Tijuana Seeks Loan From Japan for Canal : Financing: The $165 million would pay for the final stage of Rio Tijuana flood control channel. The area was one of the worst hit by the devastating rains last winter.

Mexican officials have applied for $165 million in Japanese foreign aid to finance the completion of a major flood control channel in Tijuana, site of disastrous floods that killed 37 and left thousands homeless in January.

If Japan approves the loan, Mexico would use it to build the final 3.2-mile phase of the Rio Tijuana canal from Tijuana to the Abelardo Rodriguez Dam east of the city. Mexico would repay Japan through revenues generated by massive redevelopment of a 1,000-acre zone adjoining the canal area, including housing, commercial development and a 178-acre park.

Several government officials, including Tijuana Mayor Hector Osuna, said chances are good that the city will get the money. “We have had good responses from the Japanese, so the possibilities are good. They are very close to making a decision,” Osuna said Friday.

The Mexican government is applying to the Overseas Economic Cooperation Fund of Japan, which last year lent Mexico more than $264 million for three environmental projects. They included a reforestation project in Mexico City, sewage treatment facilities in Monterrey and reconstruction of locomotives for the Mexican railroad system to promote mass transit.

Unrelenting rains brought devastation to this Baja California city in January, leaving 10,000 homeless, destroying dozens of bridges and sweeping away hundreds of streets. Damage was estimated at $100 million. Most of those killed were swept away in flash floods in the city’s canyons or buried under mudslides that struck several barrios.

One of the worst-hit areas was the uncompleted canal west of Abelardo Rodriguez Dam. Many of the families in the neighborhood were among the 1,500 households resettled in a 185-acre tract in the Valle Verde area southeast of the city that was deeded over by the federal government.

The first two phases of Tijuana’s concrete-girded flood channel were built in 1976 and 1984 and were paid for by the Mexican government. But the government has no money for the third phase, Tijuana officials said.

The third and final phase of construction would include a major excavation of the river channel to increase its water capacity.

Japan has stepped up foreign aid to Mexico and other Latin countries in recent years, making about $9 billion in loans to 35 countries in 1992, said Peter Ide, a cooperation fund officer in the agency’s Washington office. Ide would not comment on Tijuana’s application.

Observers said the increase in Japan’s aid to Mexico illustrates the Latin American country’s importance as a market for Japanese manufacturers and a building of goodwill between the two nations. The loan would be interest-free for the first seven years and carry a 2.5% interest rate for the remainder of the 25-year term.

The Overseas Economic Cooperation Fund is financed by the Japanese government and the Japan International Development Organization Ltd., a partnership of 98 major Japanese companies. The fund sometimes makes loans in tandem with the World Bank and the Inter-American Development Bank.

Tijuana Planning Director Diego Moreno said Japanese officials have visited the border city numerous times to inspect the flood canal site. Moreno said that private development of the zone must follow for Mexico to be able to repay the loan.

“Times have changed and the government can’t support the things that it used to. So we have to promote private investment in the area,” Moreno said.

Osuna said Tijuana still is repairing streets, bridges and water mains damaged by the floods, but that the repairs should be complete in another month or two.

The loan to fund reforestation of areas around Mexico City is part of a massive effort to reduce smog in the capital city. The money is going to pay for forest roads, nurseries and consulting services.

Times researcher Kate McCarthy contributed to this story.