long-term equity and debt financing to Brazilian industry. Specifically, the program is expected to:

(1) channel private savings into industrial financing by encouraging the public to purchase existing and newly introduced long-term corporate financing instruments.

(2) strengthen the institutional framework of Brazil's capital markets, particularly the financial intermediaries charged with the underwriting function.

(3) encourage existing, as well as new industrial firms, to resort to the capital markets to meet their long term financial needs, thereby broadening the base of the existing market, and increasing the extent of public ownership of such firms.

c. Description: A $50 million rotating Capital Market Development Fund (FUMCAP) will be established within the Central Bank, to be repassed by the National Development Bank (BNDE) and the National Savings Bank (Caixa Economica) to qualified underwriters. FUMCAP will be capitalized by the AID loan ($12.5 million), a World Bank loan now under negotiation ($12.5), and a matching contribution of $25 million from the GOB. In addition, the AID loan will include $2.5 million of technical assistance to Brazilian institutions involved in training and research for the capital markets, including the Central Bank division charged with regulation of this field.

FUMCAP will be managed by a high level tripartite committee, with representatives of the Central Bank, BNDE and Caixa Economica, which will provide overall policy direction and periodic review of its operations. FUMCAP funds will be administered by the BNDE and Caixa Ecnomica which will repass the funds to qualified underwriters. The latter will utilize the credits to finance underwritings of industrial shares (preferred and common stock) or debentures (bonds or convertible debentures). Lines of credit to the investment banks will not exceed 70% of the value of an issue, with the underwriter supplying a minimum of 10% from its own resources and financing or arranging to finance the remaining 20% of the issue. These credits will enable the underwriters to finance the placement of corporate instruments in the market, and at the same time make a firm and reasonable offer to the issuing corporation for its securities. A manual containing special regulations on disclosure, distribution and trading will be issued which will apply to corporations and underwriters utilizing FUMCAP. . 2. Supervised Agricultural Credit in the Northeast

Amount: $25 mllion.

Executing agency: The Development Bank of the Northeast (BNB).

a. Background: While the ratio of agricultural credit to gross agricultural product (GAP) is low in comparison to more developed countries, geographic regions in Brazil have historically received a share of agricultural credit roughly equivalent to their contribution to gross agricultural product. In 1969, however, the Northeast GAP was approximately 25% of the nation's total, yet this region's share of agricultural credit was only 14%. While agricultural credit is inadequate in all of Brazil, the shortage is more severe in the Northeast. The major reasons for this disparity are the lower return per unit of credit in the Northeast, and the limited technical capacity of the Northeastern farm population to economically absorb credit. Both of these factors emphasize the need for a stronger supervised credit system. Given the fact that the Government has given emphasis to agriculture and is allocating additional resources for agricultural credit in the Northeast, conditions are appropriaté for A.I.D. assistance.

b. Objectives: To increase the flow of credit to Northeastern agriculture and at the same time strengthen the supervised credit system through providing a linkage between credit and extension services, and through integrating the extension service with research activity. The ultimate objective will be to increase productivity with resulting real income increases to both Northeast farmers and

consumers.

c. Description: Loan funds will be repassed through the BNB's 68 branches to farmers which are commercial or have the potential of becoming commercial farmers. Approval of loans will be conditioned upon approval of farm plans by the State extension agents, who will provide applicants with technical advice in selecting commodities, and in the selection and application of farm inputs. To increase extension agent coverage, 2% of loan charges will be paid to the State extension services to assist them in covering the cost of hiring and training additional agents.

To provide a concentration of effort, the program will be limited to 35 selected regions which are characterized by agricultural potential and access to markets and farm inputs.

The emphasis of the financing will be for labor intensive technology of seeds, fertilizers, pesticides, and on-farm storage.

The interest rate will be subsidized by the Government of Brazil. In real terms, the interest rate will be zero or perhaps slightly negative.

In requesting the loan the Minister of Planning stated that the Government plans to allocate in excess of an additional $100 million in cruzeiro equivalent to agricultural credit in the Northeast over the next four years. The BNB stated that it would allocate an additional amount of credit equal to our loan during the three year disbursement period of the loan.

3. Small and Medium Industry in the Northeast

Amount: $10 million.

Executing agencies: The Development Bank of the Northeast (BNB) and the Superintendency for the Development of the Northeast (SUDENE). a. Background: In 1961, recognizing the relative backwardness of the Northeast, the Government of Brazil embarked on an aggressive industrial development program for the area. A Superintendency for the Development of the Northeast (SUDENE) was created to organize this regional industrial initiative through an innovative tax incentive scheme which allows Brazilian corporations to receive a tax credit for investments in Northeast industry. Since then most of the publicity in connection with SUDENE has focussed on the over 750 large scale industrial projects that have brought over $1 billion of investment to the region. More recently, however, the government has begun to recognize the potential contribution of the small and medium industry (SMI) sector to the overall industrial development effort. Recent studies have indicated that the SMI sector contributed approximately 35 percent of the regional industrial product and accounted for 38 percent of regional industrial employment in 1969. Furthermore, the capital to labor ratio for small industry in the Northeast is less than one-third of the ratio for large scale industry; a critical consideration in a region where the number of persons added to the work force each year far exceeds available new jobs.

b. Objective: Given the present importance and future potential of the SMI sector in the Northeast, the purpose of this $10 million loan is to increase the contribution of this sector to the overall development of the region, by improving the level of management and technology employed in the sector and by making available medium term credit.

c. Description: The two principal agents of the program will be the BNB-the regional development bank chartered in 1954 and today the fourth largest bank in Brazil-and the Small Industry Section of SUDENE working through its Industrial Assistance Nuclei (NAI) in each of the ten Northeast states. These two organizations worked together in an original SMI program begun in 1967 but discontinued in 1969 due to a shortage of funds. The original program resulted in credits totalling approximately $10.8 million under 459 separate contracts. The new program, proposed to A.I.D. by the President of the BNB and strongly encouraged by SUDENE, would provide $28 million in credits, technical assistance, and budget support. The financial portion of the program, totalling $24 million with A.L.D. loaning $9.5 million and the BNB and other Brazilian government agencies providing $14.5 million, would be administered by the BNB with the individual state development banks operating as financial agents and reviewing and approving the loan applications from small and medium sized industries. Loans ranging from $15,000 or less to a ceiling of $100,000 would be considered and all loans would require a detailed proposal and in some cases a diagnostic and feasibility study. Technical assistance, administered through the NAIS, in each state, would be available to local entrepreneurs in preparing such proposals and studies. A total of $1 million ($500,000 from A.I.D. and $500.000 from the BNB) of technical assistance under the program will finance research in the SMI sector in the region and provide training for the BNB and NAI administrators of the program. An additional $3.0 million would be provided the NAIS, for budgetary support; this portion of the program would be contributed by SUDENE ($2.0 million) and the individual states ($1.0 million). The $10 million A.I.D. loan would, consequently, stimulate a $28 million regional effort in SMI sector.

4. Graduate and Teacher Education Loan

Amount: $20 Million.

Executing Agency: Ministry of Education and Culture (MEC)

a. Background: Recognizing serious deficiencies in the system of higher education, including graduate education, the Brazilian government, in 1968 appointed a commission to prepare a University Reform Plan. This action was based on many generally recognized problems: 1) enrollment was very limited and consequently few graduates were produced in proportion to need, 2) the quality of instruction was in need of improvement, 3) improvements in administration and organization were needed, 4) the system needed to build within itself its own regenerative capacity for producing the essential leadership for improving the total education system, 5) the university needed to become more directly related to the process of social and economic development being sought for the country, 6) the quantity of well prepared teaching and administrative staff needed to be greatly increased.

Most recommendations made by the commission have since become law and are in the process of being implemented. Among the required reforms are: reorganization of university administration along more modern lines; reorganization of the teaching staff including the establishment of a standard rank structure; provisions for upgrading teaching staffs by requiring new faculty to obtain advanced (graduate) training; provision for more adequate salaries for professional personnel including incentives for full-time work. In addition the government has sought to ensure more direct involvement of the university in meeting local, state and national needs related to social and economic development. As part of the sectoral plan (1970-73) the Ministry of Education and Culture has established a priority project which provides for the establishment of new graduate programs. The principal purpose establishing such programs is to improve the preparation of teaching personnel for higher education and thereby to assure the continuation of the university reform movement. By improving university course offerings the program will also improve the teaching preparation provided for personnel for secondary education and for the teachers of the normal schools who prepare elementary level teachers.

A recent decree has established 5 Regional Centers for the development of graduate education to coordinate and promote the development of graduate programs in fields considered priority for national development. USAID has been requested by the GOB to assist in this development and has begun discussions leading toward a jointly agreed upon loan program.

b. Objective: The objective of the proposed loan is to support the strengthening of graduate level education in Brazil in accordance with the Priority Plan for Education (1970-73) developed by the GOB. The program is expected to expand and improve graduate level education in the fields considered priority for national development. More specifically the loan program will be directed at:

(1) Strengthening education at graduate centers to increase the ability of these centers to regenerate teaching staff for the university system.

(2) Improving the quality of existing university staff and, concomitantly, increasing the annual production of well qualified university professors thereby strengthening the total university system.

(3) Improving the qualitative and quantitative output of professionals for public and private services.

(4) Stimulating research within Brazil.

c. Description: USAID loan funds, matched by an equal amount of GOB funds, would provide financing for:

(1) Scholarships to be made available to university teaching and administrative staff and to other key persons in the Brazilian educational system for advanced study in the U.S. or third countries leading to advanced degrees or for post-doctoral work in education and other fields determined to be of priority for the development of Brazil.

(2) Technical assistance to be provided to the developing graduate centers to fill teaching positions in priority fields and to provide technical assistance in the development of graduate programs and courses, designing and organizing the use of specialized laboratories, and developing instructional materials relevant to the Brazilian context.

(3) Materials and equipment needed for developing programs of advanced study and to provide facilities for advanced study and research. This would

include books, periodicals, and similar materials for libraries at the graduate centers. It would also include essential laboratory equipment.

It is expected that the primary administrative responsibility for the program will be assigned to the Department of University Affairs of MEC. This Department, assisted by the Advisory Committee on Regional Graduate Centers, is expected to determine the basic policies to be followed, the specific program areas to be assisted and the procedures to be followed by the universities in applying for assistance.

Describe the A.I.D. participant training program and show numbers of participants, by fields and training institutions. How has this changed over the last 10 years?

Brazil's training program for a number of years has been A.I.D.'s largest. The program is composed of several basic elements: long and short-term academic training, in-service (or intern-like) programs, groups and individual visits for observation and orientation, plus some combinations of the basic programs. Training is given to public officials from federal, regional, state and municipal public agencies, and to persons from the private sector when their work is related to the government-to-government program of A.I.D. in Brazil. In principle, trainees are brought to the U.S. after they have experienced the most senior level appropriate training available in Brazil.

In recent years, 92% of the training has been given to Brazilians here in the United States and in combination with third countries in the hemisphere; 8% of the Brazilian participants have received training exclusively in countries other than the United States.

Most participants are chosen from agencies or organs of government where there now are or have been A.I.D.-related programs. Participants are usually chosen because of their leadership role at the time of their training. Some emphasis, also, has been given to younger potential leaders where building a sympathetic knowledge and understanding of U.S. methods and goals along with technical competence is considered beneficial to Brazil and to the United States. Short-term programs can accommodate people who do not speak or understand English. Such programs, requiring translation services provided by A.I.D., are almost always group programs. Academic programs require a competence in English.

A.I.D. costs are the dollar costs of training programs. Most international and all travel within Brazil related to the participants' program is financed by the Government of Brazil. Salaries of public officials are continued as a Brazilian Government expense during the period of training.

Assurance of the future utilization of trainees following their return to Brazil is received on all participants as a part of their documentation, The Brazilian governments at every level have been particularly faithful to such promised utilization of returned trainees.

The roster of returned participants in Brazil includes Ministers of State, several ministerial level advisors plus a great number of regional, state and municipal leaders including not less than five of the current governors and more than three dozen mayors of larger municipalities.

The A.I.D. Office of International Training (OIT) utilizes more than 400 institutions in over a dozen technical fields here in the United States. Those institutions or agencies include elements of our federal, state and local governments; universities, business and civic groups, plus more than 4,000 groups and agencies in most of the states of our nation which cooperate voluntarily with the basic 400-plus institutions. A computerized print-out of Brazilian participants at the end of February, 1971 shows 99 institutions offering training.

The Brazil training program, both in numbers of participants and as a share of the Latin America regional program, has increased in the past ten years. In 1961, Brazil's 340 participants were 18% of the regional total of 1,880. In 1970, the 972 Brazilians were 33% of the 2,924 participants trained from all Latin American countries. A total of 6,120 were trained in the decade.

There has been a generalized consistency in focus on four areas of training in the past ten years: Food and Agriculture, Education, Labor, and Public Administration. For the ten-year period, the total percentage of these four sectors was 65%.

In the last two years, education has become the major category; in 1970, 30% of the participants were in that sector.

Significant recent changes include: (1) creation of a special fund to train potential leaders not related to a specific AID project; (2) elimination of training at the undergraduate level with increased emphasis on graduate training in education, agriculture, economics, etc., (3) increased proportion of participants financed by loans instead of grants.

In FY 1972, the Brazil participant program is planned at a level of 609 participants with emphasis on the four basic sectors of food and agriculture, education, labor and public administration at a cost of $2.9 million; 28% of the A.I.D. program budgeted for FY 1972.

Table 1

BRAZIL PARTICIPANT TRAINING PROGRAM AS A PERCENT OF LATIN AMERICA PROGRAM