:.rev.(' ir. tie 1 ' '-;. t'he co'-:tr ti'-u Vadvanta r of :,ort'e , ;t i1it\;'rv re';i¼ --- i2 (;I). -' t. :irl of na.,:rr.i rr-;oirces: (') use or o he.f ' :.or. As for (n), : a.; ot ic z'nr.tt(' to ceire-o:trate- non-ferrotuT nrt, B; (co: . or, noose and alu:Btn), )etre- i ( .llq r. r. reroctssivi- of a ,riculttura1 "'(Ions. AS rf r (t.), !?!or in sr'. :.! su '-ecrors s-i-ci as textiles, sh:oes and electronic conor.n n.s si'nult ' atttr.,.:t additiona.-l investnent. A better itnte,rntiorn of regionial :.anitiacti:riih ir- d r y t.n| ine advu1llLtZie Of b)-cnorartl' for,rwa.rd ;ink;:e-. , :il i it .1: . n;t;-iulus to investTenlt. I". An interestiiit new policy developrent in forei-n trnde should hav'' a positive irntart on Northe.ast exports. As of Augunst 197? the Covernient authorized the duty-free transfer to Brazil of entire use l industrial estbF- lishments on cenHitions that at lenst onte-third of their c utplit ho cyported. This Is de,parture from pa-t policy, forbidding the importation of use'! equip- r20nt, on account of had experiences both in the Northeast and elsewhere. The Portheast is lik[ely to henefit from tihis net; orientation Oesigned! to exploit '/ 1At present, Northeast manufacturing indus;.Ly 's esti.Uated to operate at 75 percent capacity. - 63 - Brazil's comparat ie advantage in thre form of chean r.hor arnd raw m.Iterrals A Canadian firm de21ing, with s4sal proc.-ssing and textlCIe concerns froin Japan and Taiwan have already expressed their interest in transferrin,- its p]anits to the Northeast. Lin addition to laor , Ite ionfE-' cIII of f1r IL adCequIate SI p ply of the associated1 raw materials. The Bahia FetrocherLical Copmjex 170. A major absorber of scarce 34/18 funds is almost certain to be the Bahia petrochemical complex to he installed durinn 197'.fO at a total cost of UTSS1 billion (includinig fourth generation firns). The (overnment his deter- mined to irtstell in Sahia a second petrorherical conpte- alros- eqlal it, ca- pacitv and cost to that of Sao Paaulo. Apart fror re",{onal develonrent nolicies, the location Is justified by the existence of natural rnas, rock salt and potastr deposits in Rahia and Sergine. Development of tbe Bahia pctroche-icai co''le: has been studied hy Japanese and' French consi,ltinI fisri. The studie!; arr co1Ilete andi the Co-Jernment 'is exp-e;ted -0I taLke .,n ear.t as t;:? timine .nd conprsition of the investment. The central ePenent of the new' compie:<- will he a LasIc feedsrock pro!uction unit costint abourt US- 1 5' r-1. - lion. This unit would provide ethylene, propylene, benzene, toluene, x'.lenes and other basic feeds,ocks to the second, third and fourt!h ieneration de'n- strean nlet;ts, miaking uD the bulk of tho new .-oq"il&. r'*'RP\O VISA, a PT'rT9.A0 subsic'iary, will he responsible for the construction anc r;ranagerent of tire basic feedstock preduction unit, although downstream nl ints will !e asked to share its cost. A mixed comnany will. b' forned for that pursoso. with PETROOT';SA, domestic cnterprises and foreign ,aterests, each contrihutlnlr to the capital of the new enterprise. As the natural ',.1-, reserves will also ho .arped by a new Petroquirsa 1,700 ton per day amrnoni.i -acilitv, for fertilizer product lon, the Covernrrent nov conten'] ates feeiing the Bahi a fced!stock planlt wit'i- a ,.ixture of naittiral gas (o,-tir--1 -an -n.n1t.s.I. (too- hi-.is). Siicl': . WILLI i LTli Lure u il~IL Ld I gi~ \ULL 111 IL'J tlL1i. lL.,:LIl LLWULIII.1i IJ . LI. . mixture would give the Bahia facility art important advantaie vis-a-vis Sao Paulo's basic fee-stock unIt Petroqu i ca Lni. o,whictr is enrir,ly nn - afed it woul( yield a relatively hi,her ethy]lene (polyester fibers, liouseholc. plastic goods. construction imaterials) and1 relativcey to,o:er propylenie (de- tergents, acrvlir glass and fibers) contenit. 171. The liahi:i reserve is estim.late. to coitairi 27 billion cubic rieter' of natural gas. Alt'IoIrgI some of tins zas presently is biing reinjected, even more -- 412.2 rillion cubic meters in 197r) --- is beine lost in connec- tion with the extraction of crucde petroleum. Petrob-as tiad as sumed respon- siijiries to provi(;ne 5,., Mr1.iL1 cuIbic ItLeLrS of gas annulally [or: ti,e amrwonia operatiorn (300 million m.3); for 5 downstream petrochemical plants (22.4 ilion..3); .and for the USI!'A d.irect re(huction steel mill (115.0 million M3). Tf the Bahia feedstock facility were to be entirely -as fe1, annuai g5s consut.,tion woul(d rise to about 1,',f65 milllon ctrl)ic meters and the reserves entirely denleted in 15 years, too brief a period to justifv tire plan investment involved. With gas covering onlv one-third of the feedstock plant's requirements, on the other hand, total gas use will ap- proxirate one billion cubic meters annually, so that reserves worlid he depletedi in 27 years. An additional factor to be taken into account is the - 64 - prospect of bringing into production natural gas reserves located in the corn- tinentall shelf off the coast to the neighboring state of Sergipe. With1 the1 large initial scale of the Bahia operation the efficiency of overall petro- chemicral ouitnput shouild imnrove Additional trinsn9rt eost- impospri by tiep fact that most of the outptit of the Bahia complex will have to be markete(d in the Center-South will tend to be offset at least to a certaini extent by the location of the Bahia pole at the source of its natural gas input. Per- haps the major tncertainty associa*ed with the petrochemical develor'r:ent con- templ.ted by the Government has to do with the corTpetition hetw,en fertili.-er and petrochemical production for natural gas, a scarce resource in l,razil. 172. Investmenit exnenditures in 1973-77 are expected to be around U.qP0(0- 7I,fP million. At presentL the GoveIIrnent e nvi s aes the fol owinC- inin:n 1 schere: 35 percent external financing, 25 percent firms' own resources in!1 4 p percerrt 34!18 funds. Thus the Bahia p. *p Is 1- absorb about 30 percent of overall 34/18 ftindis bein, available for inHustrin! Investment duiring that period. Civen the national relevance of the proiect and its low labor ahsirption, a smaller participation of 34/1s/h fiindc; asso.L- ated with a larer inflow of external resources mav he justifiedi. Other Sector 173. Turning to the other branches within industrv, a rapid srrwth 0! the construction sector can be aiso expected, taiin; into ac-ounc the 5'' housing, pro;ram and private and public sector investment pro,ect!. in ii- fraser;;cture ..nd manufacrturing- With1 the rece:it int^-sific,.ttion, of m.>1ne:-.; research, mining is expected to contribute suhstantially to the reion'- 7rovt-li ITn the 19?7r)',- Fnlniot-arion of netrol_e,m- n,trish and nnt:iral *:as in Sergipe and of copper projocts in P,hla4n is I2;-cIv to br thli rm.iin com- ponent of the sector's groxvth. Finallv, sI to electric po:.er, ET''TElR.AS plans a 16 porcerit annual growtlh of electric energv produicrton in order to meet expected demand. 17/. The Northeast offers great tourism attractions stTcllni:12 from its climate, beaches, historical sites, folklore and prox\lltr' to tire Ama./ region. This potential began to be exploited onl' recently. The upper- .11an. II Ij(1J k1 -class poVpuIloL L UL- L XIO .\IU .c1"U r-tUJ U L*-)1 Vc tr'IL-, LiIt- VTTJ L £!-1 nortant market for Northeast tourism. Unfortunately, international totcisls to the Morthearst aS well as… to the ret of r-zil, *s hmnered by hie'h air fares. Biy 1930 the potentia] market in Rio and Sao Paulo shotl1d conserva- tivelv genernte a flov of' about 140r0(M) visitors annually, ag.ainst 60,0'00 in 1M7). Foreign tourlsts mav incre.;se fror 1 ',nno in 1l170 to 6(,(00 in "'X), mostlv as z1 restilt of an increasin- share of foreign tourists to lirazil visiting the Northeast. On the supplv siUe, efforts must he made in order to enhance the attractiveness of Northeast. In addition to the imnrovement and construction of the hotel network, construction of tourist beach vil- laces, restorntion of hisrorical sites, lowerinz of .'omestic air fares for i-irernationna tourisrs may he considered. If the ^2)1i0,09-tourist tar;,et is reached, t'he sector's con.tribution to revional C(l' by 1'"0 may reach - 65 - some one percent. 1/ Thus, developing tourism in the backwar(i rer.ions of Brazil, clay become a significant factor in redressing ro,-ional i-lbalances in ___-n vEa end income Emnlovnent and Income Distrlhution ITnnlications 175. Even withi both agriculture and industry expmndin'g verr fast. thA existing large pockets of underemplovne.it plus the conriniiin;; rnim d growth of the labor force are such that continued interrepional milration will he necessary to ease the poverty prohlen in the Northeast. Using the Sl2IE2:/ B3'N groi!th targets discussed above, it is possible to gain a general itnnres- sion of employment prospects. The employment impact which would follow the achievement of the sectoral targets depends. of course, on the future chann-es inl enpioytet-outp'it elasticities. This is dirficult to forecast. The pro- jections below assum,e that past elasticities continuie to prevail for agri- culture and sen4ces. For manufacturing, there is more definite inferr,n.tion in tlhe form of tCe pipeline .f SIMlFN.N-approved projecrs, which is expected to crp.>ce about 303,000 iohs in this decade. In addition, it is reasonnale to assume that construction and utilitie2s sectors exp.and their erploymnent by roughly similar proportions in response to the growxth in m:inufacturing. Table 19: EXPECTED GROWTH IN EMPLOYMENT AND LABOR iORCE, 1970-80 Absc I ilte Annual Grcwth (%) Elastic:tv Increase, 19 70 < Qu_ _ _A r_____- ) . _____. sUL9I FI_ :.ll, IS Vl it:; _ TIndustcf ri 1,; n 5. )17 r,n Services 10.0 5 . 0.5 1 ,2!l Agriculture (.5 0.5 0/0, PIV TOTAL. 10.0 2.3 0.23 3 + Expectod Growth in Labor Force 2.9 2,767 Deficit 622 176. These magnitudes indicate that, even if the expected employmenet grou-th is ach-ie-.ed (w.hich would b, a consiclerable accom,.lishmi.ent) there would still he a need for the migration of a little more than 600,000 North- east workers if the existing backlog- of underemnlovment comnrising about 1.8 midllion were not to !ncrease. The prospects for relucinp underemnployment in absolute terms are thus depen6ent upon how great tie outmigration is in 1/ Even f'or a country suchl as Jaaica, where tour'su, has becor,e a leadng LUL ~ CUUULL~ ~ULL d~ dWUd.LI.d WIL UU1UI LII~UC1I Li £ U1LJ. foreign exchange earner, the sector's net contribution to GDP is no moreo jhm, S percent. e><(s 0; 6o t>,l!' n,ltz o r fO ie , o r s s I, ie 0i. !sj i -I C ?V > t 'n-;tir:tie. The E' P r 1ICitc: Of dzi t i:-; n ot c-:f' tfI5-) :q 1 t~ >x t.e A-.l:o.^ rolcnizatioAn sce .eluttrt'o lk' . . t.o-,s, tr;o ' A .r......-7c'- re,-.on w;ill n c; , ,lt- . o ) 1a.so~0r, ',,!a ote .................................-- i*.- Is itws.nnourtce,: ::.t the o::,rset of th.l or?i ro,i '.1' ti-ule,' r-ir.ntinnl to th e (:er..er-Sout'n will be, ncco:sanl . k.L) pr;; r, t I..- t-r. utv s vn. ..-^,ll c-or'~- kr ; ten I I t.i t o .z%. C, 1 . ' rF i .;oo- : .: .;L.s l E . . ,, r . '; ': (: rL ........ . ...........t . S C <:1. : L i:.._ . A i.t......v.: r ; ...' ..~2:. r t -..z.........-;.:........... . - - - -. r . ..i .. i .~~~~~~, - ..-. r c. :v-.\ i - .r ......... :....... t- ~ ~ ~~~ . : ~~~~~- v ra-- r ~ - . ; t .................. . . . . F ; D r r R : . . .... f 7 yA fe !~z .~~~~~~~~~~~~~~~~~~~~~~~~~~~V r:r ,. :.r S c t io i s r rr -,; )orton f:.- rir.sicrt~~ ,, r. .. t .' . , -0 a;.L L, r' _ 4 _-C C_ _ .-_ T:- .,(, !- r .: -,, m- .I ., .~~~~~~~~~1 . .. 7,)r- ci.: t C' ..r 'e''L:, :i:. c: ;e o: t:: tr -s o ' r : i i r . - a ._ n7 u .. *-.,: ; " <;- - I y c . 1n in th ?m' '.'S.wcr :0 ]t; S.- , .or . : t ; poor.: e .r :.v r.l: .. ., ar.s.ot..ir. .re rnrilof: . ,;*-n o : ..67 - 179. The growth of incoTmes within agricultuire will depend to a large extent on the s , cessful implemenration oJ the variotus public prvcrams to boost per worker productivity. Land redistribution could improve nrral in- come distributicn, if the beneficiaries are, in f-ct, rinifundistas and/or sharecroppern ane In cehey are able to n xpioit their new land economicaily. On the other har.d, efforts tos increase productIvity through the use of OUua\. .CU t - _ U. VC LO *JuO F- - -L . ZIO4. All .L L r F O two reasons for this. One is the existing structural bias whereby credit instfr,,tinno ten' to reqtrlr't their lending to the larger firtners The second is that especially by virtuc of tne subsidization of credit conceded to finance labor-savinfg teclhnolojy ir.mprovement, the principal benefit of oroductivity increases is likely to accrue to the landholder in the form of profit. 1/ Tue policy imvlication is that if perverse incomn redistrrlb'- tiorn effectr of -rodern inputs are to be minimized, not only mtis: the credlit mechanism mAke inpvits available to s!npll farmers on an equal footing with large, but there mRv also be a case of skewing the cihannels towards the small farmers, so thac the differenrial irpact on prc.fits versus wage bill will e. ieessened by reaching farms employing primarily profit-sharinf family labor rather thnn hired labor. 180. Finally, it should be nor-ed that impro,ement in the distribution of agr'rulttural -redit would not. hr itself; gunranree i-provement in rulral incomes. Many smnil farms in the Northeast may still be not viable because of the land limitation. B. Investfrent ileguirements The CapiLa-f1-O.u-pit Ratio 181. Thle anon:rt of fixed investrent required to s ppurt rapicd reginal] growth, Oepend's on the value o.-' the incremental capital-output ratio (ICOR). The historic.al e.-ilace 2/ for deterrnining the Ifp, of the region is severely limited. In the late 60's, the Noitheast ICOP. was probably aroun<1 3.0, as aga.-Ist 2.1 for srazi' X9s a whRe- Thife difference is attributable in part to the fact tha. '4h lIA there was ccnsi(ierable excess production capacity in the rest of the ,. : v NortheasI groJw' dr,,rin,, these years was charactreriz 7e by heavy infrastructure expanditujres, as well as the build-up of iuduEtrial capacity which ha- yet to come fully on streur-. Unfortunately. there is not enough hard evidence to test the hypothesis attributing interregionial 1/ Use of fertilizer and improved seeds tend to rat e the profit/value- added retio as labor co0ts remain unchanged to the extent that wages are constant and labor requirements are proportional to land area (plowing, weeding) rather than output (harvesting, thre.ihing). 2/ It consists of 5 years of observation (1,65 thraugh 1969) for the whole economy and 10 years of observation for -he agricultural sector and the public sector. See S1JDENE - Producto e Formacac Bruta de Capital do Nordeste do Brasil, 1965-69. rffroir.-r in IC0P1r valoies in terrc of concistonr hi"hcr rer-irns on boru! Pt 4vatr - rrn'-lic investrmcn in tCe Ceit er-Sol'i, Vis-a-vis the "ort:.io^st. The orlv irforrattion availall le 'Ls tii hoe- o t ar-lt vilat: I n ex-at .t of rertiur r-O cul--tion for Sprjh '!-'^:rcvcw: projects , averi i hletw( en 2 *c-' V 'r'(rt (soc n-,rl. 75 -i¾ovo) , and thl a'tual .-I-c': retur on * -r-ent of '~,razi lian cornoratrions dririri- 19t% -6c., ccrresnolrrin" to l5 percent. '-orvover, tho'-m are finrl-icli l r.-ther than econre-ic rates of re- tr rns. Th t isqcc e requires frrthc-r studv. Aav attem-vt to ir,prorve tic rre- - *-nt !le I;e ff the stul)1ect s(;r;I_ .le.al inter i i-, zi tii tht i'.' ilirt ion of t!-e initorrpoiotnal onr-ortuni tv cost o' i aher (sCoc ()yra .i !ovt . 1 . qi ~to tl- U rl)" *- 7) rPv,-ilini i n tsle 1'07r s, tilfcist:et r i- t--ir it -ill averne . T. 1/ li- st le.rtion o tr'lis rat io, It.i i. -i- iL I iirI - 'n'tion in re I iri ion '-itlr th.- r. ¾-cnr :i-rst, ic !:e(.' o- tC- C ' l in to'.i,.-rnr ions: (a) tile comil' jun,- fruition -f thc- iil. tril ii . i!lfrnstr:r~~~~~~~~~~I re ro-, jer Bt:r -(t 1) tf ; ar ; 1 1 avi c lf-et- ej -r0V,-- Ti n't i tto - rrod tint I ivt v of tie'! i nve' t-ent, or i co--.c''-in enrP of e-- ro r- e -o:ries' *'-- "t ter nroic-ct rer~~ -'l 4r-~ -on re tc (!)t tto !nrre ":'}t crl''aq' no s-ct-I i t: . - or't 'il 1 Cec-is,r1ril of'sot riart of tii.- ICrt re 'urrict- '1 ohi 1 T Tf tv lf) per(''nt tecnr1mir r- or- tar (t c- t.d- i 'ieI for t1 .ort - s;t i tr r aci-ivvr- L, ;, r. Cot- rvi;-I ir'est Cet ,on I t to err.: 'iholrt 1- n,rrent arinu-l l v fi :(-' iavo';r t--rt would 1.ov,- to risi; to tiln op .1 i(''it Of -i n"rreot oF re-'o'al ai 1')P l ;7- a< -ar-iit .-- r'ent in 1i' l -: .'^; .- ..- ; iese ., aer c ; (.L r--- l ** . fL .;V .I' g. V r -1f-Ii I * , I t- *:rc t1ii' 'or!'1ees t , tie res!)-ctiv- role'-; 4 rr I-irt- a -i p-I (I root or i:n.li rtlr) inf-lvls) I .! s!>t-r . ! i !1 ilext f- XI ^s !1- .n- in trio .., 1"i-q"'se tlcs 'ri ol, thi(,-tor i-5t-ert in tot I orth e is t inv(estrrnt ?V ,r?¶O r1 pd rcrrent 'i I o,7- - t if; voortre( to in- r r-isI to 57 n(rrent. Thi, 1i; , ros;rl1 n: t;. Ci i Ct .'f 5s rer,-enr of '! furti-; froi' private mantificturill " inv -s; t1 It t,- fd1 r.;l (cI r-. t all I i -l ir. tj i :vts st-ent ir 'oriruilttire and relat ed infrostrii rtrinr U 'or th,' I anli ooyr r-1. pr'nreprar". Stlte soci i lnvestr'ent w il1 alsr, c!iitriUtr e to the c'-;)'-irsion nF rt>e ro]c, of thl )1 1)1 icj s-tc-_r. - I --; ' I1r~ . I C tLnvtT [ilt 1 P l rOrP}r".r 'n'' w-ion aS able to make inflicative nr^jt(vtions of nubllic ir- vo,st-. nt for the ;ortheast, whlicih es;V-orti 0lv, co!lsi -iS of: (i) Per -r1 invi-Tent e rre'le;ill- to (li rrcr ijnv-stnnrcn !bv the i'ederal overnr-.li t andl fed eril aut ar;-ies pl is th(. Ti--: irri-ait-ion pro-rnr atnd piT' PA eyndj ures i- the ortl c-ist as shown in the 1072?--7 ' reer.r I Ir.ves ti-t 'idget. 1/ The projected 2.8 ICOR is the weighted average of: (a) 2.1 for agriculture, as compared to 1.9 in 1960-69; (b) 3.0 for industry, including 2.0 for manufacturing, as compared to 3.5 in 1965-69; (c) 3.0 for services as compared to 3.i in 1965-S9. _ 69 _ Table 2) tI: ukiMTH., BRAZIL - F:IX1D i';VES'1E'T dY FlJBLIO, Si,CTOR ;,ND 5;! FiIVAT_- -,..it. a : (It, Cr'w -tullions 3t ronst-m!t 197, V:1l1t-s) Avqera.e Atnn j :; _sta-Wxt.> ! _ _ ~~~~~Pro e4tSinn Incr,!,.p (: _ _ IS'~~~~~~~~~~~~~~~~~~~~~571 ig9l2 1<73 19{ 1/7 ' i7 Tot1' Fixe3 I netrrtin ':'-heas t 14t 00 5 , 2 72 llU ],21S ;LLI LI 5.'ltt Pul)2!t iector Fire A Inve~ tnnt CO sX ' _,1? iLI 6 ;. P. -I6 <5 S-, 22 .G Fedrpr: 1, 21512 3 ,2t 7 3,,702 bL5179 :1, 777 5, t37 6.t, 24.0 (Dirxet) (1, 7'j0) (2 5t00) (7,,°75) (3,300) (3,°000) (!, 370) 6.1, 19.6 (PI'-_Irri atiori) (721 (227) t27) t2il7) (2277) D27 . (PRtSR*>iS) (-) (5~~~~~~~~~~~~~~~~M' ) 1(,00) (67'0) (750) (H '°)**- Stnt,en 1 5'5,Sg; 1,1300 1,927 :2, 10( 2,3?9P 5. 7 20. !Mtni zi1,pa1i tion 2y 2?3 300 3f,O La l; 5-1t f; Go 1.Ll 20.0 Priv-te Sector Fixed Invi!ftreXnt LSoJh FfiSf20 S 1. , l - 65 <'IJDE.T'-Apnrove] I ndiintri.al Invostrent)W H,72 7,, 2, 3 7 2,la "7 )9 1,6 L63 e.n ('i1th Art. 11VIF lnma>rtrent Fwuq;l (770) :1,t0n) (955t' (F.O 50 Ro) (fO°0) 1w5.1 O.e ( A i1.kh ;u Pjp )1,^ x - t le r: I ri i , -i? i| tn e-. ,',, -? ,) re :r<:-.. le tu e .i-:':gXI ,1;overnrr?nt - :1 fo*i- r .l -.t ise : FI:. i'''.'-t,-an? t-..:: ! ri'.,n ar-'4 tTAA :K -''1 ci-hc: rr ^,? llrar:rfe.r, 0. int.:O t-cnw r..rce: '.to tt.^ .>t- 'n e-l4 "1 i'. 't tf: "'n'! r'utr i'' fly e?: in"V2otRtent ( a3ing re!soGur-: fro-7 F-ir-i4L-i?t1,r !`on - i .tl trL-,-i-r-, ir- 17- l r:1:: >t.-~-(. ,. ,'r .?Jq:-tnrlS?t funi-. or 1;, ,:e fixe ' t^;CSt.rt,?r.t tn ilE'< r tvro. ;)ro'c -t- 5 'T o1trL+P :L tn- ll,n1 H5: I:; -n of Art, Y3,/)F tr :-31,rtent finmd: frov- the Hink of ':ort;.-e7iFt Dr'r-:il4 i,-~ g4ei'C! ve! i. .: "n t'it e- , . ,ez.t ''^, ^-~~~~~~~~~~~~~~~ib '-} -- , 2 *^ -:,tr-urti t: olIdtr) 1- i i t,: r lz-l. ;*zI -riD.HR- fj iitrl rle <,u't. ,( ts,I'' ; ot -ir . e:rr:. .*:,:i c-;t--..........t tr .rnu, l e i:t :- r.uoLir ,n:oCt< et. ,ij us 4 , . - * - ^, ,ffr r C ................ | ~ + + 8 r . - J.-_:, ?s........">t ..1 :, .!-. A- - 7(1 - (ii) _.:t. XI>0 ''unici. 141 fi xeU inve, t er t . corresp:ont' in to tiIC r.-ie; and ,m,in ici pal sector inves tlieit pro-rarr; as presenrre 'c the S!'n:.rE plan 1/ and adjusted by the mission's own esti- ir'c-; of investnent require-ieiits for the ir'n 1.e-ertsrtion o' the e ucationa] refor-.:. and fir the carrvin:, out of a pro..ram .f state roads a-md mrtiniciprl feencer roads. .showtn in tt' tabie aiOove' ill ajiltC icion to the PT' anl PVr'ZP".I'l-A pr/:>ra:-! wh ic! 1 jve :)hce an-.i V,e.' ill Ch1tter TIT (Sections A and M) fe(-ral invcm; -1I .. -. . .~ .4 1 -r- as.C P `,-oa Fsperaoca iHydro- 1i erPi r Cnm.nn, (rij!pE.F) with ifrect fidera 1 involvermenc, seventeen other state electric companies in t0e Northeast are projected to make investments Inrrely i- transmission and distrihution, which will represent n"otit 15 ?ercent aninually of total state p'lhlic stcror investmeTnt. (iv) lBnsic sanitation is the -sector Which is projected to ab- sorb the largest share (approximately 30 perrent annually) of toral state public sector investment in the Northeast. The emnhasis on basir sanitation is the result of thie inniementation of a Nhationni Sanitation Pinn 1P!.A'..AQA under the ausnices of the Nationel Housin" Rank (f;H,") whereby srate -overnments earmar'k S nrrcent of thei r revennes, to he sunplementerd witth lon7s fron BNH, for investment in water suanly and sewern-e. (v) Transportationr is projected to nasorh t'he serond la-est s'iare (aOnroxi-atelv 2' percenr annal1l) of tota1l state nublic sector tnvestrment. The stati' invesct:enn ac! ivity is almost exclusively concentrate' in hii ir'in- anr nain- tninino state roads, since ports an'4 ra. .itw- invest--ents ar' -enerally planned and Ui-iaTiced ny federal antart-ies. Th^ state road investment requirer!!ents have been estimatei on the basis of the dlet.-1-i0d 4nve itMent pro ra:contalned in the 1969 Brazil Transport Survey. Municipal investment ijo feeder roads is also included. (vi) Comrunications and storace are projectedl to abso7b less thin 2 percent annually of the total state public s-ctor investment program. The planned investments involve the expansion of telephone service in; ahia and. the instal- lation of nicrrowave transmission in otlher states of tile 'ortheast, to he carricr! out by state public coCI-unica- tions enterprises. (vi i) The project-;d stnte investi;aet ill ed!ucntion is bas.-,! on an Tfrl'? mlission analyvis oe fut tire reqiire-i.ents at the state level for the implementation o. the public school educational reforrm in pr.ti'-ry an.! second!arv ed'ucation. - 73 - nTe projected investment represents a I.ir-e (; In.os threefolid) increase over pist leveil of st.ntc public sector investmeat in education an(1 ir, relation to the total invesV.iLent progjLram would ris.- .ro. 7 percent iLT, 1972 to lt percent and higher in 197fi and beyvon1. (viii), State public investient in health is project2r: to con- tinue to comprise a very small portion (less t'Fin 2 percent) of the total investrerit prosrnm. The ni,i is consolidation of existing facilities whicil, at present, are not intensivelv utilized: ongoinco projecis will be cemnleted and a number of hospitals properly ,.uiipped. (ix) Investment in toutism is projected to be ninusctjle on the part of the stAte public sector, on the asstirntion that the private sector will dominate the activity in tb.is area. (x) Ceneral investment in bitildinos and entinriert is proiected to grow at 11 percent per annum, correspondinc- to thje in- creasin-ly inportant role to be occunied by public adiiin- istration at rthe state governnent level in an economy ex- panding at an average rnte of ln percent or more per annu;. Private Sector Investment 1 P9. ExDansion of private sector invest'7ent Will be essential to glstain 1he rapid growthn w'ich is tarIeted fcr the Northeast e.oiomv. As in the 'sL most of the private investment will take piace in manlfacturing,. As,siriiii- a 2.1 ca4tral-ou:tp:t ratio, thA Investent re.imirel to sunin a -u- produiction expansion of 15 percent annually is on the or('er of CrSl2.5 b)illion (or USS2.4 billion) during 1972-76. In the irrnediatlvy preceedinr nuinnquen- nium, investmcnt in 34/1l° industrial pro4ects a-mounited to about Cr$5 billion. 190). t%lether or not this increase of private invest-ent in industry can be achieved in view of the cutbac' in the Article 3/n/1F resources availahle for inOliistry is one of the principal uncertainties associi-ted witin the te-a- sibilit-" of the overall investment requtirerients for in percent re-ional growrh. C. Resource Availahility 191. Following the diversion of 34/1A funWs to finance the A rn- and celonization proje't, there is a growing conrern in the Northenst about the ontlook for resources mobilized outsidle the rerion to support private investment in the Northeast. At this juncture, ir is necessary to assecs the likelihood that the overall investment requirements of tihe growth strate,.v for the Tortheast will he met. To male this assessment, resource availabili- ty for the three main components of Northeast investment (t.e., ferleral, state and private investment) will he examined. These piece. will first he con- sidlerer' separately and then incorporated into an integrnted framework. Tahle 7-3 NORTChFAST BRA2IL - STATE AND SJNICIPAL PUBLIC INVESflGNTa 1967-76 (in CrS mdllions at constant 19Th values) ACtu_aj ___ Estimnted ProJections 19e? 1968 1969 1970 1971 1972 197) 1971 197'; IyP? ,te ita htinictpal Public Invest-Monti/ 7S 1.215 1,U2 1.125 A14 L. L5j 2,180 23bll 2.619. !L& * - n j u -1, 2. ' 2 W4AMOr .--u 4knin'acturing Industries 18 t... .. '5 S6 ' . :. 'r.7-rfr ty q 11.6 150 ... ... 280 ,-n 2c. 27W t'O 3;<.- _a,litatrl- i N 79 1l1 ... ... 370 F3 ro'i *.; '- '-artpoetatio'i 250 L1ia 375 ... 5c 5s 59- n-. , ira-'s; (71,,') 410) (35f --)<) (b,52 ) (5Qi (579) UaF) -'';. s q !P -tr 1,3! !2) 1 ( ) II ?I! ) 1) (> L, I t Orth,-r (9) (2) (6 ).) C.) (10) (..) (11.) (1 r! (r o' -:.,n:n-ation~ ar..i St aj 15 13 58 .. . ... 21, ? 31 10 4-'cat10on 35 Nqla ... ... 110 llrX is,. . IC 1" :' :-e.S I f h 11 12 10 ... ... 17 20 O 1. 79 'c 7-'rrism - - _ ... .. 1 10 10 1t C il -.n.o-a (.ut Idio-s ,n u.u'tpeant 278 2I37 1.57 . .. .-.. *2 -?? 5? T "i ,' ; r-: . .,V>flt I?.irures il4-7-iJ9 tr sat'e anil runicipa±l pubile investrn- accarding to S*MDWEU 'LAssessor:;L' JtIira 'nt s-nrrr so-rr Formanso de Capital Ftro do Srtor Publico do Nordeste, 1Y0wS9', (Recief, Aprtl 197' i. itt ' ?rt'r^-*l ':r (19-'-Ili) are according to S;TW'DE, "Piran de lOssenvolvitsento d-l Nordestes 1972-7a" (Augrt.qt Ii'n Ulid ot-er se->o nvest. Znt plan:, as rtttrd hlolr,; proocCtions (1975-76) amr based on findin.gs of th~ !a.N -1'iston: (aW kpri.mlture; SUSENE (1972-7h) plis no pro ected tncrease after 1975 on the assumption that Feceral .o.-r-,.nt -ro: *,rn.rin .,tl5 .nt t5e nuhlir in st^i t neaed In this Dector: i-) 1str.r .Id cwanufActurin, industrits: 3JMENES (197?-71) plus -onstant level after S tor continu.tion rf itrver.al exploration and er.largerent of industrial parKs; Eletrobras PlurrLarinual Invaesttnt bsudat (1972-75) followed by accelerated erowth of its-r i'-3t/wnt after 197- in order to extend tranmtrtssion lines to rural areas; K ti I"nt Sarnit.,tionr SUiLt:NE (1972-7!.) rollowed ry iynvstment growtth by 9 percent per annum in accord-an-c, wit'. Nationnil Housing hank (dfl.i) estimates of inv.atmant needs to furnish water and iever.-ge to NO r.-rcert of U.s urban populatinn by 19r0; re I TransprortatIon: the armount and growtn of investment in roadsl (0Y?e-80) has beer3 determined as * o e tFe -arvsrked transrers nf federal tav revenue *I' to l'e :;tate ros S n,-is an.d tiRing ti' -nnai iser-t ion -, feerer road orsoprar to re !inancei tn part hy tie .NSDE an.t fore.gn developrr-i r ,in:; ,s for railroa,ds a,nd ports, no ma or new ista's lnvestrmnt is ro *e-tad, vht_h iSmlites ta..It the st .t or ferriambuao does riot construct a new p,ort 1nkeJ. to . -ew inatistrial park oLt3idtfr Of 90.:fe; nt&-r tr-inciport.ation inJesttment Is linked to uru.n ounliS tr.onit Arid will r-se bhy 20 aArcect ;ar;craiuIv; (t) Communications and storage: SUDENE (1972-71) rollowed ry a. co'a3s-Int leve.l of state invest-rc-.* 0:' the-e,atter on the assumption that federal and private tnvestment wtill rmeet the growingr needs; (t tEducation: orojected investment (297?-75) based on 18RD mission analvsiq of rrsuirerseeuts ^t tIe *.tat, level for the implementation of thi public school educational re:orm for primaRry and .'ecoooa-yr s-a' .., (see Ada"s D., and Tsantis, A., "The Education and TrainIng Syst-em of Northe_s Ir;. tl" - su-,n,':aph, .;uly Sa7?) ro inalth: S1MEIE (1972-71) followid by a continuation of the trend rate of growth at 2O perc-int per y-r; fi Tolo-tsmI :'J11ENE (1972-7(t) followed by A constmnt level of inveectment 1hereafter; accordance with the needs of state Rovernment In an economR expanding at an averap,. rate of 1O.r0 rcernt er Annum PI-Aing the same period. * -e: 5 rN_; tMinistry of Planning; Eletrobras; National Houstrig BanK; National Developnent Rink; annd lIR mrission 'I nt r.digo- - 75 - Resourres for Fec'eral Investrnent 192. Ar'ong the various components of Northeast iti,estmtent. fe'er.tl in- vestment is probably the only one which is likely nor to stiffer from lack of resourrcs. The overall analysis of financin" of federal invest--ent in the N,ortheast as well ns in. the rest of "he countr w'] e develaned in th^ Main Renort. Here it is enoiv'h to mtention that the cxnected voluml of fpedrn1 cncenoq And net e'tprnnl lo.tnc in 197?-70 will hi 1 h- ciifFi,inn r.^ moot the financing needs of federal investmrent in the North'-ist- as ,?li as in thc' rest of the cotntr-, as outlined in the pluriannual invest-ent h-ld"et. If slinna-es in federal Northeast investnent occur, the cause wi11 be hard1v of a financial nature. It will rather reside in delavs in vroject preparation .qnd irtplementation. Resonrces for State Investrent a1. * me prospects fcr an eN-niCsion oi vi veNt,ent Lv .ort!asr SLatLs in the next few years are pretlicatec? on increased federil governrent tr.-ins- fers, on strictor exnendi"ure control as t--ell as ar.'n --reve- -ani in th. state vztiuoc-adced tnx (IC") a0'ri:tistration. 19A.. Most of the ,'ortheast stntes are not a'lie to meet their current exnenditures from their tax revenues. Federal transfers play an important role in. t!:e financin, of their current and cat'ital e::pcntditure:;. About 95 pcrce::! iF t'e state ta:: revenues a3r derive-: franr a vc.!tead,!e.' tax called TC . The ICr" iltroducecd in 1957, in nilce of a cascadctvne s.tIes tax. Alt,ot-!: It was fores-e-n at t!.c tirne of t-e refo-m th 'r the Nort!heast state ml.ht suffer - decline n revonues, IC' collectionis recorded an an-uin re,-i increase of 15 percent bet:pen 19(6 (the lnst veir ol rie old t.::) in.1 191". In 107r0 an1 1^71 , io.wver, - dec,i ine i the ecoioi-dc .ctivitv re -iec' to t;- drou,J' t led to i sliAht real drcp in IC" revotenus. kncr'er factor in the peA_r revenue performance in 1971 was the . . " oFa,e r.- n . .- f . . ries of ninnii.. , reductions in the IC" tax rite frc'i 19 percent in 1')7' to 16 nercent b- 1971,- This dowxnward ndinstment in the incidence of the IC" was crnce-,.e-1 by the Federal Covernrient to offset the contriTtitior hv firris to the newjly crented Social Tntezretion Pro!'rnm (PIS). .i'tr the loss of revenues to Northeastern statees restiltinig from this neanire will b; comnersated h' al- location of PTS resourres in the region re-iains to he s-er. Faced with declining, revenues an' ronintinp, current expenditure, the states :Ive in- creasingly resorted to short- and nedium-term horrnrMinc fro- domestic and, to a lesser extent, external sourceS. 19i;. A-V c revenue perfcr_nn. to 'e anticijpnte'- for the -ortheast stntes dvrirfnr the decade of the 1970's must necessarily cou- centrnte on the overvhe1rinvlv imnortint state vn]lie--added tax (ICM). The limited historical experience with this tax in the Northeast suggests that approximately one-third of total value-added in all sectors of the reqional econemr is effectively subject to the IC" levy. A nuinmhr of fnctors Limit the effective incidence of this tax. First, it is impossible to apnly the tax to value-add(,d imputed to subsistence preduction. Second, ndrinistrative constraints make it impractical to impose the tax on the unorfg,anized service sector. Third, many cate3ories of goods are exempted from the I(c tax. Tiese - 76 - tticluide: bas1c food-sttzffs (te miitig.ate the re-ressive element of the tax) mantitfact'ren exporteO abroad (to per,it ttie proItdct to be comlctltivov in in- ternational -arters); and preducts of enterprises newly esta.ili'he! ir the "orthe.ast Ill accor'Jarce.w vth III dlie set IyS'El I-here'is the first two tvnes of starnttory exePnepoot inn'nt ioned above ainply fairly unifor.nly t-roug ;hoiut Brail 1. t'f' special exenpri rns m.de av-i 1- aF'!v to new1v estaSlishe ' m.rinuf.aicturinr- indiistr,' 'ire most c'ncentr.terl in t;le '!orthea.-s states. As mention'd t!aofe, most of the state'; in th. ';crtecea-it allow firms to .!e.'uct tup to 6' percent of the ir T(C 111biiliLV to tile Ft-It, nrovi-e'i ti' Sll!ldedticte' i' anp' ied tO new or eo inci0ed invest'enc tr ei. statep for .a .-eriod of 5 years. 'rhe effect of these defucttion'; reinforce:. t:iat of tni 34/1R incentive in -)ertittinp a fir" [Cc-ltinc in tle '\orth a';t to effcrtivc'v itnderorice cormpetition fror oitsUie the rei:ion (espv-cialiIv fr?.n. til(' 'otirt':alst aiW SoUt'l) wiicir. lS s-l- l ret ''tUL Li' un :4 IUI; ' I 0,1 i rteortatr rr-iiNe. In a.Jition, how.:".,er, connt ition arieonf t ii, ortyea:; t .: tl-t- r.( ' iS.e t. I v rto at trct t`lesi r o . i tietr bord..rrs h_ l t certain '-:o tttt of viildict !).ar-ainins hetk:.on stites arc! ynrti n!.ar i mvestor-- '.,hiirh :ias re.;il tel in a-!''ition.-al deductfIons or total eye-'ntioni boeinn -'r.'ott'd- 1t/ in t'it' '.a15 o;' ole ;ort.itast srntt 'ni ch hi-S .it te':pte! tO oVa.l1,ate t 10 !vo¸; o' revenue I e hot!i to the utnif rrn [IC" ex:e.mot ion(' ass.'i iatt ' .:ith toe Arti. ;t' 'i.'. /1^ Sciher-v' plus ad ltitoinl exempt ior c :'rlnntek-; !. th.At state, it is t!iter- Eii, that 'v 1'l7( rlhese e(%r"ntions wer-e ec'iivitent to 1V) percent oF :actinl. T('" cr1 [ort iols. t , /. Tor t i( flut es o o: -'ro'octi- '(' m revi-'nics for rihc state ovii- *,'ions of th. '!ortho:int. t'ct jronort ton of -*-'oien'! ' roi;l v': '-' .l 1 tn.ll lxi 'Xe s I:. jF et to itt L- i'( 1. .- ,.-,:. e i - t r- , .r! i 1'72 to Al ''rcentn h'.* 1;71. Prei.:ct--'' i ''u.-::- o' to e . *t"' ri' '' Lo. -in ¾ -r. -C''. -n' c f-'riU'- ro. :1t 'N r{ t . . " .. ' f!' cluIodl in tvit' monetized' secter an,' tni t tni_1rtc no i .ic..-.' . -OVeiii t tin: a I'iT zrr.t ion I' t'.-t t- e.er;.: ' c rt.tole r C'.i.0:; o0: * t i: ')i. vil b. . s . t. r (riI:: r 1- ;..rr..it i- 1 147'' te 1- p;,rcent i-i ]07' of r'io rartt o. tic' I(' L. .c...:.4'i tcr: :1. t . i l -t 1il It tOII 0! t1l' PIS - se. pnir.' . 19!. al-ov.'c . the nit.t r. .At i, . i..L 1 "¶ revolt!., ' are projec'tec; to 2ro'.' ir r, -! ts-r": i. ahoi:t li. nor.. 1'' if t:o,- 1 'porre-r t :.rt:tlj t ir--et: o: ti r'- ein. t- t'e','. .;re arabo'.e. . 1'u.ict1 clrrent t.;.{j .'Ali trt-s jilRl tOrC,ea LAth t 4) ir-s in reAil terf. 2 hV 1-! nO'rc-ent per year. 7hi s co'-pgares v tit an avera-e incr '.-as of 11 percenIt in I(t17-71. 'f-he pr^ject-ons rfl ect (Ia) an incrc"'- in recurrent educrtion 1/ In an effort to prevent firms from exploiting the rivalry between the states and further eroding their ICM tax base, the Miaistry of Finance of the Federal Government has organized a council of the secretarLes of finance of all the state governments, and no new deductions or exemp- tions fro m the T4 may be granted b" any state wi thoutr thn -appoval of at least three-quarters of the membership of the council. Hlowever, this regulation does not annlv retroactively: therefore. a-v previotisly exist- ing deductions and/or exemptions from the ICM liability remain in effect. - 77 - expendittires by 11 percent in the lli- 25 in 1971 to 21 pPrcent in 1976. This represents an trm)rovement in thc fiscal nerform.ance of states and -unitcinalities. 2')0. The 1947 tax: refcr-, ,:hich crented the IC", alro1I.shed all e.r-ar!:- ingc of 'ec'eral 'udt ,eta L- revenues for sp,'i'fir exN)enit ires, with tEi eLL c - tion of the vqrious suie taxes: i.e., the petroleur tn- (Il'(T), the elertrir pow> ert ax rF fo(T ) andh mi ner-l c Fnv (tl) . At thle sm-e time, it red. uCe the sharc of states and municirpalities in the 1Il'CL. frrm * ) percent to 4(l percent. These chan-es were more than offset. hevevv-. bv the ether maior innovation of the reform, the introduction of t;,x sharin- in thle forni or t!.e Parricipation Funr!, whereby s.tates and rninicipalities receive -- in equal nirts -- 20 perrent of the fe(deral inco! e tax anid indunstriali7ed pro,'- ucts tax: (TPM). In 19(a, this share as reodurerf to ln nercent while a Sneci-i Fundi was created to distribute an an';ition-il 2 percent, P.rtirularl'; to :oorpr states. The suc;den decline from 20 nerrent to 12 nercerr in the tax sn;arinv. mie-chanis t is exyniined by fiscai dirfirciiEtif- encountere' bv thle Fe.'erali Cov- ernment in that year, as well as by the unexTectrelv 'oo"' revenuec viel d from the 1''' sfnce its introilu;;tion in 1 u1T svstem ix si l Liiin. It has i strong rel'istributive effect cpriti to the need element built into th. fer-'..1I, fnr Part-i ci rntionn ann Spnc- a i Fund! ls, tri: uti nn Thle' orthast gener,i ts about 0 nercent o' federil inc'r-e tax and 121 revenues an,', there- fore, t.e same oercentage of total re-sourres availa!bl tr tht: two FunTh-.. It receives, on thie otiier hand, some 40l p. e-enit of total Fund transFers. In the c.r--e of earmar!:e.4 federal t; FiiallV, for the next five vears, thr, fin.ancin-, pro¾'ction envis.aes an ex.- ternTl capital inflow of Cr$24 mrillion, based on loans fron the l'APr, trl lD. an"i the 1'SAII) that have heen alrcadv 3nnrovecO or nre in.-l:li!ed, in tihe ir present lonOing programs. v!io'r the a-1sirlinntons ., c-;|C%v-:s ahove LCe c e .i1di cr-; 1 t an unfinancel gap of abouit CrS3. 3 billionn. It is e!:pect Ol rb.it * ri .;o, e f':rt:er effort on proi,ect preparation. rc'! lx'ly (Cr$3n' m"llJo4 a'. ro".e fro.- dishursemenrt on exterial loans still to ') inclu.!e.' tn the 1inding pro2ram of the de.elor-ent a-kencies. in the field or sewerie,e d1c.tion1 a.ult fe(-.'edr remad's. Thir; , . residual internal gap of about CrS3.IJ billinoil Id erer-e. Fiiiifnc "ore !esoutrces for tne :Northe:st States 203. Th.-projectec savin-'s Par' for the stnte puibi c st-rar in rh.o ;orth- Cast ci:i be rekiucel by increa:;inla the tranisfers frcor the Fe o al Coverru-ot to the 'Yort;east states an.c;ir hy broadenin- tLiie ta.,Ia. Jas otL tIe 1 'L.! iri thk. :;orthe;ast. !loth of these possibilities nerit serious consideration Iii viet.' of thi- npeeid for a aigh leve' of state investrent bOth for prot';-tive a1-1 social piurposes. One issue that has been the focus of rrci (deblate concer:ns t".& anllo-ed hias in favor of rIcher states that resuIltq from apnIvinry the P7'! at the ori ,tin of productton rathcr thin at the dostinattion or point of sale. The '-hoice of the ori in rriici- le- -r the IC" wa-1 lr.el detereinc. b; administrative consi;c'ratiors; 4 -isier to collect a large portion cf the tax revenuie fro- a relati'n'ly srn .:.r}l of major producers inste id oc havin" to cover a muich !ar,cr niumber .'retal I is trib itor-; (as -,,v'u h- n-cerssar- ula"er the destination crir pie) i - ordier to colleoct the S:rle amount of revernite. Nevertheless, t'ot orri in prinrci l of I..'' le%m creare- a s1it .ation -here')y goods are subiject to thle ta nr th-. print of proruction an., *"hen sel ' to a consumer outside of the proehic-nip. state, t'ie price o; t'he good includes thie amount of tax pnid at the ori-'in of pror':uction. 7hus, the finral cnnsumer outside the" producer stare bears the b;r!r-!, of thc- I which is collectec hyv the produicer state. 1/ 2fl4. 7he Northeast states have become increasincly a n?t importin, re- gion. Nort'l.ast exports to tho rest of Brazil as a perceuta"o of retionai clomestic product fell ste.1ily from about 12 percent at the hegin.iill of the 1060's to less than 6 pertent by 1962, the last year for which fairly comDlete informntion is available. Meanwhile, Northeast imports fror the rest of israzil as a percenta-e of regional domestic prodiuct have tendle(d to f1lictuate in a rnnpe fror 1-': percent to 21 percent. Thus, tiie interre'iunal trade deficit 1/ The inverse would prevail under the destination principle of ICM ap- nlfcation, in which case the tax revenue would be retained by the state where a product was sold even though the value-added in the production process had largely been carried out in another state Table 24: STATE AND UJNICIPAL FINANCES: 1967-76 (In CrS millions ait conatant 1971 values) Actual Eaticatte _ PrOlection Total Total Ratio 1967 1_ _ 1 19S9 193_ 971 1972 1'973 1974 1975 1976 1967-71 1 972- 7 /(A) State and Mu.nicfial Revenues 1,400 1,610 I,8I8 1.73_ L.830 2,214 2. 6 2,510 2.816 3.1161 8,388 13.0621 1.Sb State Budget Revenue 983 1,143 1.295 1,232 1,300 1,S90 I.b90 1,788 2.012 2,263 ICM Revenue (959)1 i,093) (1,255) (1,1661 (1,212) (1.494) (1.584) 11,t74) (1,8B8) (2.128) Other Taxes and Fees (24') (50) (40) (66) (88) (96) (lOt) (114) (124) (135) )hinicipal Budget Revenue 417 4u7 523 498 530 624 571 722 804 898 ICM Revenue (240) (273) (315) (292) (303) (37.i) (39t) (420) (472) (532) Other Taxes and lees (1771 (194) (208) (205) e227) (250) (27t) (302) (332) (3b6) State and Municipal Current Exp!nditures L.1,A 2,010 2: 2,i6o 2.45 2.723 ,94 3, 2.95 3_.62t6 1.985 10,378 16,621 1.60 State Current Exper8irures 1,144 1,425 1,51b 1,531 1,740 1,930 2,122 2,335 2.570 2,825 Municipal lurrendl Expenditure 470 585 623 629 715 793 872 960 1,056 1.160 Current Budv t Deficit -214 -400 -321 -430 -625 -509 -633 -785 -R10 -824 -1.990 -3,561 1.79 State Current Buciget Deficit -161 *282 -221 -299 -44 -0 -340 -432 -547 -558 -562 Municipal Current Budget Deficit -53 -118 -100 -131 -185 -1b9 -201 -238 -252 -262 Total Federal Trans,fers to States and Municipalities 762 1,329 1.066 J1$6 1,20 1.48' ,635 1.811 2,003 2,217 5,563 9.201 1.65 Transfers to States 493 62t 759 814 890 1,074 1,217 1,315 1,455 1,613 Transfers to Mtncripalities 269 505 307 342 360 411 468 496 548 604 Total State and Mur.icipal lnves rment 79S 1,215 1.237 .1,125 1.148 i.85', I180 2,341 2,618 2,868 5.520 11,862 2.15 F ianc f ng Savings after Federal Tran,fers 548 929 745 726 625 976 1,057 1,026 1,193 1,393 3.573 5,640 1.58 External Borro%ptnF (Net) 31 40 4 5 3'. 33 78 88 158 IOU 100 183 5 24 Dotrcst.c Borrowing (N1ct) 21f' :;6 447 3 65 490 345 48h' 487 506 536 1,764 2 . 360 Bank of Nurtheast Brazil (8MB) (,, .) (.. .; (...) , ,1 (. . (1()) (15) (203 ,25) (3Gi National Development Bank (?'W1)( (. (43( ( )5() (583 (50) (50) National Housing Bank (BMii) (, ) ( ) (.) ( ,) (,.) (292) (413) (409Jp (431) (456) Other ( . ( ) . . Unfinanced Gap - 456 554 670 819 839 - 3,338 Source- MInistry r,f Finance (Sabsecretariat of Ecoonory .nd Finan,c): Ministry of Planning; SUDFNE: Bank of Northeast ((razil; Nation-l llo.-aIng Bank- IBRD mission estinates. - so - of the Northeast withi the rest of thie country grew from thie .tuivallent of t. percent Cf `T -rergio'i'i nroclurt in iI - tce 16 prrcent in Pl.'. - :lv yJi,:' it is estP'at. to have rise n to about 2") perceii:. 253. Co'isi.'erin, tih.t about 65 percent of tliis tra(le resently is ',- Iel te I" ta-x..rtion by tihe state of ori ein at nn nverorn1 rate nf 14 -5 -r cent -- the remainder being constituteA by cn-ital goods whic;i, since 1973, 1rnve beei free -- tCe ..ort ieast prohably has made a net Cr$6111 millionn in IC" tax nay-ents to stntes elsewlere in the cou;trv in 197?. 216 . r, order to counteract this revenue effece of interreglonal tr.i.1.. it has been suagested th.at the ICM tax revenues generated by it be silit cqual- lv hetween tie exporti ig state and the imoerting scate. Suc'; an arra:(r:.sint wolid he a compromise bet-jeen the orioin principle and the d.stinatien prin- eiTle of aprlicvation of the IC"'. It WOUld yieid Cr$300 milionL to the Northl- east, corresponding to about 2') percent of its IC" revennes in 1972. 2I17. Th1 adoption of an equtal sharing arrin-;emient for IC" revenues from i:ttrstate trnded voods wotIld ihave widelv differimn effects in various North- e.ast states. For exaripte, Pernambiwco, tihe most indumtstrial ized! state in the ':ortheast, t!o:ld receive the sn.allest benefit, wit'h an incre.'se of IC" r.v- enule of it l'eqt 11 percent. (n the other hand. st.ates in wilich prinar- ore- (luctior comr)rises t.e major part of economic activitv, sutch as in Piuxi, the poreitr iiincrease in TC. revc2nle co'jled rea.ch 35 percen.. Of course, if the stntes in the Northenst as well as other 'consumer" states in !ra.- 1l wo-il e benefit from the adoptoion or an equinl sharint' of IC- revpnue on itei:ts enterinr- Interstate trade, th. gain wOt!d he at the e>nenFse of tihe producer' stnItei s,'ili s Sao Paulo a U.s. I [ad eu hrin~ been in ef.ecvt in 19 , u .9 9'. of the TCM revenues actually col lectei hy Sac Pai lo woil hi hivc been lost to t4.at st.nte. k4roe h h!.o hserVP!F fe!!nti:-V ,: s'iifterf to t'he "ortieanst states ')ut rattocr to t'ne more afI oent states in tha- Center-South whicl are Sao Patu os nr incianI tr.'in' npnartners. I!nl"er r'resent trndinr, patterns onlv abonr 13 perre;t oF the hfenef-t fro-, solitti'; Sato Pawilo's U71 revenueis fror interstate sales Wit) th:'t state s tra'i partners wonl-4 accrue to the NIortheast. 21". The Sao 'Pauilo exarple is representative of the ovr7:,ll ef f Lct I i-n Iy to result from TC74 splitting, inasmtach a3 interst.ate tr.ade within the C(enter- -ojith reI , uoo [ L-rises tihe pretoi inant portion ( percent -i 19(,` o, adll interstate tridp in 11ra71l. Thus VIA- splittine mi-ht well prove to be a verv intff irent '.'v to respondngn to the revenue needs of the Northeast: (i) the bull: of its revenuie inpnrt and4 of the resource allocating effects of that impart would be felt outside the Northenst; ancd (ii) it would respond in a verv uineven way to the needs of individual states ever, withiin the Northeast. 209. Clearly, mobilization of investment resources fc.r the Northeast should be arproached in the widest possible contest. As dis.ussed In para. 20i2, tho Nort'heast states are goine to be fa-ed with a financinm, gap on thc ordor of CrS3,130 million if the proposed investment program is carried) out. - 31 - (mef wny to eliminare tihc pap woui(i be reschiedulin i irvestrent plans so .as to yielcd a more gradual rate of tncrease in state investment. Rur this wieuu1l Ile contrary to the poli cey largett of a rapidrc ro",t'l of the N'ortheastt as, uelli as of an improverent in social senrices. The interreioe.ial trnsqfer of re- sources whicjhj .s imnliefl hy existing governrent nlans -ilreadv ronrosrnrq a major effort in mobilizing resources througlh interregiounal transfers. 'But probably it is not sufficient if the ahove-mentioned ob)jectiv ; ar. to he D - in this decade. kiv additional transfer of resources whether federal or st..t to the Northeast will be either directly or indirect!y at the expense of th- other states. Transferring state resources throu-,h a c!htnre in the IC" sys- ten *:ill probably be unfeasible frorm an administrative and political starn,!- point. Transter ot federal resources, on the other hland, may be easily in- plemented throughi an increase of the percentaL;e of tlhe federal t.ax revenues whi c.h constituL t u te th Ce Spc£Ci,al. Fund un< San Pqiunlo; argue thai reduct.on of resource availability for invcsti-ient in the Center-So.t!i wouild impair the rate of growth of the overall Brazilian ecoTnomy and,. in turn, a'- sorption by the Center-Soutii of Northe.ast surp' us lal3r as well as Center- South resource transfer to the Northeast. rneir argu:euut is based an the assuimption of higher productivity of capital ill the Center-South than in the Northeast, whichi still must be demonstrated, as alreni': discusse.d in para. 181 above. But evein assuming that a productivity differential e.ists, it r-ust be recalled that the adlditional interregional transfer suggested here is; marginal for the Center-Southi economy, but substantiaJ for the .,orta east. The purpose of the transfer is to il:prove the r&1ative availability of pub iC services provided by thice Aortieasit S tates. .'--lte as pfiLr p - sector investment in the Northeast (includin,g 31./l fr.us) was, in per CIpi L.t terms, still about hiaIf the corresPorntding fI fil-ro- for t!Cie r!t of th-o co untry. 211. To accomplish the obiEctive of redi-3tri':utin2 tax resourcen frea the richer states to the poorer staces, the allocatioa of fe cral revenues frorm tie income tax and IPI to the Special rund could be rev,ised froe tho present 2 percent to 6 percent. If tle present distribution a'.eng tao states is maintaine(d (70 percent to tihe Northe;ist and the remaining 30 per- cent to the North and Espirito Santo), this mneasure would provitde the Cr53 billion of additional resources to the :Northeast states whicl, appear to be needed to cover the gap ,n thie f nancnin, o thL itL-r 'LnvLs t . Lnt pr L .,1 * n.± would correspond to diverting to the Northeast an add(titional 1.7 percent of fed1era1 tax revenues annually= Thie itnrt nOr such poli- y change onr0!1 r finances is evaluated in the main report. There, it is concluded tlhat, in the context of the expected feleral bud5et situation. such a transfer appears to be well within the fiscal capabilities of Brazil. Resources for Private Investment 212. The amount of resources available for private investmricnt in the Northeast in the next few years is essentially prediicated upon the flow of 34/ii funds and the expansion of crecdit by the regional ban!Jing syster, mainly the Bank of the Northeast and the Ban': of i'ra".il. Tarble : TRANSFER OF F1JNDS TO THI NORTHEAST REGION T'HROU1GH ThX IlnrENT:VES FOR JURII)ICAL PERSONS _ _ .tu" _ ,. tinm,-ted _ _ P-c . tion ">~~~~~~~~~~~ - -,- C,.(, :, .2 .7:'it5 '- -'_'' I .''.'-: - Pu DeclDred 2, "'R<'7 r I , i 0,, DLe^t 7ns !r All Incenti:e. 1, '7 l,Y9,9 ?,et v,'; ,,'5 ,77<) 3, C 4 3,333 D.t: tions .'c r t I . ,12L L-2 1,307 l,i3 1,52 7 ,/l. ivut:;t,'r:t Fundc (7:-') (.'2) ('7,`C) (': ) ( ( ") (=,i) (,'O) (V < PI':-Irrientior (-) (-) (-) (?) ( (22) 227) (227) (2?7) (227) 213. As a result of the allocation of 5° percent cr 3/11I fun-s 'or thc PIN and PROTURPA proj;rams, the fliture accrual of 3'/1 f:inds av-ilahile for private investment will be stibstantially lo-.r than in the recent past, despite the expected rapi'i increase in corporatc incc-e tax revennios w!ich constittite the basis of the 34/1 fi:nvs. As shoi.n in the tahle beloe, even assuming a 9.7 annual increase in total corporate incc1-c tax declared and sonie inprovement in the share of the inceiitives goinz to tne Northeast (fru)' the exceptionally lew 41 percent in 1071 to an averagr 4" percent in 1972-7), tiie annuadl average accrual of private 3-/1Y fu,s is e - .pee-ed to 1-.- aroun:! Cr$700 million in 1972-76, as compared to about Cr$915 nillion in 191'-7i. Including n -w-ndlishursed balance of Cr$900 mil!ion at tfC end o' 1971 tot1! availabilitv of 3L/18 funds durinig 1072-76 shiould anount to CrS/ ./# b.111on. If no change is introluced into the system, 34/1." funds for manufactsiriin would amount only to Cr$3.5 billion, after dLeductinv, the historical 2- per- cent for other uses (nainlv agriculture). 214. As discussed in Chapter IV, manixficturin,: inv(strent re(iuire-entr in 197r-76 are in the order nf Crr$l. ) billion (or IN'2.4 hi]lien) duhrPn 1972-7( . Extrapolating the financin:- pattern that has prev'aile' i:' tC! recent past, 3"4/10 funds shonid previ:ie aboOit CrS6.i hi li-n art' ti re: wecudc come from the firms' omn resources (Cr$2. 7 h! f I A), of ici,! *i:; xr r n bi']ion) -:d. forei;r f. l i g (i r 1. IL l 1I. Tahlp 26: RFn! FRWMFVTS ANf AVATLATIL.TTY OF 4/18 MNfs F'OR W!TFACTlRIR:t: I-VrST '1T, 1972-76 (Accordinig to present syster.m) (In 1471 Cr$ billion) 34/1 l Require ents . Projects approvtu th rouglh 1`171 1 ..ew projt'cLs 4 1Salance En'-1?71 u. New Deposits 1972-76 3 Funds for other sectors -01.9 Deficit 2.6 Financing of Deficit '. Al] 34/18 fuinds to industry 0.0 Reduction in share of 3:/i1 finanicing .7 215. Since the 34/1' funds tbat will be available for manufacturing in- vestment are expected to total Cr$3.5 billion, a financial gap of Cr$2.0 bil- lion is likely to emerge unless there is a change in the pattern of in'lustri.il invest-ment finance. The gap can be reduced to Cr$1.7 billion if agricultural projects are excluded from the 36/15 scheme and inctead financed with loan capital through the PROTERRA mechanism. The remaining Cr$1.7 billion gap w(oild Iisappcar ir the averai_;e s:ar' of 314/!1l fu:-!s in ne'. p-o'ct finanljcijj; i,; re;!tick! frorn the present 4° percent to ahout 3f percenit. This cotild be IC IevenI by r'Iuci: the SI:IrJL' UL 3i l !iuds Fz:.1- t .1ted to a jeCL fIn(-: )a ma.-xtimur: of percenit to a t.axi-ur' of 5'! p)(rcent. This. , the ,!nimum `0%onIl r; sor s i :steo i: 31 ./1; pvr,jects uwould 5e, incr-iise ti from hePrese:1t 1:2.5X percent to 2, percert . Cive'l the tis,ht finaricial s:tuation tlat 6iS; Iis * i: elr to -io crifronte"' with, it is difficult to rn'vis- ,Ie an incr;os-e il t :e5 11.ro' o' Offi cial ba; iiI tetal fin.inci l -. Therefore, s-.ensors av r- a:ic tcetr u-ut ion :o no.' pr.1ect- are li oly to !bave t-' riso fr'- .. .r.. ? te A. perceot in or!cr to - u:t' U) for the reOuction i;: tuh p.-rt-i(lipe-ioni oi l:'~' j1°~ f:m.'s u1i'-e:;ted here. Thus, the financitv' p:ttern uf r:.qn:ifacturi; i:n.'st-lnt . i 1972-7 Vrould !e, the following: Table `7: FINANCINIG Or MAUFA,IRING IN VSTINE, 197^-?6 (accor' 1n;; to prop-)(- ; s teiT) (In 1971 Cr, b J]ioo) 1 nvcs t --v,i t re(mi t rt-,- cii t r il., 5 r,.) f r i i I 1 . .t Fin:incini- ~ ~~I I lR.e-it (.)i tre.;oirz i-:s l ." 3')! C)f "1 .11 I:4;1i:.s - ' Pc' r*-. I gil i i1"1 'n' in1 : 1 . 1 . 21 6. It in 1 ir' ;. J: t s; Z ;,i.t ier tn rI sL t i;; i!'cru a. in thc . o - oi: c..~ pI ¶ rnfr -:orr . 'c tern .,ro ct:; would Ilk I t-V .I a tfe t I f * u V - t r *! i 1 ve. t 'i t To t i I .t . oL Cr:;.' t' .ir,-.ie( t i.!! te 1e r c-'.; ce t orf c::: it ! is ii( 1j.' te 1). offset, t t leSt p;'rtl i1! x co:1t L i oroxor : intrastrticturk an:;; e:-tclrn! vc( - cii , in rt- :.or*rr- I - t LT t trIal envir :;t. Alt-ioai tht ,ul_ .:1 v ","'I t;'l T C a .-' c : r! - ;; i :: L,,,-et i 'ir it!li t . L j u' UcLI(O; . .t;l L.-.'Lr. I Iil 'l!' . l;tI. Ltie ::ort:iea- shoul I contillue LI attract investor., the altera 'rive ijva-t - ::ti t.' C!' itS (e.g. A Amnyo- f'iroqtrv r ivhin' et. c--; -tin -'t- Art. 3I-1' scLe(Me for the Northeast b)ecome mor.' attrict lve i' simil].ir chl: e - o'- o i-l *. vnte'l in their respective pOi:lt s;s ter-s for tli' use o' s - ni ii. e.2 c;a"i tul. T- iIan . o' thL -ort'iei:;t 217. Tbt, oan'o O ort;least br-: il ( ';h) sn2 the ban>. of .'rnzL (l t ive ,-;-.}:. a :7a or role in prcvii'in;; cr' !it to the .orthesaqt ccrcno:y. Tbrir r,- D)ln's; loan ;crt folio af'c!n5P L'l or '3 percen1t of outs tani in' loans Iro:- tie !,n'il. r;; s.sfet in the Dorrhcax t at tbe enlm tof 197'! 25 anl! 2r percent of th; :;- rx p t ly.A]t;oug: th lcal poFr;'io f th ili"i:- been Ll:r; r, tlan t-t oet le t; tite ntrt;r hbi; bfc:l te moorr i:-portint of the tv e in- :tnt l * ici'- i at ror-'q so' 1l-:-iAn- iln t:c ::ortisst lfo.ni i- -f;s acniri re eul's - .r(e in :'ri'i . This a-p-uct of thie B I'.'t Irn.-- oporatir,rs has arisep in cc'i¶,-ctio0 .t the 3/011 iinvest-ment tax crK!It .:;s-i. Th.-!n a fir"; elect; t"e oor ion of deductinz up to 5'J percent of its fedeer.0l in cc; tna- li.-hiLity for in-rst-e-t in the Northeast under this scheme, tlhe dc-:zict4be funrs are deposited i:- a bloch:e6 account in the i>'"' pendinz tlie cle3rance with Si 'W of teae'utilizzation of thc funds is an approvedl investment project. Tle lai; th.at havs ex! .ted in the past het;:een the accrual of 3'/1S in 'sstnent funds as depositb in the V!S and the release of the funds for projects approved by SV'Dg:D.. ls-. to a substantial "float" in t1le 3XL;, which has been an i-portant source of fi-ianciiig for its lending operations. The 34/1S investment tax cre:'Lt LfUi:0s held ori deposit in th.e B. accouliLed fer sli:rhtly r.ore th in hal; of the BNM':; resources of loanable funds in 19(.9 and. 1,79. Table 28: BANK OF NORTHEAST BRAZIL - OJMPOSITION OF OUTSTANDING LTABILITIES (Tn Cr$ millions at constant i 71 vilues and percent) Dec. 31, i9(9 .Q..-r. 3i 1. 1.-, 11 1O71 Amount % Aiount , A"roulnt % T(T.AL 2 100.0 2,29 2 ' 0V) 1-:l 19, . I _ _ Capital an' Peserves 43!- 19.7 455 19.2 5,0 2r.7 3!,/lr Depos.ts 12 45 ' 5 . f 1,192 5. 91 4I 42.7 Dcriand Depo-its 222 19.1 3?n 1/." 274 '3.? Otner Deposits 2 0.1 11 0.5 32 1.Z Foreizn 'orro-wings .7 6 O. ' 1") .S _ J* Domestic 3orrowings 19 0.9 19 D.c 72 Otne ^ rQ 21 , 4c *. .;o1lrce flanY. of Northeast Braztl. 218. Cn the asset sid!e, short ter.; co-nrcial credit raiiiy for urban --arketing aiO working capital accounts for about one-half of the B-'s loan portfolio, a.yricultural credit for ailothler 39 percent and manufacturing in- vcstrent crec:it for the renainizng 20 percent. flishursenents from D!-R indus- t-iai leans dluring i9A9-7i were equivaicnt to only about 4.5 percent of SUDENE-approved manufacturing investment. This comp^res with an averaze 1 percent share UUo olorro-ed funds in the financinp of the SJprojects in that period. *'ncertainty about the term of t.he Article 3'/,1 "float" pnrtly -p-lalns the concentratioin of t!Ie BNB's portfol.io in short xcrm operations. !!ox.'ev, 2"en with this restraint, the B.', portfolio could and should have b)ecn more developmenc oriented. 219. In any event, the level of 3B7 lending operations has stagnated in the last two years, mainly as a consequence of a sharp declin? in 34/18 deposits brcught about by the introduction of the PI':, which preempted 3( percent of new 34/1P fundsl and by thic increased pace of withdrawal of 31/41/ funds already deposited in the BNS in connection with S!TD1 I7-npproved invest- ments. Iable 29: BAUNN OrF LiUflJ eT LBRAZIL - rzOJr %-tLE A1CCR AUiND D1SBURSEFE:NT Or 34/1.9 I'7TST'EF'T F1rNDS (In 1971 Cr$ millions) Actual __ Projected 19n71 l7OT 1071 1 7. 177- 107. n Ar^ruia of 5'./q Denosits 77n 575 611 602 7fl °.33 Drawdown of ?A/1S Deposits -84 -1 ,0o -953 i 0 _7700 -79) ':ct Char.;C -76 -425 -319 -1% 6 13l L`a1ance at en1! cf Year 91i 4P9 17') 1" 72 2,J - 220. ThV 20 percent of 34/1 ' accrTUals allocated to PRO0TE^PU will be ;)e-.osited Wit thie D- until. disiirse' f.,r act'vLt. ;j*, 0ncorp-rated, ir: thi s pro-ra-. 'oreover, sor.e of these resources will be allocatee to BN: for ldigto tl!e aagricultuir-!l sector an.,! thu_s cnnti!t --a sot.f..vlv fiind. A'(vertheless, W2? will still need substantial adHitionnl resoulrces .n order tc e.:-m,-nd credit at the sane pace as in the 1'fi's. One wav to raise new resources is to increase share capital . This possihility has ')1.c^n alreu'- e:;ploited by B\'1 in late 1972, with an increase of c.^pital resources of Cr$140 million. This is reflected in the proj.ecrtions cover- in; ~*Ui' sources ancd uses of funds thlroug', 197'i shown in tep T1ale below. 221. Thei UN!i is al';o m...'ing efforts tc c^pture s'hstanti"1 a.iounts of :I, den It.posits t:'oilQ the p-ospecr frr a s -ni .^.^nt ircre;se in re- sources orn this account is limited by th2ˇ intense competition switii conmer-Aii U 1flt'<&. .A Cfnutional annuatl increaseC of Cr4'-) -4 lion i-L S. ' ;Ieposits i incorporated; in tac resource projections, as tiue larger increos-es in the past w.-re strictly rel.atflf rto theii grtry.rh Go' *'!1 / tIep sc i t-s. 222. Easier access to the official baaking system (2NP., 'D', PS.) througlh rediscount lines is likely to provide a new source of acdlitional f'unds, but. uouless there is a change in government monetar, policy, it is unlil:ely that theFe rediscount facilities will be sufficient to permit 6.w to substantially expand its lending operations. Our projection of Cr$50 million annuai average increases in borrowing. from official institutions reflects present policy. 223. In the five--yeir period 1972-76, B'!!s wll drawlown the entire I:S ni iln1ir, unndiHsursc'd hn 1 Mr-p of extornanl puIvelonlp-nt agenyrv lnans out- standing as of end-1971. The B'1WU appears tc be sorirwhat rcluctant to con- tract new e::ternal credits. Its managemenc realizes that i:-creased reliance oni normally priced resources relative to the free 34/18 deposits will have a negative effect on prefitability. Thus great care is being exercized in mobilizing alternative resources at .inirum cost. - 87 - 224. If no new foreign borrowing is contracted in toe next five yoa:r' and there are no additional federal allocations (eithEr Oirectly or through officiaiI banks) to BNB, the prospects for B1L lendlng are oieaik, p-rticularly in 1972-74. In those years, the impact of 36/13` depos't contractioni on avail- ale resources WLl lUe leLt thle most. TF.e situatLIon WL11 I Jpreve in ;,7, and 1976, when the balance of 34/1 deposits will starL grcniing agail. But, Innaslto mc 1976, sources cof loainable fu,nds .-4ilbevrt1 equal to 1969. As to the sectoral composition of lending, despite tile difficult fi- nancial situation, agricultural loans are expected to increase ranidiy as they are tied to projected PROTEflRA allocations to BNB. But, industrial loans outstanding must be substantially curtailed Lhrout,h 1976, even if short-term and other operations are sharply reduced. Table 30: BNB - SOURCES AND USES OF FUNDS, 1969-76 (In 1971 Cr$ million) (On the assumption of no additional foreign loat,s or goivernment contribution) Actual Pro ection _ - 1969 19 73 1971 1972 1973 1974 1975 197' Sources (Net Annual Flowv) 540 526 243 105,c gr A 4 11 575 Capital -nd Reserves 126 146 1149 230 110 110 121 15 34/1°, Deposits 276 153 -77 -L25 -31' -15F 6') 1'3 Demand Deposits 36 135 7 40 40 4" 40 40 Cther Domestic Borrowing/li 4J4 22 11S 50 5( 50 50 50 Foreign Borrowing 58 70 46 50 59 30 -10 -15 PROTERPA Funds - - - 160 173 192 21') 232 Uses ("et Annual Flow¢)540 526 243 115 96 264 471 575 Industrial Credit 134 -26 -17 -S0 -109 -13 161 22P Rlural Credir 72 41 102 160 175 192 210 Short--term Credit 17l 416 6/, - - 50 60 70 Other 160 93 94 25 30 35 40 45 /1 tainly rediscount lines. 22v. - If nr:n were to maintain irs sliare in Northeast industriai lendinz (i.e., financing about 5 percent of SUDE'!-approve;' projr.cts) it would need an adeitional Cr$2100 mi]lion during 19?7'-76. Thi.w-_ould allov 3n7, to .n- crcase industrial loan disbursements from an annual average of CrS54 million during 1969-71 to CrS125 million during 1972-76. Since B1T3t needs for for- eign exchange resources to finance the estimated 15 pc-rcent direct i-vport component of projects have been estimated at .TS50 uilljon duri:ng 1972-76, against an undishursed balance of li" rD loan of U`SS20 nillion at the en( o' 1971, th're is a foreign e:xchange g.ip of LS"30 million, corre-'onding to about CrS15'n million. TThus, a neo: loan by a develon-enit aency for such amount plius an additional government contribution of about CrS50 miiJlion may be sufficient to assure a minimum growt}. to B'PM's industrial portfolio. 726. If, on the other hanc!, the L":; were to play a greator role i;n Norticast dce eloprent, resources acc:itioil.i of those mnntior".- abcve wcul2 be required. This is especially truc becauise of the lil:eliheoo' tha: de:-an,; fe r b ar r oi.1 f::,n's - to - f 4 n,c :'ortheast urls strIL-- e.:0 .n:or i1 L rise wivi,h tie decreasse availability of 3'1/S resources for in(lustry. In the case o manior proiocts. such as the Bahia netrrchenica_l ronlt'leXT" )- 11 5pp 1, azcq.a; e fh;:ancirg. 3ut for mediur and snlall industrles, 3"': revairn; L'r on1" source oc long-term financing. If the access to this "tindcru" i. km-item' beca.:se of ?1',''s lac'; of resources, thiese weaVer en.zrereueurs are li 1'.y to have recourse to harder leans from comrercial han!s or smmpp in. As it ha: ocurred in the past, this can scrio isiL'. jeoparOize tho financi: I via!ilitv oef ne': ventures. In addition, B2:B coul'l provide technical assi.- taitce an! screening of projects through careful project appliais-il. To per- form the fuinctions of a dLevelopmrent bank1 ho'.ever, it needs ntct only addOi- ti 1al L reso rS but a-so to aU' cpL a ;,iore ag ver I v- ikIk poIi cy, nc lu-- iug. possibl-, relaxation of collateral requirements. Overall Pinarcing of Nort';ea.nt Invest;ment 227. Th1e table helo:.' sets forth th. projucted financirn, plar. fcor the 1?72-7r. Northeast investment progra- resultinp from- th. con;ol±:?tion of th; fiiiancing partterns for fcc!rcl, state an" pri vite investr;'e:t presentec in pira. 192-226 above. 228. I-i,l.ementation of Northeast investment ic pr-'icaLeX on heavicr reliance on frai resource mobilization than in the past Live y.-ar-. As- snt:ing no c!.angc ia the present reventue-sharing, syster, the fe'eral contrihl- tion. to the financI-g of N.orthea- i-.-nve e- w_l average a-out1, J55 PerI,-n of total investment expendituires, as agninst an estinate(d 63-'r, percent in 1o('7-71. 'se: investment levels were ahomit 44 percent lower than in t-h nro-- aose'! 1972-7' investment program. Federal transfers to statec and municinal- i::.es will -t:ch mere than offset the dissavings (before transFers) of local grn:ern-nrs vwhich are expected to average ahout 6 percent of total invest- -.-nt. 229. The 19?2-7ri investment financinr projectior also envisages a gross c-:ternai carital inflow. of some Cr$2.3 hillion (USS432 million equivalent) thiat is expected to he associated wi th project finanrin,, bv development -, ci;s .AU J-tL one-th ;r L of th Js arou n;t, o[r Il 1) 1 rlnlioni nsC i s t s O f !ra':-.o,-ns on ex:isting loans. The rest (UTS$277 million) would' have to ct-'* frc- lr-i" sti;! to 'c contrcct"ed, 1-t *-iich are i'ccnse-' i- th e present lend'i:- programs of the dlevClopm-nt agencies. This level of dis- at:rsemenrs r ;' call fer ceo--itme.its of -ilont US'3V)f !U I lion over the - es - ZJk2JI C2l O 0tE B S 72-76 (In Cr$i millions at constant 1.971 Vs.1U*B) ACtuAl Prolected Total Percentage 15,71 1972 1973 1974 1975 1976 :1972-76 Distributiton Public Sect r Investnnnt G000 5,312 $682 6,5:38 w2 6,,305 2 7_ Fe&rnl Investment 1,852 3,267 3,702 L4,197 k,777 5,1437 21,380 36.,5 State and Itmicipal Investment 1i,55 2,180 2,3141 2,618 2,868 11,P62 20..2 Private Investment 14,500 1,135 14,290 14,965 5,820 6,1'5 25,365 143.3 Total Fixed In:e3tzrent in Nnrthnast Z ,172 k1i2M' 121 13,2145 0,17 100l0 Financing of Investment, Federal Government Financirnr Federal Savir.gs / 1,800 3,126s 3,k636 3,875 L,35-e 1,908 19,697 33.6 Federal transfers to States and runicipalit1es 1,150 1,lJ65 1,685 1,P11 2,003 2,217 9,201 1547 Art. 3W/18 Investrrent Fwids 7 78 5Z2 631 692 /60 Q5 3421 6..0 Federal Total 3,628 5,1865 5,752 6,379 7,115 7,5158 32,389 55.3 Stata and Niinicipal Finpncinig: Current Account Deficit -625 -509 -633 -7835 410 4214 -3,561 -6. 1 Net Borrowdng from Internaticnel Devoloprmnt Agencies 150 227 395 17 4L9 25M L.93a ˇ2 Loans Already Contr;cted 2 70 328 li,3 53 21 d15 1 J.orns to oc Contrarted - 127 275 t147'6 581. 1.1459 2.5 Amortizat :nn - -&< -f7 -80 - 7 -,1' -0. 6 Other Funds hlL?7 hJ83 2,2 5 3 5 6,146i1 6 1 27 846 State Doraestic Borrowtne' 1.90 3145 186 l487 56 536 2,360 1,.0 Su?rlnemnLary F\ands to 3L/18 Projects / 1,i0 1,360 1,370 1,510 1,810 1,51o 7,F60 13.14 BNP 'a for lousing plus Asstoclated r. ivu,e Ends 6cc 6() 66c 726 Bc E88o 3,6 A.; Unidentified 2,057 2,0148 2,112 2,0!40 3,345 3,2145 13,960 23 P L/ Ocrresy-vnds t? feier.l i,vestnent rirt net fc ter,1 borrowing fron tnternational developrent ageFnc:F-s to fV:-nnce florth.e3st ferler-l if.ve't7ttPnOT. .7/ Inclullnc aYH Cr,-,Hi or 0f ,t-- .surel-y rnnd aier ni rorr--. V/ Sy"lli.4. 'r}) f......-r - i'K. *......'*in l ...... -,e-'*' r'' w-: - 90 - five-year period, or US$70 million annually. This erompares with actual con- rnittments of roughly US$40 million annually in 1967-71. Even assuming the timely disbursements of oLUd a new 'loans, net deveopi-ient f'naIing -woul be limited zo only 3 percent of total investment. 230. In addition to federal funds and external develooment lonns, othler easily identifiable sources of financing are local government borrowins fron' the banking system, private funds associated to 34/1S projects and i!l loans for housing plus associated private funds. However, the sources of finance so far identified do not provide the full fliancing of capil>al requiretments. There is a remaining gap of about Cr$15 billion. Part of it, as in the pnst, will bo filled through some combination of additional private sector savings originating in the Northeast and/or elsewhere in the countrv, other priva,te sector borrowqing from the banking system, as well as additionLal exLernal Li- nancing through suppliers' credits and financial credits (all included under "un4 dentfi ed4" in Table above). Tn 1071 these csurces accot:nted for abot. 27 percent of overall Northeast investment, equivalent to 46 percent of pri- vate investment in the region. 1/ For 1972-76 "unidentified" funds will be proportionately lower than in the past if compared with overall irvestm-.nt (24 percent) but pioportionately higher if compared with private investment (55 percent). Since most of these "unidentified" funds will finance priv;ate investment, the latter is a more meaningful comparison. 231. This emphasizes one of the co:ncerns originating from the Govern- ment's Oecision to preempt half of the 34/18 funds for public as opposed to private programs. In addition to the resulting decline iP availability of public resov rces f'or priLvate investment. th~~eseperpe u swudnr-,1l puIU Lt.L ~ ~ jL~1d~1LC~IiiL L .p~ J U11UZI WOUUJA LIUiL-Mi II, have led to the mobilization of at least an equal amrount of private resources fnr 3L/13 i-nvoctmnt projets. This effprt nf the c,,rhange in governnt poll r nay be partially offset by modification -- along the lines described above in para. 215 -- of SUDEN'E regulations governing the relattve shares of public and private capit .1 in 34/1P projects. Nevertheless, if Northeast capital formation is to oceed at a pace commensurate with the re;ional y;o4wtn tar- get, government : ransfers additional to those presently provided for, together with more liberal support by federal financial intermediarias such as PTS, the BNDE and the SNII may De required. 1/ The comparison with private investment is not fully *,rthodox, since these sources of financing include some loans to the public sector. V. IMPLICATIONS FOR DEVELAP'SENT AID A. The Challenve for External Assistance 232. As discussed earlier, external assistance so far has played a minor role in the development of the Northeast. Quantitatively, it is likely that the contribution of official external lenders to the region's investment financ- ing will continue to be small, because of the expected continued large trans- fer of federal funds ar.d of the scarcity of pro4ects s-ilt1able for e:;-ter'nal I L i Itut dl I. UIU aSu LU I LLL ILt~LIJC O0±LCJ~LLC*t financing. 233. Although the presently budgeted interregional resource transfer may have tv be increased if it is to be fully adequate to finance the investment requirements of the 'Northeast economy, it is very hard to make a case for ex- ternal assistance to the region on resource gap grounds. HHowever, in the Nortn- cast, as in most underdeveloped areas, there is a serious shortage of technical information on resource potential and development techniques. Thus, foreign aid can play a major role "or the development of the region in the field of technical assistance. There is a clear i,.ed to increase the Northeast's ab- sorptive capacity, by improving the operating efficiency or the system, and, by identifying, through research, the region's comparative advantages in agricul- 'lure aS well' as in industr-. 214. With tie AtD program being phased out, IDB and IBRD are expected to provide the bulk of ofiicial external resources flowing into the area. In ad- dition, United Kingdom and German bilateral aid progrnms are presently being formulated. T.h:ir scale of operations, however, will h- relatively small. The present lending program of the Washington agencies coint. plates new commitments of about US$350 milliorn in 1972-76 for the Northeast itself. In addition, a US$30 million loan for the Amazon colonization is envisaged. 235. The purpose of this chapter is to identify new project areas where additional loans can develop if the development agencies want to respond to the suggested increase in federal transfers. Probably the most difficult question in the develonment and foreign assistance field is the appropriate mix of short-term projects that produce immediate visible results and longer range programs that are more fundamental. The basic economic challenge is to enlarge employment opportunities and increase regional productivity. Improved welfare services are important investments in human beings, but if they are not accompanied by progress on the employment and the production front, they cannot create a permanent change in expectations. Among the proposed projects described below, three categories may be distinguished: welfare projects (nutrition, low-cost housing, seweraSe); production projects (agricultural credit, agro-industry, feeder-roads, tourLism, industry); and long term projects (agricultural research, education). An appropriate mix of the three components is essential for success in the Northeast of official exter..al assistance. - 92 - Table 3 D: IB AND THU LMDENDING PRuGRAM, 1972-76 (In uJS$ miL'.!J.Lrn) 1972 1973 197t 1975 1976 Total IDB - 97 65 - 197, Petrochemicals (Bahia) 12 :;LecLrl'c -ouwer % "VA otu/ Agriculture (Protarra) 50 E.ucation (15% for North.east) Electric Power (Sobradinho) 60 Irrieation (DNCCS) 15 Highways (DNER) 20 IBRD 12 115 9 20 186 Land Settlement (Maranhao) 12 Ports II (Recife) 10 Water Supply arnu 3I (Bahia Industry (BNB) 25 Electric Power (Paulo Afonso IV) [0 Education 20 Highway V (lt% to Northcast) 1 Land Settlement II (Amazon) 30 TOTAL 12 212 10m4 5 - 93 - 23t . Tne region can be a valua"lE exP,ericmnteai area Lor ir. prrvin, iirre assistance knowledlge and tools, particularly as rel tted to the wid.espr cd problemm of regional underdevelopme-t. B. Project Areas 237. Visits to SYt?)1 NE, SL'D,T, 1.1B and North/Northe. st state governie,its; le(' the mission to conclude that there arp fe-. projects readily a-ailahle for external financing. Project lending has to be preceded by substantia1 assist- a,ce in project preparacion, in nany cases with a ion, leand tir-e. Consirder- able techlnical assistance in the organization zin 1 managi-.eent of projc t iiisti- LuL v.L U ;, L, v X a I.Ll Ut d 6 ~1'.UJL C ~U . ~UUL.IL hiJ W. L',L UtL I Ut Vt- ' . * .1 relatively snall size of individual projects constitutes an aditrional p.ob- lem=- The, P ml Ior. tS3 able ho h I -.eve,r, x rto i d Tnt i f sV ela71 - lr P- 1 snrI r!hr preets may develop for future consideration by extern3l agencies. Agriculture 238. I'p t. now, the involve-ent of (1eveloprient a,'enries in 'Zorth ast .1 'i- culturn ha; been lir-ited to infrastruceure. Tn n;artr this is :-elatec' to t'e Govern'-ient 's firr policy of provirling agricultitrra3 crndit at suhsi,ii-eO in- terest rates writhout monetary correction If anreerr.it on lnden:in, could !e reacihed, the external agencies 19Ji.gt help to finance a siporvised( t ri cuILtur I1 credit scheine for sr.l_ holders tied to the research/extension project de- scrlhe: belev. Deve1cpment of and associ:ti-^n with surh :- sc:'eo couold he useft', in buil('ing institutions and progr-irls designed '.'r the ^'eakest section of the rural societyv whiich is pres-.?nt ly un.ble to compete wCit the cred'it l4- nwnids of larger scale operators'. The fin-inciel internedtary could abe th :, T'. Rural Pepartment, *which needs to be strengtlhened. 239. Subsidization ..av be acceprod if the use of the subsidi;e,d credit is effcctively supervised and the derree of std-'sidizatten fixed in advanc-e rat'her than left free te fluctuate witii v-irving price hobt-hvier. inieler such c-enditions thie risk cf m;isailocation ULl resources an! VeCn0PiC- use of inve.t- nent geods would be much less than under the genernlizet' and indeterllin lte credit s:hsiization:.hich presently exi.sts. , ... th cas of s-al holders. the risk of diversion of subsidized agricuilturr.l1 cred-Lt to n're re- n-i:rerat ive inve.srt'ent in tihe i,rh.in sector is sr-nll. 1-ecnuse of the berrower's limiter investment horizon. It nright initially prove difficult to get snuill farners to accept indexing, as they are not accustemed to ex-post .ncnetary corruct ioa. 240. Perhaps the nest promising w..ay to assist thei long-terr develop.,ent of N;ort'ioast agriculture is to strcngthen agricultur-il research in the area. External a2enctes probably could perforrm a very useftul role in hielping to over- cone existing institutional bottlenecks. (See Ch ,pt2r ITl, 3.) i majcr coy.- ponent of any researci preject shouLI be- ior -_aiui-_i - wel .-s for es lishiment of new experirent stations and the relocation of some exisrin" ones. Ass i- t):e case of the IF.RD-fi::anced! agric::ltur7.1 rese.rh rnec i..paii rpsearch centers could be set up to d eal with specialized azricultural a cr i : - ties on an 1irerdiscnrlinarv basis. Land te:lure and setflter-1-t peliry s r- he one of t;e, endogenous variahles of suchi a resea.-ch pro;:ram. Linkage t r a';ricultural extension services is essential. The two airoeconcrrdc and soci 1! research centers can be envisaged; one In the Northeast for dry land Ifarriii, .ind the ether in the frontier region for Aniazon agriculture, settlement a.nd ocolv.v. 241. . thirx] kind of a'zric.ultural project wotild Tocus O" creatlen o' r:.- *uctivity et'mplcment for 1ahor displaced aS a result of sizt.r in(:ustrv TrT r -r il- -a ~_vt.on. E '-7INIULIon JLt e:!JploytiLg L11,L'the, rs WI'L rU illl Lilt[ LCL I t I LS l,]Vl nIO( been miade. .\s discussed in Clhapter ILI, C, an aj ro-_i -II st j^roje_ is pr.s- ent lv h1 I no nro nnrorl fw rf., Porn n,h tic-n cftn t onr.!1-yccut become tbe main components of a tourisr. project in the "ecife area. Transno r t 246. The neec' for feeA.er roads has beea an'lyzed i' Ch,aptor II, 7. T:e USAI)'-' US,25 million loan for a nationw!de program of feeder road constructicn is not sufficient to cover the most urgent needs of the '%ertheast statps. If the U-;AID lcan is fully dishiUrse;d by the en(! of 1974, r:- program ccuI6 I)e forr.uiaced for the construction oL 7,590 km oi rural ro".s in aii ;orthcasL states during 1P75-77. Total project cost would be arcuod US,89 miillion. lollo-wln..r the f.nar..'ng for mula of tise USCATD pro4ect, the cxternall ag=.ce ~~ U1±U'~S .&~ L I, A. L LLOL 46*ULIIC J Ll.~ *~LJ~ LJCL, LI A L 4± UeI.c would provide 30 percent of total project cost (US$2' mLillion), th. remain6er h rincf innfnrC(l hv tlp 3X)F (30 pi-rr.-it) ind itnite a-it' munirinHn Iec;vrnr,niut5q (40 percent). As already mentioned, institution buil'ir. would '. aiotW .r import3nt Justification for development agencies' in1volve-.ent in tic: proJecc. Education 247. The e!ucation sector of Northieast 3razil presents the developucnt agencies with an opportunity to xtave a )rcad cGnstructive i-..pact in a alLriJrr of important ways. MIar'-ed by extrenely poor quality of ill3truction, particu- larly at the Lower edu:ation levels, anv' lit;e relevance to 'lanpo-. r nee's and oppcrtinities. t:ie formal educationi syster woul.. Le'nefit greatly fro- technianl assistance in suc`h areas a. ... ...'r^c!s .rrrf i i.. srove- ment, utilization of spcce, and planning and prel;raraii... Such qual1itative irnnrovorients would not ouly increase the relevance of available facilities but also facilitate nuch neede! explnsion of e('ucat.io!rl opportunitris by reducinig unit costs. In the lon;, run, t:ie region's success in expandi:ng edu- cational opportunities can be expected tc play a crucial role in t1he p;rttern of income distribution. Official lcnders should not be deterre ' by tbe srall size of Northeast education proiects. Extcrnal assi,itance in the edic:ition sector i7ould provi(le a timely input to efforts alread'y un;!erway to reform anld expanO 'irazil's elhication systen national]y. Assistance at this wiue vould help to assure that the educational disparities betweeni the Northeast and thle rest of ;3r,zil.. 1 reduced rather th,an wi(ened as- a r^s:i t of current nati- wide reforms. Project areas in which external lenders could have a maxirmum direct 1:nnart wlth illustrations for specific oroiects in Ceara and Pernambuco. are the following: Education Proiect 1: Conatriction an4 equiplient of centers for teachin2 practical courses to allow students to explore their interest and practical abilities in such areas as ineustrial arts, a<;riculture, comnerce and horic economics. The emphasis of the various programs and the simple equipping of facilities would be related to the environment of the school's location. Such courses would be required during the last two years of the new b'as.Lc e'ucatLo. cycle (grades 7=8/. Li,e cener wou'LU serve satellite schools offering the academic part of the curriculum of basic education. Tentative and rough - -tioplns fo,r fifty sucrh cntevrs in each nf twon statsP (Ceara and Pernarnbuco) to provide facilities for abouit one-third of 7th and - 96 - S'th grade enroll-rnts suggest an estimated cost of approxi.aately UJS6 million in each state. Education Proiect 2: Teacher upgrading progra.ns, that would include in some states the construction and equipping of teacher training centers or cont'ersion of existing facilities to such centers. ProJections made for such a p~-oject in Cea1ra and Pernambuco alone indicate that the upgrading over a six-year period of 80 percent of the unqualified teachers -icw working }i these states would cost some US$7.5 million. Education Protect 3: Fxtensior of technical assistance at federal and state level;, to improve and develop capabilitv for curriculum develo'ment and evaluation, education planning. education finance analysis and budgetin and managen:ent and administration. One of the specialists' tasks would alsc be to develop an economic alternative for a more efficient means of educating average students at the primarv level. Ed_ cation Project 4: Construction and equipping of technical high schools (grades 9-12) and related teacher training, required to supnielme;lt t4e educa- tion system's capacity in meeting requirements for middle-level manpower. itcwever, further identification of such state and regional manpower needs :. necessary to determining required capacity. Education Projert 5: Fxpanding and sr-engthening vocational training v, required in each state. Construction and equippin; of a vocantonal tralnini center to be used by the National Service of Industrial Apnrenti-eship (SENXI) in Pernambuco. would have a threefold function: (a) to supplement the activ- ities of SENAI's main existing centers; (_) to serve as a regional center for teaching specific skills recquired for the industrial develio¢ment of the Norh- east, skills for wh ch training facilities do not exist in the region or are currently inadequate; and (c) to serve as regional instructor training center for other SENAI operations in the Northeast. The project wo4ld cost an est - mated US$1 million. Education Project 6: Provision, on a pilot basis, of mobile unit- eq'ii;- ped twith a;:dio-visual aids- to assist in the sh.2rt teacher tra;ining noi-irses offered to groups of local teachers in the alphabetization prog:am (MOBPAL). The provision of 50 such mobile units would cost an estimated US$400,000. Education Project 7: Training for extension agents amid farmers. A pre- investment study would be necessary in this case to identify (a) the educa- tional and other background and the training program needed to develop an agricultural technician capable of responding to small farmers'demands for guidance; and (b) the most efficient arrangements for farmer training. ititrition 248. In recent years, Brazil hais been devotingi crnsiclera.Me attentiol; to t:; quality of nutrition. To this end, the rovern-ent irtensifif'e a natrornal sc!100o lunch program within the Ministry of Education. in the Nort1heast, t"'e n 7 Institute of Nutrition (rederal Univers'tv of PernX,'huco) hIaq co,..nlcte.' sever.Il studt.-, on levels of nutrition and is pursun(. additien:l] rese.rch on local foeds trying to identify their nutritional value. In a.'>irion, witin state government collaboration, the institute maintains various relief centers where gravely unrdernourished children receive special care. The institrite's worl: now has the support of international organizations to enlari;e both its scienti- fic and operational role. A nutrition project in Northeast Brazil wxould have various objectives: (a) promote research conducive to identifying no, Iceal sources of calo 'es and protei::s; (b) *esicn. in coniunction with the Tnstit,tre a snec_ial program that would emphasize attention and care for the most vitlnecahie age groups. and (c) promote regional campaigns to bring ahout appropriate c,hanges in dietary habits. Costs involvedl nmust yet bS estiiated anci might he part or a broader socio- arricultiral rcsearch effort. The prv,-rxi wo.uId i".tv.rite nutrition inte a .hLelt., a.nL. LCuc.LUXioll scInciie s, a-, tz 1ivt IIsti-i' ef 'PC. 0lottsinte Z.___Q 249. Aus in the rest of thc couatry. the Na1tionai ,ous(!2 iBar.!-': (M 'T) activities in the Northet3st are concentrater. on rdi.';'e-incoEne hous1: :. Fami- lies with incomes below the ndnirui wa,e are virtually not reached ly b MM programs in the :;ortheast, althoughl the great maiority 0r the a-iilies livin-. in ';ortheast shanty-towTns fall into, this loc -inco-.e catec ,y. Thns , the pos- sibi7irV cf developi:-,g the fellowirno projects in the majrr Tortheast citics (Pecife, Salvador and Fortaleza) shoul! be exploreLl: (a) "s,te and, services' proiects to provide urbani:.eP lann on w!-tch the occup..nts can bu''ter un8c-li,^ sn self-help methods- and (b) imnrovenent of existi,t low.--iitcono settlenleit, throuhn t,e provision of anini¶un 'rban services. Sewerane 250. SID'lF. is preparin- a project contcepI1tit,n, the coenstruction o7 seir:.a.ge systens in the riin.>' main H:orthe.t citic^., *irli rte air or incro.;:,inr to le percent the proportion of the region's urban population served by sewer- ae f _g1 :A C! A ities. _ Feaiit st.dc fo sor ciie h.. lbe I . 1-_ 1t _ suots0-t *i.t::1.* L< >-' t3t) } O *ttU SV L C)Ut LILI*CS L1.j'.t IJt tl. L.J IgJ{ : Lt'u. IllI- total cest of the project woild be arou,,(' US$80 million, .:ith a USQ2i million foreign exchange component. STATISTICAL APPEZDIX fable N0o. 1. REGIONAL ACCOUITS Gross Regional Product by Sector of Origin, 1959-71 ................... Gross Re-ional Product Projected by Sectors, 1969-50 ................... 2 UJ.roO SS .C -4el TnveO~sIthAJ lo",~J~ J. 5r s 'iAe Inetet 19 6 7 .........................................................3 Balance of Inter-Regional Merchandise Trade, 1960-69 ................... 4 .. PUBLIC FT1ANCES Resource Pransfers to tne Northeast Re-ion due tc Federal Government Policies, 1967-76 .................................................... Federal Government rax Receipts Coliected in the Northeast, 1968-70 .... '2 Federal Government Transfers to Northeast Brazil 'fhrou,;h 3tate and Municipal Particlpation Funds and the Special Fund, l967-YL .7 Federal Government Transfers Through the State Farticipation Fund and I. A.. .±.L n.. L- a, ~ - - - - ti'he un,ip-ipal Part-icipatrond, by J ttes.j ......... . .............. . rransfer of Funds to the Northeast Phrough Tax Incentives for Juridical Persons, 1965-_76. Persons, 19hH-75 ... .. ............................................................. Article 34/18 Tax Credit Funds for the Northeast, 1962-7 ................ l o Potential Effect on ICM Revenues of N'ortneast States from Fqual Sharin- of L1AM Levy on Interstate rrade .............................. 11 State of Sao Paulo - Transfer of Tax Resources to Rest of 4razil P.hrougr. Participation Funds and Special Fund ......................... 12 Federal tevenue Collected in Sao Paulo State, 1938-70 .................. 13 Federal Income rTa Deductions Under Investment Incentive Scnemes Claimed oy Firms in Sao Paulo State, 1968-70 ......... 1 State mudiet Receipts from Ordinary Revenues, Transfer and Other Sources; by Regional Grouping, 1968-70 ............................... 15 Direct Invest,ent byy the Feder'-l Governmx,ent anid Federal Ant;-rkies, 1966-72) .............................................................. i6 3. AGRICULTURE .irea of Natural Zones, by States ....................................... 1? Selected Characteristics of the North/Northeast. and National Totals, Brazil 1970 .............................1. Crop Area, Northeast, 1950-70 .......................................... . 9 Principal Components of Primary SecWor Output, North/Northeast, 1969 ... 20 1/ Tanbl.e n populatior. cn,nlnonl.ntd inco.me dist'ribution are, attach,cd to Annex I; tables on education are attached to Annex I. rab le No. -volution of Agricultural OuTput and Selected Inputs Northeast Br.zil, ! 9 50-70 ............. ................................... Pr-ices Received oy Farmers, Selected Products, by Si..ates, December 1971. Z. Prices Paid by Farmers, Selected Items, by States, December 197± ........ 2 '3 Irriga-,tion ProJ4e^ . s Under Development in N h 'SI Size ad,d Land in Cro03 as a Percentage of Total Area: Northeast and Front4er States, 1967 .......................................................... 25 Brazil - Establishrnents and kzployment. in Northeast Agricuiture, 1950, i9)'O and 1970 ......................................................... Land Us# ................................................................. 27 Farm 5izE Distribution in Comparison to III of Braziil . .................. 2, Li. IliuUSY-l j'v',''* -;Troved .dsrial Projects, 19U63-71 ..................................................... 'c Vaiue of Output in Manufacturing Industries, i956, 1966-69 .. ............ 30 Diztribution of ValWe of Outnut by Trinustry 3ranch, 195A, 1966I69. . 3 ,ross Va ue Added in lManufacwuringY Industries, 1955, 1966-69 . ........... 32 &-iploy-nent in Manufacturin. Industries. 1955. 1966-69 . .................. 33 Wa,;es and Salaries in Manufacvuring Industries, 1956, 19o-69 ...... ...... 3u Percentuae of Wages and Salaries in Gross 'laLue Added, 195O, 1966-69 .... 33 r.ross Va1-lue Added Per Employee, 195b, i96c,-v9 . Wa'es arnd oai L .ries Per Employee, 1956, 19o6-69 ........................... 3' V. .ue . dded and zHnployment sy bize of Firm, 1955, i966-59 ............... 30 Fixed Lnv2--slmen' in lManufacturing Indu tries, 1950-71 ................... ,'3 Saaracte-isties of Northeast Textile Indiustry ........................... Lo 5 . I .'I41 tP . JLS lUCl,. Hi_tiwavy lietwork by Ze.ion- 1965-70 .- ................ L1 Hi-ghaway Network - Percentage of Tota± Network and rverage Annual .ate of 5rowt:n by Reegionr, 1965-70 ..........................................- 4 '1 Relationship Between Area, Population, and Number of Veniicies by Region, 1970 .......................................................... ... *-e ationsnip Hetween Area, Population, ana Length of Highiways by Re4ion, 1970 .......................................................... 44 Ir 'fic Movements on Federal and State Highway Network by xAegion, 1970.. 45 Federal Hligilway Investment Program by Region, 1972-74 ................... 46 Federal .!ig!-r.^^ay Tnvesmn °vr-,sith o'est,-17--l........................................ -1 U J'. AISAU ...........( . Li7 Classification oy Farmers of Rural Roads According to Usability During ;ad Wezt,her. b-i States and Territories- 1Qe5 I. >.ergxh of the VFFSA Hailway System by tegion, (anRl), l966-70 . ....... 49 Fraffic Density in the Northeast Railway System. 1968-70 ................ - 50 Preli.minary 1972-74 Investment Program in Northeast Railway System (Cr$ million 1972) .................................................... 51 2o;,al Traffic of the Main Northeast Ports, 1960-70 ...................... 52 Preliminary Federal Highway Investment Program in the 'Amazon Region, 1972-74 ..... 53 Tab.e 1: GROSS REBIONAL PRODUCT BY SEETOR OF OR , I 9'9-71 1959 1960 1961A 196;> 1963 196L 1]965 1966 1567 1968 1969 197( 97n (In Cr$ millions at constant 1971 values) Total 13,640 1IL,904 15,682 16,1,47 :17,196 18,696 19,1,32 20,249 22,430 24,!563 26,280 6,0144 :28,5144 Agriculture 4,820 5,187 5,3189 5,5814 5,973 6,3814 6,695 6,455 7,376 7,834 7,9140 6,598 7,812 Industry 3,080 3,125 3,.1L8 3,570 3,631 3,822 14,070 4,527 4,766 5,'j45 6,003 6,711s 7,278 Services 5,740 6,592 6,5915 7,320 7,692 8,1490 8,667 9,267 10,288 11,18L4 12,337 12,732 1L3,454 (Percentage contribution of each seitor to total regioinal product in real teirms) Total l1O.G 100.0 100.0 10G0, 100.0 100.0 100.0 100.0 10C0.0 100.0 100.0 100 0 100.0 Agriculture 35-3 31.8 314. 33,9 34.1 34.2' 34.5 31.9 32.9 3L.9 30.2 25.3 27.4 Industry 22.6 21.0 21.3 21.7 20.8 20.14 20.9 22.3 21.2 22.6 22.8 25.8 25.5 Services 12.1 414.2 4U1.3 14.l1 145.1 L5 . 141.6 45.8 145.9 445.5 47.0 148.9 147.1 (Percentage annual rat;e of growth of real regional product and real final output by sector) Real Regional Product 9.3 5.2 5.0 6.2 6.5' 3.5 4.2 10.8 9.5 7.0 -0.9 9.6 Agricultural Sector 7.6 3.9 3.6 7.° 6.51 4.9 -3.6 1l4.3 6.2 1.3 -16.9 18.-4 Industrial Sector 1.5 7.1 6.6 1.'t 5.3 6.5 11.2 5.3 16.3 8.3 11.8 8.14 Service Sector 114.8 5.14 5.l 7.8 7.6 2.1 6.9 11.0 8.7 10.3 3.2 5.7 Source: SUDENE, Assessoria Tecnica 1/ At factor cost.. Tabl ..1: GROSS RECv:IAI. PRODI.CT FROJ.CTE:) BY iElCTORS, 1989-180 (In Cr,a1 m d -b ad. cods_ta_t 1971 __es) l*.,9 1970 1971 1T72 1973 19;4 197S I1976 1977 1978 1979 1°80 Los R- ~uoal Prc -c o'0-- eota,t JLrl.0 ~14 4 2--=e°,-- L-o 2.-=u0 !6-9 so 6-9 S-0 .1F I,35~" 0 7t1 oo 6rictIture 7,-0 6, 598 7,812 8.,30 S,90 9,485 10,120 I0.8P0 11,525 12.300 13.120 14,070 ndustry 6,003 & 4 7,277 j 5 9 S IQ,5'75 12.590 t4,44'0 1A~6,'6$ !9.129J400 2-2 70 M..nuf.ctuiIng 3,175 3,535 3.910 4,4to 5,130 5,6l75 6,725 7,700 8,850 1^,1.5 11.625 13. :10 Co,,struction 2,006 2,224 2,335 2,68b5 30t95 3,565 4,100 4,720 5,400 6,175 7,060 r,075 Mineral ExtractSon 517 590 060 i'55 865 S185 1,130 1,290 1,490 1,720 1,985 2.290 Eltctricit, and Vater S.'7ply 3C5 '145 373 425 480 SS0 635 730 825 94u 1,075 1.225 ervIcrs 12,337 12,732 V.J125 16,335 7j 90 .19,7eo 7.1,10 23,790 26,630 ;!8,4 - 31,000 Cornerce 4,2C0 4,325 4,670 5,100 5,560 6,055 6,60^ 7,200 7,780 8.405 9,075 9 .O0 Tran.port and Conun:col1ons 1,245 1,;170 1,335 1,t,dS 1,650 1,835 2,045 2.275 2,510 2,770 3,055 3.3;5 Finance, insu:rance and real estate 3,117 3,4,17 3,622 3,9n5 4,335 4,;50 ',1:95 ;, 685 6,215 6,795 7.LO3 S,125 Cmrmunity and Personal Servi,e 3,575 3,720 3,827 4,275 4,790 5,:330 5,940 6,550 7.285 8,060 8.875 9,700 So,:rces: S;LUESE. h.,slsor1a Tecnlcs; and Bank Df N.rth..a.t llrauil; IBRD mifssirn 7r07ec;t1onq based on SUDES: and B8B Target Bates of Crowvth Table 1: (.ROSSED FIXED INVESTSENT, 1966-1.976 (In CrS millions at consatnt 1971 values) Average Anrnual Actual Estimate Prclec ion Increase (In %) _______________________ 1966 1967 1968 'L969 1970 1971 1972 1913 1974 1975 1I976 1966-71 1l71- 76 Total Fixed Inve-itment In Northeast 4,908 5,053 6,402 76 5 7.000 7.00 9.257 10.,112 11.503 13,215 . 4f4 9 0 14.0 Public Sector Fixed Investment 2.269 . 2,75 2,, 7 530 3.00 5,122 5,982 6,.538 7,195 80 5.7 22 6 2/ Federal 1,360 1,430 1,500 1,530 1,405 1,5I2 3.267 3,71)2 4,197 4,777 5,,437 6.4 24.0 (Direct) (1,360) (1,430) (1.500) (1,530) (1,405) (1,:180) (2,500) (2,875) (21,300) (3,800) (4,370) 6.4 19 6 (PI N- Irrigdt ion) (-) C-) C-) () C-) 1(72) (227) (2;27) (227) (227) 1227) - ( pRrrERRA) (-) (-) (-) (-) (-) (-) (540) (600) (670) (750') (840) States 3/ 700 588 874 946 900 925 1,555 1.800 1,927 2.1010 2,308 5 7 20 0 Municipalities 3/ 209 207 341 291 225 223 300 380 414 5113 560 1,4 20 0 Private Sector Fixed Investinent 2,639 2,828 3,688 42,98 4,470 4,500 4,135 4,210 4,,965 5,8210 6,155 11.3 6.5 SUDENE-Appro,ed Industrial Investment 4/ 275 795 1,170 1,430 1,820 1,.'50 2,380 2,375 2,415 2,665 2,665 44.8 8 8 (With Art. 34/18 Investnent Ftinds) (120) (350) (515) (630) (800) (770) (1,000) (950) (850) (8013) 1800) 45.1 0,8 (With Supplementary Funds) (155) (445) (655) 1:800) (1,020) (980) (1,380) (1,425) (1,565) (1,865) (1,865) 44.6 13.7 SUDENE-Approved Other Investment 5/ - 85 12D 177 185 190 205 - - .. ... ... (With Art. 34/18 Invescitent F\unds) (-) (37) (53) (77) (82) (84) (90) *(-) (-) (-) ... .... (With Supplem7ntary Funds) () (48) (67) (:100) (103) (1106) (115) C.-) (-) () ... ... Other Private Investment is/ 2,364 1,948 2,398 2,691 2,465 2,560 1,550 1,915 2,550 3,155 3,490 1.6 6 4 1/ Projected total fixed Investment (1972-76) corresponds to an average ICOR (with one year lag) of 2.85 for the global Nort.heas.t economy as comp-red with an aver.ge ICOR (w:l- one-year lag) of 3.0 duririg the four-year period 1966-69, prior to the drought of 1970. 21 Prolec:ea federal fixed Jrvestmc,t (1971-761 corr.-s1ponds to direct tnvestr..nt by thL F!d,ral C-overment .nd federal a,,rPrkf?s r,isa PIN invest-eer in -reiga'i"' and PROTFRRtA, all other projected federal transfers of inve-smert tetources to tl e Northeast a. -t.clvdad eitlter In st,,Te and -nIn cIpai (i,ed investment (using rego.rcts frsnn 1articipatLion Fundc and sale tjx transfers) ot in private investment (using Alr. 34!18 invest.net fu,nds or credit from official lending insaitutions). 3/ Projecl.ed fixed inv estment of states and munlci pAlit1es (1972-76) Is based on SUDEIE s Developrrent Pl ln for the Northeast 1972-74 sumpplemnented th anal ses of seetctr requirements in electricity (Eletrobras), wal:er supply ..nd sewetage (8INt), asod transport and tducatiorn (IbRD missions) rhe fitted investment in SU1DENE approved projects (1966-71) is detemined by assumitng t¾lat dtshursemeut s of Art. 34/IR tnVeRtMetL f lnds from the Btank of Northeast Braizil in a givent year finance oni the average 44 percent cf the total project inveutn-nt this rrtio of 3'.J18 furns to total investnert in a proje,:t is proected :o declinre gradu.lly to 30 percent by 1976 as SiDENE adtpts new project financing criteria tn lI.htr of the increastng scarcity o. 34/18 fu.nds. S/ St1.ENF- tpproved other inve?stment'. whicitt Is concentrated in the agricultural sectto, is repla ed after 1972 bh Investrent fi,rarted rhr.tagh IPR(TER! . 2/ rlte apparent contraction of other prilate investmert 'from 197! to 1972 is the r.t.?,lt of classifvilng PIN and l-O-fr)RRA s f,ed ral tnvestoent alhtou,gh these programs will support pri-tte Investment activitv In agricuIlture through credit and puhblt Inves,nen: tIIat sah st!ittes in part for purel. private activitv in the past o,r,.es 'oDFNt:; Bank of Northeast Bra,il; and l:BRD rission est imates and prote,titns hased on partial irfor-matint fran Mtnf s: r . rf Planning a,.. BtDf:NE Iable h: RALANCE OF INTER-REGIONAL KERCHANDISE TRADE, 1903 si 1960 1961 1562 1963 1964 1965 1966 19S7 1968 …(_I-----c ---(In Cr$ million!) at constant 1971? values) Total Northeast E-ports to Rest of Brazil iL706 2N. j{6. ^2. (I5( .47.N 'L.US%.l 1.483.4 1.:F2g. To Southeast iouth 1,560.3 l1,820.3 L ,781.2 1,625. 9 1,367.3 1,295 6 L:,236.2 1,225.3 1,109.2 To North-Center-West 200.3 191L.7 180.6 198.1 197.7 201.9 198.9 258.1 216.3 Tcotal NIortheast Imports from Rest of Erazil _ j66$. 9 2.86 3 1 0 6076 2 4.6 2.701.6 .1 4 1 6 9.2 From Southeast-South ;,553.9 2, h2.6 3,062.7 1,8,10.3 2, 52L. 2,57.. :3,052.2 4,112.2 5,076.4 From North-CenIter-West 112.7 124.8 52 .3 97.3 100.3 1h4.1 81.9 87.7 92.8 Northeast Balance of Inteir- ReziLona1 Merchandise Trade -22_.3 --L2 5. -- LQ 42 -8 -1 ;9.1 -1,2o4.1 -4, .o -2,71 8-3 .3 With Southeast-South 2/ -992.9 -922.3 -1,581.5 -18L.h -1,156.9 -1,261.9 -1,816.0 -2,886.9 -3,967.2 With North-Center-West 87.6 66.9 88.3 100.8 97.1l 57.8 117.0 170.4 123.5 - _______- ---------(As a percentJage of Reglona]. Domestic Product)---- =- =C----- Total lNortheast Exports to Rest of Brazil _ 11.8 12.8 ]0 0 8 07 .46 6 To Southeast-South 10 F 9.3 7.3 67 . To North-Center-West 1.3 1.2 1.1 1.1 1.1 1.0 1.0 1.1 0.9 Total Northeast Imports from Rest of Erazil_ 1 10.9 14.2 UJ9 14 18.7 21.1 From Southeast-South 17.1 l7.5 18.6 10.3 13., 13.2 15.1 18.3 20.7 From North-Center-West 0.8 0.8 0.6 0.6 0.5 0.7 0.4 0.4 0. L/ Southeast-South States include the follkwing: MLnas Gerais, Espirito Santo, Rio de Janeiro, Quanabara, Sao Paulo, Parana, Santa Catarina and Rio Grande do Sul. Sources: SUDENE, Assessoria Tecnica; and IP >F Foundactton - Brazilian lnsitute of Statistics. T !bi. 2&< :::>..~;."..' - ?J -)F_ TO TE; :;CiM72ACT lt;IO DlJR TC FEDi-Dr..LW, 30 -PZ:&T FPLICIES, 1967-"16 (In Cr$ million rt ron-,trint 1J71 values) Actu1 _ Estimate Pro.jection 1967 1963 1.9¸9 1970 9Q71 1972' 1973 1977 1975 1976u 1. D rect F'ixei In estm.et in i.ort)- na t :;. Fe^erl Authorities 1,430 1,500 1,53C 1,11o5 1,780 2,500 2,875 3,300 3,800 4,370) 2. PIN' - Irrigation in :lortheast - - - - 72 227r 227 227 227 227r 3. PROTERRA _- 54 ) 600 6 7r-0 84o Resources from Fiscal Incentiver - - - - - 322 j5 388 Transfers fror, P'fI - - - - - 68c 76 87 99 113 Central Bank _ _ _ _ _ 150 170 195 225 26c L. Federal Government Transfers to Yorthe;ast States andr hunici palities 76? 1 ;L 329 1 6 12go 5 1 1 18 'l11 2 00 2.21'7 St,nte ParticipRtion Fund 3Cs 580 289 31h 327 -5c7 IdO L las Municipal Participct:ion Fund 229 153 243 271 283 322 370 337 L:7 47.L Special Fund - - 16G. 15° 177 250 287 301 332 3 6 8 Petroleum Pro!uc:ts Sole Trx 172 229 26h 30 325 355 387 .h22 6o 50C0 Electric Energy Sole Tax 32 37 h2 60 75 11(; 125 '150 172 196r Educaticn Si l rv (Feieral rFuota) 2C 30 ho0 !9 65 9( 106 121 137 155 5. Deposit Accrual ir. BJnk of FortheFst Belate,l to 3L/1TF inrentives 760 (96 982 1,035 778 575 631 692 7,60 83:3 S. zvpai.:ion in Northeast Region o'. Credit to PrivAte Sactor, 1'et of Private 3ector I)eposits, by Bank of Braizil lhR 20C 182 ML6 716 503 582 650 710 783 GPJiE':D TCTAL ,,J) 6,600 7, 3 B,2 5 9,270 3onr-~e.-: 'inistry of Fin-nce (Center for HccnomiA - ?i-i, Tnformt;iorn); Sbz1DS'..; 3BnX of ':;orth!st Brizil; Elank of Brazil; :- IBr'D mi SiOr estinatea. Table 6: FEERAL GOVEFRM1E{T TAX RECEIPTS COLLECTED IN THE NORTHEAST, 1968-1970 Average 1968 1969 1970 1968-1970 (In Cr$ millions at constant 1971 values) Total Federal Tax Receipts from Northeast Brazil 1 240 1 45 1 660 1,450 Income tax 234 357 35 310 Industrial products tax 568 Du8 O83 62- Import duties 39 39 38 39 Petroleum. products so1le t 356 390 175 7 Electric energy sole tax 24 30 48 32 Mineral s sole tax L 5 11 7 Other 15 16 49 27 F-deral Government Current Expendi- tu-es in Northeast Brazil 1/ 1,390 1,550 1,680 1,5u0 Federal Tax Receipts from Northeast (In percent) Brazil as a Proportion of Total Tax Receints from All Brazil: All Taxes 7 7 7 Income tax 6 7 6 6 Tndm,trial nroducts tax 6 6 7 Import duties 3 3 2 3 Petroleum products sole tax ].3 12 14 13 Electric energy sole tax 9 9 9 9 Minerals sole tax 6 8 14 10 Other 10 4 9 8 Ratio of Federal Tax Receipts from 'iortheast Brazil to Gross Regional I roduct -atU Fac'tor Cost v6 Ratio of Federal Tax Receints from All Brazil to GDP at Factor Cost for All Brazil 12 13 14 13 1/ _stimated to be 12 percent of Federal Government current expenditure (excluding revenue sharing) based on information from the Getulio Vargas Foundation (Center for~ ~ J EvSu ses/ %LU c Aite . n: L IIA, CVIMA1Us3i0Uloner for Coor"JjLI.a,tlon Of S tudles Vof the Northeast, Study No. 1, Brasilia, 1971, (p.78). Sources: Ministry of Finance (Center of Economic-Fiscal Infonmation). and Getulio Vargas Foundation (Center for Fiscal Studies). Table 7: FEDERlAL GXVERNF-NT TRANSFEP5S TO NORhfEA.ST BRAZIL THPRUGH STATE AND MUNICIPAL PA'RTICIP'ATION FUNDS AND TilZ SPECIAL FUNI), 1967-7L Ac7Oa 1972 . _ FPro1ect.ion -9h77 1968 196')9 15170 1971 1972 1973 1977 (In millions Cr$ at ourrent prices of each (In Cr$ millions at 1972 …ear) pricesm) Northeast 6L?4. L5a. i8-1 §j 0 States 14s0.6 '333.1 2-00.5 260. 324.6 393. '1.2 - 5.0 Municipalitics 105.8 260.2 168.0 225.2 28:2.6 3,48.0 366.8 4LO.o Capitals (15.2) (37.0) (22.7) (27.7) (35.5) (IJ2.0) (41J.2) (50.0) Other (90.6) (223.2)1 (M45.3) (1597.5) (247.1) (306.0) (322.6) (360.0) Special Fund - - 116.7 1.31.3 176.9 271.4 286.3 322.0 All Brazil 5841.1 1. IQ A I I 1 187.8 12613 2_I_ Q 2.740Q0 States 292.9 '730 76. 1 013.0 969 1140.0 Municipalities 291.2 '729.4 476.8 6246.5 8013.0 969.3 1,022.5 1,140.0 Capitals (29.2) (72.1)1 (47.7) (63.5) (80.8) (96.9) (102.3) (114.0) Other (262.0) (657.3)1 (1429.1) (583.0) (727.2) (8?2.4) (920.2) (1,026.0) Special Fund - - 189.8 189.7 2514.8 387.7 24051.0 2460.0 …..__________ ____.. (In Cr$ millions at constant 197'11 prioes) N<>rthesat $,31.,2 1J)33.2 005 z 7811. 862.8 2.q O-L5i4 Statez 304-3 5180.2 289.3 313.8 L3214. 3163 3354. 395.0 Imnicipalities 228.9 li53.3 2242.6 271.0 282.6 295.8 311.8 348.5 Capitals (32.9) (624.6)1 (32.7) (33.3) (35.5) (35.7) (37.6) (242.5) Other (196.0) (388.7) (209.9) (237.7) (247.1) (260.1) (2724.2) (30.60) Special Fumd - - 168.4 158.1 1716.9 230.7 2u43.4 272.0 All Brazil 24~ 9 2- 3 6 L 2 85. 8 D.8 1,V4.0 2o80. WZr;O States 633.8 1,271.7 68.o 778.. 50gm 822.0 9b7.0 Municipalities 630.2 1,270.6 688.1 778.4 806S.0 822.0 866.5 967.0 CPpitals (63.2) (125.6) (63.8) (76.5) (80:.8) (82.9) (86.7) (96.7) Other (567.0) (1,154C.O) (619.3) (701.9) (727.2) (7Lo.2) (779.8) (870.3) Special Fund - - 273.9 228.4 25,1.8 330.0 347.0 3^1.0 Proportion of Trarisfers Allocated to Northeast: .__________---------------------(In percent) --- --------- ' … Northeast/All Brazil 42.2 40.7 42.L 11.6 41.9 23.6 43.6 43.6 State Participation Fund L8.0 45.6 42.1 240.3 40.2 L,o.8 2o.8 40.8 MLnicipal Participation Fund 36.3 35.7 35.2 324.8 35.o 35.9 35.9 35.9 Caipital Cities 52.1 52.3 47.6 1,3.6 43.9 L3.3 43.3 23.3 OtUher Cities 3L.6 3L.0 33.9 ,33.9 3b.0 35.1 35.1 35.1 Special Fund ... ... 61.5 69.2 69.L 7'0.0 70.0 70.0 Sources: Mdnistry of Planning and Bank of &rari3. lable 8: FLDLRAL GOVERNMENT TRAI,SFERS IHROUGH TliE STATE PAkTICIPATION FUND AN7D IITE M:UNICIP.'tL PARTICIPAI'fON FUND, BY STATES (In CrS miL1 ions at constiant 19I71 prices) All Nortn- Rio Grande Pernaim- Brazil North east Other Maranhao Plaui Ceara do Norte Paraiba buco Alagoas Sergipe Balhia .967_1' Total 1,264.1 85.4 533.2 1545.5 70.3 38.4 84.4 30.8 45.,1 77.3 32.;1 25.7 129..1 State Part:Lcipation Fund 633.9 56.6 304.3 273.0 43.2 23.1 52.4 16.1 23.2 42.7 17.8 16.0 69.8 MuniciFa! Participaticr. Fuind 630.2 28.8 228.9 :372.5 27.1 15.3 32.0 14.7 21.9 34.6 14.3 9.7 5o)., i'tate Capitals (63.2) (7.5) (32.9) (27.8) (3.1) (37) (tS.8) (2.2) (2.3) (5.0) (2.5) (2.3) (5o, Other Municipalities (567.0) (21.3) (196.0) (349.7) (24.0) (12.2) (25.2) (12.5) (19.6) (29 6) (11.8) (7.4) (5:; .968:2/ Total 2542.3 218.1 1,033.5 1,290.7 143.,0 74.3 156.8 59.6 87.4 142.5 62.1 49.3 258.5 State Participation Fund 1,271.6 156.1 580.2 535.3 88.6 44.1 9:3.9 30.8 44.2 74.9 3:'.9 30.5 139.3 Municipal Participation Fund 1,270.7 62.0 453.3 '155.4 54.4 30.2 62.9 28.8 4i.2 67.6 2fl.2 18.8 1 19.2 State Capitalsi (125.6) (19.6) (64.6) '41.4) (6.0) (6.0) (1:3.4) (4.3) (4.!) (9.6) (4.8) (4.3) (111.9) Other Municipalities (1,145.1) (42.4) (388.7) 714.0) (48.4) (24.2) (41.'i) (24.5) (38.9) (58.0) (23.4) (14.5) (101,3) 1969:13/ Total 1,376.1 116.4 531.9 727.8 80.4 41.5 65.4 30 9 46.2 '3.2 32.1 27.6 134.6 State Participation Fund 688.0 83.9 :89.3 :314.8 50.1 24.9 3:3.9 15.4 22.6 37.1 17.2 17.2 70.9 Municipal Participation Fund 688.1 32.5 242.6 413.0 30.3 1b.6 31.5 15.5 23.6 36.1 14.9 10.4 63.' State Capitals (68.8) (10.2) (32.7) (25.9) (3.5) (3.5) (:5.0) (2.2) (2.5) (4.8) (2.5) (2.5) (6.2) Other Municipalities (619.3) (22.3) (209.9) (:387.1) (26.8) (13.1) (26.5) (13.3) (21:.1) (31.3) (12.4) (7.9) (57.5) 1970:31 Total 1,556.8 173.7 584.8 798.3 88.5 45.3 71.8 j4.0 51.2 80.5 35.2 30.1 148.2 State Participation Fund 778.4 130.8 313.8 :333.8 54.6 26.9 3t6.8 16.7 24.5 40.1 18.7 18.7 76.8 Mun'cipal PSarticipation Fund 778.4 42.9 271.0 464.5 3'3.9 18.4 35.0 17.3 26.7 40.4 46. 5 11.4 7L.4 State Capitals, (76.5) (16.9) (33.3) (26.3) (3.5) (3.5) (5.0) (2.3) (2.8) (4.9) (2.5) (2.5) (6.3) Other Municipal'ties (701.9) (26.0) (237.7) (438.2) (30.4) (14.9) 03(.0) (15.0) (23. 9) (35.S) (14.0) (8.9) (65.1) 1971:3/ Total 1.616.0 181.8 607.2 8i27.0 84.8 47.8 7:5.8 i5.6 53.4 84.7 37.4 31.7 156.0 State PartLcipation Fend 808.0 138.4 324.6 345.0 50.3 28.5 3f.i9 17.7 25.9 42.5 1 9.t8 19.7 81.3 Municipal 'Participation fund 808.0 43.4 282.6 4.c2.0 34.5 19.3 36.9 17.9 27.5 42.2 1.7.6 12.0 7B.7 State Capitals (80.8) (17.9) (35.5) (27.4) (3.8) .(3.8) .:). 4) (2.4) (2.7) (5.3) (2.7) (2.7) (6.7) Other Muniicipailities (727.2) (25.5) (247.1) (4 54.6) (30.7) (15.5) (3:1.5) (15.5) (24. 8) (36.9) (14.9) (9.3) (68.0) 1/ In 1967 the Federal Governcment allocated to thc Par:icipation Ftunds the equivalent of 14 percent: of thie revenue collected from the federal income tax and the tax on industrial produwts. 2/ In 1968 the Federal Ccvernrment allocated to the Par: ctpation Funds the equivalent of 20 percert, of the revente collected from the federal incorr.e tax and the tax on industrial products. 3/ In lJ69, 1970 and 1971 the Fedetal GovernrMnt a.l he.: Ir then'nrtds -'e euiv.alent of -, percnt of the revenue collected from the federal income tax and the tax on indu tria'rooiuc: . '-,ur((o '; 1inisth:\ of l'I.nnine; and tlin "-,,i- t p lablt 9: TRANSFEK OF FUNDS TO TIHE NORTlfEAST TIIROUGH TAX INCENTIVES FOR JURIDICAL PERz)UNS, 1968-1976 A C T U A L ESTIMATE P R 0 J E C T I 0 N A,NNUAI. AVERAGE Compouind Annual 1968 1969 1970 1971 19;72 1973 1974 1975 1976 1968-70 1972-76 Increase (in Cr$ millions at constant 1971 values) (in 1971 Cr$ millionsi (in percent) Total Incomie Tax Declaired 2,358 3,457 3,984 4,370 4,795 5,260 5,770 6,330 6,945 3,433 5,820 11.11 Deductions for all Incentives 1,312 1,689 1,892 2,095 2,300 2,'25 2,770 3,040 3,333 1,651 2,795 12.0 Deductions for Northeast 796 982 1,035 850 1,1;24 1,212 1,307 1,413 1,527 938 1,317 7.0 34/18 Investment Funds (796) (982) (1,035) (778) (575) (631) (692) (760) (833) (938) (700) -5 15 PROTERYZA (-) (-) (-) (-) (322) (354) (388) (426) (467) (-5 (390) PIN-Irrigation (-) (-) (-) (72) (227) (227) (227) 227 227(-5 (227) (in millions of US$) (in millions of US$) (in percent) Total Income Tax Declared 541 654 754 827 907 9Q5 1,092 1,198 1,314 650 1,100 11l Deductions for all Incentives 260 320 358 396 435 478 524 575 631 312 530 12. 0 Dcdtlcti')ns for Northeast 151 186 196 161 213 229 247 2A7 289 177 250 7.0 34/186 Investmenit Ftinds (151) (186) (196) (147) (1(9) (119) (131) (144) (158) (177). (132) -5.15 PROTERRA (-5 (- C-) ( (61) (67) (73) (80) (88) (-. (75) PIN-Irrigation (-) (-) (-) (14) (4,3) (43) (43) (43) (43 (-3 (43) ( in percenlt) Ratio of Toral Deductions for All Incentives. ,ax Declared 48.0 49 0 47.5 47.9 '.8.0 48.) 48.0 48.0 48.0 4C 2 48.c Ratio of Deductions for Northeast: .otal Deductions 58.0 58.1 54.7 40.6 48.9 48.0 47.2 46.5, 45.8 56.8 48.0 Anntia l Real Increase of Total Tax Declared ... 21.0 i5.2 Q.7 9.7 9.7 9.7 9.7 9 7 9. 7 Annual Real Incrcase of Total Deductions ... 23.1 12.0 I1).7 9.8 9.8 9.7 9. 7 9.6 24.4 9.8 Anrua.l Real Increase ci DedUctions for Northeast ... 23.4 5.4 -17.9 32 .2 7.8 7.8 8.1 8.i 1;.8 7.9 Source NMinistry of Financo, Cer,ter far Eccinoic-Fiscal Infuria.,tion (CIEF), Miniitry of i lannoing .n,1i (nier,i Coordination; and Mlission estLinates. Table 10: ARTICLE 34/18 TAX CREDIT FUNiDS FUR THE NORTHEAST, 1962-71 (In Cr$ millions at current: prices of each year) 1962 1963 1964 1965 1966 1967 1968 1969 1970 11971 Total Income Tax Praid by Firms 58.0 122.0 195.0 404.6 481.3 632.9 896.0 1,433.6 1,848.9 2,730.5 4/ Toltal Income Tax Deducting Declared by Firms 5.7 8.8 40.6 iL62.4 273.4 506.5 7137.7 1,1;0.6 1.571.0 i3 SUDENE (Art. 34/1Z Tax Credits) 5.;7 7.7 37.3 149.4 226.6 351.1 4155.9 626.6 793.8 74S.0 Stlf)AM (AImzorL region) - 1.1 3.3 13.0 46.8 102.9 164.9 280.2 351.6 327.3 SUDEPE (fishing in,dvstry) - - - - - - 44.2 138.7 215.2 158.8 Touri6rm - - - - - - 36.0 44.6 68.5 65.4 Re fores :atiorL - - - - - - 11.6 41.3 103.1 287.8 AviLation - - - - - - - - 1.6 State of Espirito Santc, - - - - - - - - 5.3 Stock Market - - - - - 52.5 65.1 59.2 24.4 Otheer - - - - - - - - 2.5 Delpositsi of Tax Credit Resources in Bank of Nqrtheast Brazil (BNB) Accrualfs' 5.7 7.7 37.3 149.4 226.6 351.1 456.7 680.8 859.3 777.6 Disbursements - - -0.3 -5.2 -8.7 - 43.3 -178.7 -326.2 -490.0 -732.4 -85 4.2 Net Flow During Year 5.7 7.4 32.1 140.7 183.3 172.4 130.5 190.8 126.9 -76.6 (Year-End Deposit Balance) (5.7) (1?.1) (45.2) (185.9) (369.2) (541.6) (672.1) (862.9) (989.8) (913.2) (In perc,ent) Raltio o f Income Tax Dedluctions by Firms To Income Tax PaLid byF Firms 10 7 21 40 57 80 88 82 85 58 Ratio ofE Art.34/18 Deducticns for NE To Total Income Tax Deductions 100 88 92 92 83 69 59 54 5t 47 Raltio of Year-End 34/18 Deposits in BNB To Total Liabilitiesa.' and Capital of BNB ... 45 63 65 65 54 53 48 41 Sources: Ministry of Finance (Center for Economic - Fiscal Information) andl Bank of Northeast Brazil 1/ Accruals include not only Art.34/18 tax credif s but also deductions for tourism nnd reforestation ro be applied in the Northeast. 2/ Includes a small armount of contingent liabilittes in ulie form of bank guarantees. i1/ Includec Federal Gcovern=elt's receipts trr);: lur1dndca ;pcrso i ri 1971 of Cr$560.9 in f 1 PN 4/ Aft-r pre-enp)t ion by Federal Government i, a., rt i :: * f tax rredi ts f-)r P i; Table 11: POTE2iTIAL EFFECT C1i ICM REVNIIES OF NOR7LEA3T STATES FROM ECUAL SHARING OF ICM L-VY CN INTERSTATE TWADE Net Net field To2.l Th oo. Inter3tate Interstate Intrastate of ICM @ 7% ICM Rvemnues anc ea.e Exports Imports Trade on 3/4 Trade 'q6B t --A t'J '- ----- (In r' millions at constant 19i values) ----------- I -nhAO 201.3 L27-0 -225.7 11.8 53.1 '9 98.8 264.1 -165.3 8.7 3L.O 25 328.4 1,079.9 -751.5 39.5 180.6 i- Grsnde i Ncrte 179.6 403.0 -228.4 12.0 63.0 * -a. 285.4 583.5 -298.1 15.09. * li.-.nuco 1,518.7 2,140.0 -621.3 32.6 424.6 - . ito 2l3.5 I.AJ 7 =2212 1. 8 ,-.e--g:Ipe, 165.0 465.4 -300.4 15.8 4i.,r 3 .-? ..a 776.2 2,808.0 -1,031.8 54.2 375.6 I ".-,heast Sum 3,796.9 7,640.6 -3,843.7 201.8 1,365-. .jcarce: Ministry or Finance (Subsecretariat of Econony and Finance); and M-nistrv of Planning (ITGE Foundation - Brazilian Tnstitu!e of S atistic3. Table 12: STATE OF SAO PAULO - TRANSFER OF '2AX RESGURCES TO REST OF BRAZIL THROUGH PARTICIPATION FUNDS AND SPECIAL FUND, 1962-70 (In Cr$ million at constant 1971 values) 196S 1969 1970 Fecderal Tax Collections in Sao Paulo State: Income Tax 1,675 2,510 2,763 IPI 5,083 5,667 5,7 Su.m 6,758 8,177 8,519 Percentage Allocated to Funds 20-' 12°. 12-/ Contribution of Sao Paulo State to Participation and Special Funds 1,352 981 1,022 (Of Which, Share to Northeast) (550) (379) (384s) (Of Which, Share Returned to Sao Paulo) (130) (76) (66) Source: Ministry of Finance (CIEF); and Ministry of Planning. Table 13: FEDERAL REVENUE COLLECTED IN SWX PAULO STATE 1968-1970 1968 1969 1973 (In Cr$ mi-ions at current prices) T)ot.:il Fedeˇal 1 cve-r-;;ent Revfenues c' J - ' a ' ^ -,- U.5 ImpOrt dUt.let 815:7 1;C07 0 i,32y.d £fL..Iu 1',- I j. A 07 .). .u-sforTe txes Py7. ,6)?L,9. Industrialized p-oducts tax 5,0?7J4 6,751.4 8,505.5 Petrcleu.m prcducti sole tax 1,597 -J 2,82 E;lectric e.1e *f sole tax 15-. 2313.3 Wt9.6 Kin P-ra s c tax 37.3 4.4 638.0 Road t-ar. :,:ort (-,assenger) tax 1.0 0.7 81.0 Other taxes and fees 94.6 240.6 345.0 F'ederal ,- w'riei.t R. v7nui_ from Sao Paulo 5,047.6 7 2' 6 .5 9 26 I. 2oport (1e Inco.e taLius 961.3 1,739.5 2,294.3 Industriali,,r- prciucts tax 2.,q18.1 3,9...3-9 L,780.7 r'etroiein J'l ol'Jctf sole tax 3. .1. r .; ( 3i9.1 ElectrIc £ .-e:'~y .co-1e tax 65.2 106.1 202.9 ro. nerrLls sol e t.--y c. - c 2g.j Road tran1:,ort (t-anger)tax - 18.2 Otke +r aend f ee s 1= 109 (in percen') rojlortion of' FederLl ?Jv9nues from Sao Paulo Total iFederal. tGovernment revenues 50.7 50.1 48.7 Import dutles 63.6 69.6 66.6 Income taxes U.3 46.2 46.9 Industrialized products tax 57.5 5?3.5 56.2 Petroleum products sole tax 35.2 29.2 25.9 Eaectric energy sole taX 41. 45.5 45.1 Minerals sole tax 14.2 11.7 14.5 Rwwd trar,sport c Usseng er) tax - J -2 Other taxes and feas 17.8 8.7 27.6 Sources Ministry of Finance, Center for Economic-Fiscal Information (cGEJ'). Table 14: FEDERAL INCOME TAX DEDUCTIONS UNDER INVESTMENT INCENTIVE SCHJMES Cl TMED BY FIRMS IN SAO PAUL O STATE; 1968-19q7 1968 1969 1970 (In Cr$ million at current prices) All Bra zil. Actual tax liability 853 1,225 1,738 Assessed tax liability 1,604 2,396' 3,309 Less: Investment tax credits -788 -1,171 -1,571 Northeast (46) (627) (7''9) Amazon (165) (260) (3_2) r.LSLLLg Industr y '-.-f (1,9) (215) Touxis, (36) (45) (6yw Reforestation (2'2 (li) (103) Brazilian Aircraft Company (-) '-) (2) State of Esoi-rito Santo (-) () (5) Share investment (65) (59) (24) Other () (2) Sao Paulo Actual Tax Liability 401 040 8s7 Assessed t.-x iiability 7 '2307 Less: Investment tax credits -3ou -no" -60l Northeast (211) (288) (379' Amazon (94) (i2.3) - Fishing Industr-y (17) 79) (11. Reforestation (8) (22) (54) Brazi-i an AirCra- COmpan r_) (-) State of _ssnirito Santo (-) () 9hare Inve6tnent (32) (32) (!3) Other (-) (-) (In percexti Ratio: Sao F. 11 t hrazil Actual tax l1i.;iiritv 57 52 Assessed t-x lia2ilitv 48 ,i L,ess: Tr.;r-'n tax credits 49 2u 2± Northcast 45 46 47 A_ on 57 5 7 5 ~ 7 Fishing Industry 39 57 53 To- sn 61 L? _mA RcfcrCe zatiotn 67 54 52 BraziliU.ri .Ai.craft Company - - c0 Stiat' of ER:;pirito Santo - - -- Sha.e investment 49 54 Other - - 50 Source: Minictry of Finance, Center for Economic-Fiscal information (CLv). i . I e 1) ji A' 1 ,!aDAI KI Ic .| R0w uJ.'lj:..Rf l; 'l.' ( ;I11C lions at constant 1971 values) (1ReLional shgre as a percpntae of total) North & North Brazil Southna Centor Brazil Southeast Center ______ ____ _ Total & Soutit_ ?orthsa it. t West_ Total & South l/Northeast & West 1_968: Total State Budet Receipts 16945 5 6 IJ 2.Nt63 1.221.5 100.0 c10.6 12.2 7.2 Ordinary Revenues 12.9 a 8 112~3.7 1,1U.5 412.6 100.0 88.0 8.M 3.2 ICM Revenue 11,98. 10,522.4 1,0925~ 373.9 100.0 87.8 9.1 3.1 Cther Taxes aind Fees 990.0 901.3 'O.O 38.7 10C.0 91.0 5.1 3.9 Transfers Received 2.092.3 822.0 627.3 64.0 100.0 39-3 30.0 3C.7 State Plarticipalicn Fund 1,271.6 75 0.2 23 . 100.0 35.9 1±5.6 18.5 Special Fund - - - - - Cther Transfers 820.7 366.0 147.1 407.6 100.0 I14.6 5.7 49.7 Other Racmeipts (inc udin; credit 1.874.4 1.412.0 296.5 165.9 100.0 75.3 15.8 8.9 2?69 s Total State Bud at Receipts 19,737.4± 15,975.8 2,276.6 1,485.,0 100.0 81.0 11.5 7.5 Ordlnary Revenues 14,254.1t 12,Lt77.t' 1,295.2 8L81,8 100.0 137.5 9.1 3.4 ICM Revenue 13,113.1 11,423.0 1,255.0 435.1 100.0 87.1 9.6 3 .3 Cther Taxes and Feies 1, 11 .3 1,05L.1± 140.2 ±6 7 100.0 92.4 3.5 11.1 Transfers Received _i81.8 1,147.0 6t15.9 . 100.0 1±6.2 24.8 29.0 State Participation Funi 688.0 2S9.7 219.3 139,0 100.0 37.8 142.0 20).2 Special Fund 273.9 33.6 168.4 71.9 100.0 12.3 6Sl.5 26.2 Cther Transrers 1,519.9 853.7 158.2 508.0 100.0 56.2 10.-4 3J-.1± Other Receipts (inc1udin%r credit) 3,C01.2 2,351.4 3655.5 284.3 100.0 78.3 :12.2 9.5 Total State Budget Re eipts 2077.4 1661.8 2.394.1 1.11R5 100.0 351.1 -1.7 7.2 Ordlinarv Revenues 1II 921.0 1.2130.0 1.22 0 . 100.0 38.0 8.3 3.7 ICM Revenue 13, 90.1 12,056.5 1,16¸.9 17-7 100.0 38.1 8.5 3.h Other Taxes and Fees 1,230.9 1,073.5 66.1 91.3 100.0 ,B7.2 5.4± '7. Transfers Received 2.248 281.3 6'11.7 §L8.8 100.0 1±3.8 27.3 28.9 State Plarticipation Fundi 778.4 277.14 3:13.8 187,2 100.0 :35.6 ho.3 2L.1 Special Fund 228.4 18.1± 158.1 51.9 100.0 8.1 69.2 22.7 Other Transfers 1,235.0 685.5 139.8 41097 100.0 55.5 1L1.3 33..2 Other Receipts (including credi t) L,.214 6 240 2j . 273j l,o.o 75.1 :.6.6 El., Sources: Ministry of Finanre (Subsecretariat of Economy and FLnance); Mlni-try of 1Lanning (IP'E,'IPLAN); ani &ank of Br3zil. _ z , . z X 1 RS , i :2 ,i R t t ;> ;- , * ,.*1'i, t r, M r , Table i,o: DIRECT LWIE3TIENT BY TIE FEDERAL GOJEriNTLENT kD FEDERAL AUTARKIES IN THn :..CRTHEAST, 1966-76 (In millions Cr$ at conrtant 1971 values) .ctual Estimate _ Proection 1566 1967 ',96£ :L6I 1970 1971 1,72 1573 1974 1975 19c76 Tot,l Direcl Foderal Investment 1 L,430 1.500 L,.O2 1 JO5 1780 2,500 2,875 2) i800 L,O70 Agriculture 76 73 L9 .. ... 212 278 320 370 425 Mining and M5anufacturing Industries 4(90 517 71 502 .. 76c 88C) 1,010 1,162 1,336 Electricity 251 268 341 2f2 ... ... 520 610 700 805 5926 Elasic Sanitation 11]5 85 7' 7 ... ... 50 5i7 65 75 86 TransportaLtion 30P 416 390 501 305 351. 402 463 533 Roads (21h11) (351) (300) (h3 2) (26 39) (56) Rpilroa;ls arid Ports (25) (59) (f2) (66) ( ( ) (1) (51) (58) (67) (77) Other Transportation (j9) (6) (12) (3) (...) ) ( ) (-) (-) Comrunications and Storage L ; 51 6 ... ... 73 8lb 96 110 127 Education 50 31h 53 u ... ... 422 L885 557 641 737 Health 9 18 ... ... 6 7 100 115 132 ] .52 Colonization and Comrunity Development - - - ... . 15 ]8 21 2L 28 General 143 31 55 5 ...1 ... . 1 12 14 18 20 Sources: SUDETE: and Mini3try of' Planning. Table 17: ARA4 OF NATURAL ZONEs, 6Y STATE-S Litoral and Semi- Pertile .^ a- State Hata Agreste Aril Sppoti/ No;-th _jtal lho,S-andl .,' zY'anriaO nh - 3 -& 3.7 iaui - 43aLJ. .1.. 5-.y s.e Cea-a ?.6 0.2 ' 't5.0 8.0 - -1 do !orte .9 -41.2 - P^a-iba ) 0.6 23.? - L- rernar'mbucc 15.c 1'.l '.1 - - Ala ioas ,. 2.7 11.5 0.7 - _ _. &Sreirpe 7.3 - 14*3 .4 - -- 5ahia -83.2 106.9 277.5 ).8 -4 5(" I 1MLnas Gera;s_' - - t8.3 - - - ge,io;z 126.3 169.7 835.i ;L4.t C;± ., ; .-ercent t.7 10.3 51.0 2.1 23.? 5.7 lCO. c er : po M rn n+- %- o f A c ue1 t ;h -,. e A Norndef-l ' e' _7 / > , ""ach:; erel3 1; rc3 'arel V- - 1/ 'aanch3 fertess'!; area-5. a3rge> i,u-rrcunded by semi-arid zone.s, out .eive'y well wa,tered because of to:ography, exposure to prevailing winds, e-tc. :/ Includes ornl.y that part of the State included in the Drought Poly, n. Table 18: SELECTED CHARACTERISTICS OF THE NORTH/NORTHEAST AND NATIONAL TOTALS, BRAZIL 1970 Item North Northeast Brazil N. NE. Br. percentt .Lna area ±-nos.,MR. 3, 51w 1, ) a, 4 7 L2 lo luu P0z.r aeetor ou I/ Y-Ml CI 383 l ,227 1S,472 2 23 100 PA4mar sector output 41ou. 580 5jl58 13j07l 4 3 1 0" Crop area Thous.ha. 360 10,181 Cattley Thos.head Tractors on fanna no. na 6,033 na - - - jJ 1966-70 average. Gross before adjustment for intermediate cofisumption. g/ Denographic Census. 2,/ From annual series. 1970 preliminary census dataa, preseitly available only for the Northeast, show 14,889, X)O head. Sirmilar sprea-s between census and annual data occurred in a.l parts of Brazil in tht- last three censuses. C) C-- ri 3 ; "C Ouv.Or1° ¢ r E UCO£C J t , ONON X.C -1 -+, ' J. ' . . 'r\ .0 .f! . - . -C . O 0-.. 0. O. . 0 0 0 1r:! s r ' -=~~~ --j rl -t IX\ 0r .ri rJt' rt^ r ON -4 rO _- a.) O g) .ng v~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~C) Cl.~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~'. 1~~~~~~~~~~~~~~~~~~~~~~~~~~* C0 t ar' ~ ~~ Oi C'] r)-Vtr'. 0 Q C--C °N Q 4\ ''Q"O N-C 0'. 0 CC) r_r~ ~ ~~ J t r lr 1 \ 1'. 1 ' tI\ dJ> if' '. '0- '0 '. '1 .) 'x 0' '.0 c- t_ 0 ONO<-\ 0'Cr. CN 0 0 0 0C ' 00N ( O \Os )\0-C0'.CNOCO.. cr ON C A obl ~~~~~~~~~~~~~~~~~~~~~~~~~~C) ,-1 ua~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~'- _ I _s~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~f- r.: | F~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~1- Table 20: PRINCIPAL COMPONENTS OF PRIYARY SECTOR 07UPTi, NORTH/NORTIMAST. '969 Value of Ch~p- North :;4oK4lct CrNi Million X ;r .-'-, CO-r nanPnas 5.3 L . DeXlns ~~ ~ ~ ~ ~~~~~~~~~~6. '; 7 Castor Beans 7 Cocoa 1 7 L 2'5.0 Coconuts 2.1 3- 1 C Corn 11.8 3 2 Cotton 0.1 /L35 0 Jute 25.0 5 . Mandioca 43.0 9 . . Oranges 5.0 1 6 Rice 23.0 5 I6&.3 Sisal .Iugar Cane 2.6 1 5n3.t oobacco 3,9 1 6n.' Total Specified Crops 130.0 28 3,29g. 7 '-ef 53.1 '2 392.> . orkn 10.5 2 . 109. 74f lk 16.3 L4 267 . Z2.9 Total Sp)ecified Livestock 102.3 22 yl 7 .r-c .-ves '-- ~~~ ~ ~ ~~0.1 L/ , ,- >h er 162.83 .- r -w.e ri. v e ,- ' nL,c b ' t. _ - _ _ Table_ 91: P.VOLLrrflON OF ACRICULTURAL OUTPUT AND SELECTED iYPUYs NORTHEAST SPAZIL, 1950-1970 1950 1960 1973 _m.y sectc-r output, 19,70 prices Cr$ Bil. 2.82 L.15 5.J14J 4,C re- .-.rPa ha.mil. 4.45 7.25 io.i8 ,-,itte numbers mil head 9.63 2IIC4 _4___9 _. F-Krscr.s employedY Mi3i. 4.16 4.98 5.2 i.6 2/ Mil. 5.11 1 6.66 7.64-i ˇ -. ?ractors on farms Units 451 330 c,(3 - ' 2. L sert;iizer Thous. T. -- 2! - -- .Taiue of output per worker_/ Cr$ 675 835 J15b2.., 7;ilue of Output, per ha. in crops L635 570 570 - ron area ner worier ha. 1.07 1.L6 i.?7 -'- L:;ttle, per worker No. 2.31 2.22 2.30 -0.4 . lNote that 1970 real product was r-educed 7 percent or more by drought. Agricultural C ensu s. DatA relate to JTnly- 1971 ' Dsmographic Census. Adjusted for apparent underemuneration Table22: PRICES RECEIVED BY FARMERS, SELECTED PRODUCTS, BY STATES DECEMBER, 1971 C-otton Gorn hepans Rine RAPI4A/ Milk State (Perennial) (Rough) Cr$/kg. Cr$/liter Marannao - - - - 6.00 .83 Piaui .78 .26 .94 .59 6.50 - , ~~-' /$', -,r nn 4 , Ceara 10.22 3 .6700.7 Rtio 5-rade do N,c.'orte 1.33 2 *8 . 7.50 -7 Paralba 1.0h .23 .50 .77 8.00 .90 Pernambuco - .23 .55 .64 - _ Alagoas _ .22 .56 .58 5.50 .60 Sergipe - .20 .53 .63 6.oo .50 Bahia _ .31 .45 - 6.o00/ _3h Minas 3erais (Tlnrauht. Pogvonn) - -7B 103 7h 7 .oli/ _0 Northeast 1.04 .26 .61 .66 - Sao Paulo5/ - .36 1.13 .83L/ _ 1/ Retail price, first quality cutF. 2/ III in un.4LL.Lc.pi UoLf 6 te UIU Sta.eca i., cAUept as noteU. I/ Feira de Santana T/ Montspq Caro1q '/ Wholesale prices, City of Sao Paulo, March 22, 1972 A/ Euivalent. converted from price of milled rice assuming 60 percent outtuni. Source: Mercados Agricolas - Informaqoes. Banco do Nordeste do Brasil S/A. AAso 4 No. 5, Janeiro 1972. Table 23: PRICES PAID BY FARMERS, SEECTED ITSMS, BY STATES DECEMBER, 1971 HYbrid Mixed Ground Sulpihate Barbed Plow. seed corn poultry limestone of wire 1 share State feed Ammonia Cr$/kg. Cr$Ag. CrS/ton Cr$/.,0 ILJ"_ ._j .76 f .I5 .L5. 340/*f Parn n 7A 1.73.11 119.2. Table 24: IRRIQATICN PROJECTS UNDER DEVELOPHENT IN NCRTHSAST BRAZIL; SIZE AND STATUS. Stage of dtvelopment in 1972 Agriculturally usable arcs. Project Name and Location Totall Possible operation I by end of 1974 Hectare s Reconnaissance Gurgueia (Piaui) 10,000 None Saco II (Pernambuco) 1,200 500 Pref'easibility Corrente-Correntina (Bahia) 10,000 None Lagoao do ?i n- (Pi n.) 50j In00 Prefeasibility and feasibility study Araras k,cara) 3,80o N No Corrente-Formoso (Bahia) 7,000 None Lower Sao Francisco Marituba (Bahia) 10,000 None Morro dos Cavalos (Vale do Fidalgo) (Piani) 10,000 None Rio Grande (PaiAeirinno, Barreiras, S. Desiderio) (Bahia) 14,400 1,800 Feasibility Std Zapinarine (Pernanbuco) 3,000, None Lo-wer A^-u 'RiO Gr.arie do Norte) BuuvO None Lower Sao Francisco - itiuba-Propria (Alagoas-Sergipe) 3,400 None salitre (Bahia) 1/ 11,170 None Feasitbility StuL.y and JJ. dequitai-Pirapora (Minas Gerais) 7,000 None ower Jag-uaribe (Ceara) 8,uOr 300 S.ystem BA (Bahia) i/ 5,800 None Gorutuba (Hinas Gerais) 4,000 None Fetrolina PA-I (Massangano) (Pernambuc,' 1/ 6,02L None Rio das Contas (t8ruxado) (Bahia) 6,700 200 System PA-'I (Pernambuco) ./ 7,000 None Design and execution Banabuiu-Morada Nova (Ceara) 8,187 4,800 Curu (Ceara) 7,000 3,986 Itapicuru (Bahia) 9,000 2,000 Pau dos Ferros (Rio Grande do Norte) 1.200 1.200 Planicie de Ico (including Lima Campos) (Ceara) 3,a54 3;000 Cvstam hB (Bahia) 6,400 1,600 zqstem BC (Bania) 2,250 1,000 Execution Aires de Souza (Ceara) 2,120 2,120 Bebedouro - PBI (Pernambuco) 1,100 1,100 Ceara-M rim (Rio Grande do NorIen 3320 3,320 Mcxoto-Poco da Cruz (Pernambuco) 3,000 2,000 .ao Goncalo (Paraiba) 1,100 1,100 Vaza Barris (Bahia) 2,300 2,300 23 small projects (less than 1,000 has. each) 7.60O 7 0 Total 199,925 40,326 J Being cowiuered by -DLAC_ -nAI. (Fowr pro3ects) Source: Ministry of Interior o~. a-U- '' <'v--: ') .'0_> O, . O-'- STire~~~T :,' .L:' ' F. Cy.N\J ~ ;-: _,, ,_\- ,, ,; ,45,,, c C T,, ' . a .o *a Ie 26: Y'A/ATL - EST,ABLIS HI'¶TS AN'D DMPL0YMENT IN NORTHEAST AGRICULTURE, 195(, 1560 and 15970 States E s t a b 1 s S h n e n t s Persons Employed in Agriculture I950 1960 50/160 1970 60/70 1950 1.960 50/60 1970 60/70 Maran]hio 95,1055 261,865 175 396,962 52 360,707 951,618 164 ;,205,064 27 Piaui 34,106 8Y,303 156 218,011 150 206,307 358,333 71h 520,505 45 Ceara 86,690 122,576 41 246,179 101 498,803 801,492 61 1,085,186 35 Rio Grande do Norte 34,191 49,840 45 104,397 109 234,737 299,419 28 312,928 5 Paraiba 69,117 117,836 70 170,174 4U4 434,143 553,33C0 27 614,034 11 Pernamnbuco 172,268 259,723 51 331,955 28 879,844 1,263,146 44 1,154,742 -9 Alagoas 51,961 62,484 20 105,408 69 274,985 362,979 32 460-439 27 Sergipe 42.769 65.014 52 95,931 48 154,721 249.146 61 274,371 10 Elahia 258,(43 381,473 48 544,033 43 1,282,771 ;819,712 42 2,208,955 21 Total 844,510 14P8,114 67% 2,213,050 57% 3,892,875 6,659,175 7:1% 7,836,224 18t ;ource: IBOiE, Dados Preliminareq Gerais do Censo Agropecuarlio, 1970, Regiao Nordeste. Table 27: LANDI) JSE _ _ 1/ , ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~U-_e of L;ar,, irn Relation t.c 4h To} ao States Cro. lis5rs:ees 2t- C.;e ro !s U1 f,i i..... rel .. l-c _p .:.t I tlc r:....... r_s ."rar-.-o 10.c9 j30.1 .6.1. 2L .3 9 .3 9 8io!'1 .6 21.n. 25-1^ Fi.31i i 5.1 26 .71 2e.9 h 2!;. 1 8 a2.5 !7.C~ i 5.6 Cca r. 141.3 30-r; 30.1 .10.: -5 | < J; t. ,'.' .7 R. G. do Norte 1fz.5 L9.5 I11.9 lL.') fu5 | SD3 76-; 20.3 1L(. 7 2 Paraiba 21.5 Lo.l -I. lo.8 6. 5 52 .3 ,-2:6.c 1, 5.c 6- Fer.an,buco 23.7 32 8 201. 2 al',.j 0.0 5!).7 C" y .5.3 30- 13.3 zAL;: sa s 22.: F . 3 26.1 L I.1 3 .3 52.3 73.c L 30.9 2>. 13.1! Se. ~ipe 12 .3 5: .C ', 7 C ' .' L.0 ; 7n.t.6 1.9 L2 .' S-L 2pm i a 12.1; 35-S 92b.1 l 6.9 8?2 52,. 1 12.°.9 3i. 7 .3 ':. :^_t i~~~~~~~~3. 3L. .L.1 1 ,v 7 .3 88 .6 57-1; +. 30. 1: .5 21 '.Qc:: Acrc-,;i:!_rR Cc- ss, 1i*i27 _$156' T,ile 28: FARM SIZE DISTRIBUTION IN CO1{PkRISODN TO ALL OF :BRAZ31 _21%0 _ ) _ _ _ _90 7K ?-f Farm % of Farm Tof Farm f Farnm % of Farm % of Farm 1eTctares NuJmber__ _ Area _ wumber rea _ _Numer _A t. h'a = _ ?EB) _ _ Bra7iY _lE B-razil NE Braz_ ail NE B+razil NE Brrazil NE Brazil NE_ Under 10 3L.-b I.3 2.8 h4,.7 61.7 2.! 4.3 36.0 L4b.8 1.8 2.6 10 - 100 50.9 3>.n 15.3 17.2 iAls..6 29.0 19.0 2:1.7 51.2 L2.6 18.3 20.9 100 - 1000C 12.9 10.3 32 .5 LO.5 9.,11 7.5 3.t 143.3 11.2 11.7 3M.0 43.A 1000 and Over 1.5 J..0 50.8 359.5 1.0 0.5 LL.1 :30.7 1.2 0.9 h6.,o 32.5 1/ I3RA 1967 Cadastre of Rrs'L Properties have followed different criteria ancd therefore are not wholly comparable with previous agricultural census data. Sources: NE 1950 and 1.960: SUMENE IV Kaster Plan, p. 50. All other: IBGE, Anuario Estatistico do Brasil, 1968. Table 29: SUEENE-APPRO)VED INDWJSTRIAL PROJECTS, 1963-71 (In 1971 Cr$ n1l1ion unless otherwise indicated) Tot--L FirmsI CapLtal Number of Projects Projected O0m 3LV18 Loan EmployTent Cost per Job Years Approved Inves t-wnt Resources Fumds Financiag Croatiohl o (Thou3 nd Cr$) 1963 59 4L1.3 153.5 8 .o 180.8 7,098 58.9 1964 52 8(3.6 1X7.1 158.8 237.7 9,478 8h.8 1965 58 5j?3.1 261.2 126.6 1bh.3 8,871 60.0 1966 77 931.? 222.0 423.4 286.3 21,892 62.6 1967 1.52 2,380.5 520.6 1,o66.7 793.2 25,029 95.1 1968 ]45 1,6(_.6 398.3 889.9 3,73.5 22,469 74.o 1969 1,21 1,646.5 428.9 838.8 378.8 15,518 10.6 1970 76 1,997.7 662.6 90h.1 431.0 15,926 12.6 1971 63 2,027.1 78h.9 910.3 331.9 12,947 156.6 TOTkL 1963-71 803 12L39.2 3.8y31 5 12.6 3 157-5 139.228 89 ; Percentage (100.0) (31.0) (143.6) (25-4) Source: SUDENE. T&)1) _0_: V. LUT C;' OUTPUT II ?rih,cPJRI-w IITqDU.31:., 1"5 I :-69 (:In thous;nd 15971 CrP) 1955 1966ii 1960 1965 1969 Tradition . 'Connswmer Goods j 06h, 007 3,`.7 200 3,963,976 4 3)13,0 h 1L,232 TeytY s 1t,ile.3,70C 1,281, h77 1,247,068 1,369,37% 1,201,170 Clot,hing and Footwce-r 71,666 lllL'L 127,382 155,317 195,590 Food 1,617,791 1,977.,589 2,0)414,060 2,2L2,653 2,h39,51l Beverages 107,678 197,102 199,8L71 191,231 225,059 Tobacou 124 ,h38 16h,917 17'3,9L1 201,227 211,085 Printing and Puhlishing 59,621 93,652 105,81)3 11L,L02 113,8 L3 FLrrnitiire and Fixtures Lc,909 60,999 61,191 68,9k0 7b,971 Intermediate Goods 'L086 810 2 L75631 1,970.,733 2,L931pL 2,936,219 Non-metallic Mineral 20L4,392 3 ,323,615 361,819 LIL9,556 500,760 Metal Industries 78,h09 210,758 228,672 298,030 340, 705 Wood .-nd Products !0,060 5S,390 52,fl38 68,05£ 8i1,348 Paper and Products U,,030 50,260 77,538 77,223 71,213 Rubber and Products £,333 20,9149 224,323 22,60L4 26,h70 Leather and Producto 7It,92U 57.335 53,553 58,F.33 51,60B CThemicals 626,662 1,728 ,L97 1,171,990 1,518,71!5 1,861,115 Cacita1 (oods 16 6 9 12l,86 17e, 263,144 33(,,L127 M:echanica_ X,757 30,975 32,96LI 33,027 52',590 l1ectrica1 I,89iL >-3,3)i9 P3,931 315,665 167,4f69 Transport EmUipnent 8,758 3C,522 61,715 115,052 110,368 Othcr 'I17'63 1;7,C( 1 i 5 11 TOt2l , AC1j5) , 13C, 2397 O f115l77 7.8191769 - Poduno .Industrirl. 5 z 31 D!L;THjTT'2 K.' -L'J ¸.- 1TPUJT ,Y INDIJIT'tY 1!2Y,t'' l9:, l9666-69 (Perrent.;gos) 1 9; u 19'.v 19ot7 19i A 1969'; Traditionnl Consurner GoocTh 73.2 2 7 6L.7 61.1 56.:L Teytile.; 2)i.9) 19.7 20.3 19.3 16.14 Clothing andl FooteTir 1.7 1.,7 2.1 2,.2 2.!5 Food 38.7 30.,1 33.4 31.'5 31.2 Beverages 2.6 3,o 3.3 2.7 2.9 Tobacco 3.0 2.5 2.9 '.8 2.7 Printiny and Puolishing 1.; 1.,5 1. 7 1.6 1.57 Furniture and Fixtures 1.0 0.,9 1.0 1.0 0.9 Intermedia te G oods 26.0 3£5.1 32.1 35.0 37.5 Non-metallic Ilincral b.9 5.0 5.9 6-3 -1J NIetRl Industries 1.9 3.7 3.7 Lt.2 4.3 Wood ancd Products 1.1 0.8 0.E 1.0 1.]. Paper and Products 1.1 0.8 1.3 1.1 0.° Rubber And Products 0.2 0. 3 o.b 0.3 0,2 Leather and Produc-ts 1.U 0.9 0.9 0.5 0.7 Che mica]Is 15.0 26.6 19.1 21.3 23.8 Capital Goods o.l 1.9 2.5 3.7 h .2 Meech -.nic.'. 0.? 0.5 0.5 0.5 0.7 Ehc-trin. 0.1 1.0 l.h 1.6 2.] Trarsport Eouioment n.2 0.11 1.0 1. I L.: Other 0. 0.3 0.3 C.2 0.2 Total 100.f 100.0 100.0 lOC.C 1LO0.c) SoUirce I'3GE - Pro,2ucao Indu3tril T-hle 32 : ID ItO3i LiD. .ESDDB I" i Y.I iK:TURITN :ENDIJSTIEs, 2958, 1966,-o9 (In thousand 1971 CGr$) 1953 1.966 1967 1968 1969 '.rac.:iticnal %onsiwner rGoods 'I 1 , 20 2bA7,101 if604i68 1,801 1287 Textiles 1±21,05e' 6z5,050 516,9l.L 55L,6)' 553,639 Cl.othing and FoOtWQMLr 35,151 ul,552 &.0,358 6Ob,'31 81±71I6 Food 670,828 71±3 ,510 737,731± 606,837 8I3,806 ,elverag,es 66,666 120,313 121t,Li5 121,559 1's6,013 Tobnccoo u0,151 200,027 117,7"7 127,061 130,315 Pr:inting and PublDlishling 3",-727 65,291 68,988 '76,106 73,936 Furnitu.tre aLnd Fixtlues 2'.,621 33,328 3L,163 36,256 ±0,,382 Intermediate Goods 3 . 1,239 6 33,281 1,067580 1,201.150 'on-nmetallio Mineral 169,999 199,6h1i 236,166 301,960 331,322 !'etal Industries 38,l ±9 113,190 98,175 131,091 165.212 ;!ood anid Froducts 2 ,8 33 28,335 25,825 33,859 40o,75 Ppoer and Products 1,1±22 29,871 36,189 30,69 30,166 PubDber and Products ',697 9,812 10,L26 10,813 13,063 Leather and Productsi 3, 666 29,122 ?7,665 27,323 21,209 *Che±ri zls 2(6,968; 839,375 398,535 528,e81I0 599,4±03 COqital Goods L712 6o,330 101 0 128 9)i8 161.920 MIehanical. 2,803 20,07)i 20,873 19,0li2 29,01I nlectri.ca1 1,2)2 26,316 55,bOl 62,193 88,,019 Transport Ecuinment l,697 16,9h0 25,122 h7,713 U1,857 tho :r 2, 6O5i8 /~ jl i, i?,, 7285 Tot :1 1,9] IjDO) ] K'L.25,28 '-Pi0/1('ˇ 3SpCfj1}9 ˇ21,2 792 ''rab1X' 33 : Ss?L''i.b;E,T i!I_ N U.o!.JITlJ.!S 5T 9e.s (Tho.i-,;mf-i, ;,orl -e- s), .l9 . 15'ZD:, ~~~~ ~ ~~~1967 lCJJ*A 2 9,9 Trad!itional ;,onsusne-r (,ood-, l g jGA 152 ,5~ 114 093 1 1'e;7 1l:C'I 75 Tex t i e s 6i, ( <'z 1, i9,5j23 L6, 814i Clothling= a:nd sotlDr7,0 E,i 7 c 7, 1 1, 8, f759 Foed 6,-6 62, 13° 2,,3 sel 66,380 Beverages l!qr 1{}1 843; o25X &,795 Tcbacc,o 2tv; ilvcf I 0 ; 7, 05, 6,j(j39 Pr intinfJ anld Riblislin 6 5-vo19j '. .,2& 7,13 Fuirr,iture zind Fi-Ztures i77Z /I292 1L«2Z ,3i> L",372 In te r:-Pedi ite .Good_ s,,J 51 ;!i 5*'25612L Nlon-me t,;4lli.c l'inera:l 117, 73,' 1t ,27 ,-,; 70 .(Or 2 -', 390 Me t:-.1 rM -7 j 2 ?);7,! ; 2,27. ChAe-i r!31- IF,5' ', 7',J3 I<58a' IL 1 10, o :D3 vaqo ;.' Jeo' ....... ; I A~~~~~~1, 7C; . ,117 6. 9 67?; 7. 1 7 ;.2f-hanical~~~~~~~~~~~~~~~~~~~~~1 i 2 125'? 1,3Pi9 1, 653 1,'97 netztr:i_?l 1't ~ ~ ~~~~~~ ~~~~~~- 7,9 9 2,7[ 35-!; -or. soort Enui pmn' nt. 2,.,r3i( ,3' 1,973 _ _i_ t. ,__,_f ~~~~~~~~~~~~~~~~~~ ~~~~~~201; 9 ( 212 24i 20,1.92 Do.iz?: ro-,-i lao l,n lustriz. . - 4 1 95 . ., . j', .," K 8,jIf,' I:.IDILTRP3, 295F., 1966-59 (In tholusand 1971 Cr$) 19150 ] 1967,' 1966 1969 m i s iit,r,3 ? IV 3-62 3 3b] ,918 395.Xj7G2 20,679 .-,ti n:J SI9,5ˇ1 121,005 -i,423 o tinc .. 7 ?ootwe ;r 1 ,i3,8'2 1a,C' 19,167 .,b 13 7,6C) 1 ,056 25C0,052 170,667 i60,567 HW.er.,ge3 11,10G 259,83 2., I.:81 33,050 33,28r Tobacco 11i,970 I9,92h 2.9,517 17,3i9 lb ,l98 Printing a,nd Publishing 1i',5i;: 2',132 23,601 25,23ti 28,916 Furniture .n.i Fi.Utures 9,921. 11,337 10,901 11,70J6 12,1039 I-.'rerrned:Lto iGoods 107,196 ?C(,,P75 3I !,L62 225,190 28 2,U6 'n-mnet--lic 1'iineri.:L 3:,5 30 I W,162 52,26 'I-,o82 71,351 Metal Industries 1(0,51 21,546 23,I00 30,64)4 3S,727 '.ood a.-,' Products 9,!1:2  ,8623 9,569 11,295 '3,678 PaDer and P'roducts :3, 61 c5,823 8,202 8,888 9,330 Rubber and Products 965; 2,561 2,766 3,172 3,214 I.Lathor and Products L,136, 6,503 6,702 7,1810 6,&92 Ci,riewr ic^ a1 35, 117,0137 9C,916 97,325 139,206 2aital "oods 16(i6 19,i!0 <111 ,5 :PThanLcz;l -:1,061 01,950 5,P607 6,182 10,069 l--jctric.al (o. , 2;,]17 7,'.01 10,907 18,L6G Trmpr).Port Enui'nment ˇ ,005 9,sc, 5,992 11,022 12,996 ' C t j,i , S ;')2., D9 *-, , C 7 t .),,(lL a2 ~~~~~~~~~~~971 , i, t j - !'-' ; ' 1- _I - L, I C . ~ ~ ~ ~ ~ . . . . . . ... . . . . . . . . . .. .. . ._ *r. ' j C - " - i ': -, n ;J Ej,7 L, t- ., . .. ,, . L - I '' * ',Z ..,.'- 6j L ;6 0 4JjOJ ;"w°d [)L.n..... .1aqq1iv{ )'I [6 G~ -6 Z ." ' sf i7 L - OG 06 [C +1 L [1' !;U-L lad i6 606T t C 'A 6 :-Cu'4TpW9U 61 Oi. 0 1 < ft [ I.t6I Lr. '-,;'e ', 1W ) t t(P oC 6 - ZC kX,",o ' . , 611 o.e 99 6(?~1;L L'[OoTqu V96 [G illc'~ *"G7 L*-EC ?c () ['-u 'U11 , U ian,lTu,J'4q j6 - . !7 ,76 91 L- f p Z ,- , LL- ' . [U ' D ,j:lt;a l G C O5 olbz£ ° 'lc supini [.LmL: .ut,[ U5IL -'lil L'CT 9`"') 6-., C-S -U i ';PZt Lz <:E &11LVL;C, ; t1-~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~L tro t< I 'c "Ie' )-t S(s'[tO C 4i}Z l {JZ G"5Z L-/;Y 1 1,- .. UA;'}°° ... T~~~~~~~~~~~ j U J'I4O I , :;6- S.J, () "Y ' S l . U : o _ 1e 36 16 CS VALUiE ADDE.D P:'' ZU{PLCYEE, 1958, 1966-69 (In Cr$ thou;lsa-:d 1971) 1958 15966 196 7 1968 1969 Traditional Consuner Goods 9.2 11.0 11.'l 12.3 12.I Textiles 6.9 1O.6 10.6 11.8 11.E :lothing and Footunr 5.0 10. 1 9.2 9.2 9.7 Food 11.4 11.9 12.1h 12.5 12.7 Beverages Th.6 11.7 13.9 15.0 16.6 Tobacco 16.2 9.1 12. h 18.0 18.9 Pr:Lntirig and Publishin 7.2 10.0 10.'; 11.2 10.L Furniture and FiLxtures 6.5 7.8 8.o 8.1, 9.2 Intermediate Goods 13.3 23.9 16.1 18.7 19.2 Non-metallic Mineral 9.6 10.9 12.' 15.0 1h.2 Metal Industries 11.1 17.0 11 1. 15.h 17.0 Wood and Products L.R 7.2 6.L 7.3 8.4 Paper and Products 12.9 9.9 1h.1. 11.2 11.2 Rubber and Products 16.6 11.7 12.7 11.3 11.9 Leather and Products 8.6 11.9 11.1 11.0 9.3 ChernicSls 27.9 07.6 25.0 30.1 32.6 C'apital Goods 6.8 15.L 20.8 19.1 20.7 Mechanical 6.9 15.5 15.0 11.5 1b.5 Slec trical 6.L 18.8 26.6 22.8 22.9 Transport -"cuiprnent 7.0 ]1.9 17.8 20.3 22.7 ^ther ?'.? 9. . 1C . -,' 6.7 Tota:l -. 1)! .3 32.51 1K,.2 1!.7 _ _ __3c~ __sti Te. 2 - ' i, a * * ,'ix'^ '.) .2 2.0 2.5 2.G Prink, r^en',i Publ.ish:ing!& . 3.- " . 7 )I.C, Furniture and Fi:tuc5s ).2f 2.(, 2.6 2.7 2., Intxrrm.diakte Goo,,; 2.7 .C 2. 'ion--?not-llic tiner^l ,0.1,! 2.5 2.P 3.2 3.C0 i:et.-l ln,3uit-ries, ;.' 3. .L '.r .o '.ii and Products 1.7 2.2 2.h 2.L 2.1 Ppn?' nrn- Prj. uts 2.! 2.9 3.2 3.2 3.1h .'ubber nn- PromuIwts 3.1 3., 2.9 Ie.t?F,}ler ^!i,d Pro 1w.^t: 2 2.7i 2 . 9.'j C' ~h?r;e lSi ^ .z * 7. _ 5 .C 7 OAt:r. { "oils II . .? t 5 , - 't-.5.':-5 .'., 8'.)' ,~~~~~~~.( t !.Q) 4J.) ~^ral .3<. v 'd 1 'lt-6t r('} >,,,g1, , r , ,;-( - - -X Table 39: FIXED INVESTMENT IN MANUFACTURING INDUSTRIES, 1958-71 (In million 1971 Cr$) SUDENE Total Snonaored 1958 137.6 - 1965 413.8 52.4 1966 403.1 172.7 1967 604.3 456.3 1968 931.0 839.6 1969 1,439.1 1,071.3 1970 n.a. 1,278.9 1971 n.a. 1,318.0 Source: SUDENE and BNB Table 40: CHARACTERISTICS OF NORTHEAST TEXTILE INDUSTRY AVERAGE AGE OF EQUIPMEZN. 1959-69 (Percentage) Spindles Looms 1959 1969 1959 1969 Up to 30 years tv o- More than 30 years 54 19 81 31 100 100 100 100 TOTAL (thousand) (642) (433) (22) (il) PRODtITIVITY. 1969 (Latin Americac Standard-100) SPINNING WEAVING Per Hachine Per Worker Per Machine Per Worker Old Firms 71 80 66 36 New Firms 113 112 350 127 Brazil (1961) 64 46 54 30 Colombia (1962) 86 127 95 107 Western Europe (1965) 103 195 - _ United States (1962) - 288 _ _ EMPLOYMENT IN COTTON TEXTILE INDUSTRY, 1959-69 1959 Employment 32,573 1959-1969 Inflow 7,371 1959-I969 Outflnw 9;334 (Modernization) (6,698) (Closing) (2,636) 1959-1969 Net Outflow 1,937 1969 Employment 30,610 NORTHEAST TEXTILE INDUSTRY ITS rJWS1TIO-[ VIS-A-VIS BRAZIL. 1939-6;, (Percentage Share) 1939 1949 1959 1969 Employment 26.6 23.9 17.9 13.8 WaRes 16.4 14.9 11.2 8.4 Production 17.4 17.2 16.3 10.9 Value-Added 17.7 16.4 13.9 9.8 Source: Smim h.., n lt: ri1 i ,. Y r. SL F >; ), BY J'; 1[!'' * / ¢ ) PQ7 -u . *_ '. . .~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ A Tot; al ____ la? ___,ti2 St< _ _ _ _ ____Pr ltnc Re~ion Lot,al 1'ot31flJptrenc2c 2H8,e 52 16,9L48 5,391 11 ,57 39,14'96 20,9 93 9, 593j 2 ,L0u 2' 13, 2 1?3% Ok N.ational Incre2-sp 1019 1)) 191 1.) Y" 1- ) l 1V) % )10 5 12 83 /1 As cf 19,:5G SoL rc2: iH- ;and Anupavio Estat`stiico do Brazil (?1 i) K:5 2'',. ":: T - '¢',r AGC:-2OF TOTAL 'NrD1o0 i ATERA,I,GE ANIUAI, RAT'E Of GRaP:TH BY RlGtON, L ?5 5-1 9 73 Total Fed-;ral F'ecldral State State ProviiTcial Total Favod Tctal Paved Total Paved 1965 i2S; ?1 33 2JI ˇ1 12 21 32 1Y7) 2 7 2 ˇ 6 22 1.2 28 16 AXverage anniual rate of grow.th 9.5 5.7 1I9.6 7.0 12.7 10.1 21.6 "iorth 1965 1 5 2 3 5 - 35 1970 2 59 1 6 6 1 10 Average annual rate of growtlh 22.L4 2-).2 0 27.4 16.t4 19.5 10.1 Center 1965 8 18 5 17 1 6 4 1970 9 18 6 18 3 7 - Average annual rate of growth 8.7 8.8 16.L1 5.5 22.6 10.0 S.outh 1965 67 LL 73 59 82 70 29 1970 62 1 67 514 79 65 74 Average annual rate of growthi 5.1 8.2 12.9 3.9 10.2 2.1 69.0 Brazil 1965 131 1 0I 100 13 130 100 100 1970 lC)0 1031 10;) 100 100 100 100 Average annual rate of growth 6.6 8.3 13.8 5.7 11.1 6.8 4O., 5 Source: DIER and Anuario Estatistico 1''71. Taible 4s3: RELATIONSRIEP BETEEN ARA, POPULATION, AND NUBEARS OF 'VE1JIILES BY RIGIOT[S 1970 Popuan3n = = -1rTt §;E e7/ r.Mle/- Region Area S3 Km in thousands vehicles(*) 1OCO Sq Km 1000 Iihab. North 3,578 3,515 33,638 5>. 9.6 a 1¢:'.1 3.8 1.0 Northeast 1,51a6 29,071 310,452 200.8 10.7 %" 18.2 31.1 9.0 Center 1,880 5,052 126,531 67.3 2.5 a 2.2.1 5.4 4.0 South 1,503 55,890 2,980,690 1,983.2 53.3 a 17.6 59.7 86.o Brazil B,507 503,531 3,451,311 405l .7 35.9 % 100) 103 100 * Estimaates Source: IJGE 1970 - Anuario Estatistics do Brazil 1971 Table 44: RElATIONSHIP BEIWEN AREA, POPULATION, ANI) LENG'IU OF IGHICWAYS BY ReGION, 1970 Federa1 State _ Municipal Areae in Pop. in Pop. Totil _i km/ km paved/ km/ I D paved/ km/ km paved/ I1u/ Ell paved/ km/ km/ ReRion 100sqkm lOOOinh. density /10009g. ! /1000inh. 1000q.km 1OOiOSqkm 1000inh. 1000inm. 1OOOBq.km 1OCIOOsq. 10001nh. 1000inh. OO0agkm IDOOOInh. North 3,578 3,515 1.0 3.9 1S.1 1.2 .07 1.3 .07 2.3 4.1 2,4 .4 2.4 2.4 Northeast 1,546 29,074 18.8 181.1 9.6 9.6 4.0 .5 .2 17.7 1.9 .9 .1 153.8 8.2 Center 1,880 5,052 2.7 48.7 113.1 5.2 .8 1.9 .3 1'1.9 .4 4.4 .1 31.7 11.8 South 1,503 55,890) 37.2 430.3 1'1.5 14.9 10.11 .4 .3 44.8 12.2 1.2 .3 370.6 10.0 Grand Total 8,507 93,5311 10.9 122.2 11.1 6.1 2.El .6 .3 1 4.7 2.8 1.3 .2 101.4 9.2 Source: DNER, IBGE - 1971 Table 45: TRAFFIC MOVEMENTS ON FEDERAL AND STATE HIGHWAY NETWORX BY RtEGION, 1970 Passenger novements Iruck Traffic Total lraffic Federal network State network REGION STATE '000 tons-km In '000's Vehicle-km In '000's p,q. km in 'O00's fpaS. km FEDERAL STATE CAR BUS TRUCK CARS BUS CARS; BUS NE MARANHAO 311.3 101.9 50.64 11.76 68.03 75.0 158.6 71.8 129.4 PlAUI 128.0 10.9 9.70 2.66 18.94 24.6 56.0 3.5 9.0 CEARA 479.5 91.1 38.81 6.72 73.56 74.5 134.9 37.9 29.5 RIO GRANDE DO NORTE 166.0 52.8 29.48 4,48 32.62 58.4 77.0 26.S1 32.8 PARAIBA 462.8 146.3 1:20.93 17.85 101.06 238.4 313.1 112.2 124.1 PERNA'IBUCO 1954.5 664.7 355.91 62.55 368.67 639.5 1064.3 392.5 468.1 ALAC'AS 733.7 280.3 77.89 13.22 132.69 152.8 209.5 73.0 114.3 SERGIllE 494.4 138.5 653.28 8.13 80.60 134.9 158.5 48,5 40.6 BAHIA 2712.0 865.6 285.13 59.53 434.68 568.3 1145.3 258.5 313.1 TCOTAL 7442.2 2352.1 10:31.77 186. 9 1310.85 1966.4 :1317.2 1024.8 1260.9 Cer.ter YATTO GROSSO 1787.0 292.4 132.96 18.713 288.79 301.9 380.1 83.6 80.0 GOIAS 805.6 256.5 201.95 32.35 159.44 441.0 665.3 144.6 127.2 T()TAI, 2592.6 8,_ 334,91 51.13 448.23 742.9 1045.4 228.2 207.2 South TOTAL, ALL STATES; 42304.1 140145.7 10417.38 997,83 9380,41 18500,4 115443.4 11709.2 8004.1 BRAZII 52338.9 443046,7 117854.06 1235,91) 11139.49 21209,7 20806.0 12962.2 9472,2 Source: SU8E!E - DNER Traffic Surney 1970 Table Ls6: FEDERAL HIGWAY INVES'ET PROGRAM BY REBION, 1972-74 (in Cr$ m3illion 1972) Cownnt.runtA n n Ard/or pay-i ng Region 1972 1973 1971? Total 72-74 i; Northeast 61X 369 h1i 1,L2L 25 Amazon Region 4h3 437 137 1,.J57 19 Rest of Brazil 861 1, 06l 1,232 3,1, 46 Total 1,978 1,867 1,810 5,655 100 Source: DWER budget request March 1972 Tatl! L7: FZD>AL KI0iMAY Il;VM7SS T PROGRAKS N rx OPtTHEAT (19?2-70) Clr-OT$ millions 1972, Construction and/or Paving) BP SectiOna lImgtb 1972 1973 197i Total State (km) Picos-Satte .mroor PI/CE 85 - k.5 - 1.5 7 i 2%-6Frtaieza 278 L.0 17 0 22.9 Li3.9 CE State BrJer 00/BA-BR 2W2 225 - - 10.0 lC.C BA Brastila-Campinho i,096 6.6 9.9 13.9 30.4 EA 1.1 Nat+-Parela"merir 20 1.5 1.5 - 3.0 PN Sec:^e Boltwaf 33 2.0 - - .0 PE Maceio-Sxate Border AtL/SE 171 6.8 6.8 AL Sa, &Yn.'-Y 3co Bridge 1 1.0 =l 1 .e /SE :5planade-DR 324 13 - - 47 .7 ai Rg 32i,-Pedrc Canario 602 254.1 34.6 - 2d6.7 EA ;t, Ca,Lpina Grtande-8R 316 293 22.7 22.7 30.2 75.6 PWi/PE Areia Branca-Mossoro h8 - 2.0 L.0 6.o MN 'i IcL-State !\ rder PE/BA 275 2.4 - - 2.- E/C 15 Peritcra-?re31dente Dutra llo 5.0 4.0 - 9.0 MA PresIderte Dutra-Pastos Bons 178 - - 12.0 12.C KA SobralnPr,pripc 2,,0 22 - - 28 2 C "4I: .o0 leresina-Prnsidente Dutra 220 4,2 8.? _ 8.L RN Currait- Nove -3Statee fbrdar ?'A/C 219 A 1= 1< 6. C Jaguaribe-Mineirolandia iLS - .5 16.0 l.5 YA Currais Novca-State order RN/PB 150 .5 .5 - 1.0 Fdf State Border RN/PB-Pamb&l 38 .5 .5 - 1.0 P3 Pomba1-ER 310 373 10.0 *0.0 4.7 2L.7 CV?PI Picoe-Caro. Ina 75B 10.0 10.0 _ 20.0 Y.A vS2 Recire-Salgseiro 511 1.9 - - 1.9 PE 234. Garu:huna-BR 316 12h - l.6 22.7 36.1 Pt/AL 2:5 F 101-Rib-troDolie 61 5.5 5.5 7.1 16.L AF SE 206-Cerara 23 - _ 1.7 1.7 SE 2,22 Argoim-BEarrelras 662 - 10. 10.C 20.0 bA 0L4 State Border CE/RN-Acu 96 .5 - - .5 RN il6 i3ate Broior PA/MA-Peritoro 42C 2 5.0 20.0 20.0 55.0 P.A Rio Paxnsiba bridge 2 3.5 - - 3.5 Pi !Teresina-Picos 316 15.' 7.0 1.0 23.7 PI 1 /232 Pco,-Salgueiro 297 35.3 35.1i L7.1 117.8 Fi/PE '26/231. Palmeiros cos Indies-P. Alfonao 184 - 2.6 32.0 34.6 AL _1 Peira de Sartana-Salvador lOp 67.0 2.5 - 49.5 BA INoru. Access to Salvador 7 8.1 8.-. 10.8 27.0 BA Ubata-Lbaituba 29 5.0 6.0 11.0 BA 2i) Lis. Caxr-x- -Qmpo Kajor 262 12.0 1L.0 8.0 jo.0 PL. 'S NoMsorao-316 97 - 2.3 1.0 3.3 RN * 7 Picos-Petrolina 308 - - 11.8 11.8 PI/PE 12fA, 1 Farinha-Cruzeiro do Nordeste 203 - - 8.8 8.8 TOTAL 9,576 506.0 248.7 321.7 1,07,4.L Contr Dutjon of Spocial Program Provale iiignway Program 2/ 110.C 120.0 120.0 350.0 PRorFRA Northeaat Highway Com,ponent 1/ (45.7) (4j.7) (2b.7) (116.1) PTN (Progr. a dee Intagracao Maciornl ) t.' I C) Ili,, I1.S GRAND TiTAL 61h.o 368.7 441.7 1,L214.b >,urce: DNER budget. r.queet and miasion eatamate Ka.h 1972. I Funds derived fr,,m PIN and PRO0ERRA are included in the above figures. They are, therefore, not double counted. t/ Only the global figure ia available. The breakdown ie arbitrary. Tab,le 48: CLASSIFICATION BY FARMERS OF RURAL ROADS A-TZORDTNNG TO V3AB!krl.- DURING BAD WIEATHER, BY STATES AND TERRITORIES, '9b5 State or Percent of Farmers Reporting -Roads Impass.iblc ! . Territory Zero Days 1 - 60 Days More Than : Ronlonia 78.83 5.L3 Acre h5.81 27.15. 55 Arnavonas 6;3.91 7.63 2,:i Roraima J5,89 9.23 : 1' Para 82.61 3.70 _ Amapa 98.78 0.02 1.?0 Maranhao 62.99 12.40 2h.61 Piaui 70.h0 18.07 11.93 Ceara 46.63 27.19 26,1 Rio Grande do Norte 62.23 23.54 1L.23 Paraiba 63.60 23.3? 13.03 Pernambuco 63.08 2 7. 8 9.0 Alagoas 72.1h 1h.53 13.33 Sergipe 76.22 17.30 _ Bahia 71.28 21.9I 6.7c u,inas r-ras 62.25 23.80 13,9 Espir4to Santo 66.02 26.37 7.6' Rjco de- Janeiro 56.92 20.52 22,5 Cuanabara 97.93 1.76 0.31 Sao Paulo 73.80 18.65 7.55 Parana ?2.h2 20.26 .32 Santa Catarina 69.38 22.31 3.2- Rio Grande do Sul 7?.57 21.16 h.3 Mato Grosso 62.95 11.5L 2 . L' Goias 79.02 9.28 11. 70 Distrito Federal 96.80 1.37 1.83 Source!: IBRA, A Estrutntra Azraria Brasileira Vnlhlme 1; 1967% Table 49: LENGTH OF THE RFFSA RAILWAY SYSTE1M B nRGION, (i), 1968-70 Regional Systems and Divisions 1968 1969 1970 N:ortheast Division Maranhao-Piaui 453 807 807 Division Cearense 1,734 1,379 1,379 Division Nordeste 2,781 2,726 2,726 Division Leste 2.170 ?2,36 Total 7,438 7,3h8 7,3h8 Central Divisionl Centro-Oeste 3,L61 3, 11 3,663 Division Central 3 O005 2,888 2,823 Dilvision Ueopoldina 2 6L67 2.396 Totnl 8,933 9,066 8,882 South-Central Division Santos-Jundiai 139 139 139 Division Noroeste 1.32 1.627 1.607 Souith Division Parana-Santa Catarina 3,55 ,0s 3,052 Division Teresa Cristina 242 2L2 236 Division Rio Grande do S ' 3,2 3; Division Santa Catarina , 180 181L -814 Total 6,722 7,133 7,125 Total RFFSA 24,864 25,313 25.101 Sourze: Annual Statistics of RFFSA, 1971. `aLv >T-' 4rFF'rC DN:r!TY E X Trl !. :ATL:p,'Y SY'_-:;, 1w;a-197) Regional System Passenger-kF ,rr route ;r (&))) Freight net ton-kn (000) lioo -l66 j6 197) 1 6A 1969 19'70 'orth3ast 1. D:v. !:r,-ihoo-?Laui 35 36 33 27 20 1 2. Divr. Csaren3e 12) 121 78 101 11X 3. Div. 'Iordeste 11.3 94 103 115 103 &9 4. Div. Le3te 6 9 90 97 ? 102 13) Total 91 91 96 89 93 100 Central 7V47 717 6661 650 727 805 Central South 1,212 1,027 925 u65 658 626 '.outh 7 5 73 71 33?2 t07 43'L J2.''C;l r LV 375 347 L10 48 480) c',>xCh i '.nuArio '.sttst1sir7o, 1J72. .; X -ch 1i72 T abie n- rrL-r Drrit !yMrI fV72-J -7 1. Ir % S.WI,s.rV B t,^A If TII M0R,U.A4Tw RATT1IAY qYrI_, (in Cr$ million 1972) Projects Total 1972 1973 1974 A. New lines Iacu-Mapele and of Caboto 80 - 30 5) lacu-;1ontes Claros 10 - - 1D Spurline to Mataripe 5 - 5 - Goianinha-Estivas 1 1 -4Ctt: -4 -;wo -- - ?ersonnel Reduction 5.7 1.5 2.1 9.1 0. Oquipment for Storage and Stations .6 - .3 .3 q. ,quiDnM,nt for Halls and Frrn,ina 1.1 .5 .3 .3 L. Modernization of ofC^ices 1.0 .i .5 W. 'unUrovement of the nct;ork 1Th.9 60.2 62.2 52.5 3. Other investments. 6.o 2.0 2.0 2.0 Grand Total 285.3 65.3 102.4 117.6 Source: RFFSA, March i')72 1, OF TIlE \ ! ' '::OR II2ir\ PoIkl'T, 11 0) (In 0Os tons) 1960 1961 IS162 1963 1964 1.965 1966 1967 1968 1969 1970 1911 Sao Luis - Itaq[ui n.a. n.a. n.a. n.a. 196 264 280 190 318 356 315 277 Fortaleza (Mucuripe) 2631 210 1.73 180 383 639 787 898 1,003 949 949 919 Areia Branca 279 234 232 163 167 174 269 298 361 312 n.a. n.a. Macau 270 356 451 461 331 341 324 421 306 445 n.a. n.a. Natal 157 199 1.00 105 83 136 155 169 186 169 148 n.a. Cabedelo 226 256 213 176 158 224 211 142 288 285 234 n.a. Recife- 2,057 1,863 1,735 1,499 1,348 1,590 1,005 1,729 1,934 2,228 2,337 2,545 Maceio n.a. n.a. n.a. n.a. 128 298 427 147 570 660 828 n.a. Aracaju 54 71 n.a. 18 3 33 122 627 1,072 1,518 1,584 n.a. Salvador 1,457 1,869 989 850 491 528 982 623 506 736 552 667 Madre de Deus - - - - - 3,970 5,230 5,761 5,987 5,872 n.a. n.a. Ilheus n.a. n.a. n.a. n.a. 71 143 202 28 100 153 287 n.a., Source: Sunamam Banco do Nordeste (Etene) 1971 Table 53: PRELIMINARY FEDERAL HIGHWAY INVESTMENT PROGRAM IN THE AMAZON REGION, 1972-74 (in Cr$ million 1972) Section L^nbvh 1072 10713 ' 0197 To+~l (In km) A. Construction BR316 Belem-Sao Luis!/ 123 20 20 - 4o BR230 Transa,azonia / 2,290 170 65 - 235 BR165 vuiaba-Santarem 1,618 70 68 38 176 BROlO/ 226/153 Belem-Brazilia / 1,452 128 157 35 320 BR174 Manaus-Venezuela _ 1,200 13 26 23 62 nn-n.. nl.a. 01T-"I'D. 0 0 7 LJl3,± Yaus-PourL Velho uuu 31 L8 8 c°7 BR317 Humaita-Labrea-Rio _____o RAQ 15 19 26_6 BR156 Macapa-Ouyana 600;W 6 6 7 19 BR236 Aluna-Pern 7hh 30 28 - 58 TOTAL 9,702 483 137 137 1,057 B. Studies Perimetral Norte and links to Peru, Colombia, ourinam 1.4it4 u 4 GnpALN=TOTAL lL,z221) 1,065 t/ Includes only the section Capanema-Para State border (123 km). / Corresponding to the section Estreito-Humaita. / Corresponding to the section from Santa Maria to Poranqatu. hK Including the section from Boa Vista to Guyana (BR-401). / Estimate. Sources: DNER budget request with some minor corrections. .27) .. - . * . . , . . . . ) < ~ ~~~~~~~~~~~~~~~ 'I (o , ' C, _4. zU@ **t 1$e+ *- -u'^bt.*>;'~ 6 E S .Prt .4. I A -A---~ Al '. -, >A; . nn t.' . '> :, **:;.kS" D ) t, ° '\'--t "' *- ' ', */1''- ~~e I I 'I -, N~~~~~~~~~Af 7 Cue I hr~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~i NATIONAL H IGrQWAY NEFTWOI?K P0.1d wo-d,~ Rood, g,.d. c-"§l-,lad lo .z I-[ ^Z.n slond-ld l .1 -o.od \ - H.r,HnWAYS IaNCLUDED INl THE SECONG( FR(tJfCr2 i _ sc. oosirsilOe od lo, ve^ BRAZ IL I 5UTH AMER-CA -b~~~~~~~~~~~~~~~~~~~o ,,~~~~~~~~~~1 0 t : C. A.-si - MrfM l;,t~~. \ ,b*. ......... P T ° ° ° 5^ t e **t^^^-co;t,\\gt S A4 MACEI .r",>/\->tt ,, ................. ,t';---/ ' '-o,;;, {y t3,'- R \r He - ;; cv^;;;