The basis of a development program for Colombia (Vol. 2 of 3) : Comprehensive report

Public Disclosure Authorized 23739 Volume 2 Public Disclosure Authorized The Basis of A DEVELOPMENT PROGRAM FOR COLOMBIA Public Disclosure Authorized Report of a Mission headed by Lahli- uC ie- '-vuuOlFUCtiOnl an Development i ~ ~~~j- t-< I Public Disclosure Authorized K-.~~~~~~a dovernment of Colom / International Bank for Reconstruction and Development Washington, D. C. 1950 r- J ' (  I B R D SPECIAL PUBLICATION Sales Number: I BB D. 1950.2 Price, U.S. $5.00 A Spanish translation of this Report is available fronm the Banco de la Republica, Bogota, Colombia The Basis of a Development Program for Colombia - - _ - _ _ _< ,~~~a-  The Comprehensive Report  INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT WASHINGTON 25, D. C. OFFICE OF THE PRESIDENT July 27, 1950 His Excellency Sefior Mariano Ospina Perez President of the Republic of Colombia My dear Mr. President: I take pleasure in transmitting to you herewith the Report of the Mission to Colombia, headed by Dr. Lauchlin Currie, wvhich was organ- ized last year under the sponsorship of the International Bank for Reconstruction and Development in cooperation withl the Banco de la Republica. The Summary highlights the Mission's major conclusions and recommendations. which are further explained and elaborated in the Comprehensive Report. In the opinion of the International Bank, the Report provides an objective, unbiased analysis of Colombia's development potentialities and problems by a competent group of independent experts. You will, of course, recognize that the Bank has not had the opportunity to consider fully the numerous recommendations contained in the Report and therefore must regard then as matters for study and future discussion with your Government rather than recommendations of the Bank to your Government. At the same time, we believe their analyses and recommendations are -deserving of the rnost careful and sympathetic consideration by the Government and people of Colombia. This Report can be fully effective, however, only if it serves as a basis and guide for the Colombian authorities themselves to work out a sound, well-balanced development program, and as a means of educatinlg public opinion. To this end we believe it is important that the Report be carefully studied and discussed, from an objective, nonpolitical standpoint, to assure that its major implications are fully understood and that it can enlist broad support from the Colombian people. We are very pleased that your Govern-ment, recognizing this need, has decided to ix establish a nonipartisani Commissioni of outstanding citizens to study the Report and make recommendations thereon to the Government. We are gratified also that your Government is already taking active measures in line with the Mission's recommendations to obtain expert assistance in the vitally important task of effecting improvements in governmental organization and administration. The Bank -will be greatly interested in the progress of the analysis of the Mission's findings by the nonpartisan Commission. It is our plan that the Bank's staff will undertake simultaneously an intensive study of the Report so that we may be in a position at the appropriate timlle to discuss with your government the programn that emerges from your studies and to consider possible ways in wvhich the Bank can help in the execution of Colombia's development program, through technical and financial assistance or by other means. It is my sincere hope that this Report may be of positive and lasting benefit to the Republic of Colornbia. Sincerely yours, Eugene R. Black  INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT WASHINGTON 25, D. C. June 28, 1950 Mr. Eugene R. Black, President International Bank for Reconstruction and Development Washington, D. C. Dear Mr. Black: I take pleasure in submitting herewith The Basis of a Develop- ment Program for Colombia, prepared by a special mission of the International Bank for Reconstruction and Development. On behalf of the Mission, I should like to record our appreciation of the arrangements made to facilitate our work in Colombia. Presi- dent Mariano Ospina Perez evidenced great interest throughout and gave freely of his time, as did members of his Cabinet. Dr. Luis- Angel Arango, General Manager of the Banco de la Republica, our host, left nothing undone to assist us. The help given us by the technical staff furnished both by the Colombian Government and the Banco de la Repiblica under the direction of the Coordinator General, Dr. Juan de Dios Ceballos, was invaluable. Names of the technical advisers to whom we are indebted are listed below. I regret that I cannot list by name the. hundreds of officials and private citizens of both political parties, as well as many foreigners, who gave so freely of their time and knowledge in answering our thousands of questions. The physical arrangeiiments provided by the Banco de la Repdlblica could not have been imnproved upon and the hospitality and cor- diality wve encountered on every hand were most heartening. The translation of the Report was carried out under the supervi- sion of Dr. Jaime C6rdoba, the Assistant Coordinator General, who also has contributed many helpful suggestions on editing and drafting. He was ably assisted by Dr. Jose Camacho-Lorenzana of the staff of the Bank. Main responsibility for the editing devolved upon Miss Ruth Aull. xi  I am most appreciative of the complete cooperation furnished the AMlission by the International Bank in making available helpful studies, in furnishing technicians from its staff, and in supplying the needs of the Mission in ways too numerous to list. I am most grateful to the individual members of the Mission for their enthusiasm and complete devotion to their tasks. I am par- ticularly appreciative of the assistance afforded by those members of the Mission wvho were on the staff of the Bank-Messrs. David L. Gordon, Jacques Torfs and Gordon Grayson-and who, following the return of the Mission, carried double burdens in working on the Report as well as performing their regular duties. Names of Mission members are appended. I appreciate that the treatment could be considerably improved by the expenditure of somewhat more time. However, in view of the fact that action on certain projects is being delayed pending the receipt of the Report, that considerable time has already elapsed since our observations \vere made, and that the proposed arrange- ments for study of the Report in Colombia will facilitate refinements and other improvements, it appears that more would be lost than gained by delaying further the submission of the Report. Sincerely yours, Lauchlin Currie xii  THE MISSION LAUCHLIN CURRIE Cilietf of MAission GORDON GRAYSON Assistant to Chief of JIissioiz (Intermational Bank for Reconstruction and Development) RIOGER ANDERSON Adviser on Foreign Exchange (International Monetary Fund) HAYWOOD R. FAISON Adviser on Highways and (Board of Engineers for Rivers and Waterways Harbors, U. S. Department of Defense) CARL WV. FLESHER Adviser on Industry, Fuels aind Power FREDERICK C. GILL Adviser oln Transportationl DAVID L. GORDON Adviser on Commninity Facilities (International Bank for Reconstruc- tion and Development) WILFRED JOIINS Assistant Adviser oni Agricultture JUAN ANTONIO M\ONTOYA Assistant Adviser oni Health (Pan American Sanitary Bureau) JOSEPH NV. MOUNTIN Adviser on Health and Welfare (Assistant Surgeon General, U. S. Public Health Service) RICHARD A. MUSGRAVE Adviser on Finanice and Monev and (University of Michigan, Depart- Banking ment of Economics) RAYMOND C. SMITH Adviser on Agriculture (U. S. Department of Agriculture) JACQUES TORFS Economiiist (International Bank for Reconstruc- tion and Development) JOSEPIH WHITE Adviser oni Railroads ADDITIONAL CONSULTANTS V. LEWIS BASSIE Conisultant oni National Accounts (University of Illinois) THTE MARSH ALL-MOORMAN Consultants on Petroleumiii Refineries DEVELOPMENT COMPANY New York Editor: RUTii AULL Secrcetaor: DOROTHY SODERLUND 2liii  COLOMBIAN ADVISERS TO THE MISSION JUAN DE DIOs CEBALLOS Coordinator General (General Maniager, Institute for Industrial Development) JAIJiVIE F. CORDOBA Assistant Coordiniator Genieral (Banco de la Rep6blica) H ECTOR ABAD GtXMEZ IMinistry of Hygiene JORGE BOSHELL MIANRIQUE Ministry of Hygienie GUILLERMO CAMASCHO GA-MBA Administrative Counlcil of the National Railroads MATmGUEL FADUL Banico de la Rep4blica JOAQUIN FRANCO 'Iinistrv of Conitinerce anid Industrv JORGE FRANCO Bainco de la Repfiblica AUGUSTO HANNABERGHT Banico dce la Rep6blica JORGE INFANTE Ministry of Agriculture JORGE PEJA PoLo National Council of Communica- tions, Mfinistry of Public Works JOAQUIN F'RIETO Nationial Steel Corporationi of Paz de Rio NORBERTO SOL.tNO IOZANO Ministry of Education LEONEL TORRES Balnco de la Repi6blica CONCIIA TRIANA National Institttte of Nutrition JORGE ZULUAGA Ministry of AgricultuLre Xilv  Preface This Report is the outcome of nearly a year's wvork by an economic iMission, organized by the International Bank for Reconstruction and Development, which was assigned the task of working up the framework for a comprehensive, integrated development program for Colombia. The Mission grew out of conversations late in 1948 between 'MIr. John McCloy, then President of the Bank, and Dr. Einilio Toro, a member of the Board of Executive Directors of the Bank. For many reasons, it appeared that Colombia, Dr. Toro's native country, was an admirable place to apply such a comprehensive approach. The idea received an enthusiastic reception from President Mariano Ospina Perez, and the Bank was invited by Colombia to send the proposed mission. In May 1949, Dr. Lauchlin Currie was invited to act as Chief of the Mission and to assist in its organization. The Mission's terms of reference were very simple and yet very broad. They were, in essence, to formulate a development program designed to raise the standard of living of the Colombian people. To fulfill this assignment the services of experts in many diverse fields were required. The MIission included staff members of the Bank and the International i\Ionetary Fund, private consultants, and experts nominated by the Food and Agriculture Organization and the Pan American Sanitary Bureau. The first members of the Mission, ac- companied by Mr. Robert L. Garner, the Vice President of the Inter- national Bank, arrived in Bogota on July 11, 1949, and the last de- parted November 5, 1949. Expenses of the Mission were borne partly by the International Bank and partly by Colombia. The Banco de la Repfiblica acted as co-sponsor of the Mission in Colombia, and organized a staff of specialists to advise and assist the Mission in its work there. It assumes no responsibility, however, for our findings or recommendations. Final responsibility for both the overall program and the specific recommendations rests on the Chief of lvMission, although, of course, all members of the Mission made major contributions in their special fields and assisted in related fields. As this wvas the first Mission of its kind sent out by the Inter- national Bank, there was little precedent to draw on. We have inter- preted our terms of reference as calling for a comprehensive and in- ternally consistent program--so far as is possible with the time, personnel and data available-rather than merely a series of discon- nected recomnmendations. This has added to the difficulty and magni- xv tude of the task in several respects. The relationships among various sectors of the Colombian economy are very complex, and intensive analysis of these relationships has been necessary to develop a con- sistent picture. WVe have tried also to make our conclusions and recommendations as specific and quantitative as possible. We realize that this attempt may, in some cases, lay us open to criticism, for definite proposals are inevitably more vulnerable than generalities, and the statistical data wvith which xv,e have had to work have some- times been incomplete, unreliable or insufficiently detailed. Nevertheless, wve believe this rather ambitious and hazardous ap- proach has proved its value. Its very difficulty and complexity have perhaps led us to probe more deeply, to cross-check our results and their implications more carefully, than we might otherwise have felt necessary. We have been able thereby to correct some apparently tgaps. inaccurate information and assumptions and to fill in certain statistical Moreover, the principle involved in this approach-that the attack on the problem of poverty must be coordinated on many fronts, all closely interdependent-is more important than any of our par- ticular findings or recommendations. We have tried to illustrate the dynamics of economic development through an analysis of national accounts and of the processes wvhich determine the volume of capital formation and the direction of investment. An understanding of these processes and an approximate estimate of the magnitudes in- volved are essential to any satisfactory determination of develop- ment priorities and the policies and measures required to carry tlhemz out. We have undertaken in this Report to construct this necessary framework as soundly as was possible with the materials at hand. In the course of further study and experience over the period of the proposed program, it will be possible to refine and fill out the statistical data, and to make appropriate modifications in the specific measures discussed . The organization and presentation of the Report have posed cer- tain other problems. It is addressed to several quite different audi- ences: to Colombians, wvho know^A a great deal about their own country; to foreigners, who knoxv little; and to the general public as well as technicians. It has been necessary, therefore, to include enough facts and descriptive material to make the picture intelligible, yet not so many as to make the Report unmanaiiageable in size and borinlg to those who are already well informed about many of the subjects discussed. Further difficulties of oresentation arose from the very wide range of topics covered, some of them necessarily quite technical, and from the number of different contribnLtors. xvi  In an attempt to meet these problems, we have prepared the Report in two distinct forms. The Summary is designed for the general reader who wishes to ascertain the highlights of the program but has neither the time nor the interest to concern himself wvith detail. More extensive descriptive material, technical analysis and explana- tion of the recommendations are included in the Comprehensive Report, which in turn is divided into two parts-first, a description and diagnosis of economic conditions and problems in the various fields discussed and, second, proposed measures for improvement and estimates of financial and other requiremelnts to carry them oit. This arrangement of the Comprehensive Report is designed to permit purely descriptive material and most of the analysis to be kept sepa- rate from our conclusions and recommendations. The reader may then, if he wvishes, consider the validity of the diag-nosis quite apart from the prescription or, alternatively, may rely on the summary of the diagnosis contained in Chapter II and in the various chapters of Part II and concentrate his attention on the recommendations. Inevitably this results in some overlapping and repetition. Those who wish to read together the diagnostic and prescriptive chapters on one subject, such as agriculture, will be most conscious of this. Some technical appendices, relating mostly to methodology or presenting more detailed data of interest only to specialists, are not printed but may be obtained on request from the International Bank for Reconstruction and Development. These are listed in the Contents for ready reference. - Despite the range of topics covered, the Summary and the Com- prehensive Report do not pretend to contain a complete economic description of Colombia. An effort wvas made to cover only those aspects of the economy that appear to have direct bearing on the standard of living and about which some recommendations could be made. Oiie unfortunate consequence, howvever, has been to discuss mainly the weaknesses and shortcomings of the Colombian economy, wvhich may convey a false impression to the reader. It is not our intention to assign either praise or blame, nor to make any com- parisons wvith other countries unless they throwv some light on Colombia's problems. All the members of the Mission, although they found need for improvement in many specific conditions and practices, became intensely interested in and most enthusiastic over Colombia's potentialities. It is hoped that the entire Report Awill be regarded as a wvorking paper. It is intended to be provocative, to raise many problems and xvii to offer some suggestions for corrective action. It does not purport to offer precise or ultimate solutions for any problems; such solutions must derive from the experience and will and intelligence of the Colombian people themselves. Our analyses and recommendations will have fully served their purpose if they succeed in stimulating Colombians to think in terms of the whole economy, to take advantage of the experience of other countries and adapt that experience real- istically to Colombian conditions, and on that basis to formulate a sound and internally consistent program of development which will enlist the broadest possible support. xviii  CONTENTS PART I -THE PROBLEM Chapter Page I. THE COUNTRY AND THE PEOPLE ............. ..... ....... The Country. 3 The People 5 Standard of Living 6 II. FACTORS ACCOUNTING FOR THE STANDARD OF LIVING 11 AVhat Determines the Standard of Livig. .11 Productivity per Capita 13 Natural Resources 13 Capital 14 M\Ianpower . . 16 Organization 16 International Economic Position . S. Allocation of Production between Present and Future Consumption ....... 19 Distribution of Income and Consumliptioni 20 III. NATIONAL INCO-ME AND PRODUCT . .......... .... 22 Computation of National Accounts for Colombia 22 Growth of National Income 25 Sources of National Income ......... . ...... _ 29 Distribution of Personal Income _ 33 IV. CAPITAL FORMATION ....... 37 Structure of Capital Formation 38 Capital Formation and Imports . 39 Capital Formation and End Use . 41 Capital Formation and Types of Assets . 43 Importance of Construction Industry .. .. 44 Public and Private Capital Formation .. 44 Capital Formation and Gross National Product 46 Financial Aspects of Capital Formation. . 47 General Sources of Capital Formation 49 Savings and Investment Institutions 51 Comlliercial Banks ....... 52 Caja Colombiana de Ahorros 52 Caja de Credito Agrario, Industrial y Minero 53 xit; Cliapter Page IV. CAPITAL FORMATION-(Continued) Banco Central Hipotecario 55 Stock Exchange 55 Insurance Companies . .56 Indtustrial Developiiment Institute 56 Instituto de Credito Territorial 57 Fondo de Fomento AMunicipal.. ........ 58 Federation of Coffee Growers 59 Capital Yields and Interest Rates .59 V.. AGRICULTURE 61 Land Use and Tenure . 61 Rural Population . 64 Standard of Living .. .... 65 -- Rural Education 66 Rural Housing 68 Rural Health alnd Nutrition 69 Farminlg Systems and Production Probleiis 69 Soils and Soil Conservation . 72 Irrigation, Drainage and WNTater Utilizationl 73 Agricultural Credit Facilities .. 75 Prices and Marketing . 77 Storage ...... ....... ..... 78 Rural Industries 79 Transportation .. 80 Govermiienital Policy and Programs .s 80 Agricultural Self-Sufficiencv 82 The Cooperative 'Movement . 83 Taxation . 84 Agricultural Statistics ... ........... ......... . ...... 85 Agricultural Research ..... . . . . 85 NI. INDUSTRY AND FU-ELS . 87 Historical Developmenit . . 87 Current Position of Industry .... 87 Characteristics of Industry . 91 -Transportation . . . .... ...... 91 Raw MIaterials . 91 Variation in Efficiency . ... 91 Alanagement . 92 xx Clhapter Page VI. INDUSTRY AND F-ELS-(Continued) Limited Markets ..... 93 H andicap of Location... ............. . .................... 93 Capital and Credit . ...... .... 94 Social Legislation ... .... 95 Power for Industry . 95 VII. SURFACE TRANSPORT . . . . . ........ 100 Railways ........................................... 104 Description of Railway Systems . . 104 The Western System. .... .... 106 The Eastern System ......... . . ........ 106 The Isolated Lines 106 Railroad Administration 107 Management, Structure and Policies .. 107 Lack of Integration. 108 Railroad Operations . .109 Maintenance of Way and Structlres 109 Equipment ............ ........ ...... 110 Operating Practices . 111 Productivity and Cost of Labor ... 112 Railroad Service .. 114 High Costs and Rates 115 Highways . .. 116 Maintenance of Highways . . .118 Administration of the Highway Program ... 118 Highway Operations . . 121 Highway Equipment ... 124 Operating Costs and Rates . . . 125 Port and Water Transport Facilities. .. 127 Port Facilities 127 Coastwise Transportation 131 Inland Waterway Transportation ... 132 The Magdalena River. .. 133 Canal del Diqe ... 134 Equipment and Operations .... . . ........... ....... 3 134 Operating Costs and Rates. 135 Pipelines 138 V III. AIR TRANSPORT ................. .. ...... ... .. 142 The Governmenit and Air Transportation 146 xxi Chapter Page VIII. AIR TRANSPORT-(Continued) Aeronautica Civil ........ .............. ....... __...... 146 Governm ent A ir Services .............. ......................... 148 Air Mail Service ........................................... 149 The Airline Route System ......... ... 150 Rates and Regulation .......... ............................... 153 Passenger Fares ........................................... 153 Air Cargo Rates .................. ......................... 154 Communications, Air Traffic Control, Navigation and Airport System s ...... ....... ........... .. .............. 156 Air Traffic Control and Air-Ground Communi- cations ........................... ................ 156 T he A irport System ......................... .................. 158 Flight Equipment ..................... ...................... _162 Operating Costs and Rates ................... .............. 164 Future Equipment Possibilities ............. ..... .... .. 167 fX. AND WELFARE . .. . . . HEALTEr ......... .......... . 168 Physical Factors Affecting Health 168 Water Supply and Waste Disposal . . ._ ......... 169 Housing . . 169 Milk and Food 170 Insects and Rodents 170 H ealth Status ... ........... I...... .. ........... 171 Life Expectancy 171 Birth Rate 171 Death Rate 173 Incidence of Illness 177 Malaria . ........ .......... ... .............................. 179 Intestinal Infections . .... ...... ...... ................ 179 Tuberculosis . . . ........ ........... .......... 181 Venereal Diseases . 181 Leprosy 182 Nutrition . . 183 Health Facilities and Resources 184 Public Health Services . . . 184 Hospitals, Clinics and Related Facilities 192 Professional and Technical Personnel . . 195 Public Welfare ... 202 Beneficencia . ... 203 Social Security .. 206 xxII Chapter Page N. ELECTRIC POWER AND COMMIUNITY FACILITIES . . 208 Need for Community Facilities . ........ 209 Electric Pow er Facilities............. ........................... 210 G eneral Use of Pow er ............... ......................... 211 Water Supply and Sewerage. . ........................... 215 Telephones ........................................ 218 Schools, Hospitals, and Related Institutions ............ 219 Public Mlarkets and Slaughterhouses ... 219 Other Services . . .20 Utility Rates ... .... ... . 222 Administration and Financing . ....... 224 Fondo de Fomento Municipal 226 Other National Government Aid ... ..... 230 XI. HousiN . . ....... .......... ... . 232 . 23. Housing Conditions . 233 Ability to Pay for Housing ....... 234 Financing of Housing ....... 235 Instituto de Credito Territorial 236 Federaci6n Nacional de Cafeteros . ......... 237 ....... Other Forms of Housing Promotion . .. ..... .. 239 XII. EDUCATION AND TRAINING .............. ..... ................. _ 241 Primary Education .... ...... ... 242 Secondary Education ......................... ...... ... 246 Normal School Education ........ . . ........ .... 249 Vocational Education ........................................ 250 Industrial and Arts and Trades Training ............ 250 Agricultural Training . 251 Commercial Training ............. ....... .... . 252 Higher Education .................... 253 Expenditures for Education ................ .... 253 X III. PUBLIC FINANCE . . . ... ..................... .. ... ... ... 255 Revenues and Expenditures of the National Gov- ernment. . 55 Expenditures . . ...... .2.............................. 255 General Revenue Structure 256 Distribution of the Tax Burden .... ... ......... .. 259 Taxation and Capital Formation . . . 264 xxiii Chapter Page XIII. PUBLIc FINANCE-(Continuted) Tax Administration. 265 Budget Legislation and Procedure . .. . 267 Budget Presentation.2 ... 70 Revenues and Expenditures of Departments and Municipalities 270 Departments .. . . . 270 Municipalities .. . . 274 National and Departmental Aid . . 278 Income from Municipal Property and Services 280 Local Taxes . ....- .. . . .. . .. . 280 "Valorizacion" . . . 281 The Public Debt ..... ... 282 8. National Debt ... .. . . . 282 Departmental Debt . . .. 284 MIunicipal Debt . . . . .. 286 XIRV. MONEY, DEFICITS AND INFLATION . . . . .7. . 27 Causes of Inflationary Developments. . . 287 Sources of Increase in Money Supply . .... 290 International Aspects ... . 293 Effects of Inflation . . . 294 Monetary and Credit Policy . ..... 295 Structure of the Banking System .... . .. ... 295 Central Bankinig Policy .. ... .. 296 Commercial Bank Policy. . . 300 Fiscal Policy 304 Growth of Public Expenditures 304 Taxation and Deficits . . . . 305 Absorption of National Debt.. 307 XV. THIIE INTERNATIONAL ECONOMIC POSITION OF COLOMBIA .............. 309 International Transactions and the Balance of Pay- ments - 309 Colombia's Termis of Trade .317 International Indebtedness and Investment. . 319 Exchange Rates and Exchange Controls 324 Appraisal of the Exclhange Control Systemi. . 328 Export Control . 331 Contraband and the Black MIarket 332 xxi \ Chapter Page XV. THE INTERNATIONAL EcoNo.s}c POSITION OF COLOMBIA- (Continued) Bilateral Agreements .333 General Appraisal of Colombia's International Eco- nomic Position . . .. - 335 XVI. ORGANIZATION FOR PLANNING AND ADMINISTRATION 341 Adequacy of Basic Data. 341 Organization for Economic Planning . .. ..... 343 Organization for Admiiinistration ... .. ........... 345 Public Personnel ...... .. . ...... 347 PART II- THE PROGRAM XVII. THE NATURE OF THE PROGRAM.. 353 Objectives and Emphasis .................... ........... . 353 Need for a Comprehensive and Integrated Program 355 Further Underlying Considerations .357 XVIII. AGRICULTURE . 360 Agricultural Planning and Production Goals 360 1955 Production Goals. 361 Targets in Specific Crops 367 Coffee 367 Sugar Cane ... .... 370 Cereals, Roots, and Similar Crops .. . 371 Corn . . . . ... 372 Rice .. ....... ............. 372 Wheat ...... . . 373 Barley 374 Platano, Yucca and Name 375 Export" Bananas 375 Potatoes .. .. . .. ..... .... ...... . 375 Cacao . 377 Cotton ... . . 378 Fique . . ................... . 379 Tobacco ... 380 Beans ... 380 Beef Cattle and Beef 380 Xv Chapter Page XVIII. AGRICULTURE-(Continued) Hogs and Pork 381 Milk ........................................... 382 Sheep and Goats ....... ..................... 382 Poultry and Eggs ....... ........ . .... .. 382 Home Vegetable Gardens ..... 382 Fisheries ................ ........................... 383 General Recommendations ..... ........ ...... ..... . 383 Tax Inducements to Efficient Land Use .... .. 384 Agricultural Credit 387 Rural Fducation 389 Irrigation, Drainage and Water Utilization. . 391 Soil Conservation ....... .... .... .... ... 393 Mechanization 394 Fertilizers, Insecticides and Fungicides . 395 Marketing, Storage, Processing and Transporta- tion .... .. .... .396 Research and Statistics ... 398 Rationalization of Agricultural Programs 400 Estimated Cost of Program ...... 401 X IX . INDUSTRY AND FUELS .............................. ..... ........ 404 Measures to Increase Efficiency and Reduce Prices 404 T ransportation ...... . . ...... ...................... . 404 Raw Materials 404 Worker Productivity . . 404 Management 405 Inventory Policy 406 Research and Standards 406 Importance of Industry . 407 Volume of Consumption 408 Desirable Expansion of Industry 409 Textiles 409 Sh oes - . . .. . .. .. . . ........................... ...... ... 4 11 Alcoholic Beverages . .411 Cigarettes ..... . ..................... 411 Mineral Water and Soft Drinks. 412 Sugar Refining 412 S alt . .. ..... ...... ........ ............ 4 12 Fats and Oils ... .................. 412 Leather ................................ 413 Glass Products 413 xxvi Chapter Page XIX. INDUSTRY AND FuELS-(Continued) Rubber Tire Manufacture .. ........... ............. 413 Chemicals . . .. .......... 415 Building Materials .......... . ........ ...... ....... 415 C emen t .. .......... ..... ...... .............. . . ......... 4 15 Brick and Tile. 415 Roofing Material ........... ....... ..... . 415 L um ber ...... . ................................. .. 416 Forestry Products ............ 416 Iron and Steel ............ 417 Integrated Steel Plant ...... ................................ 419 Estimated Costs of Construction ........ ........ 421 Domestic Financing .... 422 Aid to Depressed Areas ..................... . . ...... 423 Estimated Profitability of Operations .... ... 423 Additional Steel Fabricating Facilities ............. 426 Petroleum Products ...................................... 428 Crude O il Situation .. ........................... _ .... 431 Refining Requirements ................................. . 432 Nitrogen Fertilizer ...... .. ... ..... ........ 434 Coal ...................................... 435 Electric Power ......................... ............. 436 Estimate of Capital Needs . 436 XX. SURFACE TRANSPORT . ..... 440 Railroads ..... 441 Adnministrative Reorganization ... ............... 441 Operating Practices and Equipment ... ...... ... .. 442 Maintenance Practices and Shop Facilities .. ..... 445 Productivity of Labor .................. ........ .......... 447 Proposed Extensions and Changes of the Railroad System ...... .. .................... 448 Elimination of the Magdalena River Route Dis- ability .. .................................... _ 448 Ibague-Armenia Railroad .. - ................ ......... 453 WVestern Trunk Railroad-Bolivar Section ....... 455 Buga-Buenaventura Cut-Off 456 Standardization of Gauge ... .. .... 457 Railroad Abandonments ....... ............ 458 Pipelines ...... .... ....... ..... ........ 459 Economic Utility and Cost of New Pipelines ... ... 459 Highways .. ...... ............ ... ......... 460 ... xxvii Clhapter Page XX. SURFACE TRANSPORT- (Continued) Measures to Increase Operating Efficiency . 461 Highway Maintenanice, Paving and Improve- ment .. 461 Truck Operations 463 MIajor Extensions of the Highway Network 464 Cartagena-Medellin 467 Medellin-BogotA ..-. - . -....... 467 Bucaramanga-Santa Marta .... ..... ...... . 467 Buga-Buenaventura 467 Tumaco-Pasto . 467 M edellin-Turbo .......... ............... 467 Departmental Roads in Cundinamarca 468 WVater Transportation and Port Facilities 468 Measures for Increasing Operating Efficiency . 469 Operating and Labor Practices on the Magda- lena River . . . . ... 469 Port Facilities 470 MIajor River and Port Improvement Projects 471 Ocean Shipping .. .. .... ....... 473 Coastwise Shipping . 473 Estimated Capital Inivestment 474 XXI. AIR TRANSPORT ....... .. .......... . . ...... 476 Administrative Organization for Air Transportation 476 Regulatory and Other Functions .. 479 Franchise Regulation . . ...... ... . .... 479 Technical Regulation 480 Rate Regulation 480 Air Mail 481 Improvement of Aviation Facilities and Equipment 482 Communications and Control Systems . 482 Airports . .. 484 Flight Equipment . 487 Estimated Capital Requirements 490 XXII. HEALTH AND W7VELFARE 492 The Public Health Structure . .. ... 493 Sanitation and Other Protective Measures .. . 495 Personniel Requirements 496 XXV-iii Chapter Page XXII. HEALTH AND WELFARE-(Continued) Controlling Disease ................. ...................... 498 M alaria ........................................ 498 Infectious Diseases ........................................... 499 Tuberculosis .................... ....................... 499 Venereal Diseases ........................................... 500 Nutrition ... . . ................... ................. . 300 Leprosy ........................................... 501 Health Education ........................................... 501 Public Welfare and Beneficencia . ........ ...... .... 502 Social Security ........................................... 503 Hospitals and Related Institutions ...................... 506 Health Centers .................................. ......... 510 Estim ated Cost of Program ................................... _ 513 XXIII. ELECTRIC POWER AND COMMUNITY FACILITIES ...... ... 514 Electric Power . ........ 514 Industrial Demand ........... .. ................ 516 Non-Industrial Demand ................ ............... ... 519 Character and Location of Facilities......... ...... ..... 520 Planning and Administration of Electric Power Programs 521 Other Facilities . . 523 Water Supply and Sewerage ... ....... 523 W#\ater .. ....... ........... 523 Sewer Systems . 525 Telephones ... 526 Schools, Hospitals and Related Facilities .. 527 Public Markets and Slaughterhouses ... 527 Street Paving, Cleaning. and Waste Collection., 528 Utility Rates ........ ........... I.. ....... ...... 529 Local Administrative Machinery. 530 Assistance in Municipal Development 530 Estimiated Capital Reqiuirements . 532 XXIV. HOUSING AND BUILDING CONSTRUCTION. ...... 535 Financing of Housing 536 Rural Housing ... . ... 537 Urban Housing . 538 Estimated Cost of Program 539 xxi>  Chapter Page XV. X- EDUCATION AND TRAINING ..................................... 543 Primary Education 543 Vocational Education 546 Industrial and Arts and Crafts Training 546 Agricultural Training 547 Secondary and University Training 547 Normal Schools 548 Estinmated Capital Requirements 549 XXVI. FISCAL POLICY ........... 550 National Tax System . ................... ....... 551 Improvements in Tax Structure . ................ 551 Improvements in Tax Administration ... 555 Formulation and Presentation of National Budget ... 557 Budget Formulation ................ ....... ................ 557 Budget Presentation ........ .......... ... ......... .. 560 Fiscal Situation of Departments and Municipalities 561 Rationalization of National-Local Financial Re- lationships .. . ..... -................ ................ 561 Municipal Taxes ....................................... .... 565 XXVII. MoNEY, BANKING AND CAPITAL MARKTS . . 567 Volume of Commercial Bank Reserves . . .... . 567 M eans of Control . _......... . ....... ..... ............ 569 Determination of Banco de la Republica Policy ..... 571 Portfolio of Commercial Banks ... ................. .... 573 Open Market for Public Debt .......... ........... ... 574 Organization of Capital Markets ....... 576 XXVIII. FOREIGN TRADE AND ExCHANGE . . .. .... 577 Treatment of Foreign Capital . 577 Bilateral Agreements 580 . Contraband and Smuggling ..... . ........ .- ................... 581 Desirable Changes in the Commodities Traded 582 XXIX. ADMINISTRATIVE REFORMS . . . . 584 The Executive Office of the President. . 585 Reorganization of the National Government . 589 Relations with Departments and Mlunicipalities 590 Personnel 591 Economic Data and Studies 591 xxx Chapter Page XXX. THE OVERALL PROGRAM AND ITS IMPLEMENTATION- 593 Magnitude and Composition of the Overall Programn 593-- The Program and Economic Stability ........ ....... 595 National Income by Economic Sectors in 1953 Model 601 Projected Composition of National Accounts 601 Fiscal Aspects of the Overall Program .604 The Program and Foreign Exchange Requirements 606 The Program and Physical Limitations 608 Implementation of the Program. 608 Broad Objectives of the Program. 614 I NDE X INDEX . . .. . ... . 619 xxxi  FIGURES 1. Relief map of Colombia .Frontispiece 2. Colombia: principal surface transport routes . 101 3. Truck traffic flow, 1946 .Facing p. 122 4. Colombia: principal air transport routes .151 5. Organization of Mlinistry of Hygiene 185 6. Functions of Ministry of Hygiene and other health agencies 186 7. Health organization and functions-Department of Narifno 191 S. Colombia: present and recommnended railroads and pipelines 451 9. Colombia: present and recommlilended highways 466 TABLES 1. Gross national product and components, 1939-47 26 2. National incomae at current and 1947 prices, 1939-47 27 3. Sources of nationial income, 1939, 1947 30 4. Distribution of population and labor force, 1939, 1947 31 5. Relative importalnce of income sources in three countries 32 6. Distribution of the labor force, 1939, 1947 33 . Estimated distribution of personal incomiie, 1947 35 8. Gross capital formiiatiol, 1939-47 39 9. Gross capital formiation by econolmic sectors, 1939, 1947 40 10. Relative importanice of imlports in various sectors of capital formation, 1939, 1947 41 11. Gross capital formationi by end use, 1947 42 12. Gross capital formiation by type of asset, 1939, 1947 43 13. mnount expended on1construction in gross capital formlationl, 1939 and 1947 44 14. Public and private gross capital formationi, 1939-47 45 15. Major itemzs of public capital formation, 1947 .45 16. Gross capital formiation comipared wvith gross national prod- nct, 1939-47 46 17. Budget for Colomabian economy, 1947 50 18. Yields of securities traded at Stock Exchange of Bogota, 1941-49 59 xxxii Table Page 19. Components of value of production (ex factory) of all in- dustrial production, 1944-45. S9 20. Domestic production as a percentage of consumption, 1947 90 21. Estimated total freight traffic volume by type of transpor- tation, 1947 103 22. Estimated national and interniationial traffic, 1947 104 23. Railway network of Colombia .105 24. Employee productivity on Colombian railroads compared with U. 8. Class I railroads, 1947 .113 25. Financial operating results of National Railways, 1948 116 26. 1949 appropriations for national highways, -Ministry of Public Works. 119 27. Truck and bus registrations, 1946-48 121 28. Truck traffic flow, 1946 .122 29. Typical motor truck rates for general merclhalndise, 1949 126 30. Annual volume of commerce through the principal seaports, 1943-47. 128 31. Average daily cargo in port of Buenaventura, 1948-49 130 32. Average daily cargo moving from1 Buenaventura, 1948-49 131 33. Average annual coastwise freight movements, 1940-46 132 34. Average annual commliercial inland vwaterway traffic, 1943-47 132 35. Average annual Mlagdalena River traffic, 1943-47 133 36. Magdalena River public service fleet, 1941, 1948 134 37. Comparative operating costs and statistics for sternwheel and( propeller-type vessels 136 38. Comparative transportation rates per ton for imports and coffee exports, April, May, 1949 139 39. Estimated distribution of commercial air traffic, Janiuary- June, 1949 .T143 40. Twenty major passenger revenue mlarkets, July 1949 .. 144 41. Twventy major freight-producinig markets, JulI 1949 145 42. Avianca: estimated revenue per ton-kilolmieter--mail, passen- ger, express and freight. 1945-49 150 43. Passenger fares in twventy principal markets, 1938-49 153 44. Air freight traffic by commodity groups, July 1949 155 45. Average number of daily comlmiercial airline landing,s and takeoffs at principal airports, 1949 158 46. Estimated average daily landings and takeoffs in localities with duplicate airports, 1949 160 47. Estimated productive capacity of commercial airlines, Octo- ber 1949 163 48. Estimated population of several American countries, 1900 and 1947 172 xxxiii Table Page 49. Death rates of several American countries, 1938-46 . . 174 50. Death rates by age groups for designated Americai couII- tries for specified years . .175 51. Deaths and death rates for selected causes in designated American countries .. 176 52. Incidence of selected reported illnesses in Colomnbia, 1948 .. 178 53. Number of deaths from all causes, from malaria, and rates per 100,000, 1939-43 ....... ...... ............... ........ 180 54. Budget of the Ministry of Hygiene, 1947-49 ....... . 188 55. Persolnel employed in the -Ministry of Hygiene and under contracts betweeni Ministry, departments and municipalities 189 56. Ntumber of beds available and required in general and allied special hospitals . 193 57. Total units and bed capacity of hospitals and related insti- tutions . .. 194 58. Expenditures of public hospitals and institutions exclusive of leprosaria .. 195 59. Distribution of physicians according to population, interests and location .. 197 60. Number of persons emploved by selected departments and municipalities, according to salary levels ... 200 2.... 61. Number of employees according to type of position and sal- ary levels, Ministry of Hygiene . . .. . 201 62. Miovement of personnel assisted in the establishments under the General Junta Beneficencia of Cundinamarca, 1946 205 63. Estimated growth of various municipalities, 1938-50 208 64. Estimated urban and rural population of municipalities, by size of urban centers, 1950 . . .... . .. 209 65. Estimated public service generating facilities, by size of urban centers served, 1950 211 66. Public service generating facilities, by departments, 1950. .. 213 67. Water supply facilities by size of urban centers, autumn of 1949 ... ... 215 68. Sewer facilities b- size of urban centers, autumn of 1949 ... 216 69. Telephones in service, by size of urban communities, 1946-48 218 70. Projected expenditures of various cities for street paving, street cleanillg and waste collection, 1949-54 .221 71. Rates for electricity in certain cities, 1949 .2..... 223 72. Works completed and in progress under auspices of Fondo de Fomento Mlunicipal, December 31, 1948 ... .. I.. ... 228 2. 73. Financial operations of Fondo de Fomento MIunicipal, 1940-49 .. .......... 29 74. Estimated number of buildings and dwellings, 1938 and 1948 . ............. ........ .......... 232 xxxiv 'fable Page 75. Investment in buildings bv category, 1939 and 1947. 233 76. Income levels, 1947, 1950 ..................... . 2............................. 34 77. Average value of dwelling for various income groups ... ....... 235 78. Cost and area of dwellings constructed by Coffee Federa- tion, 1948 ................................................... 238 79. Estimated number of children of primary school age com- pared with enrollment in public schools, 1948 .......... ....... 242 80. Size and enrollment of public primary schools, by depart- ments, 1948 .. 44 2................................................. 81. National primary school construction programn for the fiscal year 1948-49 ................................................... 245 82. Training of primary school teachers, 1946 .......... .... ... 246 83. AMonthly salaries of public primarv school teachers, urbain and rural, 1946 247 84. Secondary school enrollment by grade, 1946 ......... ....... ...... 248 85. Municipal, departmental and national expenditures-total and for education, 1948 ...... ................. .. .. ............... . 254 86. Expenditures of national government, 1940-47 ....... 256 87. Revenues of national government, 1940-47 259 88. Tax liabilities at selected salary levels ....... ......... ... ... ...... 2. 260 89. Tax liabilities at selected levels of patrimony and profit in- ........... come . ............. ........ ........... ... ......... 261 90. Distribution of income tax returns, 1947 . 263 91. Departmental expenditures, 1941-48 ............. ... . .... 271 92. Per capita expenditures by departments, 1945-48 . ... - . ..272 93. Sources of departmental revenues, 1941-48 . 273 94. Sources of municipal revenues, 1941, 1946 and 1948 274 95. Municipal expenditures by departments, 1941, 1946 and 1948 275 96. Income and expenditures of principal municipalities, 1948 275 97. Revenues of municipalities by size of revenues, 1946 . 276 98. Number and monthly costs of municipal personnel bv de- partments and functional groups, 1948 277 99. Public debt of Colombia, 1940-49 ... ...... 283 100. Domestic debt of national governmiient by types of issue, May 1948 ..... .... ... - . I 284 101. Domestic funded debt of departments by types of issue, ay 1949 .... ...... 285 102. Departmental funded debt, May 1949 ... 86 103. Price indices, 1940-49 .. . 28 8. 104. Increases in money supply and prices, 1940-49 289 105. Money supply, 1940-49.. . 291 105. Annual incrcasc in money supply, 1941-49 .... 292 107. Sources of money supply, 1941-49 ................. ....... 292 10S. Sources and tuses of reserve funds, 1941-49 298 xxxv  Table Page *109. Position of comnmercial banks, 1940-49 301 110. New loans granted by commercial banks, 1940-49 302 Ill. Public expenditures and gross national product, 1940-47 305 112. National budget summary, 1940-49 ............................... ...... 306 113. Colombia's exchange receipts and exchange authorizations, 1948 .... .. ... 310 114. Condelnsed statement of Colombia's balance of international payments, 1938-49 . 312 115. Percentage distribution of Colombia's exports by destina- tion, 1938-48. .................... 313 116. Percentage distribution of Colombia's imports by source, 1938-48 ............... .......... 313 117. Colombia's terms of trade, 1937-49 . ..- ........ . 318 113. Foreign capital invested in Colombia and registered with the Office of Exchange Control, June 1947.. .... ....... .. 319 119. Colombia's external debt, 1949-50 . ...... ..... ...... ....... 322 120. Contractual charges on Colombia's external public debt, 1950-70 ....... 323 121. Permanent national governmenat personnel by functional groups, 1948.348 122. Permanent national government personnel by salary scales, 1948 348 123. Personnel of departmental governments by functional groups, 1948 . .349 124. Production goals and performance, 1945 and 1948, of five- year plan for agricultural development 361 125. Procduction trends indicated for various crops, 19- i 362 126. 1.evel of nutrition in Colomnbia compared with requirements, 1946 .. . ....... .. .... I........ 364 127. Suggested production targets for 1955, compared with pro- duction if present trends are maintained . 366 128. Trends in agricultural production, 1938-48, and "clesirable" and "practical" targets for 1955 .368 129. Illustrative tax rates per tlhousand by income classification 385 130. Rate of growth per year in production and consumptioln of refined products, 1937-47 .. 428 131. Registrations and imports of automotive vehicles, 1938-49 . 429 132. Estimated demand for petroleumil products, 1955 and 19S0 430 133. Recommenided investlmient in specific industries, 1951-55. . 437 134. Model projection of industrial capital formation, 1953 ... 438 135. 1955 estimated cost per ton and per ton-kilometer for traffic via proposed Ibagu6-Armienia railway 455 136. Estimated capital requirements for major highway projects, 1951-55 ... 465 xxxvi Table Page 137. Capital investment in specified surface transport projects, 1951-55 .. ..... .................... ..... ., 475 138. Annual projected investment in surface transport, 1951-55 475 1/ 139. Estimated capital reqnirements, annual revenues and ex- penses of the proposed Airport and Communications Cor- poration ..... . .... ... ..... . . ...... 478 - 140. Estinmated capital requiremzents for air navigation equipment program .483 V 141. Air navigation equipment program-estimated annual oper- ating and m1ainteniance costs.483 142. Proposed government plan for construction and improvemzent of national airports .... . ..... 485 143. Capital investment in specified air transport projects, 1951-55 490 144. Anlual projected investment in air transport, 1951-55 491 V' 145. Number of beds available in 1948 and needed by 1955 in general and special hospitals ........................... .... .... 508 146. Number of beds in 1948 and estimated number needed in 1955 by designated types of hospitals . .. .... 509 147. Estimated numlber of required public health and Beneficencia personnel and estimated annual expenditures for salaries by 1955.. 512 148. Projection of electric power consum1ption, 1950-55 .516 149. Projected powver availability for industrial purposes, 1955 518 150. Sources of capital for self-liquidating and other commnunity facilities, 1950-55 .534 151. Number of dwellings in 1948 compared with estimated needs, 1950-55. 535 152. Distribution of population and average cost of dwellings 540 153. Dwelling requirements. 1950-55. 540 154. Total projected capital expenditures for dwellings and build- ing construction program, 1951-55. .. . 541 155. Estimated capital requirements for construction of additional schools, 1951-55 549 V 156. Projected investment progranm by end use, 1951-55 594 157. Projected investment program1 bV end use, 1953 .. . . 594 158. Percentage composition of capital investmtent, 1947, 1953 595 159. AIodel projection of gross national product. 1947-50-53 599 >9 160. Comaparison of projected and recommiended patterns of capital formation in 1953 . 600 161. MIodel projection of national income, 1947-53; employmlent, productivity and price indices, 1939-53 ....... ............... 602 162. 'Model projection of national accounts, 1947-53 .... ...... .. ....... 603 163. Projected incomze and expenditures of segments of Colombian economy, 1953 . . .. . 604 164. Model projection of Colombialn budget, 1947-53 ........ 605 xxxvii  APPENDICES * A. NVational Accouniits, inclluding NVational Income anld Capital Formationl by Jacques Torfs. B. NAuitrition, by Jacques Torfs. C. Clharacteristics of Po-wer Facilities of Principal Citics, by David L. Gordon. D. WFater anzd Scaer Facilities, by Depart117enlts anzd in TVarimis Cities, by David L. Gordon. E. Soutrces of ilfunicipal Revenues, 1946, by David L. Gordon. F. Putblic Finance, by Richard A. MIusgrave. G. 31oncy and Credit, by Richard A. Musgrave. H. Balanzce of InternationalPayments, by Roger V. Anderson. I. MllInltiple Rates of E-x-chlangc, Mllid-1949, by Roger V. Anderson. J. Statistical Bases for Trends and Projectionis, by Jacques Torfs. * Available on request fromn the Tnternational Bank for Reconstriuction and Development N Vi Vxx  PART I The Problem  CHAPTER I The Country and the People THE COUNTRY The Colombian economy is one of the most interesting in the world. The peculiar topography of the country, together with its position near the Equator, permits a diversity of agricultural production customarily found only in a country occupying the better part of a continent. Indeed, the diversity is greater than that obtainable in the United States ancd Canada combined. Climates of the inhabited zones range from tropical at lowv altitudes to temperate at higher altitudes, per- mitting the simultaneous growth within a comparatively few miles of such diverse crops as bananias, coffee, potatoes and \vheat. Aloreover, the proximity to the Equator results in little variation in seasons and permits cultivation throughout the twelve months of the year. A study of the relief map of Colombia is indispensable to an understanding of the problems of the country. While, however, the topography and climate are Colombia's great- est elements of economic strength, they are at the same time the source of the country's greatest economic problem, transportation. The greater part of the wvestern and inhabited part of the country is tri- sected by three lofty and continuous mountain ranges which have offered severe and, indeed, until comparatively recently, almost in- superable barriers to the bulk movement of goods throughout the country. Consequeutly, the same factors that permit diversity and specialization in agricultural production impose obstacles to taking full advantage on a national scale of this diversity. Moreover, the topog- raphy and climate have up to now prevented the colonization of large areas of the country to the east of the Andes, along the Pacific Coast and in the lowver klagdalena V7alley. One extremely significant consequence of the topography of the country has been the emergence of four fairly distinct and separate' economic entities or tradiing zones, which center around (1) Tolima- Huila and the high easternl plateaus, (2) the Atlantic Coastal region, (3) Antioquia, and (4) the Pacific Coast departments. Each of these zones includes lands and climates permitting a wide diversity of agri- cultural production. Each has a metropolitani area wvhose food require- ments are met very largely within the zone. Within each zone the transport facilities permit considerable movement of agricultural com- modities. Each of the zones has, on one or more of its sides, un- 3 4 THIE BASIS OF A DEVELOPMENT PROGRAAI FOR COLOMBIA developed lands of potential significance for the future. This self- contained characteristic extends even in part to industry. Each of the zones supplies all or part of its own requirements for cement, most building- materials, cotton textiles and beer. Curiously enough, each zone contains coal. The goods that move across zonal lines are those that can bear high tranisport costs and comprise mainly salt, sugar, oil, imported and exported goods. It is a temptation to think of Colombia as four separate countries united politically, but that would be an oversimplification. Actually the zones are not clear-cut and improvements in transportation will permit greater specialization and more interzoinal trade. The zonal ap- proach, however, does facilitate the understanding and treatment of Colombia's problems. From a relatively small area, not too efficiently utilized, Colombia produces not only food for its people but also some 5'2 million bags of coffee for export which in turn largely pay for imports. Part of the clothing requirements, as well as all of the shoes, beer and tobacco needed by its inhabitants, is also supplied by the processing of its agricutural products. In addition, Colombia has produced approx- imately one-half billion barrels of oil in the last twenty-five years, possesses eQorimous coal deposits, and great stands of accessible tropical forests, and is particularly rich in actual and potential hydro- electric resources. The presently thickly settled parts of the country are relatively small in area. The whole area east of the Andes, drained by the headwaters of the Orinoco and the Amazon, is sparsely inhabited anti it is debatable whether it will in the foreseeable future support a large increase in population. The same is true of the swamp lands in the lower Magdalena Valley, the arid lands in the upper Magdalena Valley and the very humid, tropical country along the Northern Pacific coast. I\Ioreover, it is doubtful whether a good living can ever be obtained from many of the steep mountain slopes of the Cordillera Central and other ranges now under cultivation. There are some promising newv areas, notably in the Sinti and San Jorge valleys and the middle Magdalena Valley below La Dorada, but the high price of valley land, the extreme parcelization of the land of Narifio, the small farms creep- ing up incredibly steep mountain sides, and the agitation for irrigation projects are all warning signals that the growth of population is begin- ning to press on limited arable land resources. The relatively small area of suitable arable land places limitations on possible future agri- cultural expansion and new settlement for a population of 11 million people, which is increasing at about 2 percent per annum.  THE COUNTRY AND THE PEOPLE 5 THE PEOPLE Population in 1900 was estimated at 3,880,000. The last official census in 1938 indicated a population of 8,700,000. Since the rate of increase appears to be about 2.15 percent per annum, the 1950 popu- lation is probably about 11,000,000, or an increase of some 186 percent since the turn of the century. The official birth rate for 1946 was 33 per thousand and the death rate in the same year 15.6 per thousand. Since there is good reason to believe that many births and deaths are unreported, and the official birth and death rates are inconsistent with population and population growth figures, a more reliable indication of the birth and death rates is probably afforded by the figures for some of the main cities. These show birth rates ranging from 31.4 in Bogota to 41.7 in Medellin, and death rates of 19.3, 19.6 and 20.4 for Manizales, Bogota and Medellin, respectively. A birth rate of around 39 per thousand is nearly double that of the United States, higher than Venezuela or Chile, and only slightly belowv Mexico. A death rate of around 20 is again approximately double that in the United States and very close to the rates prevailing in Mexico, Chile and Guatemala. It is apparent from such high birth and death rates, and with the known heavy infant mortality rates, that the expectation of life is relatively short, probably being around 37 to 40 at birth. This may be contrasted with an expectation of life in the United States of 66 years at birth. The population of Colombia is relatively youthfull in age composition. On the basis of the 1938 census, it appears that some 40 percent of the total population were under fourteen years of age, and only 11 percent were over fifty years of age. Excessively high birth and death rates and low expectation of life not only have significance in terms of human well-being or happiness, but also have economic implications. For example, adult males of working age obviously have to care for more dependents, and acquired skills are lost to the community after relatively short use. The racial composition of the people derives from three main stocks: European, Indian and Negro. There has, however, been a considerable mixture of these stocks in the past four centuries. Accord- ing to a recent authority, 1 the percentage composition of the popula- tion by races in 1852 and in 1942 was as follows: 1852 1942 Indiai. 1.3.8 1 6%, Indian-White . . .5 5. .. 44.5................ 46.0 Negro . . . . 3.5 4.4 Negro-Indian/White . . . . 17.6 22.0 White .. . . . 20.6 26.0 I Pablo Vila, Geografia de Colombia, 1945. 6 THE BASIS OF A DEVELOPMENT PROGRANI FOR COLOMBIA Despite the rapid growth of industry, towvis and cities, Colombia is still predominantly rural. According to official estimates for 1948, 71 percent of the people lived on farms and in villages under 1500. Ag-aim, according- to the 193S census, 40 percent of the people lived in tile hot or tropical districts, 36 percent in the moderate or temperate zones, and 24 percent itn the cool uplanids. Considerable attention w-ill be devoted later in the Report to the general problem of health. 2 We may anticipate the findings there by remarkilg- that by and large the Colombians cannot be called a healthy people, though they are better off in this respect than the people of most tuderdeveloped countries. Not only are the death rates excessively high, but the bnrden of illness, such as dysentery, malaria and tuberculosis, is heavy. This again has economic as well as welfare aspects. STANDARD OF LIVING Since our main concern in this study is the development of a plan to raise the standard of living, it is of considerable importance to determine the facts relating to the present standard of living. Un- fortunately, this is a difficult field in which to obtain a high degree of precision. Only one or two carefully controlled spot studies have been mlade and Colombia exhibits such diversity that it is unusually hazardous to base generalizations on isolated studies. The only recourse seems to be to present the results of such studies together with inmpressions formed by the members of the MIission through very extensive travels throughout Colombia, interviews, and studies of available statistics. One available study made in 1945 is of Tabio, a community about thirty-five miles north of Bogota on the savanna.' This community is probably somewhat above the average in income and level of living for rural communities in Colombia. It has also been somewhat influenced, particularly in migration, by its proximity to Bogota. It contains about 29 square miles (74 square kilometers) and three- fourths of this area lies in fairly level valley bottom with one-fourth made up of steep mountain slopes. It contains a village or pueblo. About 44 percent of the families are those of farm laborers wvith the bulk of the rest being small proprietors and a few substantial land- owners. Three percent of the population control one-half of the land. The system of farming utilized is characterized by a lavish use of labor. The plow, the w heel and animal pack have as yet entered only 2 See Chapter IX. 3 Tab io, A Staidy int Rio-al Social Organization, by T. Lynn Smith, Justo Diaz Rodriguez and Luis Roberto Garcia, U. S. Department of Agriculture.  THE COUNTRY AND THE PEOPLE 7 incidentally into the farming operations of the municipio. Conse- quently, the productivity per wrorker is low, which again is reflected in a lowv standard of living. Most of the produce is constumed locally and the community obviously furnishes little market for the products of industry. According to the study, "the typical house in Tabio is a twvo or three room affair of wiattle and daub and covered w-ith thatch. Its floor is of bare earth and there were either no windowrs or merely opening-s with no shutters, and the houise is wvithout ceiling. The average home's furniishin'gs and conveniences do not include electricity, running wvater or any sanitary equipment." The stove is customarily three stones on a bare floor or a pipeless little brick stove with iron covering. About half the houses are seriously overcrowded, \vith four and even six people to a room being common. The family does not appear to be as strong a unit as is generally asstumiied. Of 517 households visited for the study, less than three- fifths were inhlabited by families \vhose father was present in the home. Mlore than 7 percent were cases in which the household \vas headed by a married woman whose husband \vas away permanently, 16 per- cent wvere families broken by the death of one of the parents, and nearly one-fifth -vere quasi-family groupings headed by an unmarried man or woman. In Tabio, educational institutions are still in their incipient stages. Schools designed to fit the children for life in the community are still to come. The boys of the municipio need instruction in agriculture. Many of the girls spend their lives as domestic servants in Bogota. In general, the authors of this report felt that educational institutions designed to bring out the latent possibilities of the municipio's youth were urgently needed. A field investigation was made by the present MAlission of the standard of living of agricultural workers in the Armero-Guayabal district in Tolima, xvhich is more or less representative of conditions prevailing throughout the middle Mfagdalena Valley from Huila to Puerto Berrio, but above the average for the country. The typical production unit of the Magdalena Valley is a large hacienda producing cotton, rice, sesame and cattle. A typical agricul- tural worker in the region studied is part of a family of six-father, mother and four children under twvelve. The family usually lives in a small village and the father works on nearby haciendas. At harvest time his wvork is supplemented by the work of the mother and any children above seven. The income of such a family amounts to about Ps.$1200 per year, assuming a full work year of 52 \veeks for the father, supplemented by the Nvork of the mother and older children. S THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA Food, beverages and tobacco absorb almost all of this income leaving only a bare minimum1i for clothing and utensils. This family lives in a house costing Ps.$300 to Ps.$500. The floors are usually earthen or very thin concrete, the wvalls are constructed of bamboo and mud, and the roof is thatched with palm leaves wveatherproofed wvith clay or mud. The house is usually divided into tvo rooms, one for sitting and the other for sleeping. There are generally no beds and a minimum of chairs. The kitchen is situated in a straw hut behind the house wvith cooking done over an open fire. Kitchen utensils are usually earthenware. Toilet installations are limited to a wvash basin and privies are rudimentary and inadequate. In this region there is gen- erallv no water supply in either the rural communities or the haciendas. Small sums are given the children andl older people to carry the xvater from nearby rivers. There appears to be no deficiency in the diet so far as the number of calories is concerned, nor in this region is there much evidence of malniutrition, since an unusually abundanit supply of meat is available to balance the customary starchy diet of most country people in Colombia. Less than 50 percent of the workers read or write, as contrasted with Tabio, where the percentage of literacy wvas 60 percent. The wvorkers generally have very little schooling and what little they have appears to be of small help in the practical problems of life. Despite this lack of training, xve found the workers interviewed to have a higher cultural standard than might have been expected. They were clean, courteous, wvith a good sense of humor and a very active interest in political issues. The xvorkers in the region live so closely to the margin of subsistence that the occurrence of any of the ordinary misfortunes of life, such as illness or death or lack of employment, is likely to wvipe out any accumulated savings they may have or to cause them to go into dlebt. Credit facilities are extremely limited and it requires unusual energy and foresight and determination to enable an indivi-dual to better his position in life. At this level, the rungs of the economic ladder are \videly spaced and difficult to scale. From our observation, the conditions of small freeholders and tenants in this area do not differ sign-ificantly from those of \vorkers. There are considerable variations in levels and modes of living throughout the country regions of Colombia. Coffee, for example, is typically groxvn by a small freeholder. In 1938 it wvas estimated that there were some 300,000 proprietors of coffee fincas. A typical coffee finca is relatively small, containing about 3200 trees which at prices prevailing in the middle of 1949 wvould yield its owner around Ps.$1200 a year, an income that xvould cover little more than the bare necessities  THE COU-NTRY AND THE PEOPLE 9 oi life. The coffee growers are considered to have a better than average standard for the country. On the other Ifand. the condition of the people in Boyaca and in Narifio is considerably below the national average. The half million odd people of Nari-no are proprietors and their individual holdings are so tiny and are farmed so primitively that a very low level of living results. In 1946, the average income of people in these two departments was well below that of the rural workers in Tolima and Cundinamarca. The workers in industry, commerce and transportation are some- what better off than the country people. They receive a somewhat higher money income, averaging Ps.$3.58 per day in 1948. In addition, in some of the cities, they enjoy the benefits of certain municipal services, such as light and water. Moreover, they receive other sub- stantial benefits through the social laws, including severance pay and medical care. Even for such workers, however, a substantial part of their income goes for food. According to studies made in recent years by the Contraloria General of working class budgets in five Colombian cities, 57 to 66 percent of expenditures were devoted to this purpose. This was doubtless partly due to the size of the families, as each worker in the families studied was supporting four people on the average. There is also a relatively small group of majordomos, or managers, and tractor drivers whose earnings are considerably above either the workers, tenants or freeholders. No recent studies have been made of the standard of living of the small but growing middle class of Colombia, although it is obvious that their status is considerably better than that of the workers. Finally, there are the large plantation owners, industrialists, importers, bankers, etc., whose numbers are still small but who have increased considerably in recent years. It is estimated that in 1947, the earnings of corporations and indi- vidual enterprises, owned by some 80,000 people, amounted to nearly one-third of the national income. 4 Official tax returns, which unques- tionably understate incomes, indicated for 1947 that less than 8,000 taxpayers, or 9.5 percent of individuals filing returns, earned above Ps.$10,000 but accounted for 56 percent of the reported incomes. The relatively lowv standard of living of the majority of the people in Colombia is further indicated by the per capita consumption of such items as cotton textiles, electric power, and other elemelnts entering into the standard of living. For example, it has been estimated that 4 See Chapter III. 10 TIlE BASIS OF A DFVELOPMIENT PROGRANI FOR COLOMBIA in 1938-1939, the ener-y consumed per day per capita from coal, oil and electricity amotunted to 1.5 horsepoxver in Colombia, 10.7 horse- power in Chile and 37.6 horsepower in the United States.5 Despite the generally low standards of living, health and education in absolute terms, it must be emphasized that real and substantial progress has been made in the past twventy-five years. The production of agricultural crops, including coffee, cotton, tobacco and sugar, has increased very substantially; manufacturing output and imports of both producer and consumer goods have likewise shown a great ex- pansion. Great public works have been carried through, particularly in road building. Considerable expansion in electric power production has occurred and a tremendous amount of commercial and apartment building has occurred in the leading cities. Much of this development has been made possible through exports of coffee, petroleum and gold during the past twenty years. Recorded imports, financed largely by these products, a-gregated Ps.$4.5 billion in the period 1924-1948. Colombia has attained an economic status well up in the list of underdeveloped countries of the \vorld, and the showing becomes especially favorable if the comparison is limited to countries in the equatorial belt. Of even greater significance is the strong capacity for grovth that has been demonstrated. Hoowever, the gains from this period of rapid development have been unequally diffused. At one end of the scale, the returns to owvners of capital have increased more rapidly than returns to agriculturists and general industrial wvorkers. Other classes sharing in the gains have been the emerging middle class, the skilled industrial and transport xvorkers and a relatively small group of people who operate the ne\v agricultural machinery. The bulk of the population has experienced some rise in the standard of living, particularly in consumption of food, beer and tobacco, and in better living quarters and community facilities, but the rise has been lowver than what might have followed from the economic development already achieved. 5Energy Resour-ccs of the World, U. S. Department of State, 1949, Table 42.  CHAPTER II Factors Accounting for the Standard of Living Considerable descriptive and analytical material wvill be presented in this Report bearing on the central problem of the standard of living of the Colombian people. It will be convenient at this point to summarize in advance the main findings and to indicate how they relate more specifically and definitely to the standard of living. It is also perhaps advisable to rciterate here the schematic structure of this Report. It is not our purpose to describe the economic system of Colombia for the sake of description. Neither are we concerned to balance the good points against the bad or to mingle praise with criti- cism. We have sought at all times to keep before us the single object of this study--to determine howv the Colombian standard of living might be raised. Consequently, the discussion deliberately and of necessity has been concentrated on the xveaknesses, the shortcomings, the inefficiencies and the general organization and practices that con- tribute to those xveaknesses which it is felt can be improved or modified in such a wvay as to raise the standard of living. In short. Part I forms the basis for the recommendations of Part II. Another word of explanation is perhaps in order. It is possible to treat of the standard of living of a country on different levels of discourse. One very basic level, for example, might concentrate on such factors as race, culture and history ; it might develop a theory as to how it is that one people, inhabiting a rugged inhospitable terrain, may achieve a higher standard than another people occupying land richly endowved by nature. While a study conducted at such a level would be both basic and fascinating, it xvould be likely to become intertwined with matters of personal judgment and become philo- sophical or merely historical in nature. The approach here, on the contrary, is pragmatic. The concern is solely with matters of a much more imnmediate and practical nature about wvhich something can be done within a relatively short period. This should not be taken to mean that cultural factors are not felt to be of major importance or that they have not been considered in connection with the framing of recommendations. The point is rather that cultural factors by their very nature are susceptible of little modification in short periods of time. WHAT DETERMINES THE STANDARD OF LIVING The explanation of varying standards of living is the most funda- mental and absorbing problem of economics. It is, therefore. sur- 11 12 THE BASIS OF A DEVELOPMIENT PROGRAM FOR COLOMBIA prising that so little prior work has been done in this field in Colombia. Indeed, the descriptive material on the standard of living itself of different classes in different areas is extremely scanty. Recourse was therefore had to a few spot studies, interpretations of overall statistics compiled for other purposes, and general impressions derived by AMission members in their travels, studies and interviews. It should be pointed out that the standard of living is not a precise concept susceptible of careful measurement. It corresponds roughly to a state of well-being in an economic rather than a spiritual sense. However, w*hat constitutes well-being is a matter of judgment and differs with different people, and at different times. Some people, for example, will be reluctant to concede that the use of tobacco and the consumption of alcoholic beverages are substantial elements of a desirable standard of living. Most people, however, would so regard them. Similarly, after a certain point is reached, the correspondence between increased consumption of goods and services and an increased sense of well-being becomes tenuous. WVhen, however, we are dealing with a people whose consumption is very low, this consideration need not concern us unduly. In other words, we are on safe ground in feeling that essential elements in a standard of living are the con- sumptiotn of food adequate for nutritional purposes, the enjoyment of sufficiently good health to permit a sense of physical well-being, the possession of adequate housing and clothing, and the opportunity for some leisure and amusement. Beyond these basic things, different people would place different emphasis upon additional types of con- sumption. In this report, however, attention has been concentrated on the possibility of increasing the per capita supply of the elements basic in any living standard. The conclusions presented in Chapter I need not be repeated here, except to say that the standard of living of the bulk of the people, in the terms just described, is distressingly low, particularly in view of the inherent richness of the country. We are not here concerned with the high standard of the well-to-do or the apparently tolerable standard of living of the urban middle class, since their number is relatively small, and they will in any case benefit from improvements in the general level. In order to relate more preciselv the discussion presented in the followving chapters to the low general standard of living of the masses, it is perhaps desirable to set forth some very elementary and yet basic factors determining any living standard. Broadly speaking, therefore, the standard of living or economic well-being of any people depends on (a) the productivity per capita; (b) the distribution of the output of goods and services as between  FACTORS ACCOUNTING FOR THE STANDARD OF LIVING 13 consumers' and producers' goods; and (c) the distribution of income and consumption among the people. PRODUCTIVITY PER CAPITA Production per capita depends on the resources per capita, both natural and man-made, the efficiency of workers, the age distribution of the population or the proportion of the population of wvorking age, the efficiency wvith wvhich production is organized, and the foreign markets and terms of international trade. It is believed that virtually all the important factors affecting productivity per head can be con- veniently treated under these various headings. UnemlIployment is not an important factor in Colombia. Natural Resources While the area of Colombia is great, the amoulnt of readily access- ible and good agricultural land in relation to the population is strictly limited. The average size of farms is about two hectares, or five acres, and even this average is affected by the inclusion of many large farms. Fortunately, the climate and topography permit the economic utiliza- tion of some steep hillside areas that could not be profitably cultivated in northern climes. However, the area of level valley land suitable for intensive crop cultivation is scarce in relation to the demand for such land. Consequently, its value is so high as to keep it out of the reach of poorer farmcrs. We shall have frequent occasion to point out the anomaly that this limited area of good level land is customarily not put to its most economic use but, for various reasons, is devoted to beef cattle grazing. Given, therefore, the present state of agricultural practices and certain social customs that have arisen in connection wvith land oxvning, the evidence is incontestable that population is pressing on land. Again, given these factors, it appears that a continuance of population growth at the present rate, or at an accelerated rate that might result fromi better health conditions, would result in recourse to poorer land and lower productivity after certain limited additional fertile areas have been settled. It is true that wvith every additional mouth there is an additional pair of hands. Unfortunately, however, wvhen resources are limited each additional pair of hands may not produce as much as previous pairs. On the other hand, wvith the application of known agricultural techniques and the efficient utilization of land resources, the present arable land area of Colombia would be consistent with a high standard of living for the existing population. Under the present conditions, 14 THE BASIS OF A DEVELOPMENT PROGRA-M FOR COLOMBIA which are spelled out at some length in the two following chapters, the productivity of work in agriculture is so Io\v that it takes nearly 63 percent of the working population to growv the food and provide the ag-rictultural raw materials and exports. Only 30 percent are engaged in industry and service occupationis, while 70 percent of the population live in rural areas. In the United States, only 14 percent of the gainfully employed are engaged in agriculture and 20 percent live in the country. In order for additional goods and services of all kinds to be produced in Colombia, it is necessary that a smaller percentage of the population be engaged in agriculture and that more people be engaged in the production of other things. This means, in turni, that-the productivity of each agricultural worker must be very much greater than prevails today. AW'ays and means of achieving- this increased productivity are of foremost importance. Of the natural resources in addition to land with wvhich Colombia has been richly endowved, only txvo, petroleum and gold, have been utilized to any significanit extent. Existing- knowl\ reserves of petro- leum, if carefully preserved and wvisely utilized, should meet the country's rapidly growing needs over a considerable period. More- over, there is, of course, always the possibility that additional fields may be discovered. Current imports of refined products can be largely dispensed with when additional refinery capacity is provided. T o date, negligible use has been made of the country's great timber resources, and very little of the apparently tremendous coal reserves. Very little opportunity has been taken of the country's long coastline to supplement the excessively starchy diet with fish protein. The topography and climate of the country not only permit great diver- sity in agricultural production but also provide considerable hydlro- electric potential. Thus in the basic sources of power-oil, coal and hvdroelectric potential-Colombia is fortunately situated. While Colombia thus owes much to its topography, this same topography has raised barriers to the development of the country. In fact, even ivith good organization, transportation will always remain relatively expensive, although advances in technology are reducing the country's disadvantage in this respect. But perhaps the very problems and obstacles raised by communications have stimulated human ingenuity and may account for a level of activity and talents higher than usually encountered in countries in the equatorial belt. Capital Despite the relatively high current rate of capital formation and the considerable capital formation of the past, capital remains scarce in relation to population and natural resources. Most Colombian labor  FACTORS ACCOUNTING FOR THE STANDARD OF LIVING 15 is unaided by poWver of any kind. The wvorker in industry proper, as disting.uished from hanldicraft establishments, has on the average the use of 1.5 horsepowver, wvhich is loxv in comparison wvith industrially advanced countries: this figure becomes even more striking Avhen it is remembered that industrial emplovment is still quite small in rela- tion to other occupations. A very substanitial part of the capital has been employed in building railroads and highways and providing for the rapid growvth of cities. Another substantial portion has gone into oil exploration and has been provided by foreign companies. A surprisingly small portion of the capital has gone into electric powver installations and industrial and agricultural machinery. The growving of food and the provision of shelter for most of the people are still essentially manual operations Avith very little assistance from capital. WVe shall have occasion to point out that for various reasons a significant portion of capital flowvs into office and commercial buildings, hotels and apartments, and higher class homes. While the investment of capital in all these forms except the last yields high monetary returns, it is doubtful whether this type of capital forma- tion contributes in any significant way to raising the standard of living of the people generally. There are other sectors of the economy where the flow of capital, as determined by monetary returns, does not appear to conform to the most urgent economic needs of the community. For example, special factors in municipalities have resulted in most inadequate capital investmenlt in the provision of basic muLLicipal services such as xvater, light and power. Short- and long--term credit for agriculture has been chronically scarce as has also been capital for low cost housing. In industry, on the other hand, the criterion of money returns has probably resulted in an appropriate distribution of capital, keeping in mind that the demand ior goods is in part a reflection of the distribution of income. Con- siderable capital is absorbed in the mere carrying of invelntories, wvhich, for various reasons, are high relative to current production. Finally, it may be pointed out that the mere investmiielnt of capital in no wvay assures a proportionate increase in production or productivity. Not only is it necessary that the capital be invested in a field wvhere there is urgent need for it, but also that the capital be invested in appropriate form and, once invested, be managed properly. Poor management can nullify the effect of good investment just as improvements in management can enhance the productivity of capital. For example, there is reason to believe that the countrv is not reaping the full benefit of the relatively large capital sums invested in transportation. 16 THE BASIS OF A DEVELOPMENT PROGRAMI FOR COLOMIBIA Manpower In many wvays, a country's greatest resource is its manpowver. A strong, healthy, wvell educated, wvell trained, reliable and industrious people have demonstrated again and again the possibility of achieving a high standard of living in lands and areas not particularly favorably endowed by nature. An outstanding example is afforded by Switzer- land, which has almost no natural resources except w7ater power and scenery. Due partly to favorable location and historical circumstances, but principally to the character and training of its people, it has achieved an extraordinarily high standard of living. Colombia's manpower resources, however, are far from reaching these standards, though levels of human efficiency and ingenuity are above those observed in most other countries in the tropical equatorial belt. The low level of health shows itself not only in a short life expectancy and a high ratio of dependents per worker, but also in the strength, capacity and desire to wvork of the adult population. The too frequent combination of unbalanced diets and debilitating chronic diseases results in a diminution of physical strength and ambition. When to these are added widespread illiteracy and little training of a technical nature, it is not surprising that the productivity of labor is relatively low. These conditions can, of course, be changed. The Colombian worker possesses a quick and ready intelligence and has shown a capacity to learn rapidly and to work efficiently wvhen he is properly trained and directed and enjoys an adequate diet and good health. The problem is to make the transition-to get started on the rungs of the ascending ladder. The difficulty and magnitude of this task should not be minimized. We encountered the defeatist attitucde in the feeling that it is hopeless to try to improve the lot of certain groups, as higher pay will only result in less work. Fortunately, Colombia possesses a small but highly educated and well trained professional and business class. From the ranks of this class excellent leadership is available to develop the country and enable it to realize its great potentialities. The emerging middle class is still relatively small and is confined mostly to a fexv cities. But \vith good leadership and training, the Colombian worker can undoubtedly progress towvard an ever higher standard of living. Organization In addition to abundant natural resources, plentiful capital and trained manpover. good organization is also necessary for high productivity and a consequent high standard of living. The misuse  FACTORS ACCOUNTING FOR THE STANDARD OF LIVING 17 of land resources, for example, on which we lay much stress, is an outstanding example of unsatisfactory organizatioln in agriculture. Again, in the important field of transportation, it is apparent that although Colombia has had to contend with certain natural difficulties, faulty organization and administration also play a role in the high cost w of transportation and in the retarding effect this has had on the economic growth of the country. Improvements in organization in these fields would unquestionably yield high returns in increasing productivity. As a factor in the low standard of living, the inadequacy of municipal services, particularly of xvater, sanitation, electric power and light, is stressed. Although the adequate provision of such services is undoubtedly a costly matter calling for considerable capital outlay, both domestic and foreign, nevertheless the faulty organization of municipal government must bear a substantial part of the blame for the existing state of affairs. A similar observation is applicable to the poor general state of health. Admittedly, the conquest of disease and the achievement of a high standard of health are expensive. The returns, however, are great, especially if the increased available energy is utilized. A wise allocation of resources calls for much larger expenditures in preventive medicine. This is a field where a major continuous effort yields great returns. A smaller effort directed only to the alleviation of suffering may be much costlier in the long run and yet make no real improvement in the health of the people. Improvements in the planning and organization of education would also yield great returns. The present program appears to be making very little progress either in reducing illiteracy or in providing a higher standard of education and training for a significant portion of the population. While this is partly a qllestion of the allocation of available resources among many competing needs, it is also in part a question of organization and planning. Planning and organization in the general fields of public adminis- tration and fiscal, foreign exchange and monetary matters also need improvement. Inadequate organization in government at all levels contributes toward a poor allocation of resources and, in certain economic fields, lower productivity than might otherwise be obtained. While a substantial part of the inflation that has occurred since 1939 was probably unavoidable and arose from conditions beyond internal control, part of it could have been avoided through the pursuit of different policies. While the continuance of inflation over a period of time doubtless resulted in hig-her profits and a higher aggregate volume of saving than wxould otherwise have occurred, it also un- 1S THE BASIS OF A DEVELOPMIENT PROGRAM FOR COLOMBIA questionably encoutraged xwasteful expenditures, created various dis- tortions in the ecomonic community, and contributed to social unrest. MIoreover, the policy of permitting a greater fall in the internal pur- chasing power of the peso than in its external purchasing power resulted in recourse to a highly complicated and discretionary system of exchange control. This in turn \veakened the competitive structure of the Colombian economy and led, in a certain degree, to misallocation of resources and deterred the import of capital. Throughout this Report, deficiencies and shortcomings in organi- zation are stressed as improvelmients in this field are relatively costless and yet yield high returns in increased productivity. International Economic Position Under the four main headings of natural resources, capital, man- power and organization, all the factors affecting productivity might be discussed. In Colombia's case, however, there appears to be something gailned by singling out two or three factors for separate discussion. One of these revolves around the foreign market for Colombia's products. Since any predominantly agricultural country is de- pendent on foreign resources for a wide variety of manufactured goods, both consumers' and producers', it is of the utmost importance that it be able to export goods that command a ready market abroad, particularly for dollars. In this, Colombia has been fortunate, especially in recent years wheni the demand for coffee has been steadily increasing and the price has been rising. To a much lesser degree, Colombia has secured dollars from royalties on the export of petroleum, from the expenditures of foreign petroleum companies in Colombia, and from gold production. This relatively strong dollar position is of great importance in making possible one of the fundamental conditions for a rapid increase in industrial and agricultural production. Over the longer term, it is true, the country is in a somexvhat vulnerable position because of the concentration in one export com- modity. However, for the time being, it is possible for Colombia, mainly through its coffee sales, to secure capital goods of all kinds xvlhich can lead to an expansion of domestic production and thus can reduce the necessity for certain imports in the future, and assist in the development of newv types of goods for export. In addition, its exports make possible the importation of certain rawv materials and a \vide variety of consumer goods. Finally, the relatively lowv ratio of servicing charges on the foreign debt to total exchange receipts, and the rapid rate of amortization of the outstandina foreign debt, place Colombia in a position to increase  FACTORS ACCOUNTING FOR THE STANDARD OF LIVING 19 its borrowvings abroad when it seems prudent to do so, and when its economic position is definitely strengtlhened thereby. Despite the shortage of capital and the consequent high return on capital, Colombia has not attracted much foreign investment except in the petroleum and gold mining fields. For various reasons, foreign capital, by and large, has not found the climate congenial. ALLOCATION OF PRODUCTION BETWEEN PRESENT AND FUTURE CONSUMPTION As stated earlier in this chapter, the standard of living depends not only on what each worker produces but also on the division of production as betwveen consumers' and producers' goods. Production imay, be very high but if most of it goes into capital goods that will yield services some time in the future, or into military expenditures, the current supply of consum1rers' goods, and hence the standard of living, may be quite low. Owving to the complexity of modern economic life, the essential nature of the capital formation process is sometimzes forgotten. Putting aside foreign capital for the moment, the maintenance and adldition to the man-made capital equipment of Colombia involve a current loss of real consumption to the community. The more people who build dams, roads, pover plants, factories and so forth, the fewer the people who cutrrenetly produce goods for current consumption. Similarly, the more the proceeds of coffee growers' work are expended on im- ported trucks and machinery, for example, the fewer are the possible imports of foodstuffs and other consumers' goods. The hope is, of course, that the production of more producers' goods today will result in the production of more consumers' goods and services tomorrow. This is generally the case if the right goods are produced and are properly utilized. Nevertheless, the cost today to the wvhole community of diverting labor from the production of con- sumers' goods to prodticers' goods should never be ignored. When the standard of living is as low as it is in Colombia, the decisiona to divert labor from current to future production is a grave one and should be based on sound and compelling grounds. To embark on a numnber of major undertakings simultaneously may unduly postpone the period when the returns from any or all compensate for presenit sacrifices. Again, if a bad mistake is made, the w hole community loses. A foreign loan uneconomically applied or dissipated must be serviced and repaid out of future production even thoug,h it may' have in no wvay increased that productioni. 20 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA These elementary observations are prompted by the thought that the use of money often obscures real phenomena and, in a culture as individualistic as that of Colombia, there is a tendency to overlook the social implications of private acts. The allocation of labor and resources as between the production of consumers' goods and capital goods is determined partly by the action of the Government in utilizing savings and taxes to invest in capital undertakings and partly by the decisions of a relatively small group of capitalists and bankers. In Colombia in recent years, it appears that some 14 percent of the total value of all goods and services produced were composed of capital goods. While this is a relatively large proportion, a few percentage points less would have meant very little additional current consumption for the bulk of the population. Of more serious concern is the evidence that an unduly large propor- tion of the absolute peso figure of capital formation is composed of trade profits and transportation costs and represents less real goods than might be assumed. Moreover, there are grounds for believing that the addition to the capital equipment of the nation has not resulted in as large an increase in the standard of living of the people as might be expected or desired. DISTRIBUTION OF INCOME AND CONSUMPTION It is obvious that the standard of living of a country will be affected by ho\v equally the current production of consumers' goods is distributed. This in turn depends in large part on the distribution of income and the available evidence indicates that it is very unequal. Despite attempts by the Government to raise wages, provide various social benefits, and impose progressive taxation, the more or le,s continuous process of inflation has resulted in abnormal returns to the owvners of capital. While much of this was saved, a portion went into homes, cars, foreign travel and foreign education for the very fewv. However, the total production of Colombia is so lowv in relation to population that greater equality of income, xvhile doubtless desir- able, wvould not have measurably increased the standard of living for the majority of the population. This chapter is written in very general terms. The remainder of Part I will spell out more specifically those factors in the low standard of living wvhich may be changed in a relatively short period. There is no one simple explanation of the relatively loxv productivity per capita. Many factors must be taken into consideration and conse- quently the attack on the problem must be many sided. While the standard of living is affected by the proportion of income saved and  FACTORS ACCOUNTING FOR THE STANDARD OF LIVING 21 the equality of distribution of income, the main determinant, however, is productivity. This is emphasized because in some quarters there is a tendency to exaggerate the importance of redistributing income as a means of raising the standard of living. While gross and gctjL a inequalitv is undesirable, its correction should not be allowed to divert attention away from efficiency or productivity. In the long run, an increase in productivity is the only effective wvay of raising the standard of living to any appreciable degree.  CHAPTER III National Income and Product A program for improving the econolmiic positioin of a country, if it is to be meaningftul and significant, should l)e conducted in as qiuantita- tive and specific terms as possible. Before \ve can make correct decisions as to how mticl Nve shall spend and on wvhat, Ave must have the facts on our incomne, on wvlhat wve are spending currently, and on what we wvill probably have available for expendituires on capital goods and consumer goods in the immediate future. Otherwise we can neither determine the nmagnitucde of the program nor priorities. The only sure key to understanding the problem, let alone appraising pro- posed solutions, therefore, is to put proposed programs in quantitative terms and then assess the magnitude of the effort contemplated in the appropriate context of backgrounlid coniditions and available resotirces. In this and the following chapters wve wvill attempt to determine the national income, the sources from which it is derived, its distribu- tion, and the volume of expenditures on consumer and capital goods. National income fig-tires give in summliary form the total value of goods and services, classified by the various groups participating in the productive process at each of its various stages; and the gross national product ineasures the total value of goods and services pro- duced, classified into such important types of product as consumers' goods and services,. capital formation, and Government expenditures. i In an underdeveloped country, national income statistics are important not only as an indicator of the value of goods and services currently available but also to indicate increases in productive efficiency. Hence, wvhen the gross national product is adjusted to eliminate the effects of price changes and expressed in terms of total value per worker, it becomes simply the broadest kind of measure of the average produc-' tivity of the labor force. COMPUTATION OF NATIONAL ACCOUNTS FOR COLOMBIA The national income and product accounits of Colombia have never been studied in detail. An estimate made in 1940, by the National Bureau of Economic Research (U.S.), set the national income at Ps.$1,098 million in that year. Prelimninary estimates by the staff of the International Bank in iMarch 1949, indicated that this figure might have grown to Ps.$2,327 million in 1945. Conclusions based on such fragmentary data. howvever, could easily be misleading. Though a Colombian committee on national income, using the facilities of the Banco de la Republica, has currently undertaken a more thorough 22  NATIONAL INCOMIE AND PRODUCT 23 study of national income, it is doubtful that this investigation wvill be completed before 1951. For purposes of this program, therefore, the Mission had to make preliminary estimates of national accounts, which obviously may require serious revision in the years to come. The sources of data for this preliminary analysis were scanty and, in general, unreliable. Altho-ugh efforts -were made to complete or correct the official statistical series, it is by no means certain that the results were satisfactory. Since more reliable estimates may not be available until the statistical services of Colombia have been re- organized and considerably strengthened, xve wish at one and the same time to indicate the provisional nature of the estimates and to utilize them in drawing up and evaluating the scope of the proposed program. Lack of many types of statistics normally going into national income and product data made it necessary to approach the compilation of national accounts from statistics on the volume and value of production of goods and services, with such supplements and adjustments as other available information indicated to be neces- sary or desirable. Once a reasonable estimate of the total value of production of various types of goods and services was obtained, it became necessary to eliminate duplication by deducting raw material and other values that had been counted at an earlier stage in the productive process and thus segregating the "value added" by each group of producers. A discussion of the procedures uised in making the statistical estimates for each of the major economic fields is found in the Appendix on national income.' By these methods, net national income xvas computed for each of the years from 1939 through 1947. This basic series provides the foundation upon which all the estimates rest. It represents the net return to the. c ! -. of productive resources participating in the productive process. TranslftJoniof net national income into gross national product proved less difficuilt. Gross national product is greater than national income because it includes not only depre iaes but also indirect taxes which are included in the prices of goods but not in the incomes of the producers. Once the size of the gross national product was determined, there remained the problem of breakino it inlto its component parts. Most difficult to estimate were consumers' expenditures. This is the largest component, and one of the most useful and meaningful items in the total of the national accounts, as it is the basic indicator of changes in living standards. The level of consumption in this study has been estimated by deduction of all other types of expenditures from gross 1 Appendix A. 24 THE BASIS OF A, DEVELOPMENT PROGRAM FOR COLOMBIA national product l'Government expenditures for goods and services, gross capital formation, and net exports), thus obtainin, consumption expenditures as a residual item. This procedure -was followed because it appeared more feasible to obtain direct estimates of the capital components of the gross national product than to attempt a direct estimate of the volume of consumer expenditures. For purposes of economic analysis it is not sufficient, however, to have a breakdown of the gross national product into the various component types of expenditure. It is also of interest to trace the flow of income to various participants in the production of the gross national product and to study the waay in which this income was disposed of. Of especial interest in this context is the way in wvhich income received in production is divided betwveen saving and expelndi- ture on the part of business units and consumer households. Thus a breakdown of the gross national product was also made by income components. By deducting profits retained by business (and adding transfer incomes, e.g., interest payments received from the Govern- ment) wve obtain personal income. By deducting income tax payments we obtain disposable income of individuals. Since consumption ex- penditures had previously been determined in breaking down the gross national product between various expenditure categories, personal savings are then obtained by deducting the former from disposable personal income. The results of these computationis are shown in Table 1. In appraising the picture thus presented, the reader should keep in mind that our judgment regarding the level of national income is on the safest ground. However, the transition from national income to gross national product does not involve a likelihood of large error. Next, our estimates of the volume of capital formation are fairly well founded as are those of government expenditures and foreign trade. The estimates for consumption expenditures, being the residual item, are naturally less reliable. Moving from national income to personal income, considerable difficulties are involved in obtaining estimates for retained earnings on the part of business. As there is no good ground on which these can be separated from personal savings, the figures for business savings must be considered as highly tentative. Thus, our estimate of personal income is substantially less reliable than our estimate of national income or gross national product. The estimate of personal savings, beilng arrived at as a last residual, ranks lowest in reliability. However, these figures do not appear unreason- able on the basis of such independent estimates as it was possible to obtain.  NATIONAL INCOW\E AND PRODUCT 25 GROWTH OF NATIONAL INCOME Table I shows that the net national income rose sharply and almost continuously from 1939 to 1947. From a level of about Ps.$1 billion per year in the immediate prewar period, it rose to over Ps.$3 billion in 1947. This more than threefold advance over this period reflects the beginnings of the industrialization and modernizationi of the country. A substantial part of this increase, however, was due to a price rise rather than a growvth of real output. The 1947 national income of Ps.$3,239 million, thoughl reflecting the sharp advances during the war and postwar period, was still a relatively Iowv figure in comparison wvith other countries. It amounited to about Ps.$308 per capita. Converting this to dollars at the 1947 exchanie rate ofPs.$1.75pr dollar, the average income for the total population of Colombia was approximately U.S.$176 per year. Com- parative figures for selected countries follow: U.S.$ P eru .... .. .......... ... ... .. 98 Brazil 140 C olombia . . ... . ..... . .. . ..... .......... .... 176 Chile 330 United States .1400 AI\ich emphasis should not be placed on these comparative figures, as they are obtained through conversion of local currency incomes into dollars at official rates of exchange. There is likely to be real disparity between estimated income of an underdeveloped country, \where much local productidn and consumption does not enter into domestic mar- kets and even less into foreign trade, and the indicated incomes of other countries. To obtain a sound comparison it xvould be necessary to mzake estimates on the equivalent cost of living for each social group in the various countries. Estimates of this kind are not avail- able, but attempts to make allowaance for such differences indicate that the relative rank of Colombia among the nations listed above wvould not be changed, though the total range betwveen the top and bottom of the scale \vould be less than those data suggest. Neverthe- less, the basic conclusion derived from the table would be sustained. Per capita income in Colombia is not far from the average for other South Americaln countries. but it still is loxv. The fact that inconie is low is important for the future because, in conjuinction with the inherent \vealth of the country, it indicates the tremendous possibilities for growth as yet unexploited. The rapid rate of growvth in the past wvas due in part to the low starting point, and there is still ample room for gro\vth. Every economy at some  TABLE 1 GROSs NATIONAI. PRODUCT AND COMPONENTS, 1939-1N7 (millions) 1939 1940 1941 1942 1943 1944 1945 1946 1947 EXPENDITURE COMPONENTS I.Ps.$1.236.0 Ps.$1,196.5 Ps.$1,239.2 Ps.$1,342.1 Ps.$1,525.1 Ps.$1,878.4 Ps.$2,366.6 Ps.$2,906.2 Ps.$3,673.8 Government expenditures onI goods and services, current $ 97.0 $ 102.1 $ 88.1 $ 113.6 $ 139.9 $ 162.4 d 154.3 $ 212.2 $ 269.4 Govermnneit expenditures oni goods and( services, capital 50.8 66.5 65.0 81.() 78.5 76.7 97.7 130.8 165.0 Private gross capital formation 102.5 98.2 112.5 75.7 81.3 110.2 203.0 324.2 447.0 Net exports (-) 47.0 -20.0 -36.0 +-66.0 +72.0 +52.0 -35.0 -51.( -193.0 Net imports (-1 ... Consumer expen(litures ..... ... 1... ,032.7 949.7 1,009.6 1,005.8 1,153.4 1,477.1 1,946.6 2,290.0 2,985.4 INCOME COMPONENTS 1,236.0 1,196.5 1,239.2 1,342.1 1,525.1 1,878.4 2,366.6 2,906.2 3,673.8 -Depreciation ................. .. ..... $ 38.1 $ 33.6 $ 33.7 $ 48.5 $ 37.5 $ 38.8 $ 87.1 $ 110.8 $ 128,5 -Indirect taxes and profits of gov- ernisenit enterprises 148.9 129.9 142.5 134.6 148.6 179.6 217.5 258.4 306.3 Nationial inconie . $1,049.0 $1,(33.( $1,063.0 $1,159.0 $1,339.0 $1,660.0 $2,062.0 $2,537.0 $3,239.0 -Transfer payments 14.6 21.7 18.4 23.9 28.8 26.2 38.5 39.0 42.0 -Retained earnintgs . 10.0 20.0 20.0 20.0 20.0 50.0 50.0 140.0 150.0 Personal income $1,053.6 $1,034.7 $1,061.4 $1,162.9 $1,347.8 $1,636.2 $2,050.5 $2,436.0 $3,131.0 -Incomne taxes ........ _.............. ......... 21.6 24.3 24.7 33.2 49.1 55.3 67.1 87.6 130.1 Disposable income .$1,032.0 $1,010.4 $1,036.7 $1,129.7 $1,298.7 $1,580.9 $1,983.4 $2,348.4 $3,000.9 -Consumer expenditures .1,032.7 949.7 1,009.6 1,005.8 1,153.4 1,477.1 1,946.6 2,290.0 2,985.4 Personal savings .... -. 7 60.7 27.1 123.9 N15.3 103.8 36.8 58.4 15.5  NATIONAL INCOME AND PRODUCT 27 time or other reaclhes a point beyond which high rates of improvemnent cannot be sustained; then, although the advance niay continue, new developments will yield proportionately less and less return. Whether such a point may be reached by Colombia within a few years is diffi- cult to determine. In the light of present facts, however, we see no insuperable obstacles to carrying out a program postulating high rates of increases in productivity and income. The threefold increase from 1939 to 1947 reflects all the factors affecting the value of production, monetary as well as real. A great part of the increase was due to the inflation of prices during the war and postwar years. Also important were increases in the working force and in productivity, and it is the latter which is of particular significance for the economy. To analyze the advance in terms of real goods and services, it is necessary to convert the national income into figures in terms of what it would have been had the value of the peso, i.e., its internial purcllas- ing power, remained constant. Table 2 attempts an adjustment of this kind, expressing earlier years in terms of 1947 values. While the national income tripled in money terms, it approximately doubled as TABLE 2 NATIONAL INCOAIE AT CURRENT AND 1947 PRICES 1939 - 1947 National Income Cost of National Income Current Prices Living Index at 1947 Prices (millions) (1947=100) (millions) 1939 Ps.$1,049 48.0 Ps.$2,185 1940 1,033 46.5 2,222 1941 . ...... 1,063 46.0 2,311 1942 1,159 50.0 2,318 1943 ... ...... 1,339 57.5 2,329 1944 - 1,660 69.5 2,388 1945 2,062 77.0 V2,678 1946 .2,537 84.5 1 3,002 1947 . . 3,239 100.0 _ 3,239 measured by the cost of living index. To be sure, the cost of living index is not the proper measure by which to adjust the national in- come for changes in the value of money. The index of prices of all commodities entering into the gross national product and weighted properly might have moved differently from the cost of living index. However, the cost of living index is the only one available. The importance of rent expenditures in the cost of living index suggests that it understates the actual price rise; on the other hand, the 28 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA importance of agricultural items in the cost of living index might suggest that it overstates the price rise. However this may be, use of the cost of living index is the only feasible approach to obtaining an estimate of real income. On this basis, it appears that national income in constant prices rose by approximately 50 percent from 1939 to 1947. If wve wish to measure the increases in standard of living or in productivity, further allowance must be made for the increase in population and the coordinate expansion of the labor force. Over this nine-year period, poptulation increased approximately 18 percent and the labor force grew at about the same rate. Hence, the advance in total real income per capita, or in productivity per worker, was not 50 percent but only 27 percent. An increase of 27 percent in real per capita income in nine years is equivalent to a rate of increase of approximately 3 percent per year. 2 This relatively high rate of advance was madeposs-ible in part by reason of the fact that it started from a very low level of industrial- ization, so that any improvements in technique or additions of equip- ment resulted in a drastic addition to real income. Thus, increases in output, especially in industry, have exceeded rates which wvould seem maximal in more developed countries, such as WVestern Europe and the United States. Countries like Colombia, where some parts of the population have still remained technologically in the 16th Century (as in agriculture) or in the 19th Century (as in industry), are able to make such rapid strides because the limited availability of productive implements is in great part responsible for the lowv levels of income. The introduction (of relatively small amounts of the newest types of capital equipment, therefore, can produce tremendous surges of productivity. In this way, the Colombian experience merely repeats the general course of indus- trialization of the modern world, telescoped into a shorter period and hence a more rapid rate of growth. Use of newer and more productive types of equipment requires, of course, a more highly trained and dependable working force. To the necessary degree, an effective labor force had to be created in Colombia and it appears, from the available information, that the growth in the labor force was not only more than proportionate to the increase in population, but gained in productivity as an effect of a redistribution of population toward the centers of industry. As will be shown below, labor shifted from activities -where productivity 2 The reader should keep in mind that this is not the same as a measure of change in productivity per man-hour but reflects rather a shift in labor force from agricul- ture to industry, or from less to more productive occupations.  NATIONAL INCONME AND PRODUCT 29 was extremely low and its growth almost nil, such as in certain types of agriculture, to occupations where productivity was higher and its growth from existing averages was tremendous, such as industries and public utilities. While the population as a whole advanced at a rate of about 2 percent per year, the population and labor force in urban centers advanced much more rapidly by perhaps 3 or 3'2 per- cent per year. Accompanying this shift were some improvements affec.ting the efficiency of the individual worker-the beginnings of education and health standards of the kind which the proposed program holds to be essential. However, the fact that most of the population has re- mained in occupations where productivity is low has undoubtedly retarded the level of industrial productivity as a whole. SOURCES OF NATIONAL INCOME All sectors of the Colombian economy contributed to the increase in national income. Table 3 shows the part that each productive activity played in the advance, and the relative changes in the im- portance of these activities from 1939 to 1947. These comparisons are in current prices and do not allow for the fact that prices in some areas, such as agriculture, advanced more rapidly than in others. Considering, first, the major groupings of activity between rural and urban, it may be seen that the rural advanced slightly less than the threefold increase in total national income, whereas the urban activities as a whole advanced at a slightly faster pace. As a result, income from rural activities fell from 42.6 to 40.3 percent of the total, and urban income rose correspondingly. These major groupings conceal, of course, large differences in rates of advance within each group. Income originating both from industry and animal husbandry increased 312 percent from 1939 to 1947. In- dustry's share of the total national income rose from 11.4 to 15.3 percent over this period, a change attributable both to real increases in employment and to productivity upsurges. The share of animal husbandry, on the other hand, increased from 7.0 percent to 9.4 percent, but this reflected mainly speculative and inflationary increases in the price of beef. Dairy production made almost as rapid an advance- an increase of 308 percent-while its share of the total increased by almost a third, from 2.2 to 2.9 percent. Others which advanced more rapidly than the average were commerce, construction, government, and services. At the other extreme, mining increased only 75 percent, and its share of the total dropped from 3.8 to 2.2 percent. Both handicrafts and small agricultural industries also lagged substantially-the former 30 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA TABLE 3 SOURCES OF NATIONAL INCOME, 1939, 1947 1939 1947 Percent Increase Million Percent Million Percent 1939 to pesos of Total pesos of Total 1947 NATIONAL INCOME . 1,049 100.0 3,239 100.0 209 Total "Rural" Activities 448 42.6 1,308 40.3 192 Agricultural crop production 290 27.6 763 23.5 163 Animal husbandry . .... 74 7.0 305 9.4 312 Small agricultural industries 61 5.8 146 4.5 139 Dairy products 23 2.2 94 2.9 308 Total "'Urban" Activities 601 57.4 1,931 59.7 221 Mining . . 40 3.8 70 2.2 75 Manufacturing industries 120 11.4 494 15.3 312 Handicrafts 50 4.8 113 3.5 126 Construction 42 4.0 140 4.3 233 Transport 56 5.3 154 4.8 175 Commerce 145 13.8 497 15.3 243 Government 61 5.8 200 6.2 228 Public utilities 13 1.2 29 0.9 123 Banking and finance 20 1.9 44 1.3 120 Services and others 54 5.2 190 5.9 252 dropped from 4.8 to 3.5 percent of the total and the latter from 5.8 to 4.5 percent. The relative inefficiency of these pursuits and the wveakening competitive position of their products suggest that this dowvntrend will continue. Public utilities and finance lagged for reasons peculiar to those activities. The share of agricultural crop production also fell from 27.6 to 23.5 percent between 1939 and 1947. This decline wvas apparently due not so much to relatively smaller increases in agricultural prices as to a displacement of population from rural to urban areas, which deterred the growth of employment in agriculture. In addition, there was a slowver rate of increase in productivity in agriculture. Further emphasis on the problem of the distribution of productive effort is obtained by comparing national income originating in each activity with the labor force engaged in that activity. The only data available for a distribution of the population by activities are those from the 1938 census. These data cannot be considered entirely re- liable but, after some adjustment, provide a working estimate of the acttial distribution. Since many of the workers in agriculture, and to  NATIONAL INCOME AND PRODUCT 31 a lesser extent in handicrafts, are part-time family employees, adjust- ment is necessary to reduce the estimates for each occupation to numbers of equivalent full-time income earners. For present purposes, the assumption was that the women and children under 15 of a family are each equivalent to only about one-fifth of a full-time worker.A Partial information on trends since 1939 provides estimates which reasonably indicate the number of workers in the major groups of activities, and the nature of the shifts in the labor force between 1939 and 1947. Table 4 shows the primary distribution of population and labor force between rural and urban activities for the twlvo years. TABLE 4 DISTRIBUTION OF POPULATION AND LABOR FORCE, 1939, 1947 (000 omitted) 1939 1947 Equiva- Equiva- Total lent Total lent Popu- Total Full-time Popu- Total Full-time lation Employed Workers lation Employed Workers Total Colombia .... 8,889 4,544 2,416 10,538 5,352 2,879 Total rural activities... 6,109 3,380 1,527 7,019 3,880 1,755 Total other activities (mostly urban) . . 2,780 1,164 889 3,519 1,472 1,124 In general, a movement can be observed from the country to the town. In 1939, the rural sector included 69 percent of the population and 63X2 percent of the equivalent in full-time workers. This con- trasts with a share in the national income of only 42.6 percent. By 1947, rural activities accounted for 66.6 percent of the population, 61 percent of equivalent full-time workers, and 40.3 percent of the national income. These data also bring otnt the relatively lower rates of return to the agricultural labor force. In 1939, total income of Ps.$450 million represented an average of Ps.$300 for the 1.5 million rural income earners, compared with an average of Ps.$667 for urban income earners. By 1947, the gap had widened a little further. The average for rural workers was Ps.$745 as against Ps.$1,718 for urban workers, and the ratio of urban to rural had risen from 222 to 231 percent. The movement from farm to industries and other urban activities was motivated both by existing higher wages and by the prospects of faster increases in wage rates. The fact that these incentives were operative was in itself a manifestation of the existence of a higher 3 The techniques of adjustment are discussed in Appendix A.  32 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA level of productivity in urban activities which in turn was attributable mainly to a higher degree of mechanization. At the same time it left more land available per agricultural worker. As shown in Chapter IV, purchases of equipment, and other forms of capital formation between 1939-47, occurred mainly outside of the agricultural sector. Thus, the relative advantage of urban activities became greater each year. Comparison of the sources of national income with those for other countries, however, emphasizes the underdevelopment of Colombia, even at its present stage, and some of the major problems to be faced. ((The relatively high proportion of income originating in rural activities reflects the comparatively low level of industrialization. More than four times as large a proportion of total income is obtained from the rural sector as is obtained in the United States, and more than two and one-half times as large a proportion as in Chile. Less than one-half as much is obtained from manufacturing and mining as in either the United States or Chile. Table 5 compares 1947 data for Colombia and the United States with Chilean data for 1943, the latest available. TABLE 5 RELATIVE IMPORTANCE OF INCOME SOURCES IN THREE COUNTRIES Percentage of National Income Colombia USA Chile (1947) (1947) (1943) RURAL ACTIVITIES: Agriculture ....... ................ . Animal husbandry .............. ......... 5 16.0 Small agricultural industries .................. Dairy products ......... .............. J URBAN ACTIVITIES: MIanufacturing industries ....................... 15.3 30.5 19.8 Handicrafts 3 .. 5.................. 3.5.. - - Construction . .... ........................ .4.3 4.3 2.0 Transport 4 .. ....................... 8 4.8 5.6 5.7 Public utilities 0 .9.....__....................... 0.9 2.7 1.4 Government 6 .2....................... 6.2 9.2 9.1 Commerce 1 5 . - ... 15.3 18.5 13.6 Banking .............................. 1...3 8.21 4.0 >/ Services and others ............... . .. 5.9 9.5 18.6 (Mining ............... : . 2.2 2.0 9.8 Subtotal 5 9 . ............. .59.7 90.5 84.0 This figure includes finance, insurance and real estate.  NATIONAL INCOMIE AND PRODUCT 33 The distribution of the urban labor force in Colombia by activities is shown in Table 6. The outstanding increase in industrial employ- ment-almost 50 percent in nine years-is perhaps the most significant indicator of economic development during this period. Closely related to this are the relatively rapid increases in transportation and trade. However, some urban activities showed little progress. For example, the maintenance of an almost fixed number of Government employees may have resulted from a desire on the part of the Government to re- duce non-capital expenses to a minimum. In the case of construction, it appears likely that increases in productivity were so large that TABLE 6 DISTRIBUTION OF THE LABOR FORCE, 1939, 1947 Equivalent Full-time Workers Percent Increase 1939 1947 1939 to 1947 (000 omitted) GRAND TOTAL. .. .. ... 2,417 2,880 18.1 Rural .1,527 1,755 14.9 Total Urban 890 1,125 26.4 Mining .57.5 60 4.5 Manufacturing industries 100 146 46.0 Handicrafts .148 185 25.0 Construction 72.5 96 32.0 Transport 66.5 95 43.0 Commerce 148 194 31.0 Government 95 98 3.0 Services 67 79 18.0 Liberal professions 19.5 25 28.2 Domestic services 110 140 27.2 Other .6 7 17.0 increased employment was not necessary. Improvements in technique may also account partly for the lag in mining employment; but here the limitation of resources and the fixed price of gold are special factors affecting production and employment. DISTRIBUTION OF PERSONAL INCOME The general welfare of the population of any country depends not only upon the total amount of income it is able to produce, but also upon the distribution of that income among the various groups and classes of the population. In every country there are wide disparities 34 THE BASIS OF A DEVELOPMENT PROGRA-M FOR COLOMIBIA in income. Some people, by reason of birth, position, or ability, are able to commanad much larger incomes than the average, wvhereas many others never rise above substandard incomes. The depressed condition of the latter not only represents an undesirable social cona- dition, but affects the ability of the economy to advance. The relatively low level of consumption possible for those wvith substandard incomes acts as a drag upon the development of markets, and thereby retards production and distribution throughout the economy. Unfortunately, sound data on the distribution of income are not available. The unreliability of income tax returns makes it difficult even to estimate income distribution. The fact that separate returns are made for corporations, the dividends of which are then deducted from personal income declarations, and the fact that most Colombians, except the richest, do not file any returns at all, defeat any attempt to describe the distribution of the Colombian population by income groups in a scientific manner. Howvever, the Mission has made a very tentative appraisal of income distributioni for the year 1947. Scattered estimates indicate that the incomes of small and medium farrners, colonists, and agricultural workers amounted to slightly less than Ps.$1.1 billion; the incomes of industrial wvorkers and of people working for themselves, mostly in handicrafts in urban com- munities, added up to a similar total. The balance of over Ps. $900 million accrued to managers and large landowvners or, more generally, to the ow"ner class, either directlv or through corporations in which they held shares. Holdings of shares in business enterprises are not wvidely distributed ancd, in fact, holdings of assets of all kinds are highly concentrated. Thus, the owners of individual enterprises and the shareholders in corporations are either the same people or members of the same families. For this reason corporation net profits can be considered as income accruing to thc high income groups. Table 7 presents a tentative distribution of income among low, middle and high income groups. The lowv income group, comprising seven-eighths of the income earners, obtained less than 60 percent of the total income ; at the other extreme, less than one-fortieth of the income earners commanded almost 30 percent of the total income. In other words, almost 90 percent of the income earners received less than the average income of Ps.$1,073, wvhereas 2'2 percent of the income earners received over ten times the average for the country as a whole.  NATIONAL INCOME AND PRODUCT 35 TABLE 7 ESTIMATED DISTRIBUTION OF PERSONAL INCOME, 1947 Income Earners Personal Income Average Number Percent Million Percent Income Income Groups (thousainds) of total pesos of total per Earner TOTAL .................. 2,879 100.0 Ps.$3,089 100.0 Ps.$ 1,073.0 Low INCOAIES (Under Ps.$1,000) .... .... 2,524 87.7 1,758 56.9 696.5 Rural .................. 1,678 58.3 $1,010 32.7 $ 602.0 Urban ..... ....... ...... 846 29.4 748 24.2 884.0 MIDDLE INCOMES (Ps.$1,000-$2,000) .......... 280 9.7 408 13.2 $ 1,457.0 Rural ............... 58 2.0 $ 83 2.6 $ 1,431.0 Urban ... ..... . 222 7.7 325 10.6 1,464.0 HIGH INCOMES (Over Ps.$2,000) ... 75 2.6 923 29.9 12,307.0 Rural .................. 19 .7 $ 234 7.6 $12,316.0 Urban .................. 56 1.9 689 22.3 12,304.0 Needless to say, there are wide variations within these classes. At least 350 people earned more than Ps.$100,000 per year; other incomes in the high income group were as low as Ps.$2,000. For example, coffee growers with at least 3 hectares of land could attain the national average income; but farmers in depressed agricultural areas such as Atlantico, Bolivar, Magdalena, Boyaci and Narifio earned less than Ps.$400 each. Since each income earner wvas in turn supporting an average of four people, large groups of the popu- lation had to survive on an average of only Ps.$100, which was equivalent at the existing exchange rate to less than U.S.$58 per year. Since our computation of national income includes the value of all commodities produced by Colombian labor, wvhether or not they actually left the household economy, this U.S.$58 includes not only the returns from sales of goods but the total of human effort avail- able for food, shelter, or clothing. The level of living in these de- pressed areas is thus extremely lowv and it is therefore not surprising that malnutrition and epidemics threaten constantly, that a very high rate of infant mortality prevails, and that the most enterprising inhabitants migrate to better lands or urban centers. From these data, it is also clear that although sizable differences exist between the earnings of the average rural and urban workers 36 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA (the spread being about 1!/2 to 1), the major beneficiaries7 of the differences in income yields are not the workers, but the corporations and the owners or managers of personal enterprises. The estimated income of Ps.$9 2 3 million accruing to the high income group was the source of all income taxes and of most personal savings. The available data indicate, however, that the disparities in income de- creased slightly from 1939 to 1947. The effects of these inequalities are reflected in the relative lagging of consumption during this period: per capita consumption increased only by 16 percent. Again, it may be pointed out that not all classes of the population obtained an equal share of this increase. Although it cannot be denied that both farmers and workers are better off now than they were before the war, the advance did not manifest itself in a striking improvement in the condition of the working classes. One of the problems to be faced, as will be seen later in the discus- sions of capital formation and the utilization of foreign exchange, 4 lies in the relatively heavy expenditures for homes, automobiles, and other luxury goods by the income groups obtaining incomes of a size sufficient to permit nonessential expenditures. Although these estimates indicate the existence of great social inequalities, a middle class is making its appearance, and specialized workers in both rural and urban communities are beginning to enjoy incomes that definitely are above substandard levels. 4 See Chapters IV and XV.  CHAPTER IV Capital Formation Although the central objective of increasing productivity must be worked for along many lines, it is evident that capital formation- using this term in the narrow sense of plant, equipment and con- struction expenditures-is one of its major means of implementation. A-positive program for capital formation will, therefore, be considered in Part II, but it is important at the outset of our discussion to obtain as clear a picture as possible of capital formation during recent years. This is the purpose of the present chapter. Capital formation, as usually defined in national income statistics, includes expenditures on plant and equipment as well as on residential and business construction, and changes in inventory holdings. It excludes all investments in human resources, such as improved health or education, and a large group of durable consumer goods, such as automobiles, which are largely used for consumption. In an under- developed economy, such as Colombia, there is apt to be an inter- mingling of business and consumption uses of durable consumer goods. Also, there is good reason to regard as capital formation 'the acquisition of durable consumer goods which contribute to the future productivity of the Colombian worker by rendering a con- tinuous contribution to his standard of living. For this reason, major items of durable consumer goods, such as automobiles, are included in capital formation here. Changes in the value of business inven- tories, however, are excluded. The concept of capital formation as here used thus corresponds generally to the usage of the term in American or British income statistics with those important differences. As is usual, distinction is made between gross and net capital formation, the difference being equal to depreciation allowance. The acquisition of capital goods is but one part of capital forma- tion in the very basic sense of expenditures made to increase the output per worker. In an underdeveloped economy, it is very doubt- ful, indeed, whether it is the most important item. At some stage of economic development, improvement of health and education may well be prerequisite to, or at least may have to be developed con- currently with, the accumulation of capital goods. The reader should bear in mind, therefore, that on the one hand, estimates of capital formation presented here include luxurious homes and pas- senger automobiles, while, on the other hand, they exclude investments 37 38 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA in workers' health and education other than those represented by expenditures on schools, hospitals and health centers. Hence, our estimates of capital fornlation are not synonymous with expenditures designed to increase productivity. The estimates of capital formation involved serious difficulties. A number of assumptions of varying degrees of validity had to be made regarding the profit margins and internal transport costs on imported equipment and domestically produced capital goods, re- garding domestic production of capital goods and materials, and so forth. The technical exposition of the methodology involved is avail- able as Appendix A. It is of interest to note, however, that markups and internal transport costs are estimated at 50 percent of the c.i.f. price of imported equipment and at 25 percent of the cost of domes- tically produced capital goods. STRUCTURE OF CAPITAL FORMATION W,Vhile the overall picture of capital formation in Colombia is available for the vears from 1939 to 1947, 1939 and 1947 are the only years for which a detailed set of estimates could be prepared. This will permit a general comparison of developmnents in prewar and post- war capital formation, although it must be kept in mind that 1947 was abnormal in certain respects because of the resumption of large scale imports which had been suspended during the war and because of increased prices. Ho\vever, the level of imports in 1948 and 1949 showed only a sliglht decline and in the current year (1950), it may wxell return to the 1947 volume. Table 8 showxs that total capital formation practically quadrupled from 1939 to 1947, rising from Ps.$ 13.5 million to Ps.$612.2 million. Its gro\vth xvas practically arrested dtring fhe -war years when imported equipment was difficult to secure. The rise was especially marked in the immediate postwar years. Equipment's share in the total rose from just under half to almost 55 percent from 1939 to 1947. This undoubtedly reflected both increased prices as well as greater availability of imported equipment in 1947. In the period as a whole, investment in building construction more than tripled and its share in the total hovered around one-third. Investment in labor costs, on the other hand, increased steadily in the preNvar period, dropped somewhat between 1942 and 1944, though not to the prewar level, and dropped again in 1947 after reaching an all-time high in 1946. It likewvise tripled in the period as a whole, but its share of the total remained under one-fifth.  CAPITAL FOR-MATION 39 TABLE 8 GROSS CAPITAL FORMATION, 1939-1947 Delivered Cost of Labor Equipmentl Buildings 2 Costs3 Total (millions) 1939 Ps.$ 72.0 Ps.$ 50.1 Ps.$ 31.4 Ps.$153.5 1940 70.3 46.5 47.9 164.7 1941 74.4 51.4 51.7 177.5 1942 21.3 55.0 80.4 156.7 1943 44.6 52.4 62.8 159.8 1944 66.5 64.6 57.8 186.9 1945 102.1 118.2 80.4 300.7 1946 183.1 156.0 115.9 455.0 1947 .332.0 170.0 110.2 612.2 1 This includes the delivered cost of capital and durable equipment, both imported and locally produced. The costs of transportation and markups of importers, whole- salers and distributors are covered. For a detailed statement of items included as capital imports, see Appendix A. 2 Includes labor and material in all buildings-factories, commercial, residential and governmental. 3 Cost of labor engaged in repairs of rolling equipmnent, construction teams on high- ways, bridges, railroads, construction workers installing industrial equipment, and agricultural labor opening new lands. A more detailed view of capital formation in the years 1939 and 1947 is presented in Table 9. In industries and in public works, capi- tal formation in the equipment category increased more than sixfold from 1939 to 1947, while in the remaining sectors of the economy it practically quadrupled. The increment to total capital formation in in- dustries was likewise about sixfold, but the 1947 total in public works was little more than three times the 1939 level because governmental building did not keep pace with the increase in the equipment and labor costs components of capital formation in public works. Total capital formation in agriculture, transport, mining and construction rose at practically the same rate as the equipment category in those sectors because there was no great variation in the behavior of the labor costs component. Total capital formation by residential building increased more than three times, while in commercial building the increment was more than fivefold. In 1947 public works amounted to 22 percent of the total. Capital Formation and Imports Imports play an extraordinarily important part in Colombian capi- tal formation. Thus, out of a total capital formation of Ps.$612.2 million in 1947, about Ps.$222 million (after deduction of estimated 40 THE BASIS OF A DEVELOPAIENT PROGRAM FOR COLOMBIA TABLE 9 GROSS CAPITAL FORMATION BY ECONOMIC SECTORS, 1939, 1947 (millions of pesos) Equipment Buildingsl Labor Costs2 Total Economic Sectors 1939 1947 1939 1947 1939 1947 1939 1947 Industries ...... .... 13.8 87.3 1.1 7.5 1.4 8.8 16.3 103.6 Agriculture .... ..... 11.6 45.0 . . 3.7 11.5 15.3 56.5 Transport .... .. ........ 26.7 117.0 104.... 32.0 1 37.1 149.0 Mining . . .. 5.0 19.8 . .5 2.0 5.5 21.8 Construction .............. .9 6.0 .1 .6 1.0 6.6 Residential . . . 6.0 123.0 36.0 123.0 Commercial . . 2.9 17.2 2.9 17.2 Public Works ........... 14.0 56.9 10.1 22.3 15.3 55.3 39.4 134.5 TOTAL ........ ... 72.0 332.0 50.1 170.0 31.4 110.2 153.5 612.2 1 Includes material and labor costs of buildings. 2 Labor costs involved in repairs of rolling equipment, installing industrial equip- ment, construction teams on highways, bridges, railroads, and opening new lands for agriculture. increased markups and transport costs), or over one-third, xvas in the form of imported goods and materials. These capital imports in turn amounted to nearly one-third of total merchandise imports. If the material and equipment component of gross capital formation is con- sidered by itself, it appears that imports accounted for about 77 per- cent of the total in that year. Table 10 is designed to show the foreign exchange costs of capital formation. It also shows that the relative importance of imports has changed little between 1939 and 1947. The importance of imports in the material and equipment component fluc- tuates considerably in the various economic sectors. In building, \vhere a considerable part of the material was locally produced, e.g., cement, brick, tile, etc., imports constituted little more than half of the ma- terials needed. In sectors where equipment rather than material was needed, imports were of much greater importance-in several sectors from 90 to 100 percent of equipment required. These data provide a striking demonstration of the strategic im- portance of foreign trade to the future of the Colombian economy. While rapid progress might be made in light manufacturing, especially in consumer goods, with domestically produced equipment, it must be expected that imports wvill remain the main source of capital equip- ment for many years to come. The availability of foreign exchange and a wvise use of foreign exchange resources are therefore vital to the country's economic development.  CAPITAL FORMATION 41 TABLE 10 RELATIVE IMPORTANCE OF IMPORTS IN VARIOUS SECTORS OF CAPITAL FORMATION, 1939, 1947 (millions of pesos) Gross Capital Percentage Importsl Formation Imported Economic Sectors 1939 1947 1939 1947 1939 1947 Industries ................ Ps.$ 8.2 Ps.$ 54.9 Ps.$ 16.3 Ps.$103.6 50.3 53.0 Agriculture ... ...... 7.1 27.7 15.3 56.5 46.4 49.0 Transport ................ 16.2 71.6 37.1 149.0 43.7 48.0 Mining ................. 3.3 13.2 5.5 21.8 60.0 60.5 Construction industry. .6 4.0 1.0 6.6 60.0 60.6 Residential building.... 6.6 22.9 36.0 123.0 18.3 18.6 Commercial building. .5 3.2 2.9 17.2 17.2 18.6 Public works .............. 7.3 24.9 39.4 134.5 18.5 \18.5 TOTAL ........... Ps.$49.8 Ps.$222.4 Ps.$153.5 Ps.$612.2 32.4 36.3 1 Cost of imports without internal markups and transport costs. Capital Formation and End Use The absolute and percentage distribution of capital formation by end use is shown in Table 11. This presentation differs from that in Tables 9 and 10 by the fact that public works are broken down and distributed functionally. While for certain purposes it is useful to present public works as a single entity, for other purposes it is more interesting to analyze capital-formation by economic end use. The extreme importance of transport in capital formation be- comes immediately apparent from an inspection of Table 11. In 1947, total expenditures on transport amounted to about Ps.$200 million, or one-third of all gross capital formation. The private sector of this total was composed largely of imported transport equipment, vehicles and materials. While transport equipment as here measured includes passenger automobiles, car purchases which might be classified as being wholly for luxury purposes amounted to hardly more than 10 percent of total transport equipment purchased. The bulk of the items were in the form of cars providing essential passenger traffic and trucks and railroad rolling stock. The 1947 figure may be somewhat abnormal because it includes an unusually large volume of car imports. These data support the emphasis placed throughout this Report upon the importance of the transport problem in the economic life of the country. While total outlays for improvement of transport have been substantial, as indicated in the above figures, the planning of 42 THE BASIS OF A DEVELOPMENT PROGRANM FOR COLOMTBIA transport facilities in the past has left much to be desired. Because of this and the great importance of improvement in transportation to economic development in Colombia, the Mission has given a good deal of attention to transport improvements. Next in importance to transport in this classification for 1947 was residential construction, comprising Ps.$123 million, or 20 percent of the total. While this represented a substantial share of total capi- tal formation, residential construction during recent years was con- centrated largely on higher priced homes and, as will be noted later in Chapter XI, there remains an urgent need for the provision of lower and middle class homes in Colombia. TABLE 11 GROSS CAPITAL FORMATION BY ExoI USE, 19471 Total Total Private Public Percentage Investment Imports Investment Investment Distribution (millions) Industries .Ps.$103.6 U.S.$ 27.5 Ps.$103.6 Ps.$ - 16.9 Agriculture 67.8 14.4 56.5 11.3 11.1 Transport .............. 199.0 40.5 118.5 80.5 32.6 Mining .............. 21.8 6.6 21.8 - 3.6 Construction trade ... 6.6 2.0 6.6 - 1.1 Housing .............. 123.0 11.5 123.0 - 20.0 Buildings (commercial & Government) 39.5 3.7 17.2 22.3 6.4 Municipal facilities & power .50.9 4.7 - 50.9 8.3 TOTAL . . . Ps.$612.2 U.S.$110.9 Ps.$447.2 Ps.$165.0 100.0 I This table differs from Tables 9 and 10 by the distribution of the public works sector of capital formation into functional classes. The third large share of capital formation in 1947 took place in industry. Largely in the form of imported equipment, industry's portion of capital formation increased sharply from 10.6 percent of the total in 1939 to 17 percent of the total in 1947. This reflects the rapid expansion of the industrial sector of the Colombian economy, especially since the end of the war. Agriculture accounted for 11 percent of the total, approximately the same as in 1939. Capital formation in mining like-wise appears to have retained its relative position aggregating 3.6 percent of the total. The fact that only 8 percent of capital formation in 1947 took place for the provision of municipal facilities and electric power plants  CAPITAL FORMATION 43 is surprising in view of the relatively rapid rate of growth of muni- cipalities and the practically universal shortage of power. We will have occasion to discuss this relatively lagging sector at considerable length in later chapters. Capital Formation and Types of Assets Table 12 is a percentage breakdown of capital formation by equip- ment, buildings and other types of assets. It shows that the pattern of capital formation in 1947 was similar to that of 1939. In both years, about 50 percent of capital formation went into equipment, about 30 percent into buildings, and some 20 percent into maintenance, land improvement, and so forth. It is important in this connection to note the heavy item of trade and transport costs which resulted in an almost 50 percent addition to th cost of equipment. While more competitive conditions, especially in the impot trade, should make it possible to reduce the costs arising from trade markups, a large element of trans- portation costs is a rather inevitable result of the country's topography. In this respect, Colombia is at a disadvantage as compared with smaller and more compact countries with closer proximity of population centers to ocean ports. TABLE 12 GRoss CAPITAL FORMATION BY TYPE OF ASSET, 1939, 1947 (percentage) 1939 1947 EQ UIPMENT Imported ......... . 26.7 31.1 Domestic .................... ...... ... 5.6 6.0 Trade and transport .... ....... 14.8 17.1 TOTAL .... . 47.1 54.2 BUILDINGS Imported ....... 5.9 5.2 Domestic ............... .... ... 5.1 5.1 Trade and transport .............. ....... 4.2 3.9 Labor ........ ... 17.3 13.6 TOTAL ........ ... . . ... 32.5 27.8 OTHER Laborl .. .. 20.4 18.0 TOTAL .. ... . 100.0 100.0 Includes maintenanice, installation, land improvemenits. 44 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA Importance of Construction Industry In Table 9, the absorption of new capital equipment into the con- struction industry was considered and found small. However, as shown in Table 13, all construction activity, including public works, was a most important source of capital formation. As shown in that table, nearly one-half of total gross capital formation was in construction, including buildings, highways, railroad construction, etc. The lower part of the table shows the distribution of total construction according to the most important items. It appears that for 1947 buildings of various kinds comprised 60 percent of total construction, with highway construction and maintenance, 15 percent of the total, as the next most important item. TABLE 13 AMOUNT EXPENDED ON CONSTRUCTION IN GROSS CAPITAL FORMATION, 1939 AND 1947 (millions of pesos) 1939 1947 Construc- Construc- tion Other Total tion Other Total Imported material ... 14.6 35.2 49.8 52.2 170.0 222.2 Local material 12.5 6.6 19.1 51.5 16.0 67.5 Trade aind transport 10.4 18.7 29.1 39.0 89.0 128.0 Labor. 41.8 13.5 55.3 139.5 54.8 194.3 Total . 79.3 74.0 153.3 282.2 329.8 612.0 MAJOR ITEMS OF CONSTRUCTION: 19Q9 1947 Housing-urban. 19.1 66.3 -rural .16.9 56.7 Offices, schools, churches 14.0 47.0 Railroads ............. .. .... ...... ............ 2.7 10.6 Rivers and ports .. 1.8 5.0 Irrigation and drainage. 5.9 11.3 Water and sewers, hydroelectric plants 6.9 50.9 Highways .12.0 34.4 Total... ... 79.3 282.2 Public and Private Capital Formation Table 14 presents a breakdown of capital formation by public and private origin. For 1947 the public share in capital formation amounted to little more than one-fourth, as against about one-third in 1939. The declining public share does not reflect an absolute decline in public capital formation in peso terms but a much sharper increase in the rate of private, compared wvith public, capital formation. This  CAPITAL FORMATION 45 TABLE 14 PUBLIC AND PRIVATE GROSS CAPITAL FORMATION, 1939-1947 Year Public Private Amount Per- Amount Per- Total (millions) centage (millions) centage (millions) 1939 ......... Ps.$ 50.9 33.1 Ps.$102.6 66.9 Ps.$153.5 1940 ...... ... 66.5 40.4 98.2 59.6 164.7 1941 ......... 65.0 36.6 112.5 63.4 177.5 1942 ......... 81.0 51.7 75.7 48.3 156.7 1943 . ...... 78.5 49.1 81.3 50.9 159.8 1944 . ........ 76.7 41.0 110.2 59.0 186.9 1945 ......... 97.7 32.5 203.0 67.5 300.7 1946 . ........ 130.8 28.7 324.2 71.3 455.0 1947 . ........ 165.1 27.0 447.1 73.0 612.2 suggests that government expenditures have followed rather than led the expansion in economic activity during the last decade, an im- pression borne out by the more detailed analysis of public finance in Chapter XIII. As shown by Table 15, in 1947 about one-half of public capital formation was in the form of transportation facilities of various kinds, especially highways and railroads, with agricultural improve- ments amounting to about 7 percent of the total. In 1947 less than one-half of public capital formation originated from the National Government, the estimated departmental and municipal shares being about 15 percent and 35 percent, respectively. TABLE 15 MAJOR ITEMS OF PUBLIC CAPITAL FORMATION, 1947 Construction, Equipment and Maintenance (millions) HIGHWAYS National ........ Ps.$ 38.3 Departmental .......... ............................................... .............. 9.3 RAILROADS National ................... .................................................... 22.3 Departmental ....................................................................... 5.6 BUILDINGS National . 9.0 Departmental. .................... ................................................ 8.3 AGRICULTURAL IMPROVEMENTS N ational .1.................................................................... 8.1 D epartm ental ..................... ...... ............. 3.2 PORTS AND R IVERS ................ ........... ......... ....................... ...... 5.0 HYDROELECTRIC PLANTS ............................................... ............. .. . 7.0 MUNICIPAL DEVELOPMENT ...................................... .................... 48.9 GRAND TOTAL ... . .. ...... . ..... .. Ps.$165.0 46 THIE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA Capital Formation and Gross National Product As shown in Table 16, capital formation- in 1939 amounted to about 12 percent of the gross national product. During the prewvar years it increased steadily, but in the wvar period the relative importance of capital formation declined until it reached the nine-year low of 9.9 percent in 1944. After the wvar the proportion of the gross national product going into capital formation rose steadily until in 1947 it reached a peak of 16.7 percent of the total. These rates compare favorably with those of most underdeveloped countries and, as shown in the preceding chapter, they have accompanied about a doubling of the country's real income over the last decade. Unquestionably. the TABLE 16 GROSS CAPITAL FORMATION COMIPARED WITH GROSS NTATIONAL PRODUCT, 1939-1947 Gross Capital Formation as Gross National Gross Capital Percentage of Gross Product Formation National Product (millions) 1939 Ps.$1236.0 Ps.$153.3 12.4 1940 1196.5 164.7 13.8 1941 ...... 1 239.2 177.5 14.3 1942 1342.1 156.7 11.7 1943 . 1525.1 159.8 10.3 1944 .. 1878.4 186.9 9.9 1945 2366.6 ) , 300.7 12.7 1946 . 2906.2 t 455.0 15.7 1947. . .... . 3673.8 612.0 16.7 high rate of capital formation in the postwar period was caused in part by Colombia's favorable international trade position. The procurement of modern equipment in Colombia is directly dependent upon the avail- ability of foreign exchange resources and the prices at which equip- ment can be bought in the foreign market. In the immediate postwar years, such exchange resources wvere relatively ample, due to the wvartime lack of imports. Moreover, availability of exchange resources was combined wvith a rising level of domestic income and prices which, proceeding more rapidly than the price rise abroad, increased the profitability of inmportin'g capital into Colombia. While the rate of capital formatioln is relatively high, it must be admitted that in absolute terms tlIe figure is low. Of the Ps.$612 million figure for 1947, an exceptional year, at least Ps.$128 million represented markups and transport costs. The c.i.f. cost of imported equipment in both the industrial and agricultural fields amoounted only to Ps.$81 million, or U.S.$46 million.  CAPITAL FORMATION 47 If the addition to the Colombian capital stock were largely in the form of domestically produced items, an estimate could be made of the portion of Colombian resources going into the production of capi- tal goods. But, as we have seen, the domestic output of capital goods is small and limited mainly to construction labor, transportation, and the installation of imported equipment. New equipment as such is obtained almost wholly from imports and this is made possible by the diversion of domestic labor and resources into the production of export commodities, mainly coffee. Assuming that one-third of the labor force engaged in agriculture produces coffee and that 50 percent of the coffee production is utilized to produce foreign exchange used in the import of capital goods, approximately 250XQ00 people are employed indirectly in the production of imported capital goods. This compares with a total of about 150,000 people employed in industrial production proper and this latter group produces about six times the value of imported capital equipment. This illustrates a basic difficulty involved in the growvth of underdeveloped countries. In order to achieve industrial development and a concomitant increase in produc- tivity, imports of equipment are needed. In order to obtain these imports, the country must export agricultural products. Yet the agri- cultural sector lags in economic development and thus an inordinately large fraction of the country's labor force is tied up in providing for a relatively small volume of capital imports. The answer to the problem cannot be found in early development of heavy industries at home. Among many other difficulties that would arise, it is evident that the domestic market for most products is still too small to warrant such development. Nor can the answer be found in reduced emphasis on capital imports. On the contrary, modernization of agriculture, as well as industry, is essential for a rising standard of living in Colombia. The only means of solving the dilemma, therefore, lies in assuring the most efficient use of capital resources. This implies a balanced development of both the industrial and agricultural sectors of the economy. By increasing the efficiency of agriculture, it wvill be possible to release manpower from the agri- cultural sector for industry and it will then be possible to increase industrial output by the reduced real cost of manpower, as well as equipnmenlt. FINANCIAL ASPECTS OF CAPITAL FORMATION Capital formation contributes to the country's development by raising productivity throuLgh the provision of more and better equip- ment. Howvever, the production of additional capital goods will come about only if the means of finance are provided; and the wvay in which 48 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA capital formation is financed will have important bearing upon the pattern of real capital formation. To the extent that resources are absorbed in the process of capital formation (either directly or via the country's foreign trade), these resources are not available for the production of goods currently consumed. Just as part of the resources are thus diverted into the making of capital goods, part of the community's effective demand or expenditure is being directed into the purchase of such goods rather than items of current consumption. A simple way of picturing this process is to think of people's savings (i.e., the part of their income not spent on consumption) as being used to buy the capital goods which are currently produced. But this is an oversimplification. To be sure, yesterday's money income set aside as savings is an important source for the financing of today's investment, but these two magnitudes need by no means be equal. Today's investment may not only draw on savings out of yesterday's income but it may be financed as well by resort to new bank credit or by drawing on balances which previously had been unused. Thus, today's investment may well exceed the community's savings out of yesterday's income; and if this occurs, total expendi- tures of today wMl exceed those of yesterday. In a situation where resources are fully employed, this increase in expenditure cannot call forth a rise in total output but can only result in inflation. Investment based on new credit creation and the activation of idle balances in this way permits a larger fraction of real resources to be used for capital formation than is indicated by the share of the income which people had intended to set aside for savings: people will spend on consumption the amount of pesos which they had intended to spend in this fashion, but they will find that prices have risen and that the intended outlay is purchasing less real goods and services than they had expected. In a period in which intended savings fall short of the volume of capital formation, the remainder is thus made up by "forced saving" (lesser real value of current consumption) brought about by a rise in prices. The preceding exposition of the process of capital formation by inflation may seem somewhat theoretical to the reader, but it is by no means an academic matter for Colombia. Capital formation during recent years has been based to a considerable extent on this very mechanism. Also, it must be understood clearly in order to realize  CAPITAL FORMATION 49 that a high rate of future capital formation will be compatible with price stability only if people are willing to undertake an equally high rate of saving out of their current incomes and if the community as a whole is willing to impose higher taxes. This will be considered in some detail in Chapter XXX, where the outlines of a future program of capital formation are presented. But it should be made clear at the outset that the origin and level of savings are of twofold importance to the process of capital formation: the distribution of savings by types of savers will not only have considerable bearing upon the kind of capital formation undertaken, but the rate at which individuals and businesses save will also determine the volume of total capital forma- tion which can be undertaken without inflation. General Sources of Capital Formation Available data do not permit us to obtain a complete picture of the resources of financing upon which the process of capital formation in Colombia has been based. It is possible, however, to derive some information in this regard from the national income data presented in Chapter III. In Table 17, the gross national product data for 1947 are rearranged to show for various sectors of the economy the amount ot expendi- tures made, the sources of funds available out of current income for the financing of such expenditures and the difference between the two-the amount of saving (excess of current income over expendi- tures) or the amount of the dis-saving (excess of current expenditures over income). For purposes of this table, the economy is broken down into four sectors: consumer, business, foreign trade and govern- ment. The income of consumers in 1947 amounted to Ps.$3000.9 million. Since consumer expenditures were only Ps.$2985.4 million, consumer savings equaled Ps.$15.5 million. Current receipts avail- able to the business sector here include retained earnings and deprecia- tion charges and in 1947 equaled Ps.$278.5 million. Business expenditures for capital purposes, on the other hand (including new as well as replacement investment), equaled Ps.$447 million. Thus re- mains an excess of expenditure over receipts of Ps.$168.5 million.' Expenditures of minus Ps.$193 million shown for the foreign trade sector are equal to net imports, which represent net receipts from 1Following a convention applied in this type of presentation of national income accounts, all expenditures on residential construction are included in the business sector. 50 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA other sectors of the economy rather than payments to them.2 The income showvn for the governmental sector is equal to current tax receipts of National, departmental and local -overnments which in 1947 amounted to Ps.$436.4 million. 'T'otal expenditures of these governments amounted to Ps.$476.4 million, thus leaving- a deficit of Ps.$40 millioni.) TABLE 17 BUDGET FOR COLOMBIAN Ecoxoacy, 19471 Sectors Income Expenditures Savings (millions) Consumer- . . Ps.$3,000.9 Ps.$2,985.4 Ps.$+ 15.5 Business3 278.3 447.0 -168.5 Foreign trade4 . -193.0 +193.0 Government 5 . 436.4 476.4 - 40.0 6 . Adjustment 42.0 - 42.0 Total Gross National Product. . Ps.$3,673.8 Ps.$3,673.8 Ps.$ 0 1All data derived from Table 1, Chapter III. 2 Income equals personal income after taxes. Expenditures equal consumer expenditures. 3 Income equals retained earnings plus depreciation charges. Expenditures equal gross private capital formation. 4 Expenditures equal net exports. 5 Income equals tax receipts minus deficit of government enterprises. Expenditures equal total goods and service expenditures plus domestic transfer expenditures. Transfers abroad are excluded. Deficit equals deficit minus transfers abroad. 6 Equals domestic transfer expenditures. This must be deducted since it is not a factor income or a product expeniditure. The total of expeniditures by all sectors equals the total of current income of all sectors, and both these totals equal the economy's gross national product for that year. Since there is an equality between aggregate receipts and expenditures for all sectors combined, it follows that any excess of savings by any one sector is offset by an excess of expenditures in another sector. WVhile the balance shown in this table is implicit in the natture of the national accounts, this arrangement of 2 Net imports are given a negative signl because aggregate expenditures by others include imported goods and this portion must be deducted in order to obtain the gross national product; since net imports equal the excess of goods received from abroad over and above domestically produced goods sent abroad, they are not a component of the economy's domestic output for that year. In the third column of Table 17, finally, these net imports are treated as savings-that is to say, they constitute a leakage from the domestic income stream; expenditures on excess imports are not balanced by a demand for domestic output and thus are equivalent to savings in this sense of the term. 3 This does not include expenditures and receipts of government enterprises  CAPITAL FORMATION 51 the data permits us to obtain some impressions regarding the financial side of capital formation. As the table shows, business expenditures, or gross private capital formation, in 1947 amounted to Ps.$4 4 7 million. At the same time, funds available out of business income during that year amounted to only Ps.$278.5 million. However, in addlition there were Ps.$15.5 million available out of personal savings. This points up two characteristics of capital formation in Colombia. First, it is striking how small a part of the total is provided by what may be described as personal savings. In appraising this item, it must be recalled that the estimate for personal savings is highly conjectural. Since little direct information is available, it has been arrived at largely as a residual item. It may well be possible, there- fore, that some amount shown here as retained earnings of business should be allocated instead to personal saving. The fact that changes in inventories are not included in business expenditures may tend to overstatement of consumers' expenditures and understatement of their savings. Nevertheless, all available evidence indicates that personal savings in Colombia are low. The bulk of savings out of current income are supplied by retained business earnings and reserves of various kinds. Secondly, it appears that private domestic investment was con- siderably larger than the total of funds available out of current income. In other words, approximately one-third of private domestic invest- ment depends on external financing. There was also a deficit in Gov- ernment accounts. On the other hand, Table 17 indicates that the inflationary tendencies of domestic capital formation and CGovernment financing were offset in part by the presence of a high level of imports. Because of the availability of an additional supply of goods not produced at home, the inflationary impact of excessive domestic ex- penditures may have been lessened but, at the same time, availability of imports may have stimulated domestic investment and thus aggravated inflation. Savings and Investment Institutions The following brief view of the financial structure of the Colombian capital market reveals a very uneven distribution of funds among various uses. There is an ample supply of short-term credit for com- mercial and industrial purposes, but great scarcity of short-term credit in agriculture. Again there is a relatively ample supply of funds for long-term investment in high-cost housing but the supply of credit for middle- and low-cost housing is wholly insufficient, if existent at all. While long-term funds are available in substantial amounts to estab- 52 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA lished companies which may plow back their profits, or to wealthy individuals who may reinvest their earnings, it is very difficult for the outsider to secure capital from the market. The credit standing of the Government, finally, as reflected by the reluctance to hold public debt, is low. Thus, present channeling of capital results in a tendency toward overdevelopment in certain areas and neglect in others. In the absence of outright Government direction of capital flow, a broadening of the Colombian capital market is essential so that a better distribution of funds may be brought about by the market mechanism itself. Commiiiiercial Banks. The role of commercial banks in the Colombian economy is discussed at some length in Chapter XIV and, therefore, is dealt with briefly here. As is pointed out below, Colombian banks provide an ample amount of funds to industry and trade: However, their participation in providing for agricultural credit is slight. In 1948 agricultural loans accounted for only 5 percent of new loans granted, as against 40 percent for commerce; in addition, little contri- bution is made on the part of commercial banks to the provision of funds for long-term investment. While one of the traditional functions of the commercial banking system is to provide short-term credit, it appears that the supply of the latter has been too ample relative to the supply of other funds. Caia Colomnbiana de Ahorros. Over 80 percent of the Colombian savings deposits are held with Caja Colombiana de Ahorros because the privilege of other banking institutions to carry savings deposits is severely restricted. 4 At the close of 1949, these amounted to Ps.$77.2 million as against Ps.$18.5 million held by other institutions. The capital of the Caja is owned by the Government and the board of directors is composed and appointed in a way rather similar to that of the Banco de la Reptiblica. It is linked administratively with the Caja de Credito Agrario in that both institutions share the same board of directors and manager. Investments in the Caja Colombiana de Ahorros are almost entirely in public, and very largely national, debt. Interest paid on common savings deposits is 3 percent and interest paid on deposits held on two-year term is 4 percent. The increase in savings deposits from 1939 to 1940 amounted to Ps.$2 million. During the war years, the annual rate of increase was considerably larger, reaching Ps.$20 million in 1943-44. The increase from 1948-49 amounted to Ps.$9 million. Two-thirds of the deposits 4 Savings deposits outside the Caja Colombiana de Ahorros are concentrated almost wholly in the Banco de Colombia and until recently no new savings departments could be opened. However, by recent decree (March 1950) commercial banks are permitted to open and expand savings departments.  CAPITAL FORMATION 53 were in accounts of over Ps.$1,000 and holdings were concentrated heavily in the departments of Cundinamarca and Antioquia, with about one-third of the total in the city of Bogota. It is evident from these figures that the annual supply of funds from savings deposits is of small maanitude, especially if it is con- sidered that inflation during recent years made for a relatively high rate of increase in incomes. This again reflects the fact that personal savings are small and are largely derived from the higher income groups and hence are not likely to be invested in savings deposits. As noted in Chapter III, more than one-fourth of the total income in 1947 went to the top 1/40th of the nation's income recipients; at the same time, this small fraction of total income recipients provided perhaps as much as three-fourths or more of total savings. With rising incomes and the development of a stronger middle class, the savings pattern may be expected to change so that savings banks should become an increasingly important link in the process of capital formation. At the end of 1948, out of total Caja Colombiana de Ahorros assets of Ps.$107.8 million, about Ps.$58 million were held in the form of National Government bonds, including Ps.$10 million of Credito Agrario. Ps.$4 million of Credito Territorial, and Ps.$44 million of other National Government obligations. Thus, the Caja acted as an intermediary in the financing of other public credit institutions, as well as a source of funds for meeting the Government's general needs in covering current deficits. Notwithstanding earnings on Government securities of well above 7 percent, the return paid on saving deposits is but 3 percent. This is explained to some extent by the high cost of maintaining a wide- spread network of branch offices which in many small localities are not profitable on their own account. It may be considered whether the cost of the Caja Colombiana de Ahorros might not be reduced by sharing services with the Caja de Credito Agrario. Also, use of a postal savings system might be considered through which the Caja Colombi- ana de Ahorros facilities might be made available to small communities. Caja de Crdito Agrario, Industrial y Minero. The Caja de Credito Agrario is a major source of agricultural credit and in that connection is discussed in more detail in Chapter V. Like the Caja Colombiana de Ahorros, it is a governmental institution and controlled by the same board of directors and manager. At the close of 1949, the total funds of the Caja de Cr6dito Agrario amounted to Ps.$161 million. Of this total, two-thirds were derived from the issue of bonds and one-third from capital subscription. While the capital is held largely by the Government, Caja de Credito Agrario bonds are held by the Caja 54 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA Colombiana de Ahorros and, mostly on the basis of compulsory hold- ing requirements, by commercial banks, insurance companies and others. The Caja de Credito Agrario uses its funds to provide agricultural credit on terms ranging from six months to twvelve years with interest rates ranging from 6 to 7'2 percent. Loans to any one borrower are limited to Ps.$25,000 for short-term, and to Ps.$50,000 for long-term. Cattle raisers with assets in excess of Ps.$200,000 are ineligible for loans from the Caja de Credito Agrario. The Caja has fourteen branch offices in the different departments and a large number of local offices in which, in addition to its own business, are handled savings deposits for the Caja Colombiana de Ahorros. Like the Caja Colombiana de Ahorros, it is subject to high operating costs. In 1948, about 25 percent of the funds were loaned out in amounts of less than Ps.$500, and 80 percent in amounts of less than Ps.$5,000. Only 2 percent of the funds were loaned out in amounts exceeding Ps.$50,000. In terms of crops, the largest share- about 30 percent-of the loans granted went into cattle; coffee was the next most important item with 16 percent. Much the larger part of the loans was made to oxvners, only 30 percent of the total going to tenants, settlers, and others. 5 Total loans granted by the Caja de Credito Agrario showed a steady increase during recent years, but the funds available were by no means sufficient to meet the needs of Colombian agriculture. Thus in 1948, less than Ps.$100 million of loans were available to finance agricul- tural production valued at over Ps.$1.2 billion, and equipment and other agricultural improvements. The problem here is how to obtain additional funds needed to provide more adequate working capital as well as longer-term loans for mechanization of agriculture and the purchase of small farms. To some extent, it might be possible to meet this need by securing greater participation in agricultural credit on the part of commercial banks, especially in the short-term field and for larger loans. In this -way, some Caja de Credito Agrario funds might be freed for use in the smaller and longer-term loan field. But even if this ivere done, there remains a need for substantially expanded capital resources of the Caja de Cr6dito Agrario. Pending the develop- ment of an open market for Caja de Credito Agrario bonds, this remains a budgetary problem and one which in view of the importance of agricultural improvement needs to be given high priority. 5 The Banco Agricola Hipotecario, previously entrusted with the provision of agricultural mortgage credit, is being liquidated and taken over by the Caja de Cr6dito Agrario.  CAPITAL FORMATION 55 BaFeco Central Hipotecario. The third major credit institution is the Banco Central Hipotecario. While the Government participates in the direction of the Banco Central Hipotecario, four of the seven board members are appointed as representatives of commercial banks and only one is appointed by the Government; the remaining two directors are appointed by the Banco de la Republica and by private shareholders, respectively. The capital of the Banco Central Hipote- cario at the close of 1949 amounted to Ps.$15 million and total assets stood at Ps.$119 million. Other sources of funds were from the sale of bonds in the market-at rates of 6 and 7 percent-arid to some extent, especially in 1948, from Banco de la Republica credit. The major use of Banco Central Hipotecario funds is for mortgage loans, which at the close of 1949 amounted to about two-thirds of total assets. Its loans are made at 8 to 9 percent, or 2 percent above the bond rates paid by the Banco Central Hipotecario, with gradual amortization over a twenty-year period. Loans are extended up to 50 percent of the property value. Also, the bank makes loans to municipalities which are made under the condition that it be given administration of the collateral, a technique which has interesting possibilities for providing more substantial funds to meet the needs of municipalities. While the Banco Central Hipotecario provides a fairly adequate supply of mortgage funds for high cost housing, it makes little contri- bution to medium, and no contribution to lower, cost housing. Thus the only institution which is in a position effectively to raise funds in the open market and to make longer-term loans in adequate amounts is one which apparently makes social importance secondary to other investment needs. However, the success of the Banco Central Hipote- cario in operating profitably and in being capable of raising its own funds without compulsory holding requirements is important in the development of a broader and more inclusive capital market. Stock, E.xchaagye. The stock exchange of Bogota, the only Colom- bian stock exchange, is a private corporation supervised by the Superintendent of Banks. The number of companies registered at the stock exchange increased from 49 in 1939 to 94 in 1949, and capital and legal reserves of registered corporations in the same period rose from Ps.$140 million to Ps.$600 million. However, only a relativelv small part of this expansion, hardly more than 20 percent, was brought about through the issuance of new shares. Much the larger part wvas obtained through the retention of earnings. AMoreover, the volume of transactions is highly concentrated in a small number of companies. In the first half of 1949, for instance, the six most active companies 56 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA accounted for 80 percent of the total transactions; Bavaria alone accounted for 50 percent and Coltejer for about 25 percent. While the stock exchange has been an increasingly important element in the Colombian capital market, it has not occupied the central position of stock exchanges in more developed countries. In particular, the stock exchange in Colombia does not provide access to the capital market for new companies which are not yet fully recognized by the public. People who wish to initiate new ventures must rely almost, entirely on funds obtained through the retention of profits in their own businesses or through personal contact from friends. As a result, it is difficult to launch a new venture without direct personal access to capital-a condition which is not conducive to the development of a competitive and progressive business struc- ture. In this area, too, there is evident need for developing a more open capital market. Insurance Comipanies. Even though small in absolute amounts, the importance of insurance as a source of funds has rapidly grown during recent years. The net premium payments in 1939 amounted to Ps.$3.5 million and climbed to Ps.$23 million in 1948. Total investments of insurance companies rose from Ps.$36 million in 1946 to Ps.$45 million in 1947 and Ps.$57 million in 1948. Thus the annual amount of funds becoming available is somewhat above that provided through growth of savings deposits. Unlike the Caja Colombiana de Ahorros, insur- ance companies have distributed their funds widely between public and private investments of various kinds. In 1948, holdings of Government bonds were increased by Ps.$2.2 million, while private investment and loans rose by Ps.$10 million. The latter amount included industrial bonds and stocks and a large item of loans to policyholders. In order to assess the contribution of insurance to available funds, this latter amount totalling Ps.$4 million must be deducted from net premium payments. Industrial Development Institute. The Institute for Industrial De- velopment is a corporation established in 1940. The purpose of the Institute is to initiate industrial development in areas not easily accessible to private enterprise. The board of directors includes Government representatives and two members named by the board of the Banco Central Hipotecario. The capital of the Institute in June 1948 amounted to Ps.$6 million, one-half of which was subscribed for by the Government, In addition, -the Institute had issued over Ps.$6 million in bonds, these bonds being absorbed by the Banco de la Repuiblica in the Stabilization Fund. Further bond issues up to Ps.$50 million are authorized but attempts to place such issues out- side the Government have not been successful.  CAPITAL FORMATION 57 The Institute to date has not been able, therefore, to undertake industrial development on a large scale. The Institute has undertaken development projects in a rather wide number of fields, some of which have been successful while others have not. Nevertheless, remarkable achievements have been made with a small amount of capital. Failures in most cases were due to technological rather than financial difficul- ties. A chemical product enterprise, a tanning extract plant, a woolen yarn factory, a lumber enterprise, a window pane plant, a fique plant, a small steel plant in Medellin, a rubber tire plant, a naval construc- tion yard, an edible oil plant, a fishing enterprise, a soda ash plant, and a hotel were sponsored successfully by the Institute, while plants and enterprises producing or processing sugar, food, milk, yeast, minerals, fats, sulphur, chlorine, zinc, alkaloids and fertilizers had to be liquidated. It should be said, however, that the speculative nature of such enterprises was known to the managers of the Development Institute when they were initiated and that they were launched only because their production was expected to replace imported goods made unavail- able by shortages. The major endeavor of the Institute in the past years has been the organization of the Paz de Rio Steel Mill Corpo- ration analyzed in Chapter XIX. Institto de Credito Territorial. The general function of the Instituto de Credito Territorial is to develop the construction of houses for farmers and agricultural workers and to develop low-cost urban housing. The board of directors of the Instituto de Credito Territorial includes three Government representatives, three representatives of various business organizations, one employee and one employer representative. The Instituto de Credito Territorial assets have grown rapidly from Ps.$7.8 million in 1945 to Ps.$45.8 million in 1948; about three-fifths were accounted for by increased capital provided through the Government and two-fifths by the issuance of 3 percent bonds. The latter were placed with individuals and businesses under a law which required income tax payers to invest 5 percent of their income over Ps.$10,000 in such bonds.6 The bonds may then be sold in the market, but only at a substantial loss. The Instituto de Credito Territorial is authorized to make 30-year mortgage loans for farmers, the value of whose property does not exceed Ps.$30,000. Also, the Instituto may make loans to support departmental or municipal housing projects, housing cooperatives for farmers or construction of rural houses to be rented to farm 6 According to Decree No. 4051, issued December 20, 1949, the proceeds are now to be split between the Instituto de Credito Territorial and the Paz de Rio Steel Mill Project. 58 THE BASIS OF A DEVELOPMENT PROGRAMI FOR COLOMIBIA workers. Amounts to be loaned are to be proportionate to the value of the farm property. Similar provision may be made for the support of urban houses; only persons whose property does not exceed Ps. $30,000 are eligible. All the loans, urban or rural, require a first mortgage collateral and adequate income prospects to assure mort- gage payments. Up to 1948, mortgage payments made by the Insituto de Credito Territorial amounted to Ps.$8 million only, wvith other investments, including land purchases and loans to municipalities, nearly three times this amount. During 1949, the amount of loans was developed but total assets -were then divided between loans and investments at a rate of twvo to three. In such lending as has occurred, the Instituto appears to have concentrated its activities on relatively costly homes for well-to-do-farmers. Little headway has been made in provid- ing credit for low-cost housing, rural or urban, or in providing for such housing on a rental basis. Since the Instituto has been made the special beneficiary of forced investment under the income tax lawv and has thus obtained relatively large funds, it is unfortunate that more progress has not been made in achieving its objectives. A more specific formulation of the functions of the Instituto de Credito Territorial directed toward the low-cost housing field may be neces- sary. Fontdo de Fo;nento Miinnicipal. The M\unicipal Development Fund is in effect not an institution of the capital market but is concerned with allocation of budget receipts through various public policies. It need not, therefore, be considered at length here. The Fund obtains its revenues from a number of earmarked excises imposed by the National Government, with a total yield of Ps.$10 million in 1948. The Fund is attached to the Ministry of Finance and administered by a Directive Committee composed of the Ministers of Finauce, Education, Industry and Commerce, Labor, Hygiene and Public W7orks. Of the proceeds, 15 percent is assigned to the city of BogotA, 80 percent is assigned to departments on a per capita basis, and the rest is distributed among departments in equal shares. The payments are made in support of new wvater facilities, sewvers, schools, etc., the contribution of the Fund being determined in most cases in the form of a matching percentage grant. While the revenues of the Fund have been wholly inadequate to meet municipal investment needs, the operation of the Fund is most important as an attempt at systematizing the allocation of national subsidies to municipal and departmental investment, a problem which \vill be considered more fully in Chapter X  CAPITAL FORMATION 59 Federation of Coffee Growers. The Federation of Coffee Growers has engaged in providing certain social improvements for the benefit of coffee growers. These improvements are financed out of revenues obtained from a special 6 per thousand tax on coffee exports and are allotted to departments in proportion to their share in total coffee exports. The services include vater and soil improvements, as wvell as inexpensive rural housing projects. The total annual budget amounted to about Ps.$3 million in 1947 and it appears that this sum is invested with a high degree of efficiency. CAPITAL YIELDS AND INTEREST RATES In an underdeveloped economy where capital is scarce and the productivity of additions to capital equipment are high, it stands to reason that the cost of capital as measured by interest rates or share yields should be high as well. Within certain limits, this is a necessary means of putting the scarce supply of capital to the most essential uses. The structure of share yields, bond yields, and loan rates at com- mercial banks is shown in Table 18, but the picture there represented needs careful interpretation. While the share yields are bona fide TABLE 18 YIELDS OF SECURITIES TRADED AT STOCK EXCHANGE OF BOGOTA, 1941-1949 19411 1945i 19492 (Percent) SHARE YIELDS Beer-Bavaria ....................................... 9.39 7.10 15.92 Textiles-Coltejer .- 9.79 10.55 Real Estate-La Urbana. - 10.47 15.48 Cement-Cemento Diamante ... _ .. _ 9.67 6.20 11.37 Commercial Banks-Banco de Colombia 10.06 9.96 13.14 BOND YIELDS National-Dinu, 6% (1971) ......... .... 6.65 6.67 National-Denal, 6% (1972) ........ 6.60 6.45 6.37 Antioquia (1950) ........ 8.46 7.22 7.36 Caldas (1951/56). ........ 7.84 7.22 9.24 Banco Central Hipotecario .... .... 6.01 5.93 8.55 LOAN RATES Commercial Banks, 90-day loans .4 4 4 Commercial Banks, 120-day loans ........ 6 6 6 Banco Central Hipotecario, Mortgage Loans .... . - - 9 Rate paid on Savings Deposits .....- . - 3 Caja de Cr6dito Agrario, 6 months.... - - 6 Caja de Cr6dito Agrario, long-term .... . - - 7/2 1 December 31. 2 August 31. 60 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA yields obtained in the market, bond yields cannot be interpreted thus, since only a relatively small part of the public debt held outside public institutions is held on a voluntary basis. If there were no holding requirements,7 probably discounts would be more substantial and yields considerably higher. At the other end of the scale, the profit- ability of many ventures is substantially higher than indicated by the share yield of large corporations, which are more or less "safe" investments. In part, this greater profitability of some ventures is reflected in higher profit rates but primarily it is realized in the form of capital gains accruing as a by-product of the inflation process. Loan rates at banks are relatively low and have not been raised for many years. The supply of funds thus is considerably short of xvhat could be loaned at those rates. The same applies to agricultural loans, although here the problem is not one of adjusting the rates to the available supply of funds, but rather of increasing the available supply so that the market can be serviced at a lower rate. Mortgage money, as provided by the Banco Central Hipotecario, carries a charge of 9 percent and yet there is an excess demand for funds at this price. In the low-cost housing field, money is not available at 9 percent but, even if it were, this rate would be too high to permit a low-cost housing program. Thus the maladjustment in the capital market appears to be primarily due to maldistribution of funds avail- able for various purposes, rather than to inordinately high rates of interest in certain areas. 7 For a discussion of these requirements, see Chapter XIII.  CHAPTER V Agriculture Agriculture is the most important segment of Colombia's economy. This is true in a double sense. First, some two-thirds of the people live in rural areas and are supported by agriculture, and many urban dwellers indirectly receive their incorne from financing, handling or processing agricultural commodities. Second, coffee is the main sup- port of Colombia's international trade, and finances the iniport of the many manufactured products and capital goods needed by the country's expanding economy. To understancd Colombian agriculture, it is important to keep in mind the extreme range of climatic conditions, and the fact that in any one place the main difference between the seasons is the amount of rainfall. The mountain ranges are responsible for the variations in both temperatures and rainfall and they divide agriculture into many small "islands," with communication between them both difficult and costly. The range of climatic and soil conditions provides the physical base for raising a great variety of agricultural products, which can afford healthful and interesting diets and various fibers for clothing and industrial uses. But other factors intervene to keep levels of living generally low in both rural and urban areas. One of the most urgent requisites for higher living standards is increased productivity in agriculture, not only to produce more of the essential agricultural products but also to obtain this production with a smaller percentage of the total population so that additional labor will be available for other pursuits important to higher living standards. ', LAND USE AND TENURE The amount of land in forests is estimated at from 50 to about 70 percent of the total land area.' The forests usually consist of mixed species of trees, including mangrove swamps along the Pacific and Caribbean Coasts, mixed tropical forests and jungles up to about 5,000 feet, and temperate zone trees above this elevation. The non- forested areas are used either for the cultivation of crops, wvhich occupy 2 percent of the land area and vary with the altitude, or for pastures which are found in the rich level valleys, on the plateaus and mountains above the range of cultivated crops. I The United States Tariff Commission in Agricultural, Pastoral and Forest In- dtstries in Colombia, Washington, D. C., 1945, estimated about 50 percent. Dr. Ruiz Landa, Professor of Horticulture and Forestry of the Facultad de Agronomia, Mede- llin, in a communication in October 1949, estimated about 72 percent. 61 62 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA The major crops are coffee, sugar cane, corn, potatoes, rice, wheat, yucca, and platano. Wheat, potatoes and barley are the principal commercial crops raised at elevations above 7,000 or 8,000 feet, along with corn and beans. Lands on the mountain slopes at medium eleva- tions are used principally for coffee, corn, beans, yucca, platano (the cooking banana), some citrus fruits, sugar cane for panela (brown leaf sugar) production, and fique for fiber. Rice, sugar cane, cotton, sesame, cacao, tobacco, and a few citrus fruits for home use, are the principal crops at elevations from about 500 to 3,300 feet, including the valley of the Cauca River, the upper Magdalena Valley and some other areas. Bananas are raised for export in a small area near the Caribbean Coast. Beef is the principal livestock product, and much less attention is paid to the production of dairy products, pork, mutton and wool. Cattle are raised almost entirely on pasture, the corn and small grain crops being used in the main for direct human consumption. According to official estiinates for 1948, crops occupied about 213 million hectares while 43 million hectares were devoted to pasture. 2 The farms average about 2 hectares of cultivated land. This average includes some very large sugar cane, rice and cotton haciendas, so the acreage on most farms is considerably less. Most coffee farms are small; 87 percent have less than 5,000 trees and the average is around 3,000 on about 3 hectares, with some additional land for sub- sistence crops. However, a little more than half of the coffee trees in Colombia are found on the remaining 13 percent of the farms. 3 Cattle haciendas generally have little or no cultivated land and as a rule are large-scale operations. The mountain ranges and their inter- vening valleys, which together cover only about two-fifths of the nation's geographic area, furnish the homes and livelihood for 95 per- cent or more of the population. Little is known definitely of the soils or other characteristics of the sparsely settled grassy plains and forested areas east of the Eastern Cordilleras that might influence the future development of agriculture there. The small occupied areas of this region are used mainly for cattle grazing, with some crops near the Eastern Cordilleras. In the more heavily populated portion of the country, land use follows an unusual pattern. As a rule, the fertile, level valleys are used mostly for grazing, while the steep mountain slopes are cultivated. The poorer lands in the mountains are overpopulated in relation to land resources, and much of the level land (except for areas planted to rice, 2 Producci6n Agropecuaria de Colo-rmbia, Estimado para 1948, Divisi6n de Econo- mia Rural, Ministerio de Agricultura y Ganaderia, September 1949. 3 Boletin ExtraordinariaNo. 5, Aijo IT, Vol. 1, Federaci6n Nacional de Cafeteros de Colombia, February 1933.  AGRICULTURE 63 sugar cane,.and cotton) is in pasture, a use in which a given acreage furnishes a living to comparatively few families. Fear of malaria and other diseases in the lowlands, as wvell as the difficulty of getting land for farming in the valleys and on the plateaus, may contribute to the density of population in the mountains. At any rate, the cattle fatten on the plains while the people often have to struggle for a bare existence in the hills. Even though the returns from pasturing are often very substantial, such use of the land is not the best possible. But the compensations appear to outweigh economic considerations in the minds of the owners of the large cattle haciendas. Moreover, these pasture lands, which are taxed at a very low level, make secure investments. Even though the owner may live in a distant city and not supervise the operation closely, a good cattle ranch has nearly always enabled the owner to live very well. Great lauded estates are also the rule in the promising new agricultural areas, such as the Sind region. Cases were cited to the Mission of land sold at Ps.$1200 per hectare which was assessed for tax purposes at Ps.$200 to Ps.$300 per hectare, but \vhich actually yielded Ps.$180 per hectare in rent. Some large-scale farms, particularly producers of sugar cane and rice, appear to be quite efficient and to have gained high labor productivity through the use of considerable mechanized equipment. It must be recognized, however, that these farnis also have the effect of denying landless families. or families wvith too little land to make a satisfactory living, access to land. Many large-scale farms that mnay be considered efficient in economic terms are not providing adequate living standards for the families who live or xvork on them. For example, it wvould be quite unusual if the returns from a large farm, occupied by the owner and 24 wvorkers (25 farm families altogether), wvere providing more than two or three of the families with enough income to be significant purchasing units or to maintain satisfactory levels of living. On the other hand, in many areas (for example, Narifno, Santander and Boyaca) the problem of "minifundia," or ex- cessive parcelization of the land into uneconomic patches, prevents efficient land use. Large numbers of farm families are trying to eke out an existence on too little land, often on slopes of 50 or even 100 percent (45 degrees) or more. As a result, they exploit the land very severelv, adding to erosion and other problems, and even so are not able to make a decent living. This pattern of land use is one of the most important causes of low labor productivity in agriculture and of resulting widespread poverty in rural areas. There are some indications that land policy is changing at the present time. In 1948, the Institute for Parcelization and Colonization 64 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMIBIA of Land was established by the Government. Its purpose is to give to farm families without land, or with too little to make a decent living, special assistance in obtaining land through credit and other means. The Institute assists these families in settling either on public land or on parcels of large farms that the Institute buys and subdivides. Since this program has barely started, it is too early to know with certainty whether it will effect a major change in land policy. So far it has received such small financial support that it is a purely nominal program. On the other hand, it may indicate a change in public opinion, and a trend in Government.land policy toward en- couragement of farm units large enough to maintain a family. s RURAL POPULATION If we exclude housewvives, domestic servants, and indefinite cate- gories from the 3,300,000 rural people classified by the 1938 Census, there were in that year about 1,767,000 economically active persons4 on the 700,000 farms and in villages under 1,500. Out of this number it is roughly estimated that one-third were owner-operators and managers of various types; one-sixth xvere tenants, sharecroppers and squatters; and the remainder, or about half, were hired workers. Assuming that this situation has not changed materially, the propor- tion of tenants is relatively lowv and of hired wvorkers quite high as compared xvith more developed countries. In 1948 the population living on farms and in villages under 1,500 was estimated at something over 7 million, with about 4 million economically active.5 Apparently some migration of population from farms to cities has occurred and is still occurring. A recent estimate shows a small net migration of 350,000 persons from farm to city during the seven years from 1938 to 1945.6 The study of Tabio, a rural community near Bogota, gives evidence of this trend. After analyzing population movements, the authors of the report conclude: "In spite of a relativelv high birth rate and considerable natural increase, the population of Tabio has been stable for some forty years. Migration is carrying off all the increase and may be taking some of the original stock as wvell. The males in the productive ages are leaving for Bogota and for areas of newv settlement in Caldas, El Valle, and Tolima; the girls are going 4 The economically active include farm operators and managers of various types, including owner-operators, tenants, sharecroppers, squatters, and several categories of hired workers. 5 This figure for the economically active was submitted in a communication of October 4, 1949, from the Division of Rural Economics, University of Agriculture. 6Miguel Fadul, of the National Income Committee of the Banco de la Rep6blica, in correspondence with the Secci6n de Censos Nacionales in February, 1949.  AGRICULTURE 65 almost exclusivelv to Bogota. As a result of these migrations, Tabio is left with the dependent classes and ages of the popula- tion, and it suffers from a severe shortage of productive workers. Most acute is the lack of males aged from 15 to 60, whereas the municipio has much more than its quota of females and old persons." 7 Hired farm workers in Colombia are paid nearly as well as urban workers. Farm workers receive two to three pesos per day compared with around three pesos for common labor in the cities, with small numbers of skilled workers receiving more. They also are legally eligible for the same benefits from labor and social security legislation as urban workers. There are evidences that some workers are climbing the "agricultural ladder," though the climb is a very strenuous one. The "ladder" has few rungs for tenants, and most of those who negotiate it pass directly from the status of farm laborers to ownership. The study of Tabio showed that of all the heads of farm households forty years of age, 68 percent were farm laborers; of those in the 40-49 age group, 44 percent were farm laborers; and of those 60 years or over, only 32 percent were in the farm laborer category. It also showed that farm operators (mostly owners) in Tabio averaged 51.6 years of age while farm laborers averaged 46.2 years. These differences indicate some social mobility and passage from the laborer to the owner class. For example, the owner of a 20-acre farm, visited by a member of the Mission, reported that he had worked as a farm laborer for 18 years before buying his first farm of a little more than one hectare at the age of 33. Now at the age of 60 he owns an eight-hectare farm which he values at Ps.$30,000, but said he would not consider selling it for that. Another family with ten living children, two having died, had saved for 26 years -and was in the process of buying a small farm. They had the Ps.$1,50 0 required for the down payment. These cases indicate that some farm laborers reach the status of owners, but that the process is not an easy one. The fact that rclatively few farm people own the land they cultivate, and therefore lack the incentive that ownership often gives, may account in part for low agricultural productivity. \ STANDARD OF LIVING The portion of a nation's population required in agriculture serves as a rough index of labor productivity and of its standard of living. As we have seen, about two-thirds of the population of 7Smith, Rodriguez and Garcia, op. cit, p. 5. 66 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLO-MBIA Colombia live in villages tinder 1,500. The importance of expenditures for food in the family budget is another commonly used indication of the level of living. For example, it is generally assumed that a family should not have to spend more than 40 percent of its income for food. The study of Tabio, however, reported that 56 percent of the farm-operator families and 61 percent of the farm-laborer families xvere spending more than 50 percent of their income for food; and Tabio is better off than many rural communities. \Vith the exception of the haciendas, it appears that average rural levels of living are so low that farm families as purchasing units are relatively unimnportant in the commercial economy of the country. But their stanidards of living may well be higher than their present levels of living, and may only awvait higher incomes to be realized. If very limited general observations can be trusted at all, many farm. families have a strong desire to improve their present situation. One bit of evidence is their persistence over many years in making some savings out of very low wages in order to make a down payment on a farm, with the hope that through ownership they may attain greater security and higher levels of living. While few reliable indices are available, an attempt will be made to describe the levels of living of the farm people in Colombia, in terms of education, housing, health and nutrition. The fact that farmers are squeezed betwveen low incomes and relatively high prices for the things they buy is an important factor tending to hold rural living at low levels. \Rural Education After traveling about the country and visiting many farm families, one inescapably concludes that general public school education for farm children is 'grossly inadequate, both in quantity and quality. Apparently only a fexv farm children receive as much as twvo or three years of schooling. In Tabio, only 19 percent of the farm operators and 8 percent of the farm laborers had received more than three years of schooling. This lack of education no doubt contributes to loAv labor productivity and at the same time makes the introduction of new farm practices more difficult. While the human resources needed for expansion of agriculture are available so far as numbers are concerned, their educational attainments are so low as to limit rather materially the rate of expansion, particularly the introduction of new techniques in agriculture. The Agricultural Education Section of the Ministry of Education reports that in 1949 there were only 23 agricultural schools in opera-  AGRICULTURE 637 tion, with about 800 students, or an average of 35 per school. The total cost of operating these schools for the year 1949 was Ps.$334,219, including Ps.$15,000 contributed bv one of the departments. Also, the National Federation of Coffee Growers is maintaining about a dozen two-year vocational schools that are available free of charge to farm children wvho have completed the public schools. Those in attendance usually devote four hours to inside classes and two hours to practical work outdoors where they learn how to grow a variety of garden crops, rabbits, and other foods to improve their usual diets. They also learn improved methods of coffee culture. The Ministry of Education supports two agricultural normal schools, one at Buga and one at Duitama, at a cost in 1949 of Ps.$194,000. These schools have an enrollment of about 100, and are contributing in a small way to training needed agricultural personnel. Three colleges of agriculture, all affiliated with the National Uni- versity, carry a heavy burden of training personnel for public and private agricultural activities. Two of them are general agricultural colleges, one in Medellin and one in Palmira, and the other is a college of veterinary medicine located in Bogota. In addition, small experi- ment stations demonstrate farm practices. Total enrollment in the three colleges is usually around 300, and many of those in attendance do not complete the work and graduate. The schools have had many competent professors on their faculties, including at times visiting professors from other countries. While these colleges accomplish much good work they do not receive enough funds, either public or private, to provide greatly needed expansion. Tuition is high and this tends to hold down enrollment. Under these conditions the colleges are not able to turn out enough graduates skilled in crop and livestock production, marketing methods, and in research tech- niques in the physical and social sciences, to meet the demand for well-trained agricultural personnel. The resulting lack of trained personnel handicaps the agencies working with farmers and this in turn retards further advances in labor productivity. In addition, there is a program of agricultural extension education. which unfortunately is quite inadequate to reach a high percentage of farmers. In 1945, the educational programs in what is now the Ministry of Agriculture were reorganized, and the part pertaining to crops was lodged in the new Extension Section of the Ministry of Agriculture. But the extension work in livestock raising, particularly the educational program of the veterinarians, was kept separate. This failure to provide for all phases of agricultural education in one pro- gram has been a handicap to the work. 68 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA The Extension Section has a good program as far as it goes, and some very good personnel. In addition to those in Bogota, its staff includes a Chief of Zone in each department and about 50 T6cnicos at the municipal level. These Extension workers do some very effec- tive work, particularly with respect to crops, including cultural methods, soil testing, insect and disease control, distribution of garden seeds, and maintaining farm machinery available to farmers at reason- able rentals. One especially noteworthy piece of work wvas done in cooperation with the Caja de Credito Agrario, Industrial y Minero. In this special program, the Extension personnel gave educational assistance to about 300 small farmers who had borrowed from the Caja. In general, the Extension program has been too small to make much of an impact on the quality of Colombian farming in the short time it has been in operation. A limited number of veterinarians in the field, xvho are attached to the Division of Animal Industry of the Ministry, also do good educational work with cattlemen, and perform services with respect to disease control and other livestock problems. Of particular impor- tance are the bull pools that they maintain in all sections of the country. Good quality bulls of different breeds, both beef and dairy, are available at these breeding stations to farmers who wish to improve their livestock. The separation of the educational work pertaining to crops and livestock and the lack of a home demonstration program through which farm women might receive assistance with home management, nutrition, food, clothing, and housing problems, make it very difficult to base the program on the needs of the whole farm and farm family, and greatly limits a farm and home management approach. While it is regrettable that more funds have not been made available for this important work, individual Extension employees are doing a good job under great handicaps. <-Rural Housing Some farm homes in Colombia are commodious and beautiful, but many are overcrowded, and most of them lack the elemental facilities for health and adequate living. Data are not available with respect to rural housing as a whole, but the study of Tabio shows the bad housing situation in one rural community. 8 Observation disclosed that farm housing conditions as bad, or even worse, are found in most parts of the country. 8 See Chapter I, and report on Tabio, previously cited.  AGRICULTURE 69 Already the need for better rural housing is recognized, at least in principle, and a nominal progam is under way. Some 4,000 new farm houses have been financed by the Instituto de Credito Territorial. The farm houses in this program cost from Ps.$4,000 to Ps.$8,000 each, and usually are of substantial brick construction with steel window frames so that maintenance costs are low. Loans at 2 percent are made to farmers with a net worth of less than Ps.$10,000 for houses to cost not more than Ps.$4,000. About 90 percent of the loans are of this type, according to officials of the agency. Loans not to exceed Ps.$8,000 are made to farmers with a net worth of between Ps.$10,000 and Ps.$30,000 and loans to farmers with a net worth of over Ps.$30,000 are made under certain conditions to build houses for their employees.' A few other types of loans are made, such as those to rural housing cooperatives and for certain public purposes. 9 For the year 1949 about Ps.$12 million were available for both the urban and rural phases of this program, derived from compulsory purchases of bonds. The agency is compelled to spend 60 percent of the funds originating in each department in that department, which necessitates operations in all departments each year and adds some- what to overhead costs. The rural housing program is now geared to finance about 1,000 homes a year, a rate somewhat higher than in the past. This accelera- tion is encouraging, but even at this increased rate, it would take over 1,000 years to reach every farm. While rural families make up two-thirds of the population, the rural phase of the housing programn is allotted only one-third of the funds available. Rural Health and Nutrition Ill health and inadequate health servic6s appear to be major factors limiting labor productivity in agriculture. The situation in health and nutrition is described more fully in Chapter IX, but the problem is especially acute in rural areas-because of especially low incomes, shortages of doctors, nurses, and health facilities and deplorable sani- tary conditions. Observations on farms indicate that large numbers of farm families raise few, if any, vegetables and have no dairy procucts or eggs for home use. Since incomes are so low that many families could not buy these products, failure to produce them indi- cates the probability of serious dietary deficiencies. FARMING SYSTEMS AND PRODUCTION PROBLEMS In general. Colombian agriculture is characterized by the use of a disproportionately large amount of labor in relation to land, operating 9 1nfornie del Gerente General, 1948, Instituto de Cr6dito Territorial. 70 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA capital, and management, although differences in productivity are enormous. Hand methods, principally use of the machete and the hoe, prevail on some farms but highly mechanized methods of cultivation with the latest models of tractors, combines and other machinery, are used on others. It is not uncommon to find an irrigated rice farm in a fertile valley using two or three combines of the latest model, and a few miles away a small farmer burning a patch in the timber on a mountain side where he will grow crops between the stumps for a year or twvo before burning another patch. Pack animals-mules, horses, burros or oxen-furnish the main means of transportation from the farm to market. The pack animals often are supplemented by trucks and, for short distances, by human beings carrying heavy loads upon their backs or heads. In turn, the pack animals sometimes supplement trucks in emergencies or on unfavorable terrain. Mechanization is making some progress, however. So far it is quite insignificant in terms of numbers of farms but more important in terms of total production. One measure of mechanization is the rate of importation of tractors, since none are manufactured in Colombia. Imports since the war are as followvs: 1 Year Number Value per Unit Total Valuel 1946 . 616 U.S.$4,079 U.S.$2,512,664 1947. . 920 4,147 3,815,240 1948 . . 479 3,701 1,772,779 The same source stated that of 3,821 tractors in use in the country in 1938, one-half xwere in the three departments of Valle, Tolima, and Cundinamarca. The MAinistry of Agriculture owned 191 tractors which, under the management of the Departmental Extension Directors ahd municipal agents, were used by farms on a rental basis. It is the policy of the Government to encourage mechanization of agricultural production, but in solving some problems mechanization sometimes creates others. For example, it seems to be intensifying the differences betwveen small farmers and large operators, and by reducing costs for the latter it hampers competition by the small farmer. The problems of repair centers, availability of spare parts, and distribution and storage of tractor fuels are receiving attentioln but are not yet solved. Because of the high cost of the ingredients, all of them imported, and of transportation, fertilizers are very expensive and are little used except in groNving potatoes and one or two other crops. Insecticides 10 Communication from Raul Varela Martinez, Director, Division of Rural Eco- nomics, Ministry of Agriculture, October 4, 1949.  AGRICULTURE 71 and fungicides also are expensive, and are often not available when farmers need them. Another practice which limits productivity is that of keeping the poorer and unsalable portions of some crops for seed. Some progress is being made in developing better yielding varieties of crops, particularly those that are more resistant to diseases. Valuable results may be seen, particularly in the case of sugar cane; the work on wheat and some other crops looks very promising, al- though it has not proceeded so far. One-crop farming is widespread, and a single crop may be found growing year after year on the same land. The value of crop rotation seems to be little understood. While food crops such as corn, yucca and platano are found on 6 most farms-in fact, on many, food crops for home use are the principal products-the idea of planning a well-balanced farming operation is seldom encountered, and a well developed unified farm and home plan seems to be almost unknown. All of this makes for inefficient farm operations. Livestock breeding programs have been effective in improving both dairy and beef cattle. The time required to grow and fatten a steer for market has been reduced on some cattle farms, although on the great majority it still requires four or five years or more. The better grasses are still not used in many pastures. Despite the important gains that have been made in labor productivity, breeding and pasture improvement has not increased nearly so much as seems possible. Control of cattle ticks and diseases is increasingly successful, although losses are still substantial. One of the factors contributing to inefficiency in livestock pro- duction is the lack of cheap transportation, or indeed of any transporta- tion at all in nmany areas. Cattle are driven hundreds of kilometers on foot, and the resultant loss of weight is estimated at 200 or more pounds, not to speak of the deterioration in the quality of the tleat. The cattle sometimes have to be pastured for another year at some point nearer the ultimate market before they are ready for slaughter. Thus the production period is prolonged, the cost of production is raised, and the returns to livestock operators are reduced. Lack of modern machinery and tools, failure to use good seed, fertilizer, pesticides, improved farming practices, inadequate credit facilities lack of general education and of special training, and poor diets and disease all combine to hold down labor productivity in agriculture. The fact that so much of the cultivation is on steep slopes, where farm machinery and implements other than hand tools usually cannot be used, also reduces production.  72 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA \Soils and Soil Conservation Colombian soils range from those among the xvorld's best to very poor ones; from some that withstand farming on almost unbelievably steep slopes without serious erosion, to others that are badly eroded and xvasted away even though their slopes are quite moderate.1 ' The inverse pattern of land use described above has created serious soil erosion problems. The cutting and burning of forests and other cover in miountainous areas for the planting of annual cultivated crops like potatoes and corn are quite general. If the farmer lives near a city or toxvn he may sell the lo-s or use them and the larger branches to make charcoal for sale. Otherwise, he may burn them with the brush. On the steeper grades, "fire-cleared" patches may be farmed for only one or two crops, then abandoned and another tract cleared. The practice of limiting a tenant's rental period to one or two years on a particular piece of land, to avoid possible "improvement claims" which might accrue through longer terms, has put a premium upon expedient and often destructive types of exploitation that increase erosion. Most of the larger rivers are heavily burdened with silt, especially during periods of heavy rainfall. It has been estimated that during the rainy season the Magdalena River alone carries away 458,000 cubic yards of soil every day, or the equivalent of 1'4 inches of soil from a million acres every year.' 2 Sample local area surveys made by the Instituto Geografico Militar y Catastral give some highlights on soil erosion. They indicate that intensely eroded zones exist in the High Magdalena (Departments of Huila and Tolima down to Purifi- caci6n) where the cultivation of rice in sandy undulating soils has aggravated and accelerated erosion. Likewise the soils of the Oriental Cordillera, the Gtiaduas Formation, particularly in the Boyaca series, are becoming poorer day by day due to severe erosion, which in some parts has caused the almost complete disappearance of soils of this series on slopes ranging from 10-75 percent. The lithosols of Santander, which lie over the Giron strata, are very poor soils of sandy and stony phases, with slopes of 50-75 percent suffering from intense erosion. The plateau of Pasto in Narifno has generally fertile sandy loam soils at an altitude of 2,500 meters, and is closely subdivided into small intensely cultivated farms. Most of the slopes are gentle on this plateau, but -vhere steep slopes occur there is severe erosion, Other soils show much slower rates of erosion and fertility exhaus- tion, even xvhere steep slopes are cropped. Certain crops and cultural 11 At the Mission's request, Dr. Jos6 M. Molina of the Inistituto Geografico Militar y Catastral, prepared a description of the soils of Colombia, from which our infor- mation is derived. 12 Katheryn H. Wylie, The Agriculture of Colombia, Foreign Agriculture Bulletin No. 1, U. S. Department of Agriculture, 1942.  AGRICULTURE 73 practices also help to reduce erosion; perhaps coffee is the best example. In the coffee groxving zone of Quindio, Caldas, the deep rich soils of undulating topography do not erode readily when planted to coffee groxwn under shade, especially if weed growth is controlled by cutting above the surface instead of chopping the ground with a hoe. The soils of the Villeta Formation, which cover a wide area of a hilly relief on both slopes of the Eastern Cordillera, have argil- laceous shales as their material of origin. Because of the rapid decomposition of these shales when exposed to weathering, these soils renew themselves rapidly. Under these circumstances, erosion may not seriously reduce the productivity of the soil so long as there is a subsoil supply of thie basic shale. The rich mountainous soils in the heavily populated coffee growving regions of Cundinamarca appear to be of this type. To date, the Coffee Federation seems to be the only agency concerned with effective soil conservation methods. Its program for assisting coffee growers in this field is limited but coI-n> mendable. Colombia needs a broader and better rationalized soil conservation program as a basis for sustaining and improving overall agricultural efficiency. Irrigation, Drainage and Water Utilization A considerable acreage of land is irrigated, including practically all the lowland rice area, some pasturage, and some of the land planted to crops such as bananas, cotton and sugar cane. Almost all the irrigation is by privately developed systems, usually bv diversion canals, to bring water from an available stream to one or more large farms. There are several extensive areas with agricultural potentiali- ties but which lack xvater and now languish as dry pastures or semi- waste areas w ith little or no agricultural return. Certain areas in southern Tolima and northern Huila are typical. Some other lands- for example, in Valle del Cauca and northern Tolima-produce fairly good crops in most years, but suffer lowered yields frequently, and crop failures occasionally, because of drought. Here the problem is largely to supplement fairly adequate rainfall to improve yields and prevent losses in dry years. The Government has plans for three large irrigation projects xvchich were to be financed originally by the $10,000,000 Export-Import Bank loan of 1943. The Saldana and Coello projects, both in Tolima, wvill provide water for some 25,000 hectares of land well located with respect to the Bogota market. The Coello project (approximately 10,000 hectares) is about finished but increases in production costs have necessitated finding additional fun'ds. The Saldana project to irrigate 15,000 hectares is alreadv under construction, but the engi- 74 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA neers in charge state that the irrigable area could be expanded to 32,000 hectares by inclusion of storage capacity, which is not now planned for lack of funds. The Sisga flood control project, also under construction, will provide water for pump irrigation of cattle pasture, and possibly other crops, during the dry season. The Institute of Water Utilization and Electrical Development, created in 1947, has developed preliminary plans for a number of small power and irrigation projects. When it obtains sufficient financial resources, the Institute may be expected to promote addi- tional projects like the Recio River Project, begun four years ago and now nearing completion under the Ministry of Industry and Commerce. This project combines water supply for the town of Lerida, a 20 kw. hydroelectric generator, and irrigation for 6,000 hectares of land. Besides its planning activities, the Institute of Water Utilization and Electrical Development is managing the irrigation system serving the rice and sugar cane plantations in Bugalagrande Valley. The development of large irrigation projects is almost necessarily a government function, not only because the costs are normally too great for private financing but also because the exploitation of a natural resource as important and limited in quantity as water must be carefully studied and planned in the general interest. Without proper planning and control, private preemption and exploitation of water resources mav result in great benefits to a few priority users without regard for the requirements of others. Colombia lacks com- prehensive water-rights laws which are necessary to conserve supplies of irrigation water, allocate them fairly among different users, estab- lish equitable. use-rates, and assure adequate maintenance of both privately and publicly owvned irrigation facilities in the public interest. Drainage, often an important complementary problem, seems to have received little attention. Reclamation of swampy lands has been undertaken only to a very limited extent. Drinking water for humans and livestock is desperately needed in some areas. Several thousand square miles in the Sincelejo section of Bolivar are reported to be so dry for several months of the year that range cattle often die for lack of xvater and humans survive only by hauling wvater of dubious quality for great distances on mule back. It is important that the value of small facilities, such as wells and catch basins, to provide water for man and beast, and the opportunities for conserving the moisture in soils through proper cultural practices, should not be overlooked as a result of undue preoccupatior wvith large-scale irri- gation possibilities.  AGRICULTURE 75 IAGRICULTURAL CREDIT FACILITIES Credit assistance is given to agriculture from several sources including: 1. Caja de Credito Agrario, Industrial y Minero; this is the most important agency and is discussed in more detail below. 2. National Coffee Growers' Federation, which makes loans to coffee growers against warehouse receipts for various agricultural purposes. 3. Instituto de Parcelaciones, Colonizaci6n y Defensa Forestal, which promotes colonization of public lands and sells small farms subdivided from large farms, after purchasing the latter from private owners, on deferred payment terms. 4. Instituto de Credito Territorial, which has both a rural and an urban housing program. Construction is supervised usually under a building contract and credit provided for payment upon completion. 5. Banco Central Hipotecario, the central mortgage bank, which in the course of carrying on a general secured-loan business makes some loans to coffee growers and other selected agricultural risks. 6. Departmental and private banks supply substantial amounts of credit to the cattle industry and some other stable farming opera- tions. The major Government agency for agricultural credit is the Caja de Credito Agrario, Industrial y Minero. It was founded in 1931 with a capital of Ps.$2 million. After interim accrual, the capital was increased to over Ps.$12 million in 1940, Ps.$27.9 million in 1947 and to Ps.$45 million during the fiscal year ending June 30, 1949. In October 1949, a bill was pending in Congress for a further increase to Ps.$100 million. During the 1949 fiscal year, total loans of the Caja Agraria rose from Ps.$89,667,000 to Ps.$119 million. 13 This rapid growth would seem to indicate a firm determination on the part of the Government to expand credit to agriculture. Caja Agraria is authorized to furnish both short- and longer-term credit to farmers, the latter through its subsidiary, Banco Agricola Hipotecario. Loans are of the following types: (1) production loans, limited to one year, for quick maturing crops; (2) loans of 1-5 years for production of perennial and slower maturing crops, such as yucca and sugar cane, and for permanent improvements or repairs; (3) credit up to 10 years for planting and bringing into production such late maturing crops as cacao, limited to enterprises with capital under 13 Annual report to the President of the Republic by Caja de Credito Agrario, Industrial y Minero for the year ending June 30, 1949. 76 TIIE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA Ps.$200 thousand and to agricultural cooperatives; (4) credit for 3 years or less for purchase of breeding cattle; (5) credit for 2 years for ranging or raising cattle; (6) credit up to 1 year for fattening cattle on pasture; (7) credit for the acquisition of small properties (capital under Ps.$20 thousand) through a 12-year mortgage-secured loan; (8) personal credit or "character" loans, not exceeding Ps.$300, to small farmers without resources, to enable them to produce a particular crop or crops; (9) credit to cattle raisers for periods up to 5 years for the construction of dipping vats for tick control; (10) special credit up to 18 months to finance the operations of farmers and cattle raisers of established solvency, secured by chattels; (11) open farm mortgage credit to provide current operating capital as needed for farming operations: (12) open crop mortgage credit of the same general character; (13) loans to farmers with well estab- lished credit (obviating need for appraisal of security) specifically for cultivation of long-term crops such as coffee; (14) credit for the importation or domestic purchase of pure-bred cattle for breeding; and (15) credit up to 70 percent of the purchase price for purchase of farm machinery, with repayment schedules adjusted to type of crop income and life of equipment. The Caja Agraria is also a large-scale distributor of farm machinery, fertilizers, pesticides, seeds, and general farm supplies, imported or domestically produced. It maintains 130 branch sales offices and a supporting warehouse system for this purpose. Finally, Caja Agraria carries on a developmental and improvement program, including oper- ation of fertilizer mixinig plants, a rubber propagation project, and the contracting and supervision of construction for three irrigation projects. Through an associated institution, Caja Colombiana de Ahorros, Caja Agraria provides savings bank facilities for snmall depositors at all of its 130 retail sales offices and some 70 additional sub-offices. There are no minimum deposit requirements and some 450,000 deposi- tors (probably one-lhalf of them small farmers) have active savings accounts. In certain localities having no other banking service, Caja Colombiana de Ahorros also serves as a bank of deposit for open checking accounts. The scope and terms of credit Caja Agraria is authorized to extend appear to give a promising picture, but analysis of its operations re- veals serious deficiencies. For lack of sufficient funds, it has been practically confined to short- and intermediate-term loans of less than 5 years; almost no 10-year loans have been made. Interest rates are 6 percent for one year and 7I/2 percent for longer periods. Although 40 percent of Caja Agraria's loans are made to livestock enterprises,  AGRICUL'1 URE 77 cattlemen complain that their requirements are not nearly met; the Fondo Ganadero de Antioquia indicates a need for at least Ps.$1 million additional capital for loans in that area alone, where cattle credit is urgently necessary. There also is agitation for a National Livestock Bank. Present financing for farm machinery purchases is inadequate. Small and medium farmers often cannot meet the terms required. The proposed list of power machinery and equipment to be purchased wvith proceedshflthectcrrent IBRD's $5,000,000 farm machinery loan indicates that the larger farmers will be the major beneficiaries. There is extensive need for longer-term and lower-interest financ- ing, for land purchases and investment in buildings and other per- manent improvements. Except for the Coffee Federation's loans to coffee growers against warehouse receipts, practically no commodity credit is available to farmers. The loan and discount services to agri- cultural cooperatives are inadequate for present needs or future 4 g,rowth.1 In 1946, the Caja Agraria inaugurated a very limited program of supervised loans to small farmers and share-tenants, to enable them to plant and cultivate certain agreed crops. Despite encouraging experience with relatively small numbers of borrowers during the two subsequent years, the present policy of Caja Agraria is apparently to discontinue the making of unsecured loans. There is great need for a combination of credit and technical assistance and supervision for the poorer small farmers; failure to continue and expand this program would be most unfortunate. The existence of numerous credit agencies with overlapping juris- dictions may lead to friction and poorly coordinated services. Constant vigilance is necessary to secure efficient and adequate service under this pattern. PRICES AND MARKETING Farm prices varying widely at different periods of the year and from place to place are harmful to both producers and consumers. Inadequate transportation and storage facilities create gluts and low prices at harvest time and much higher prices during the rest of the year. This unsatisfactory marketing system is an important factor contributing to low farm incomes. The services of the 48 offices of the Instituto Nacional de Abastecimientos (INA) in purchasing, or 14 It should be noted that Legislative Decree No. 2462 of July 19, 1948, provides authority for a Bank of Cooperatives. At present the Superintendency of Coopera- tives is in the Ministry of Commerce and Industry. 78 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA standing ready to purchase, at stated minimum prices such farm products as rice, corn, wheat, potatoes, sesame, beans, rubber, panela and cacao help to stabilize prices for these crops. The coffee price support program of the National Coffee Federation is also an important stabilizing factor. Restrictions on the importation of food crops have tended to hold up the prices of some crops. The typical open air village markets, held once or twice a week, permit a lot of direct or nearly direct trading without heavy charges by middlemen, but they are time-consuming and usually very unsani- tary. In the larger cities, produce markets are generally inefficient an(I wasteful as well. Lack of proper grades and standards hampers satisfactory marketing at every stage. Packaging appears to be a special problem. Lack of any adequate market news service also handicaps both buyer and seller. Market research, which could guide adjustments in the marketing system, is also lacking, and surveys of consumer preferences as to products, quality, packaging, and the like, are practically unknown. There are important exceptions, however. Coffee and bananas, the principal export crops, are marketed quite efficiently. Storage Lack of adequate storage facilities results in heavy losses to farmers, serious waste of food, and higher costs to consumers. It also aggravates the burden on the nation's transportation system at harvest time, by precluding orderly movement of crops throughout the year. Grain storage facilities are very inadequate, and refrigerated storage for meats, eggs and dairy products is practically non-existent. On the other hand, storage facilities for coffee appear to be adequate and of good quality. At the Storage and Preservation of Grains Conference held at Palrnira (Valle) in February 1949, under the sponsorship of the Food and Agriculture Organization of the United Nations, the Colombian delegation presented data indicating that Ps.$20 million worth of grains, especially corn, rice, wheat and beans, were lost annually for lack of storage facilities. This is around 10 percent of total production. The INA has instituted a storage program, of xvhich the first unit, a steel grain elevator of over 4,000 tons capacity, is nearing completion at BogotA. Officials of INA plan for a wvidespread system of storage facilities, including large units at Buga and Medellin in addition to the one at Bogota. rice-drying facilities at a number of points, and terminal elevators at Cartagena and Barranquilla to serve the northern part of the country and provide a base for exports. A private group,  AGRICULTURE 79 Cooperativa de Colonizacion Tecnica, has also interested itself in this problem, and is discussing the possibility of organizing a farmers' cooperative to provide adequate grain storage facilities and to stabilize grain marketing. RURAL INDUSTRIES A number of plants for processing local farm products and manu- facturing farm supplies exist in rural areas and small cities. These include the powdered milk plant at Bugalagrande, the fertilizer mixing plant at Buga, small flour mills like the one at Libano, coffee process- ing plants throughout the coffee producing areas, and literally thou- sands of "trapiches" (small "panela" mills), where brown sugar bricks are made from the sugar cane juice. The "trapiches" turn out one of the staple articles of food, but they are usually very inefficient; they obtain only around 50 or 60 percent of the juice, as compared to the 80 or 90 percent extracted by the 15 or more large sugar mills xvhich produce a semi-refined grayish-white granulated sugar. Except for coffee and sugar, the processing plants in rural areas have been little developed. One packing plant in a rural area slaughters cattle and transports meat to the larger cities daily by airplane, but modern packing facilities are otherwise lacking. In a country with such high transportation costs as Colombia, there is much to be said for small food processing plants to convert foods for consumption in the surrounding area. Units such as the small flour mill at Libano can contribute substantially to the local economy by providing a nearby market for grain and by avoiding high two-way freight charges in providing flour for local use. Perhaps an even more important benefit from the development of rural industries would be the pro- vision of additional employment opportunities in communities where non-agricultural employment is generally scarce. Colombia has taken very little advantage of the opportunity pro- vided by her situation and long coast lines on two oceans to develop a salt-water fishing industry to provide additional protein for the diet. Lack of modern fishing boats, refrigerated storage and transportation facilities, insanitary marketing conditions, and failure to develop fish- ing and canning factories, particularly along the Pacific Coast, appear to be the major factors limiting the development of the fishing indus- try. Little encouragement is apparently given to private fishing ven- tures. It is understood that negotiations are under way between the Government-sponsored fishing company (Icopesca) and Swedish interests to remedy some of these deficiencies. 80 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA "TRANSPORTATION Transportation problems are discussed in Chapters VII and VIII, but a brief mention of their great importance for agriculture is appro- priate here. That importance can scarcely be exaggerated. Inadequate transportation aggravates seasonal and geographical variations in the price of farm products, and makes price stabilization more difficult. Transportation difficulties restrict proper land use by isolating some good land-from markets and forcing many farm families at a distance from good roads into a largely self-sufficient subsistence type of agriculture. Transportation problems of special concern to agriculture include: (1) inadequate farm-to-market roads; (2) shortage of suitable wheeled vehicles in lieu of pack animals for transportation on the farm and from the farm to market; (3) the high cost and inadequate service of major transport media for moving farm products from local assembly markets to large consuming centers or ports; and (4) lack of satis- factory transport for cattle, which necessitates driving them to market on foot at great sacrifice of wveight and quality. GOVERNMENTAL POLICY AND PROGRAMS With the passage of some 10 or 12 laws and decrees setting forth the Government's relationship to agriculture and industry, 1940 marked an important milestone in the development of agricultural policy. The general effect upon agriculture wvas to strengthen the barriers to agri- cultural imports and to enable the Government to intervene much more actively in the economic life of the country. In 1944, the Congress adopted a Five-Year Plan for agriculture, part of which has since been put into effect. The increased importance accorded to agriculture by the Congress was indicated by the creation in 1947 of the Ministry of Agriculture and Animal Industry. 1 5 Appropriations for the Ministry of Agri- culture, however, amount to only about 3 percent of the National budget, although agriculture includes the majority of the population 15 It consists of seven major administrative units as follows: The Office of the Minister; the General Secretariat; the Division of General Administrative Manage- ment; the Division of Agriculture, including sections for Agricultural Investigations and Experiments, Agricultural Development and Extension, Plant Health, Agricul- tural Engineering, and Meteorology: the Division of Animal Industry, which con- tains sections for Animal Health and Hygiene, Feeding, Breeding, Parasite Control, Milk Development and Control, and Fish and Wildlife; the Division of Lands, with Public Lands, Colonization and Parcelization, and Forestry sections; the Division of Rural Economics, comprising sections for Marketing, Production Estimates and Costs, and Revolving Funds for Economic Development; and an Institute of Inves- tigation and Diagnosis.  AGRICULTURE 81 and accounts for over 80 percent of Colombian exports. Additional public funds for agriculture are available through about twenty public and semi-public agencies. The result, however, is a great fragmenta- tion of agricultural programs. The most important of the special organizations and programs for agricultural improvement are the following: (1) the National Coffee Groxvers' Federation is a strong and well-financed agency concerned with the problems of coffee growers. The Federation's operations are financed through a revolving fund from a tax on coffee exports, at present 25 centavos per bag. The Federation's activities include sales promotion, stabilization of export prices throg-h purchases and sales of coffee, contributions to the capital stock of the Caja de Credito Agrario, loans to growers on the security of warehouse receipts, research in coffee growing practices and soil conservation methods, encouragement and financial assistance to rural housing and sanitation programs, operation of a few agricultural vocational schools, and financial assistance to a model community (Viani) operated by the Ministry of Education, and to the agricultural college at Medellin. (2) The Caja de Credito Agrario, Industrial y Minero has been de- scribed earlier in this Chapter. (3) The Instituto Nacional de Abaste- cimientos (INA) has functions including support of prices, provision of storage facilities, and importation of food products. (4) The Insti- tuto Nacional de Aprovechamiento de Aguas y Fomento Electrico is concerned with irrigation as well as power projects. (5) The Insti- tuto de Parcelaciones, Colonizaci6n y Defensa Forestal has a threefold program of colonizing public lands, buying up large privately owned tracts and dividing them into small farms for sale to landless culti- vators, and promoting forest conservation. (6) The Instituto de Credito Territorial carries on housing programs in both urban and rural areas. (7) The Instituto de Nutrici6n is concerned with im- proving nutritional standards for the country's population. (8) A Development Fund, to be supported by contributions from the brewveries, is being established to promote production of barley and hops. (9) A Cacao Revolving Fund in the Ministry of Agriculture, to be supported by contributions from chocolate manufacturers, will be used to finance cacao experiment stations. (10) The National Cotton Institute, supported by a tax of 3 centavos per kilogram on imported raw cotton and 6 centavos on cotton yarn, promotes cotton production, carries on cotton research, and imports cotton ginning equipment and farm machinery. (11) The Colombian Livestock Asso- ciation is the chief instrumentality for Government aid to the livestock industry; its pro-ram is partly supported by taxes on exported live cattle and on domestically tanned leather and exported hides. (12) 82 THE BASTS OF A DEVRLOPMENT PROGRAM FOR COLOMBIA The Instituto Geografico Militar y Catastral is making comprehensive soil surveys. (13) The Sugar Distributing Company. a monopoly or near-monopoly in the sugar industry, is the channel through which the Government directs all exports and domestic distribution of sugar. (14) The Federation of Panela and Molasses Producers is the agency for carrying out a program of development and protection for this industry, financed by an assessment of 3 centavos per kilogram of panela and molasses used in the manufacture of alcohol and liquors. (15) A Tobacco Development Fund is financed by a 4-centavo tax on tobacco used in the manufacture of cigarettes. (16) A special Fund for Promoting Wheat Production is provided by an import tax on vheat and xvheat flour. (17) A Wool Development Fund is derived from a special tax on imported wool and yarn. All these various agencies and programs are sanctioned by the Government and supported wholly or in part by taxes or other public funds. Strong centrifugal forces obstruct the rationalization and inte- gration of this complex structure. The result is that there is no main focus and little coordination of efforts in the agricultural program. Much attention is paid to protecting, developing, and promoting individual crops and livestock. But the general problem of farms and farm families seems to be largely neglected. Concepts of farm and home management, of individual farm planning, and of rural com- inunity development to improve rural life, seem to be lacking. Agricultural Self-Sufficiency Rather strenuous efforts are being made to achieve national self- sufficiency in agricultural products. Decree No. Z06, issued February 4, 1949, which is based on Economic La\v 90 of December 1948, lists some 60 raw material items of which processors must exhaust the domestic supplies before the Office of Exchange Control will permit imports. Special processing, import or export taxes have been placed on many agricultural products, and the proceeds are used to encourage domestic production. Agricultural commodities noxv covered by price controls, consumption quotas, or special taxes include coffee, bananas, barley. cacao, cotton, hops, livestock, hides and skins, panela, potatoes, rice, rubber, tanning materials, tobacco, vegetable oil seeds, wheat, wheat flour, and wool. Exchange control regulations include in Group III-the lowvest or least urgent classification, on wvhich a tax of 26 percent is imposed and for wvhich in practice no exchange is allotted-the followving products: rice, barley, oats, beans, wheat flour, crackers, fresh and dried vege- tables, fresh fruits, sugar, honey, fresh, cured and cannled meats and fish, condensed or processed milk, butter, vegetable shortening, canned  AGRICULTURE 83 goods, and processed tobacco. Group I, however, on which the import tax is only 6 percent, includes some agricultural commodities, and the Exchange Control is permitted to approve imports in this group with the concurrence of the Ministry of Commerce and Industry. These commodities include wheat, malt, copra, some children's food preparations, hops, cacao beans, pork, lard, raw cotton, wool, crude rubber, tobacco leaf and agricultural seeds. In addition, certain agri- cultural supplies-fertilizers, insecticides, tractors, and farm machinery and equipment-fall within the same category. Special efforts are being made to achieve self-sufficiency in cotton, wheat, cacao and oil crops. In some quarters, indeed, there appears to be an emotional urge to be self-sufficient at any cost. This objective was a very natural one during the war, when it was difficult or im- possible to obtain needed products in world markets. But surely a nation for which world coffee markets are so important as a source of foreign exchange should consider carefully any restriction of inter- national trade. In principle, Colombia stands to gain from world trade so far as it can obtain agricultural products from abroad cheaper than it can raise them, although there are other factors that must be considered. Wheat is one crop the production costs of which are generally high in Colombia. Wheat is bringing the equivalent of about U.S.$7.50 per bushel (at the official rate of exchange), while the price in Canada and the United States is not much over U.S.$2.00. But the high protected price of wheat has not provided a satisfactory existence for the wheat growers and their families, as is indicated by the deplorable plight of many farmers in the mountains of Narifo, Santander, and Bovaca. A calculation of the comparative advantage of raising or importing, wheat involves a number of questions-e.g., the prospects for increas- ing exports of such products as coffee, bananas and hides, and of developing new export products; the potential market for such new exports; the relative cost of increasing production of export crops as against the production costs of wheat; and the possibility of using effectively for other purposes the land and labor resources now engaged in xvheat production. Such questions have important social as well as economic implications and involve the interests of both producers and consumers; they are by no means simple. But an intelligent evaluation of comparative advantages must be made if policy decisions are to be informed and consistent. The Cooperative Movement The cooperative movement has grown steadily during the last 17 years. The Government has actively promoted this growth, but while 84 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA authority exists for the establishment of a bank for cooperatives, it has not yet been created. From 1933 to 1939 the number of co- operatives increased from 4 to 170, while the membership climbed from 1,087 to 37,011. During the same period paid-in capital increased from Ps.$46,000 to Ps.$2,545,000.' 6 By 1949 there were 417 cooperatives with 120,000 members and the paid-in capital was about Ps.$115 million.17 The continued growth of cooperatives should help to fill important gaps in Colombia's agricultural economy by providing an increas- ingly effective organization for marketing farm products and purchas- ing farm supplies, and for the joint ownership and use of machinery and equipment. At the same time cooperative buying and selling should help substantially to stretch meager incomes to cover more adequately farm operating and family living requirements. Taxation Taxation is dealt with in Chapter XIII, but since tax policies have an important bearing on agriculture some attention must be given the subject here. The rate of land taxes is very low in comparison with those in more highly developed countries, although they are apparently not low in comparison wvith typical Latin American standards. Under Decree No. 2473 of 1948, these taxes are set at Ps.$4 per thousand of assessed valuation, and assessments are often much belowv actual values. This may be an important factor in encouraging the uneco- nomic land use cited earlier. If the owner of a large area of land has to pay in taxes only a small part of his return, he can make a fairly good profit even though not fully utilizing his land. Were his income substantially reduced by taxes, he might feel impelled to farm more intensively. The low level of taxation on land also makes it difficult to provide adequate educational and health facilities in rural areas, since land taxes are almost inevitably the principal source of income to local governments. It is certainly not inherently antisocial to use land below its capacity. But when good land is scarce and most of the population does not have enough land to make a satisfactory living, even though they cultivate it very intensively, basic social issues are raised. Such situations have stimulated legal efforts in many countries, and revolutionary programs in others, to effect a more equal and economic redistribution *ofland. Since the underutilization of fertile level land contributes to over-use and consequent erosion and destruction of soil on the slopes, the public has a definite interest in the use of private 16 Wylie, op. cit. 17 Information from the National Superintendency of Cooperatives.  AGRICULTURE 85 lands, although the problem may not be adequately recognized until much damage is done. Agricultural Statistics The persons responsible for the collection and analysis of Colom- bian agricultural statistics are to be commended for the results they have achieved with the very meager resources at their disposal. None- theless, agricultural data are very limited in scope and unreliable. They have, therefore, only limited value for the analysis of present problems or the planning of future programs in agriculture. A small nucleus of agricultural statisticians is found in the Division of Rural Economics in the Ministry of Agriculture. This group fur- nishes a base upon which much needed expansion can be undertaken. It consists of 8 or 10 professionals and 3 or 4 clerical employees. It collects agricultural statistics and makes estimates of the volume and value of crops each year, and of the numbers of different classes of livestock and livestock products. Considering its limited facilities and lack of field staff, it is remarkable that the Division is able to make any estimates at all. Their unsatisfactory standard of accuracy is wholly understandable. Without substantial expansion of this work, the data necessary for making sound economic analyses and plans will not be available. Agricultural Research Social research in agriculture and rural life is almost entirely lacking. The Division of Rural Economics occasionally makes analyses of marketing and costs of production as do some of the other governmental or semi-public agencies, such as the National Coffee Federation and the Caja Agraria. The sociological study of Tabio referred to previously was made by personnel of the Division of Lands of the Ministry of Agriculture, in cooperation with others. But in general very little social research is accomplished although there is great need for it. On the other hand, a considerable amount of technical research in agriculture is under way. A section on Investigations and Experi- ments was recently established in the Agriculture Ministry. It is attempting to coordinate technical research in five agricultural experi- ment stations-Palmira, NIedellin, Armero, Bogota and in Magda- lena-about a dozen substations scattered throughout the country, and in the Biological Institute. In addition some experimental work is privately directed, such as the important work in coffee production and soil conservation done at the Coffee Experiment Station at Chin- china. Many of the experiment stations and substations have been 86 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA largely demonstration farms rather than places for scientific investi- gation. But in the last few years more and more of the work has been put on a scientific basis, although there is still room for improvement. Considerable work has been done in selecting better crop varieties for different conditions. A new variety of sugar cane, resistant to certain diseases, has been found. Work with wheat varieties on some 600 plots, to find types resistant to rust, is promising. Development of "synthetics" in corn may increase corn yields considerably. The Rockefeller Foundation, in cooperation with the Government, is initiating a research program in corn breeding. Some 30 legumes, of around 500 brought in from all parts of the world, show promise and have been segregated for further study. Important research is under way in cotton, and in the selection of better strains of cacao by individual tree cuttings. Fertilizers are being tested under different conditions. Insect- and disease-control work is under way for both crops and livestock. Livestock breeding work has developed crosses, particularly of imported Zebu or Brahma and dairy breeds with native cattle, and has made improvements in native breeds. Development research is under way to find suitable dairy cattle for the middle altitudes and for hot portions of the country. Limited research with sheep and horses is also carried on. Although the technical research program has been supported more adequately than statistical work and social research, it still needs expansion. Lack of continuity has been a problem; often projects have not been followed through to get results. This may be due in part to lack of care in selecting projects in the first place. The work of the new Experiments Section may be expected to bring about improvements. Probably one of the most important difficulties affecting technical research has been the problem of getting the findings to the farmers. The Extension Section of the MIinistry would be the best means to accomplish this but, as was pointed out earlier in this chapter, it is little more than a skeleton organization, although fortunately one susceptible of easy expansion if the necessary funds were made avail- able.  CHAPTERVI Industry and Fuels HISTORICAL DEVELOPMENT Industry in Colombia is of comparatively recent growth. At the beginning of the century, only 128 industrial establishments existed. They were engaged mainly in the production of beer, processing of foodstuffs and the working of silverware. Exports of coffee, emeralds; gold and bananas supplied foreign exchange needed to meet the requirements for clothing and equipment, and the general require- ments of the small well-to-do class. In the period preceding the first World War, a number of new establishments were created, including the first textile and tobacco plants. The scarcities attendant upon World War I gave the first real impetus to industrialization. A petro- leum refinery was built and considerable expansion occurred in the processing of foodstuffs, miscellaneous chemicals, tobacco and textiles. However, the industrial potential of Colombia was still small in 1921 and the growth continued to be very moderate throughout the 1920's. The next great impetus to industrialization occurred in the period 1930-1933. In this period, 842 new industrial establishments were founded. By 1934, most of the present basic Colombian industries had been launched. The rapid development since that date has been largely in their expansion and in the creation of a number of smaller manufacturing plants which brought about a greater diversification of Colombian industry. The only new industries of considerable size established since 1934 have been fats and oil, rubber tires and the soda ash and caustic soda plant currently under construction. The magnitude of expansion may be illustrated by increases from 1934 to 1938 of 400 percent in the production of cement, 200 percent in sugar processing, and 400 percent in electric power output. New smaller industries created in this period included steel fabricating plants, printing establishments for books and magazines, and also plants for the manufacture of canned foodstuffs, jellies, marmalades, sausages, silverware, high quality beer, pigments, paints, containers, vitreous and asbestos tiles, furniture, and miscellaneous chemical drugs and toilet articles. CURRENT POSITION OF INDUSTRY The first industrial census was taken in 1945. It indicated that at that date industry employed about 115,000 workers and 20,000 salaried employees. Nearly half of these workers were engaged in 87 88 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA food processing and in textile plants. Capital and reserves amounted to Ps.$508,200,000. Sixty percent of this amount was invested in plants manufacturing textiles and processing foodstuffs and bever- ages. Geographically, industry was concentrated in and around the four cities of Qogot6, Medellin, Cali and Barranquilla. We estimate that in 1944-1945, nearly 70 percent of industrial production was centered in the four departments containing these four cities. The concentration shown by capital investment was even greater, with the above four departments accounting for some 80 percent of the total invested in all manufacturing industries in the country. This segment of industry, which excludes small workshops and handicraft establishments, either generated or bought power from equipment having a capacity of 143,000 h.p., or 1.25 h.p. per worker. On the basis of the 1944-1945 census, we have estimated by methods described in the Appendix on national accounts the value of produc- tion in 1944-1945, together with a breakdown of the main components.' According to our estimates, the value of industrial production in plants producing more than Ps.$6,000 of products in the year 1944- 1945 increased from Ps.$407 million in 1939 to Ps.$830 million in 1944-1945, and Ps.$2.1 billion in 1948. From 1939 to 1948, the increase of 422 percent in the value of production reflects a rise in prices of 215 percent and an increase in the volume of production of 143 per- cent. Since the total value of industrial production includes the value of raw materials and fuels domestically produced or imported, it overstates the actual contribution made by industry to the economy of the country. More relevant in assessing industry's contribution are figures on value added or, in other words, the contribution to overall production represented by the value of the work of labor, management and capital. In 1939 this figure of value added in manufacturing amounted to about Ps.$120 million and grew to Ps.$494 million in 1947. These figures represent respectively 11.5 and 15.3 percent of the total of the value added by all economic activities, or the net national income. In terms of gross national product, i.e., the total gross value of all services produced, value added in manufacturing climbed from 10 to 13.5 percent. Table 19 illustrates the extent to which Colombian production is utilizing locally produced raw materials. In 1944-1945, only 21 per- cent of all raw materials used in manufacturing were imported. Prog- ress in agricultural technology, especially in cotton, wheat and edible oilseeds, may have reduced this ratio even further since 1945. I See Appendix A.  INDUSTRY AND FUELS 89 TABLE 19 COMPONENTS OF VALUE OF PRODUCTION (Ex FACTORY) OF ALL INDUJSTRIAL PRODUCTION, 1944-19451 Value of Items in 1944-1945 Percent of (millions) Total RAW MATERIALS .............................. .... Ps.$ 484.3 58.4 Local agriculture ................... ..... .... (260.0) (31.3) Local others (119.0) (14.4) Imports ..................................... ........... (105.3) (12.7) WAGES AND SALARIES ...... ......... ........ 97.3 11.7 FUELS ................................................. 14.4 1.7 DEPRECIATION ................... ............. .... ... 21.5 2.6 TAXES (indirect and income) . .. ... 59.8 7.2 RETAINED EARNINGS .... . .... ............. 45.7 5.5 NET PROFITS ................. ................. 70.5 8.5 2 O THER . .......... ... .......... ..... ... .. .......... 36.5 4.4 TOTAL ...................................... .......... PS.$ 830.0 100.0 of July 1944 to June 30, 1945. 1 First 2 Payments for interest, patents, royalties, selling COsts, etc. Another indication of the position of industry in Colombia is the extent to which it meets current consumption demands of the economy. It must, of course, be borne in mind that such consumption demands are in many cases low in terms of basic requirements per capita. Keeping this in mind, the extent to which Colombian industry was satisfying total consumption demands in 1947 is summarized in Table 20. By the close of 1949 probably a somewhat higher percentage of requirements was being satisfied locally, as additional capacity had come into production since 1947. In general, Colombia is meeting through domestic fabrication prac- tically all of its current consumption of processed foodstuffs, bever- ages and tobacco, textiles, shoes and fuels. It is fabricating a very substantial part of its building material requirements. Since 1947 it has added to its sulphuric acid capacity and is currently building a soda ash and caustic soda plant which should meet all requirements in those fields. It has also added to its glass bottle capacity. The major classes of fabricated items which are still being imported include transportation equipment of all kinds, road building equip- ment, agricultural and industrial machinery, electrical and steel products, chemicals and pharmaceuticals, paper products and a wide variety of appliances. On the whole, the development of industry to date appears to have been logical and soundly based. It is natural that the greatest progress 90 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA TABLE 20 DOMESTIC PRODUCTION AS A PERCENTAGE OF CONSUMPTION, 1947 FUELS Coal 100 Refined petroleum 86 Firewood 100 Electricity 100 CONSTRUCTION MATERIALS Steel 7 Cement (white and gray) 82 Lumber 100 Brick 100 Vitreous tiles 99 Limestone 100 Quicklime 72 TEXTILE MANUFACTURES Cotton 93 Wool 80 Rayon 89 SHOES Leather 99 Rubber 82 Fabric 85 BEVERAGES AND TOBACCO Beer 100 Liquors and wines 96 Mineral water and soft drinks 100 Cigarettes 94 CHEMICALS Sulphuric acid 56 PROCESSED FOODSTUFFS Sugar 91 Salt 100 W\Theat and wheat flour 66 Lard 80 should have been made in the mass consumption industries, such as textiles, foodstuffs and beverages. It is also apparent that the very high internal transport costs are largely responsible for the local production of cement and other bulky building materials. Production of power and fuels has failed to keep up with the rate that might have been expected, considering the growth of the country. The lag in power output has been complicated by financing difficulties and rate and management problems which are treated in the chapter on electric power. 2 The shortage in refinery capacity in turn has been associated -with the peculiar circumstances surrounding the de Mares Concession. Otherwise. it is probable that steps would already have been taken to increase the production of refined petroleum products for the country. Coal mining has, from a volume and a technical point of view, been a definite laggard. Growth has also been disappoint- ing in the lumbering industry and in the fabrication of forestry products. Recommendations designed to bring about desirable lines of industrial development are considered in Chapter XIX. 2 See Chapter X.  INDUSTRY AND FUELS 91 CHARACTERISTICS OF INDUSTRY Transportation Lack of a unified transportation system in Colombia is one of the main factors contributing to the high cost of manufactured goods. This high cost in turn limits to a large extent the demand for such goods. While specific transportation problems are discussed in Chap- ters V[I and VIII, their effect in limiting industrial markets is a primary characteristic of Colombian industry. Raw Materials The second main factor entering into the high cost of Colombian manufactured goods, and one over which industry can exercise little control, is the cost of raw materials. This high cost goes back in part again to the high cost of transportation and in part to the rela- tively low productivity in agriculture. Closely analogous to the contribution to the high prices of finished goods made by raw materials is the high cost of building materials and of fuel and power. Apart from cement and some types of roofing, most of the building materials are made by hand and are costly. Finished industrial buildings are also costly because construction labor is not directed efficiently and excessive time is consumed in the completion of structures. Power costs are also high and these again go back to the high cost of buildings, imported equipment, and transportation. The extent to which industry can take independent action to reduce these various costs is limited. Variation in Efficiency Another characteristic of Colombian industry today is the greatI variation in efficiency. Some industries wvhere xvorkshop and handi-j craft conditions prevail are most inefficient. Others, like the cotton textile industry and some of the more modern cement plants, compare in efficiency wvith average or better than average plants in the most advanced industrial nations. This variation, of course, exists in every country. Its prevalence in Colombia is in large part attributable to historical factors. Industrialization is a very recent phenomenon. Labor and often management are still by and large inexpert. Modern methods have not as yet permeated a large sector of industry and the relative lack of competition, the smallness of the market, the high protection provided by tariffs and heavy transportation costs may have postponed their introduction. Major obstacles to be surmounted in a swift im- provement in the level of industrial efficiency are described briefly below. 92 TilE BASIS OF A DEVELOPMENT PROGRAMI FOR COLOMBIA It has been amply demonstrated in numerous modern plants that Colombian labor can, vith proper training, care and supervision, be very efficient. The worker is, however, greatly handicapped both in terms of education and health. For the most part, he lacks any voca- tional or trade-school training and even a good elementary public school education. MAoreover, his nutritionl and health are generally not sufficient to permit him to do heavy wvork for long hours. It ivas found in one plant that the provision of three good balanced meals a day within the plant enabled wvorkers to handle heavy work which previously they had been incapable of performing. Labor cannot be efficient or achieve high productivity uniless it is properly supervised. Securilng good supervision has proved to be a difficult problem in Colombia. Because of the very low educational attainments of the -workers, it has proved difficult to date to recruit good supervisors from the ranks. On the other hand, college graduates in Colombia dislike to do the manual work wvhich is necessary in training good supervisors and, indeed, dislike supervisory work itself. Consequently, the most successful plants in Colombia rely almost vithout exception UponI foreign personnel for adequate supervision. or Colombian personnel wvho have been trained in foreign countries for specific jobs. Management Considering that industry in Colombia has developed only recently, the level of management of private enterprise is surprisingly good. In plant after plant visited, w-e found management to be alert, inter- ested and informed on the problems of the plant and the industry and awvare of developments in the industry abroad. In general, newV developments involving either new products or capital investment were carefully analyzed before being embarked upon. Unfortunately. public enterprise in general cannot at present make positions as attractive for management either as regards pay or other circum- stances. Consequently, \vith a few noteworthy exceptions, the quality of management in publicly run enterprises does not appear to be as high as that in private industry. One criticism that might fairly be leveled at private management .1in Colombia is that it appears to be animated by a high value-low volume complex. This has perhaps risen from, and may even be justi- fied by, the various conditions that circumscribe the market in Colom- bia, such as low buying power and high transport costs. However, even in those cases where there appears to be an opportunity to tap a larger market through reduced prices, there is some reluctance to adopt this course. In case after case, we found price markups and profit margins at levels that seemed to be excessively high. In one industry,  INDUSTRY AND FUELS 93 for example, production costs wvere only slightly higher than produc- tion costs abroad and vet, by the time the product was fabricated and sold at retail, its price was twvo or three times higher than the price of the comparable foreign article. The scarcity of capital in genieral, the degree of protection afforded by tariffs and by transport costs, the system of allocating foreign exchange and of limiting imports, the fewrness of competing units, and the continuing bias towvard inflation, have all contributed to reduce incentives to improve efficiency and to foster excessive profit margins. Limited Markets The one factor that limits the growvth of large-scale modlerni indus- try in Colombia more than any other is the limited size of the domestic market. Not only is it difficult to push specialization and the division of labor where the market is small, but in many fields it is actually uneconomic to attempt production An example is the manufacture of light bulbs, which are made very cheaply by highly mechanized equipment. The capacity of the smallest mechanized plant is such that three months' operation would fulfill Colombia's presenlt dlemanlds ior a year. The smallness of the domiestic market is primarily (lue to thel extremely lowv purchasing power of the mass of the people. Although; the population of Colombia is close to that of Canada, \vhich has developed into a major manufacturing country even wvith great trans- portation handicaps, the buying power and markets of the twvo counI- tries are not in any sense comparable. In addition to the low buying poxver, the high cost of transportatioln hlas further restricted the market for any one plant. Finally, the difficulty of securing ll)orted mlaterial, the higih cost of domestic raw material, andc the g-enerally higih gross profit inar-ins have led to high utiit prices and a Fur-ther restriction of the market. As long as these v arious factors prevail, progress toward the development of mass procluctioni witlh low un lit cost and high volume operations wvill be slow. Handicap of Location One handicap wvhiclh Colombian industry shares in commlion with industry in other recently developed countries arises from the remote- ness of one industrial segment from other industrial centers. In more highly developed countries, industry benefits from the existence of mass production and intense specialization. It is easy to secure per- sonnel or machinery fitted for almost any type of specialized task and 94 THE BASIS OF A DEVELOPIMENT PROGRAMr FOR COLOMIBIA inventories may be kept at a relatively lowv level. Every industrialist in Colombia, on the other hanid, must reconcile himself to making more repairs in the plant. carrying larger inventories and getting along with more general-purpose and less specialized equipment and personnel than his counterpart in other industrial nations. Possibly this remoteness is also an explanation of the lack of research and concerna Awith quality. Cases wNere cited to the Mission in which Colombian products failed to meet Government specifications neces- sitating the procuremnenit of needed material outside the country. Again, little money and personnel appeared to be devoted to research in locating and using clomnestic rawv materials or in improving quality. Capital and Credit Colombia does not possess a very highly developed capital market. 3 Consequently, to an unusually large degree, industry must supply the funds for its oAwn expansion. Although there are frequent com- plaints of the shortage of capital, it appears that the high profits and inflation of the past ten years have provided adequate capital for the expansion of existing enterprises. Expansion of such enterprises appears to be limited more by the lack of demand for their products in relation to present selling prices than by insufficient capital or credit. Quite possibly, the difficulty of mobilizing capital ftunds may have been more of a deterrent in getting enterprises in new fields startedl. Usually existing enterprises branch out into new fields, per- haps in conjunction xvith foreign enterprises, or with a group of wvealtlhy individuals putting up the money. 'While we were impressed by the number of opportunities in new fields as yet unexploited, it must be admitted that such fields require very careful advance study andl that their opportunities must compete with great profit possi- bilities in older fields wAlhere the problems are relatively well known and can be more easily handled. Although Colombia suffers in general from a shortage of capital, it appears that industry has not been par- ticularly checketl by this fact, at least in the last ten years. The shortage of capital has played a decisive role in the public utility field, but there it has been combined xvith the difficulty of raising rates. The course of inflation has meant a steady rise in costs for all utilities. Political considerations, hovwever, have made it diffi- cult to secure promptly a corresponding and offsetting increase in rates. Consequently, the return to capital in this field has been below that obtained by capital in intlustry, land, or buildings. Various additional factors have made this field increasing,ly less attractive to 3 See Chapter IV for a discussion of capital formation.  INDUSTRY AND FUELS 95 foreign private capital. Therefore, some of the most urgent needs for community facilities in Colombia today are being held up by lack of capital. It must be kept in mind, however, that this lack of capital is closely tied in with other factors which must be alleviated before capital needs can be met.4 Social Legislation Another factor which may contribute to the difficulties of Colom- bian industry is the fact that to an unusual degree the Colombian worker receives his remuneration in the form of benefits accorded him by social legislation. These include retirement pay, severance pay, paid vacations, pay for Sundays, religious and national holidays, schools for children under certain conditions, various benefits for life insurance, accident, illness, death, etc.5 Payment in this form has obvious implications, both for management and for workers. For management, it poses rather a formidable bookkeeping and record- keeping job, and for a group of leading firms varied in recent years from 36 to 43 percent of the payroll. It is argued that this system of social benefits gives greater assur- ance that the wage earner's total remuneration will result in more security for him and his family. While this is doubtless true, the prevailing practice of paying flat wage rates, combined with the fact that an increasing proportion of the remuneration appears to come as a result of social security laws, may also operate in the direction of lowering wTorker incentive and the cultivation of a feeling of irresponsibility. Payment by piece-work is almost unknown in Colom- bian industry and hence the worker in some industries can see little direct relationship between the work he performs and the remunera- tion he receives in various forms. This whole question of worker in- centive requires more attention and study. Power for Industry Perhaps the most fundamelntal requisite for industrial development on a substantial scale is the provision of cheap and adequate power, principally electricity. This is generally recognized in Colombia, and in recent years great stress has been placed on expanding the country's power production. The exceptional rate of increase both in produc- tivity per worker in industry (5 percent per year) and in total indus- trial output (10 to 11 percent annually) may be ascribed in large part to the growth in the use of electric energy. More than three-fourths of the industrial equipment in Colombia in 1944-45, as showvn by the 1945 industrial census, was electrically 4 For a fuller discussion, see Chapter XXIII. 5 See Chapter XXII. 96 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA powered, and this proportion has since undoubtedly at least been maintained. In addition to its role as thle principal motive force for machinery, electricity is becoming increasingly important also for inidustrial heating andl clhemical processes. The use of electric furnaces in steel productioin. for annealing, and in baking enamel wNork and ceramics lhas developed substantially in recent years and offers great promise for furtller growvth. An electrolytic process for producing lhydro-en economically in small quantities has made it possible to develop local prodtuction of vegetable cooking fats to replace former imports, and simnilar processes may be applied in the future to the production of other chemicals, It is not eas- to obtaini an accurate, comprehensive picture of the industrial power situation at present. Data from the industrial census of 1944-45, wvhile not fully satisfactory, are the best available; more recent information is unreliable. Accordiwg to the census, in June 1945 the total capacity of facilities generatinig power of all types in industries was 71,325 hi.p. or, in elec- trical equivalent, about 53,000 kw. The Mission estimates that 27,000 kwv. -vere produced by electric generators and 26,000 kxw. by other types of power.6 Industrial consumption of electric power at the same time was 202 million kwh., of which 67 million kwh. were g,enerated in the factories themselves and 135 million kwh. ivere purchased from outside sources. The total capacity of industrial equipment driven iby electricity, but not generating current, was 80,000 kw. Taking tlhe capacity of machines powered by other means as the equivalent of 26,000 kxv., the total machine capacity would be 106,000 kwv. or abotut 142,COO h.p.-an average of nearly 1 25 hl.p for 7 each of the 115,000 workers in Colombian industries. -Major consuminers of electric pox-er xvere: Percentage of total consumption Sugar industrv 5.5 Beer industry .... 50..... Cement industry .. .. ... 21.2 Cotton textile industry 30.3 Rayon industry . ... 3.5 Wheat mills . . .... 2.9 6 Derived from the consumption figure of 67 million kwh. from these sources, based oni a factor of utilization of 2500 kwh. per kw. of installed capacity. 7 Data on horsepower availability per capita should be interpreted with great caution. For example, according to records of the 1945 power consumption, the avail- able machinery was used, on the average, only 28 percent of the time. If 230,00(0 workers had been employed on the same machines, and each machine had been used twice as much, the per capita availability of power would have been only 0.62 h.p., but worker's efficiency and otitpirt lper capita would have been exactly the same. What is really significant in this analysis, therefore, is not the horsepower available per man but the actual work performed in relation to the number of units of machinery and cxpeliditure of man-hours. Howvever, data on the machinle calpacity installed is relevant also, as indicating the potential availability of machiiies at any one time.  INDUSTRY AND FUELS 97 Since 1944-45 no complete records on the industrial uses of power have been kept. Those years were a period of slack economiiic activity. The utilization of available industrial equipnmenat was at a low level, averaging only 28 percent of the theoretical capacity. 8 Under the influence of the postwar boom the demand for industrial goods, and conseqtuelntly for powver, climbed sharply; the rate of groxvth for the latter rose from a normal 9 percent per year to 12 percent annually over the past five years. The factor of utilization of capital equipmenti also increased to perhaps 35 percent, since new equipment could not, be installed rapidly enough to keep up with the demand for manu-i factured goods. At the same time the commercial and residential demand for elec- tricity has also increased rapidly. Thus, although both public service and factory-owvled generating facilities have been considerably ex- panded since 1945, they- are seriously overtaxed in many areas and are almost everyvhere inadequate to serve the needs of a rapidly expanding economy. One significant indication of the unsatisfactory supply of poxver1 for industrial use is the relatively large proportion of power generatecl by factory-owned facilities. These sources in 1944-45 supplied about one-third of the total power used in industry and it is probable, in view of the large number of individual power plants known to have been installed since the end of the wvar, that this proportion is now even greater. The building of generating plants to supplyt individual factories is uneconomic on several grounds. The capital cost per kilowatt of capacity is much greater for small plants than for large ones, arid the former's operating costs per Unlit of output are also higher. Individual power plants must have standby capacity proportionately much larger than is necessary for public service facili- ties consisting of several units and serv-ing a varied demanid. Their load factor will normally be lowver, and the unit cost of power there- fore higher, unless the manufacturing plant they serve is operating on a continuous two- or three-shift basis. All these elemients con- tribute to a substantial increase in the operating costs of industries which must provide their own power. But perhaps even more im- portant, from the standpoint of indtistrial expansion, is the greatly increased initial capital investment imposed by the necessity of estab- lishing separate generating facilities. The nleed to provide a power plant may well double the cost of a factory, and in view of the limited S The demand of a machine of 1 kw. capacity, operating for a year without inter- ruption, is 8760 kwh. Actual demand averaged only 2500 kwh. per kw. 2500 - 28 percent. 8760 98 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLONIBIA capital available for investment in manufacturing, this additional ex- pense undoubtedly holds back the establishment of many new enter- prises. The tendency of Colombian indtustrialists to resort so extensively to individual factory-owned power plants seems to be partly the result of a feeling that they cannot al\vays rely on an adequate supply of firm poxver from public utility sources, and partly because public utility power is often so expensive as to make individual facili- ties appear economical. Both these factors, in turn* stem not only from the inadequacy of existing power facilities in many localities, but also from a failure by some of the utility enterprises and rate- fixing authorities to give sufficient encouragment to industrial powver tises, particularly in off-peak periods. This is reflected in the wide variations in daily load experienced by most of Colombia's electric utility systems. A load factor of 50 percent may be regarded as satisfactory. The average in Colombia in 1944-45 was only about 35 percent. With the great expansion in demand for poxver since 1945, the average load factor has risen considerably, but in many localities this has resulted in serious overloading of generating facilities and deterioration in service at peak periods. Perhaps the most important influence on industrial demand for powver is the rate structure. It is usually considered a sound practice for electric utility companies to offer low rates to large users of power in off-peak periods-principally industries and electric trans- portation lines-in order to encourage more efficient use of their generating facilities and a better balanced daily load. But in some Colombi?an cities the effective rates to industrial users are little or no lower than those to small residential consumers. An extreme case is that of Medellin.' This tends to encourage residential uses of pow-er (particularly for lighting) as against industrial uses, and thereby to aggravate the peak loads on the local power systems and reduce the system's overall load factor and operating efficiency. For truly efficient and economical power generation it is necessary to develop a balanced demanid, in wvhich residential, commercial and industrial uses complemiient each other so far as possible and the growth of this combined market makes possible a progressive reduc- tion of the unit cost of generation. For this reason the availability anid requirements of power for industry cannot be treated realistically apart from the general power picture. For many years to come, moreover, the major demand for power will be for residential use: it is this residential demand that will in fact largely determine the 9 See Table 71, Chapter X.  INDUSTRY AND FUELS 99 extent to which generating capacity should be expanded and hence the amount of power available for industrial use. Thus, in order to avoid unnecessary repetition in considering these various factors, the discussion of power production and use is concentrated mainly in Chapters X and XXIII on "Electric Power and Community Facilities." An attempt is made in those chapters to analyze comprehensively Colombia's power situation, problems and requirements.  CHAPTER VII Surface Transport The unique ruggedness of the topography of Colombia makes surface transportation a major economic problem. Although the ter- minal points of the main transportation routes are fixed by political and economic considerations, the location of routes and the nature of the transport media are dictated wholly by the problems of terrain. The physical barriers that divide Colombia into economic zones also set the general pattern of surface traffic. The volume of goods moved between zones is quite small and because transport charges are high such movements are limited to products of relatively high value. The mountain slopes are steep, shattered and unstable, and the river courses are not vet w%orii to permanenit beds. No single mode of trans- portation could surmiount all these varied obstacles. There are no iiidependent railroad, highvay or inland wvaterway systems. Major traffic flows must use all of theml in combination, with resultant opera- tional and economic inefficiencies. Navigable rivers. or those which could be made so, wvere the first arteries of commerce. Railroads were built to connect the river ports and the major Pacific seaport, Buenaventura, with the principal cities of the densely peopled central highlands, wherever the terrain per- mitted. The capacity of these railroads, however, is very limited because of the steep grades, narrowv gauge, and sharp curves imposed by the rugged contours. In many other locations in the populated areas railroad constructioni wotild be prohibitively expensive so that highways, which permit steeper gradients and tighter alignments, have served as an alternative. Pipelines have so far been used mainly to convey crude oil from fields in the interior to the seaports. Air transportation has developed rapidly because of its ability to surmount surface difficulties; it is now one of the principal means for transport- in,g both passengers and freight.' Figure 2 shows the primary surface transportation routes, includ- in g railways, highwvays, pipelines and inland wvaterways, together with their principal termini, and indicates how they supplement one another. For example, goods transported from the principal Atlantic ports of Cartagena and Barranquilla to Bogota or -Medellin must go partly by river and partly by rail or highway; the route from Buenaventura to Bogota. combines railroad and highways; and communication between Bogota and Aledelliin or Cali requires a similar combination of rail X For a more complete discussion of the air transport system, see Chapter VIII. 100  COLO MB A RIO 'RINCIPALSURFACE SANTA MARTA rRANSPORT ROUTES FRANSPORT ~~~~~~~~~BARRANQUILLA Cl&iNAGA ROUTES t- \ A- CARTAGENA, . CAAALAMAREO COVENAS } coveisAs <,, HONLO {~~~~~~~~RINEOIJ EINCELEdO "1 ~~~ ~ S.~ ~ ~ ~ s,AGAANGl 8 'O -' }" / ~~~S. ¶<, EL SAUCE - MONTERIA | LA GLOR1.L A|MAYA . - PETROLEA PLANETA RICA GAMARRA! / VILLAMIZAR TURBO -CANA j ABRFGO OGASdel CU CUTA \ TARiS , , UOO §CACHIRA r PAMPLONA s . . BUCARAMANGA .~~~~~~~~ _ BARRNEA BUCAAANGA BEIBA ~~~BREA STN CANAIORDA BERRia . SAN JER6NIM LA S.OERRO. - ANZ! S D LLIN -OLAYA FA: A S A SOSk OUEND .NUR6 PUERTO ETOGOPE iLl A .LA 6RADAVSALGAROERA CARTAGOO REREEIRRI A . RE IA BUENAVENTURA t . ,GRRZT...- 'PET OE IPIAL.SPRADERA J t ~~~~~~~~~~~~~~P,?ESCI tr * E ~~~~~~~~~~~~RAILWAYS / v \ , BANTANOER fNEtVA. _ ~~~HIGHWAYS LI.\ .1.,00 - . , ,_ ~~~~~~PIPELINES / P6PAYA4t IACO \ \., kF~~~~LORENCIA >, . , oPASTO -iIPIALES  102 TIIE BASIS OF A DEVELOPMENT PROGRAMI FOR COLOMIBIA and highvway service. Serious transfer delays occur not only at the ports of entry, but also at variotus points en route-notably at river ports due to the unreliability of the river and the need to shift cargoes to railhvays or trucks-and the gap in the railxvay between Ibague and Armenia. The charges imposed for transferring cargo vary widely on different routes, but they are a significant factor in the cost of almost every through shipment. On hauls from the Caribbean ports to Bogota or MIedellin, these charges make up 10 to 15 percent of the total trans- portation cost. The transfer charge at Buenaventura is Ps.$2.5 per ton, and is usually included in the rail-way or highway tariff. The terminial handling cost at either end of the Ibague-Armenia highway is similarly included in the overall transportation rate, but it is un- questionably an important factor in making that rate so high. Where freight must be transferred between meter- and yard-gauge railways, the transfer charge is about Ps.$1 per ton. Another commonn problem is the amoutnt of breakage in transit, which is especially serious, of course, -where cargo-nmjust be handled anld -warehoused several times. Excessive breakage not only increases the cost of transportation directly, but also imposes added delays, and sometimes a further expenditure of foreign exchange for replacement of the broken goods. Pilferage losses are even more important. The amounit of pilferage is so great at the Caribbean ports and along the .Magdalena River that insurance rates have risen to an average of (Ps.$14 per ton, as compared with Ps.$8 per ton for shipments via Bueniaveuitura. The problem was the subject of special investigation by the British Police Mdission in the spring of 1949. The combination of high transfer charges, insurance rates and losses from pilferage and breakage have the effect of raising trans- portationa costs perhaps 20 to 25 percent over what might otherwise be reasonably expected. Correction of these conditions is no less important, therefore, thani improvement of operating facilities and practi ces. The distances between the major markets are not great, but the movement of goods is slowv, inefficient and costly, partly because of the physical difficulties imposed by the terrain, partly because of necessarv transfers from one system to another, and partly because of unsatisfactory maintenianice and operating practices. These factors, especially the last, are analyzed in more detail in later sections of this chapter. These defects characterize all the various forms of surface trans- portation, and none has a clear-cut advantage over the others as to  SURFACE TRANSPORT 103 cost, types of freight, or markets setved. Inland waterwvays, although the cheapest means of transport, are slow and subject to many other uncertainties. Railroad transportation is somewlhat more expeditious, but is extremely inefficient from the standpoinit of botl-h cost and service, and the possibilities of through transportation by rail alone are quite limited. Highway transportationi is the most fle-xible, but is also most expensive on a ton-kilometer basis. Transportation delays are erratic and unpredictable, so that industrial planning- is difficult, excessive inventories must be maintained and problems of financing are aggravated. The resulting high costs and uncertainties have a cumulative effect, as they are passed on from manufacturer or importer through various middlemen to the ultimate consumer. The distribution of freight traffic among the various means of transportation is estimated in Table 21. For lack of reliable statistical data on highwvay traffic, it was necessary to base this portion of the estimate on the number of trucks registered, assuming an average utilization and load factor derived from extensive field research. Traffic confined to a single urban area is not included. Estimates of air transport are based on figures obtained from the aviation companies. It should be emphasized that these figures are for 1947, and that there has subsequently been a greater relative increase in the capacity of truck and air transport than in that of railroads or wraterways. The proportion carried by the former media \vould, therefore, be somewhat greater now. TABLE 21 ESTIMATED TOTAL FREIGHT TRAFFIC VOLUMIE BY TYPE OF TRANSPORTATION, 1947 Total Freight Ton-Kilometers Percent (millions) of Total Railways ... ..... ...... 584.0 32.5 H ighways ............. ..... ........ ..... 642.5 35.8 511.5 28.5 Inland waterways* Airways** ... ....... ...... 56.5 3.2 TOTAL .. 1,794.5 100.0 * Includes 51.3 million ton-kilometers for coastwise traffic. * Adjusted to reflect differences in air and surface kilometrage for the purpose of comparability. These figures point up the fact that rates are a muclh less important factor in the competition among various means of transportation in Colombia than in most other countries. Although truck rates are generally higher than those on the railivays, trucks are nowv carrying the greatest volume of traffic. The same thing is true of air trans- 104 THE BASIS OF A DEVELOI'.ENT P'ROGRAMI FOR COLOMBIA portation, which has grown at an exceptionally rapid pace. The in- fluence of speed and other service factors on the competitive position and capacity for development of the various transportation systems has an important bearing on the conclusions outlined in Chapter XX. The importance of foreign trade in Colombia's transportation system is shown in Table 22. In 1947. import and export commodities constituted an estimated 36.7 percent of total freight traffic in Colombia, a very high proportion as compared \vith other Latin American countries. The transportation system has been developed, in fact, lar-ely to serve the requirements of Colombia's foreign trade. But with expansion and diversification of domestic production, and improvement of transportation facilities, it may be expected that the proportion of import-export tonnag-e xvill decline. TABLE 22 ESTIMA'fED NATIONAL AND INTERNATIONAL TRAFFIC, 19471 Ports Ton-Kilometers Percent of Total Barranquilla-Cartagena 409,298 344 Buenaventura ... 241,847 2....... 5 Santa 'Marta . . 4,088 Tumaco 1,868 2.3 Other ............ 36,715 Total Interniational Traffic. 693,816 36.7 Total National Traffic. . .. 1.196,906 63.3 GRANi) TOTAL . 1. 1890,722 100.0 I Estimates of ton-kilometers for internationial traffic were dlerived by dividing exports and imports passing through each port according to the department, inten- dencia or comisaria from which they came or for which they were destined, and multiplying the tonnage in each case by the distance from the port to the principal city of the department or other unit in question. Traffic originating in, or destined for Atlantico or Bolivar xwas not included in the totals, since their principal cities arc Barranquilla and Cartagena, respectively. Some of the import tonnage undoubtedly moves eventually to other cities, however, so the totals are somewhat conservative. Petroleum products exported through Cartagena are also excluded because they are transported by special pipeline. RAILWAYS Description of Railway Systems The various railwvays xvere built to connect the Caribbean and Placific seaports and the Magdalena River ports with the interior centers of population and production. Table 23 summarizes the characteristics of the 14 lines which now constitute the railroad system. They are grouped into two major systems, with five isolated lines in additioni.  TABLE 23 RAILWAY NETWORK OF COLOMBIA Maximum Main Compensated Line System Operator Principal Segments Grade Kilometers Total Gauge WEsTERN 1. Pacifico .............................. Nationial Railways Bueiiaventura-Cali 4.6% 174 Cali-Armenia 2.5 187 Zinzal-Alejatndro Ldpez 1.0 202 Cali-Popayan 3.0 159 Others - 102 824 Yard 2. Antioquia ............ Department of Antioquia Medellin-Puerto Berrio 4.5 194 Medellin-Alejandro L6pez 3.0 144 338 Yar(d 3. Caldas ... Departmiient of Caldas Cartago-Manizales 3.0 111 111 Yarcl WESTERN SYSTEM TOTAL..... 1,273 EASTERN 4. Cundinamarca .......... ..... National Railways Bogota-Puerto Salgar 3.8 200 200 Yard 5. Norte Section 2 and Stir ..... National Railways La Caro-Barbosa 2.5 193 Bogota-El Salto 3.0 31 224 Meter 6. Nordeste ........................... National Railways Bogota-Sogamoso 2.0 253 253 Meter 7. Girardot-Tolima-Huila . National Railways Facatativa-Girardot 4.6 132 Girardot-Ibagu6 3.0 77 Espinial-Neiva 1.5 159 368 Yard 8. Ambalema-Ibaguc ........ ....... Departmenit of Toliiia Ambalema-Buenosaires 1.7 65 65 Yard 9. La Dorada . ...................... Private Ambalema-La Dorada 2.0 111 111 Yard EASTERN SY-STEMT TOTAL.1,221 ISOLATED LINES 10. Cartagena-Calamar .............. National Railways Cartagena-Calanmar 2.5 105 105 Yard 11. Magdalena (Santa Marta) National Railways Santa Marta-Fundaci6n 3.0 96 96 Yard 12. Narino ...................... National Railways Tumaco-Diviso 1.7 111 111 Yard 13. Norte Section 1...................... National Railways Puerto Wilches-Sta. Bucaramanga 2.5 117 117 Meter 14. Cicuta . ...................... Private Ctcuta-Villamizar 2.25 60 60 Meter ISOI.ATED LINES TOTAL 489 GRAND TOTAL.2,983 106 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA The Western System. The Western System consists of three roads -the Pacifico, the Antioquia, and the Caldas. The Pacifico, much the longest of the three, has 824 kilometers of main line. It crosses the Western Cordillera from Buenaventura to Cali, operates north and south out of Cali through the Cauca River Valley, and climbs the Western slopes of the Central Cordillera to several important interior cities. The maximum grade on this road is 4.6 percent, on the stretch between Buenaventura and Cali. The Antioquia Railroad, operated by the departmenlt of Antioquia, centers its operations in Medellin. It connects this city with the Magdalena River port of Puerto Berrio and extends southward to meet the Pacifico Railroad at Alejandro Lopez. The third railroad in the Western System, the Caldas, is also a departmental railroad operated by the department of Caldas. It ex- tends from Cartago on the Pacifico to Manizales, climbing the xvestern slopes of the Central Cordillera. All three roads have yard-gauge track and make up an integrated system of some 1273 kilometers of main line. The Easternt Systemt. The Eastern System consists of six roads operating generally in the upper Magdalena Valley, climbing the western slopes of the Eastern Cordillera and serving plateaus located in this range. One line climbs the eastern slopes of the Central Cordillera. Generally speaking, the system centers around Bogota. Four of the six roads are operated by the National Railways (owned bv the National Government), one by the department of Tolima, and one by a private company. The aggregate length of these six railroads is about equal to that of the Western System-some 1221 kilometers of main line-but they are not fully integrated. Four roads are the same yard-gauge as the Western System, but the other two have meter-gauge right-of-way totaling some 477 kilometers, or about 39 percent of the Eastern System. The Isolated Lines. In addition to the nine roads making up the Western and Eastern Systems, there are five isolated lines. Four of them are part of the National Railways, and the fifth is privately operated. In general, these lines provide connecting links between river, sea and highway transportation. They total some 489 kilometers, approximately 17 percent of the railway network. As shown in Table 23, three of them are yard-gauge and two are meter-gauge. While this difference of gauge is not very important so long as these lines are isolated, it becomes significant in any plans for integrating them wvith either of the two major systems.  SURFACE TRANSPORT 107 Railroad Administration The original Colombian railroads were constructed under a system of concessions, most of them authorized under Law 104 of 1892. These concessionis carried the right to a monopoly of rail transportation on the various routes involved, and it is argued that this was a major cause of deficient service, high rates and the lack of integration of the present system. Only two railroads are still operating under the terms of the original concessions. The other 12 are operated either by the National Government or by the departmental governments, as shown in Table 23. The two private roads are the Cuicuta road and the La Dorada. Negotiations for Government acquisition of the Cuicuta road are already under way, and it will probably be taken over in the near future. As for the La Dorada road, the terms of the original concession provide that one part is to revert to the National Government in 1961 and the rest in 2006, although the Government may act to acquire it earlier. The nationalization of the railroads began in 1912. The National Government nowv owns eight of the fourteen lines and also operates the Cundinamarca Railroad, owned by the department of Cundi- namarca. In addition to taking over the two private lines previously referred to, the National Government also hopes to acquire ownership, or operating rights of the remaining departmental railroads, thus completing the nationalization of the entire system. Manageiment, Strutcture anid Policies. An Administrative Council (Consejo) for the National Railways was created by Law 29 of 1931 to administer the roads owned by the National Government. Its organization has since undergone several changes; at present the Consejo consists of five members: the Minister of Public Works, as Chairman; the Administrator General of the Railways, appointed by the Governmiienit: a transportation expert appointed by the Govern- ment; a representative of trade nominated by the Chambers of Com- merce and the National Federation of Merchants; and a representa- tive of agriculture nominated by the Society of Agriculturists of Colombia. For each of the latter two posts three names are submitted, from which the President selects one. Final authority for all railroad management poliev rests with the Consejo. The Administrator General is their executive agent, as well as being himself a member of the Consejo. Each of the nine railroads in the National Railways System has a Sectional Administrator re- sponsible to the General Administrator. The Consejo also maintains units corresponding to the operating departments of the various roads, which act as general advisers to the latter in bringing about technical 108 TIlE BASIS OF A DElVELOPMENT P'ROGRAMI FOR COLOMBIA and operational standardization and coordinating other relationships among them. In practice, however, the Consejo not only acts as a general policy- makin- group, but also is active in day-to-day administration. The Administrator General, instead of being broadly responsible for rail- wvay operations within the terms of general policy lines laid down by the Consejo, is rather an agent of quite limited powers, confined to carrying out instructions of the Consejo with little latitude for independent decision. Thus the Consejo is itself the active top man- agement of the National Railways, rather than a Board of Directors in the usual sense. This system has two miajor defects. First, the Consejo is not so constituted as to be able to handle detailed management responsi- bilities; and, second, having in effect taken over the prerogatives of management, the Consejo can hold no one except itself responsible for the operation of the railroads. There is little opportunity, there- fore, for continuous, informiied, objective appraisal of the railroad management. This fusion of direction and management, combined with the political and constantly changing membership of the Consejo, has resulted in a progressive decline in the railwkvays' operating efficiency. Lack of Integration. The present lack of integration of the Colom- bian railway system is the result of two factors: first, the physical separation of the various railroads; and second, the existence of two gauges. The resulting necessity for frequent transfers of freight delays service, increases handling costs and multiplies opportunities for pil- ferage and breakage. The lack of integration also excludes certain operating economies, such as reduction in the number of maintenance shops and better utilization of road equipment. The easier of these probleiis to remedy is that of different gauges. As showvn in Table 23, there are IIow two meter-gauge railroads in the Eastern System, the Norte Section No. 2 and Sur and the Nordeste, which have a total of 477 kilometers of main line. The other two meter-gauge roads-the Norte Section No. 1 and the Cuicuta-are presently isolated lines. The argument usually cited against standard- izing track gauges is that very little traffic is exchanged betweeni the vard- and meter-gauge lines. but better integration wouldinot only increase such exchanges but also improve service and permit greater consolidation of terminal and maintenance facilities. -Moreover, if the Government connects two of the meter-gauge lines (the Norte Sec- tions I and 2), as is niow planned, the traffic over these lines would increase and the cost of transfers would become more significant.  SURFACE TRANSPORT 109 The most important step toward physical integration is to con- nect the WVestern and Eastern Systems. The Government plans to do this by closing the gap between the Pacifico line at Armenia and the Girardot-Tolima-Huila road at Ibague. This proposal and alter- native methods of accomplishing the same end are discussed in Chapter XX. It may be said here, however, that physical integration is one of the most important steps required to increase the efficiency of the existing railway system. Railroad Operations Numerous technical investigations have been ma(le of railroad operations wvith a view to improving their efficiency. One of the most important anld detailed was made by a United States Railway MIission in 1946.2 This MIission pointed out many ways in which the efficiency of railroad operations could be improved but, although more than three years have elapsed, there is little evidence that their recom- mendations or suggestions have been adopted. The following brief discussioin of some of the major operating problems indicates that much can still be done to improve operating efficiency and thereby to lower railroad transportation costs within the framework of the existing system. illaintenance of WFay antd Structures. The steep grades and sharp curves of the mountain railways require heavy expenditures for track maintenance, including frequent replacement of rails, ties and ballast. Generally speaking, these mountainous sections are well maintained. AWAhile rail renewals were not kept up to the anllual program during the war because of the difficulty of getting rails, this deficiency has largely been remedied during the past two years. On the Pacifico Railway, for example, practically all of the rail on the heavy grade sections between Buenaventura and Cali has recently been renewed. The cuts have been wvidened and serious landslides should not occur in the future. The track is well ballasted, usually with rock ballast. This ballast is mostly hand-crushed, however, and is too large for economical handling. Practically all ties are wood, although there are still some steel ties on the meter-gauge lines. Tie renewals have generally been adequate, especially on curves and in the mountainous sections, but a considerable number of broken ties still require replacement. Treated ties are not used. The National Railways have a tie-treating plant at Bogota, but have discontinued operations because the high cost of 2 See A Study of Colombian Transportatioa, by the U. S. Railway Mission to Colombia, Herman D. Knecht, Chief, and Sherman F. Miller, Mechanical Officer. Rail Transportation Division, Institute of Inter-American Affairs, December 1946. 110 TUE BASIS OF A DEVELOPMENT PROGRAMI FOR COLOMBIA creosote delivered at Bogota. made the cost of the treated tie appear excessive. The universally approved practice of using inside and outside guard rails in crossing bridge structures has been neglected in certain instances. Equipment. Perhaps the niost important factor contributing to the excessive cost of rail transportation in Colombia is the low capacity and high maintenance cost of road equipment employed. Steam-type locomotives are used almost exclusively and, while a substantial num- ber have been purchased since 1944, many old, obsolete types remain. The older equipment is difficult to maintain because spare parts are lacking; practically all replacements and repairs must be hand tooled and specially designed. This problem of equipment is further com- plicated by the use of many different types of locomotives, which vary in both performance and maintenance characteristics. For ex- ample, a special study of equipment on the two meter-gauge roads out of Bogota, the Norte Section 2 and the Nordeste, revealed a total of seventeen different locomotive types in a total fleet of only sixty. The use of such diverse fleets is necessarily expensive and inflexible and makes for undependable service as well as high-cost operations. Even where new equipment is used, the ton-mile operating costs of steam locomotives are high. This is especially true in comparison witlh diesel-electric equipment. The freight-carrying capacity, both of individual cars and of entire trains, is very low. The newest and largest freight cars em- ployed and on order have a capacity of 35 tons, but the average car capacity in 1947 was about 23 tons, and this figure has remained con- stant for ten years. The average train load for all freight trains on the National Railwavs in 1947 wvas only 108 tons, of which 101 tons were revenue freight. The average number of cars per train was 9.5, of which 3.0 wvere empty. These averages include lines with low grades as well as the heavier grade lines over the mountains. The average train load for the Cundinamarca Railroad, which brings import freight up the hill from Puerto Salgar on the MIagdalena River to Bogota, Awas only 85.5 tons in 1947. The average number of cars per train on this road was 7.2, of which 2.8 were empty. The light payload on Colombian railroads results not only from the low tractive effort of the steam locomotives, but also from the exceedingly heavy empty weight of the cars. An empty boxcar weighs 28,500 pounds, and the maximum payload is approximately 70,000 pounds.  SURFACE TRANSPORT 1ll Maintenance of equipmiient on the National Railways is less satis- factory than maintenance of way and structures. The report of the United States Railway Mission called attention to the large per- centage of locomotives in unserviceable condition. At the time of that Mission's initial inspection in 1946, the percentage of locomotives actually out of service on the National Railways ranged from 17 to 60 percent, as against the Mission's opinion that "Under the stress of war times, an unserviceable percentage of between 6 and 10 percent could be considered permissible." 3 The Pacifico Railway operates the most modern and well-tooled locomotive shop in Colombia at Chipechape in the outskirts of Cali. The situation in these shops vas investigated by the Mission, and it was found that the percentage of unserviceable locomotives was still as high as in 1946. Furthermore, the time required for general repairs, which was reported as 118.5 days per locomotive in 1945, had increased in 1949 to an average of 145.4 days. It also appeared that none of the suggestions of the 1946 Mission for improving the serviceability of locomotives had been followed. National Railway officials explained that while they recognized the value of these suggestions, they did not have sufficient funds for the small capital expenditures required to carry them out. But adoption of the Railway Mission's detailed recommendations shotd result in savings, through increased efficiency and shop productivity, out of all proportion to the expenditures re- quired. It should be possible without difficulty to reduce the per- centage of locomotives in unserviceable condition to 10 to 15 percent at most. The conclusions of the 1946 Railway Mission deserve to be reiter- ated with all possible emphasis: "Our Mission advocated and have continually striven for more production from their repair shops. Basically it is economic both from the point of initial investment and from the need for more motive power. No matter how many new locomotives are bought, without increased shop production the time will shortly arrive when the only results of the additional purchases will be a larger capital investment upon which to pay interest, greater annual depreciation charges and more bad order engines standing around awaiting repairs." 4 Operating Practices. Certain operating practices also result in low utilization of equipment and thus contribute to the high cost of rail transportation. In 1947, for example, the average daily utilization 3 Ibid., p. 26. 4 Loc. cit. 112 THE BASIS OF A DEVELOPMENT PROGRA-M FOR COLOMBIA of locomotives on the National Railways was about 100 kilometers. This was due partly to the high percentage of unserviceable locomo- tives mentioned above, and partly to low train speeds. Although the National Railways do not keep any overall records of the speed of trains, a special study of the operations of all trains between Buena- ventura and Cali during a 24-hour period, based on the train sheet of July 19, 1949 and other basic records, showed an average speed for freight trains of 13.8 kilometers, or 8.6 miles per hour. This slow speed is due partly to the time lost in stations, meeting other freight trains and the one dailv mixed passenger train in each direction. The passenger train averaged 28.2 kilometers (17.5 miles) per hour. Another factor contributing to these slow speeds was the usual practice of paying train crews on a time basis, regardless of mileage, with extra rates for overtime after 10 p.m. This apparently led to deliberate delays by the train crews in order to earn overtime. It is reported that a chan-e in the method of payment, to a flat rate per trip, was instituted late in 1949, but more recent sample time sheets still show excessive overtime payments. In any event, the possibilities of night operations to catch up with heavy traffic denmands have not been adequately exploited. The practice of double-heading, or helper service, over extremely heavy grades has not been utilized to any extent. In some cases this could double. present train capacities, with a commensurate reduction of both ton-kilometer costs and traffic congestion. Train operation is by "manual block system" under which the rig,ht-of-way to the next station is handed to the conductor by the station agent, and the block closed to traffic until clearance of the block is reported by telephone. No time-table, meet orders or mechani- cal signal systems are used. This system, as it is presently operated, is wvholly inadequate and results in many delays. Productivity and Cost of Labor. The relatively low productivity of labor on the Colombian railroads is compared in Table 24 with that of Class I railroads in the United States. This table reveals sev- eral interesting facts. In the first place, the Colombian railways employ about twice as many employees per mile of track as United States CClass I railwvays and their average productivity, in terms of train kilometers, is about half as great. The number of passenger-kilometers per employee in Colombia, however, is nearly equal to that in the United States, but in freight traffic Colombian productivity is only 5 percent of the U.S. average.  SURFACE TRANSPORT 113 TABLE 24 EMPLOYEE PRODUCTIVITY ON COLOMBIAN RAILROADS COMPARED WITH U. S. CLASS I RAILROADS, 1947 Colombian U. S. Class I Railroads Railroads Average Number of Employees ....... ..... 15,208 1,351,863 Kilometers of Road .......... .... 3,109 366,962 Kilometers of Track ... .............. ... .... 3,481 617,198 Total Train Kilometers.. 8,969 1,692,297 Revenue Freight-Ton Kilometers . .346,034 956,291,004 Revenue Passenger-Kilometers ....... .. 814,322 73,932,127 Average Number of Employees per Kilom eter of Road ......... ....... ............ ........ 4.89 3.68 Kilometer of Track ............... .... . ....... .. 4.37 2.19 Train Kilometers per Employee . .............. 59 1,252 Revenue Freight-Ton Kilometers per Employee 35,904 707,336 Revenue Passenger-Kilometers per Employee..... 53,546 54,685 This lowv average productivity is due in large part, of course, to factors previously cited-difficulties of terrain, inefficient equip- ment and maintenanice, low volume operations, etc. Buit it also results partly from certain management and labor practices. An example is the general practice of assigning locomotives to individual engineers. A given locomotive can be operated only by the engineer to wvhom it has been assigned, unless either the man or the machine is out of commission for an excessive length of time. No time limit is specified by general regulations, however, and each situation must apparently be settled on its individual merits. There are numerous examples of engineers or locomotives remaining idle for several days before re- assignment. This practice is defended on the ground that engineers wvill take better care of locomotives individually assigned to them. and xvill report the need for repairs more promptly to the Maintenance Department. But this consideration seems to be far outweighed by the increased productivity of both equipment and personnel obtain- able by pooling locomotives for assignment. In August 1949, for example, the Pacifico Railroad was operating about 51 serviceable locomotives, but it had 112 engineers on its payroll. Obviously, there was an uneconomic surplus of engineers. The same lowv productivity and consequent high cost of labor are characteristicnot only of engine crews but also of maintenance 114 THE BASIS OF A DEVELOP-MENT PROGRAM FOR COLOMBIA crews, station service staffs, and general office employees as well. Poor organization and management are an important factor in this situation. In the maintenance plants, for example, shop layouts are often inefficient and production controls and scheduling unsatisfactory. Delays and wvaste resulting from diversity of equipment and inade- quate spare parts invenitories have been cited earlier. Another elemelnt in the high cost of rail transportation is the pen- sion system. Manv large groups of employees may retire after 20 years of service at any age, receiving up to 80 percent of their last salary rate. Not only does this increase overhead costs, but it also deprives the railways of experienced employees-especially skilled wvorkers and supervisory personnel, who are most needed-just at the time wvhen many of them should be most productive. It is esti- mated that 1,148 railway workers are now pensioned, for a yearly total of approximately Ps.$1,140,000. Within seven years the number of pensioners is expected to rise to some 3,500 and the annual cost to the railroads will be more than Ps.$5 million. This added burden of overhead inevitably results in lowv wages, high rates and operating deficits-all of which hamper the country's economic growth. Railroad Service. The railroads' efforts to develop a larger volume of traffic have been greatly hampered by the unreliability of their schedules and the delays in service, especially for freight. It has been almost impossible for shippers to count on definite dates for rail delivery, and consequently they have resorted increasingly to highway and airline transport. Transport competition in Colombia is not essentially a matter of rates, but of service factors which will become more and more important as industrial activity grows. If the railways are to be economically successful, therefore, they must overcome delays and the lack of reliability in service. The same criticisms apply generally to passenger service. It is slow and unreliable, and passenger equipment on the whole is poorly maintained. This is true of first-class as well as third-class service, although the fares for the former average twice as much as those for the latter. The only difference is a slightly better seat in first-class accommodations. Partial exceptions to these conditions are a few auto- rail cars, for first-class passengers only, wvhich give faster, more comfortable service. One three-car diesel-electric train xvas also pur- chased in 1949 to improve first-class service between BogotA and Ibagu6. This train, unfortunately, wvas a type of diesel-electric com-  SURFACE TRANSPORT 115 pletely unsuited to the operating conditions of the country. Main- tenance difficulties were exaggerated by the lack of a satisfactory training program to enable local workers to operate and maintain the equipment efficiently, and the result has been an unwarranted preju- dice against the use of diesel-electric equipment. Clearly, much can still be done to develop passenger traffic and revenues, especially since automobiles and buses are less able to offer satisfactory com- peting service in Colombia than in many other countries. High Costs and Rates The high cost of rail transportation is reflected in every important segment of the country's economy, and the cost is going up. In 1949 the railwavs were authorized to increase freight rates to a level of about six to ten centavos per ton-kilometer, plus a fixed cost per ton handled. First-class passenger tariffs now approximate 2.5 to 3.5 centavos per kilometer and third-class rates range from 1.3 to 1.5 centavos. Present operating costs are estimated at about six to eight centavos per ton-kilometer. The National Railway System as a whole shows an operating profit, not allowing for any depreciation or capital costs, of approximately Ps.$1,300,000 for the first six months of 1949, but certain lines still operate at a loss. In 1948, although it was a year of unusually high traffic volume, the National Railways incurred an overall operating loss of approximately Ps.$1,250,000. Table 25, which summarizes the financial results of 1948 operations of the National Railway System, indicates that only the Pacifico and Girardot-Tolima-Huila lines made an operating profit, and that was primarily because of the diversion of import and export traffic from the Caribbean ports to Buenaventura as a result of shipping difficulties on the Magdalena River. At the same time, these roads were giving adequate service to shippers and travelers. An increase in freight rates, which are already so high as to consti- tute a serious burdern on the economy, does not appear to be a satisfactory solution for the National Railways' financial problems. Other possibilities have been briefly noted in the foregoing analysis. They will be discussed in more detail in Chapter XX. S Comparable rates for all railroads itn the United States at the end of 1948 were: for freight 1.251 cents per short toni-mile, and for passengers 2.341 cents per mile. If these rates are converted into peso equivalents at 1.95 they work out at an average of 1.87 centavos per metric ton-kilometer for freight, and 2.85 centavos per passenger- kilometer. 110 TIIE BASIS OF A DEVELOPMENT PROGRA.M FOR COLOMIBIA TABLE 25 FINANCIAL O1PERATIN; RESULTS OF NATIONAL RAILWVAYS, 1948 Operat- ing Net N et Ratio Operating Operating N.\AI 1Al. Revenues Expenses (per- Income Loss lRAILWAYS (pesos) (pesos) cent) (pesos) (pesos) 1. Lincs Operatiiyg at Profit Pacifico . .2 . - 22,898,121 21.417,931 93.5 1,480,190 - Port of Buenaventura (operated by Pacifico) 6,111,160 5,888,547 96.4 222,613 - Girardot .. 7.388,300 6,674,803 90.3 713,497 - Total 36,397,581 33,981,281 93.4 2,416,300 - 2. Liines Operated at tI Loss Cundiiainarca 4,350,434 4,453,604 102.4 - 103,170 Norte Section 2 . 920,838 3,878,178 132.8 - 957,340 Nordeste 2,356,574 3,467,131 147.1 - 1,110,557 Total 9,627,846 11,798,913 122.7 2,171,067 2 3. Isolated Linies Narimio 252,928 753,266 297.8 - 500,338 Cartagena-Calamar 286,351 1.063,736 3,1.5 - 777,385 Magdalena 2,057,920 2,133,331 103.7 - 75,411 Norte Section 1 1,307,696 1,448,648 110.8 - 140,952 Total 3,904,895 5,398,981 138.3 - 1,494,086 GRAND TOTAL . 49,930,322 51,179,175 102.5 - 1,248,853 HIGHWAYS Hi,ghway transportation in Colombia wvas initiated about a quarter of a century ago and has growvn rapidly in importance. In 1948 there wvere about 11,940 kildmneters of national highways and 8,300 kilometers of departmental roads. Some 784 kilometers, or approxiimately 4 per- cent of the total, are surfaced wvith concrete or bituminous macadam. The rest of the national highways and the most important depart- mental roads are surfaced wvith so-called "vater-bound macadam," usually local crushed rock wvith a filling of file m1aterial consolidate(d by weather and traffic. Some of the more important highwvays have a width of 9 meters with surfacing 6 meters wide. The major part of the kilometrage, holwever, is through1 mountainous countrv where the wvidths average about 6 or 7 meters. the curvature is excessivelv sharp (30-50 meter radius), ancl grades of 8 to 10 percent are often sustained for many kilometers. The overall highway achieveniient has been impressive in view of the great difficulties of highwav constructioni and maintenanice in such  SURFAC'E TrRANSIIORT 117 a rugged country. As a result, highways are carrying an ever-increas- ing share of the nation's transport burden and contributing to the opening up of many new areas. The reasons for this development are easy to identify. First, the highway system, even in its present state, reaches many hundreds of commmunities that are not accessible by other means. Second, it is cheaper and easier to construct highways than railroads through the typical Colombian terrain because invest- ments in highways are reasonably flexible and can be adjusted to lower volumes of traffic. They are thus more suitable for reaching undeveloped markets and sources of supply. Third, highway trans- portation has been able to give faster service than the railroads, especially on short hauls which account for a major share of Colom- bian transport volume. The foundation has been laid; the task remains to bring the highway system into greater productivity in order to achieve the lowver cost transportation so essential to the economic development of the country. The first step in accomplishing this objective is sound planning. In general, highways have been built in response to day-to-day de- mands, without the benefit of adequate studies of traffic or of the needs for developing commerce and agriculture or opening up unsettled areas. Moreover, undue stress has been placed on the political signifi- cance of local and sectional highway projects. The National Govern- ment, however, has lately incorporated the main existing roads into a planned system comprising three primary longitudinal trunk highways, traversing the country north and south parallel to the Cordilleras of the Andes, and two primary transverse trunk highways crossing the Cordilleras and the rivers between them in an east-west direction. Several important links in these highway systems remain to be con- structed. The WVestern trunk route starts at the Caribbean port of Barran- quilla and extends via Cartagena, Medellin, Manizales, Cali, Popayan, and Pasto to Ipiales on the Ecuadorian border, with a projected branch to the port of Tumaco on the Pacific Coast. The Eastern trunk route starts at Cucuta on the Venezuelan border and extends south via Pamplona, Duitama, Tunja, Bogota, Neiva, to Florencia; its extension to the international Putumayo River is projected. The Central trunk route begins at the Caribbean port of Santa Marta and extends via Fundaci6n, La TMata, Ocafia, Bucaramanga and Barbosa to a junctioni with the route to the West at Bogota. There is no compelling reason for grouping these particular communities together, or for designating the highways as trunk routes, except that they conform for the mnost part to the main north-south drainage systems of the country. 11S TH-IE BASIS OF A DEVELOPMENT PROGRA-M FOR COLO-MBIA One transverse trunk route is planned to run fronm Puerto Carreno on the Orinoco River through Villavicencio, Bogota, La Dorada, Son- son, -Medellin, Canlasgordas and Dabeiba to Turbo on the Gulf of Darien near the Panama border. This route crosses all three Cordi- lleras of the Andes and the rivers between. Its western portion is ex- pected to form part of the Pan American Highway. The long stretch from the Orinoco to Villavicencio is little more than a dry-weather trail, and there are gaps between La Dorada and Sonson and in the final 50 kilometers near Turbo. hut the sections already completed link important cities and are heavily travelled. The other transverse trunk route extends from BogotA througih Girardot, Ibagu6, Armenia, Buga and Cali to Buenaventura. The direct route from Buga to Buenaven- tura is under construction and not yet opened to traffic. The 100- kilometer Armenia-Ibagu6 section of this transverse trunk route is perhaps the most heav7ily travelled highway in the country, linking as it does the Eastern and Western railway systems. In addition to these trunk highwvays, there are many important branch roads. Maintenance of Highways The chief deficiency of the existing highway network is not so much in its conception as in its upkeep. In the past, little attention has usually been paid to maintenance until a landslide, washout, or other catastrophe rendered the highway useless. However, the Transporta- tion Act of 1949 (Law 356, March 3, 1949), set aside "the sum that is necessary to take care of maintenance, additions and betterments, wvhich is considered to be about Ps.$1 thousand for each kilometer in service." This is an encouraging indication that the Government is aware of the importance of effective, continuing provision for road mailntelnalnce. An adequate system of maintenance should yield im- portant dividends in the form of lower operating costs and quicker schedules for hig-hwvay transportation, longer life for vehicles, and fewver accidents. Responsibility for maintenance operations is lodged in a Chief Maintenance Engineer in the Ministry of Public Works. He has under his supervision a number of district offices, each under a chief engineer, with an assistant engineer, a staff of foremen and mainte- nance crews, and some road machinery in his charge. Administration of the Highway Program Highivay development has been a function of both national and departmental governments. In addition, a number of hig-hways and connecting roads have been developed independently by industrial  SURFACE TRANSPORT 119 or transportation enterprises, where their needs were not adequately served by the governmental program. For example, the petroleum companies have built extensive highway networks in and around their concessions. The National Railways maintain the heavilv traveled Ibagu6-Armenia link at a cost of some Ps.$30 thousand per month. The airlines, at several places, have had to build their ownI roads to connect their airports with the towns they serve. Until recently there has been little real coordination between the national and departmental programs. The Transportation Act of 1949 marks a considerable advance in this respect, although some difficulties remain. Responsibility for the national highway program, both con- struction and maintenance, is lodged in the Ministry of Public Works; there is a National Council of Ways of Communication in that Minis- try to provide overall direction. The funds available under Laaw 356 should be adequate if they are properly administered. Article I pro- vides that annual appropriations for general road construction and maintenance purposes shall not be less than 12 percent of the com- mon taxes, and that special appropriations previously in force will be continued. A portion of the national gasoline tax, for example, is specifically earmarked for surfacing national highways; in 1949 Ps.$4.8 million, of about Ps.$16 million total revenue from this source, were appropriated for such paving projects. In addition, the income from certain special taxes levied on imports is allocated to special projects, such as the Buenaventura-Cali and Cartagena-Medellin highways. Total appropriations for highways in 1949 were Ps.$37,317,000, as shown in Table 26. About half this sUIm was for new highway construction. TABLE 26 1949 APPROPRIATIONS FOR NATIONAL HIGHWAYS, MINISTRY OF PUBLIC WORKS Appropriated Percent of Purpose 1949 Total Maintenance and equipment .Ps.$10,900,000 29.2 Paving ... ....... ... 4,800,000 12.9 Construction ....... . ....... ....... 18,473,000 49.5 Department contracts ........ 1,905,000 5.1 Bridges ....... 1,239,000 3.3 Ps.$37,317,000 100.0 120 'ITHE BASIS ()F A DEVELOPMENT PROGRAIM FOR COLOMBIA The Transportation Act of 1949 spells out the general plan for the national highway system in considerable detail, Avith priorities defined for both trunk and secondary roads. The Miinister of Public Works, ho\vever, is allowved some discretion in administering this plan, in contrast to the previous Congressional practice of tying each appropriation to a specific project. Unfortunately, this desirable flexibility is considerably limited by a requirement that at least Ps.$600 thousand be allocated each year to each department (for this purpose intendenjcias and comisarias, as a group, are counted as two depart- ments). Thus Ps.$10,200,000 (over 55 percent of the 1949 appropria- tion for construction wvork) is automatically tied up in equal depart- mental shares, regardless of a department's relative needs. M\Ioreover, the dlepartments are allowved wide discretion in spending these national funids, and need pay little attention to the priorities set out in the Transportation Act. The result is to encourage the dissipation of funds, machinery and engineering and construction personnel on a great number of projects, often of purely local significance and con- flicting with the requiremiients of a sound national transportation system. There is a pronounced tendency, for example, for each de- partment wvith a strip of seacoast to seek to establish its own port and independelnt mieans of communication fronm the interior, regard- less of the cost or economic disadvantages of suclh an undertaking. In the appropriations for 1949 there wvere incltuded 101 separate hig-hwvay building projects. But the 'iMinistry of Public WVorks does not h-ave enough road building machinery for efficient mechanization of anything like this number of construction jobs, nor a sufficienit staff to supervise them properly. Available machinery and staff can only be employed for a short time on any particular project before its appropriation runs out and, since heavy machinery is very hard to transfer for lack of througlh highways, a good deal of expensive equipment lies idle muchl of the year. The opening of several impor- tant trtlik highways for through-l transportationi has been long dle- layed by the slow progress in closing a few crucial gaps. For example. the cost of finishing the last 123 kilometers on the Cartagena-Medellin highway, betw,veen Taraza and Planeta Rica, is estimated at abotlt Ps.$5.5 millionl. But the 1949 appropriation for this purpose wvas only Ps.$600 thousand. At that rate it wvould take ten years to complete this important linl, assuming that the efficiency of construction wvould not suffer from the many interruptions during wvhich time no benefit would be gained from the investment already made. This situation is duplicated many times all over the country.  SURFACE TRANSPORT 121 As in the case of the railroads, the inefficiency of highway con- struction and maintenance arises not only from a lack of machinery and the type of machinery employed, but also from its inefficient use. Much road building machinery is idle because of the lack of skilled labor to operate and maintaini it. This lack cannot be overemphasized. especially when it is realized that in the postwar years imports of road building machinery are estimated to have been three to five times those of the immediate prewar years. This increase in equip- ment has not been accompanied by a commensurate increase in trained maintenance and operating personnel, and thus in some cases equip- ment has been idle or inefficiently tutilized. The major obstacle in the wvay of the highway program is not, therefore, a lack of appropri- ations and equipment, but rather the wiay in which funds are admin- istered and equipment utilized. Highway Operations Because of the great number of separate truck and bus lines in- volved, and the lack of reliable statistical data, it is difficult to esti- mate the total volume of highway traffic. The records available indicate, however, that in recent years highway transportation has assumed first place among surface transportation media in both number of passengers and tonnage of freight. Table 27 showvs the number of bus and truck registrations in the years 1946-1948, and indicates howv rapidly highway transport is expanding. T ruck regis- trations increased by 24 percent from 1946 to 1948, and the number of buses by 28 percent, Moreover, the newAer equipment has generally been larger in capacity and productivity than that wvhich it replaced. TABIE 27 TRUCK AND Bus REGISTRATIONS, 1946-1948 1946 1947 1948 Trucks ..... 13,769 14,725 17,038 Buses . . 4,345 4,351 5,550 TOTAL .. 18,114 19,076 22,588 Source: Ministry of Public Works. Rough estimates have been made, howvever, on the basis of number of trucks per department, gasoline consumption, average distances covered by long-distance trucking operations, etc., to show the 1946 volume of truck traffic. As Figure 3 and Table 28 indicate, truck 122 THE BASIS OF A DEVELOPMIENT PROGRAMI FOR COLOMIBIA traffic is heaviest in the department of Cundinamarca with a total of some 218 million ton-kilometers. Antioquia and Valle del Cauca rank next with 95 and 79 million ton-kilometers, respectively. Figure 3 depicts -raphicallv the concentration of traffic around the cities of Bogot6a, Miedellin, Cali and Barranquilla, and the scanty traffic be- twreen the zones. The one exception is the Ibague-Armenia road which handles a considerable volume of imports from Buenaventura wvhich, for the rest of the way, move by railroad. The value of up-to-date information of the type presented in Figure 3 and Table 28 is apparent. TABLE 28 TRUCK TRAFFIC FLOW, 1946 No. of Net Tons Estimated Traffic Trucks Carriedl (Million Ton-Km) Antioquia 1,523 3,863 C2 24.67 F3 28.29 L4 42.29 TS 95.25 Atlantico . .. .......... .... ... 974 1,855 C 11.84 F 13.58 L. 20.31 T 45.73 Bolivar 600 1,547 C 9.88 F 11.33 L 16.93 T 38.14 Boyaca ............ .... 488 1,236 C 7.89 F 9.05 L 13.53 T 30.47 Caldas . 979 3,162 C 20.19 F 23.16 L 34.62 T 77.97 Cauca 225 615 C 3.92 F 2.30 L 6.73 T 12.95 Cundinamarca 3,968 8,854 C 56.55 F 64.85 L 96.95 T 218.35 Huila ... 161 457 C 2.91 F 2.98 L 5.00 T 10.89 Magdalena .. 356 776 C 4.95 F 5.68 L 8.49 T 19.12  TRUCK TRAFFIC FLOW, 1946 MARTA SaNTA LEGEND BARRANOUILLA Existing roads ni. Roods In construct,on / Distance between tfo points on rood in ionneters CARTAGENA' IDistonce between intersection and M A G D L villoge in kdometers - MAGOAL One thickness teons 10,000 tons peo over stretch of rood-or yper obout 5 tnrucks per doy Golombi.n borders Long distance transport roods Lmiti of deportrents 4' -._, MM~~SAANND ao P+ER L~~. V - i /0 GO L V .R Fw~ D~N 0 R T {51~~~~~~~ ' (>,, ' T INRE0 0 0L) } Jvru~~~m I+'f9x X ~ ~ ~~~~~~~~~~~~~ N\ A AAX)IE 03bYi or \, EL UEDE -'- V <T-. , ,>- >f A G - ~ tA ! Ar. ;Sfi ;> Li Ot- . - Mi - -::: c i' " A,47f TOL1,, }; R I Nf; -X N~ou Au P., U V,t U: M AY D E > rA GU ,.F g  SURFACE TRANSPORT 123 TRUCK TRAFFIC FLOW , 1946 (Cont'd) Trucks Net Tons Estimated Traffic No. of Carriedl (Million Ton-Km) Narinio . ... .......... .. .. 396 1,584 C 10.11 F 11.60 L 17.34 T 39.05 Norte de Santander. ...... 641 1,659 C 10.59 F 12.10 L 18.16 T 40.85 Santander ...... ......... 969 2,024 C 12.92 F 14.82 L 22.16 T 49.90 Tolima ............ ....... .. .. 604 1,857 C 11.86 F 13.60 L 20.33 T 45.79 Valle del Cauca ... .......... 1,350 3,214 C 20.52 F 23.54 L 35.19 T 79.25 Meta . .. .. . ..... ... 454 1,396 C 8 91* F 10.22* L 15.28* T 34.41* Other 64 187 C 1.19* F 1.36* L 2.04* T 4.59* Total 13,769 34,288 C 218.90 L 375.35 T 842.71 1 The average net weight carried by one truck is 2.5 tons; average utilization is assumed to be 80 percent. 2 C=50 percent of the trucks assumed to be engaged in urban or industrial traffic and to cover about 35 kilometers per day. 3 F=25 percent of the trucks engaged in farm-to-market traffic which cover about 80 kilometers per day. 4 L=25 percent of the trucks engaged in long-distance traffic which cover about 120 kilometers per day. 5 T=Total. * No graphic analysis made. Basis for traffic calculation: (1) information from trucking companies, (2) number of trucks per department, (3) gasoline consumption per department, (4) average distances covered by long-distance trucking operations, (5) length of road, (6) total consumption of urban centers minus railroad traffic, and (7) personal observation of traffic intensity. Source: Anuario General de Estadistica, Industrial Census. 124 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMIBIA One cannot hope to secure intelligent allocation of funds for new highway construction and maintenance without such data. A comprehensive system of licensing and regulation for highway transportation is outlined in Decree No. 2313 of November 26, 1943, and very detailed regulations have been issued under the authority of this Decree by the Division of Transportation and Tariffs of the Ministry of Public Works. The provisions for rate regulation and for collection and organization of statistical and financial data appear, however, to be largely inoperative. The licensing provisions apparently are effective in limiting the number of trucking concerns and vehicles to the requirements of traffic on various routes. This latter type of regulation, in fact, is probably too stringent in practice; its main effect appears to be to restrict competition and protect the vested interests of existing trucking companies. It is asserted that individual farmers and businessmen are prevented from transporting their own equipment and supplies from ports or commercial centers to their farms or places of business. In an industry like highway transport- where the major investment is made by the state in construction of roads, where operating capital requirements are relatively small, and where rapid growth is normal and desirable-less rigid control, which would provide maximum opportunity for aggressive, efficient indi- viduals and concerns to participate, would be appropriate. Highway Equipment Heavy truck equipment is not used. The steep grades, sharp curves and low capacity of bridge structures in most areas strictly limit the size of trucks. Moreover, heavy equipment requires more skilled and responsible drivers and involves special difficulties of main- tenance and obtaining spare parts. The truck typically used for medium- and long-distance operations, therefore, is a single unit with a gross wveight of 15,000 to 16,000 pounds and 3' 2-ton capacity. Some 5-ton trucks are also employed, but use of trailer types is ex- cluded by operating conditions in most areas. The original cost of present equipment is high. One typical com- pany is now paying the following prices: light "pickup" truck, Ps.$7,800; 1' 2-ton truck, Ps.$8,600; 3' 2 -ton truck, Ps.$10,000; 5-ton truck, Ps.$12,500. These high prices per ton of capacity result, of course, in higher cost for highway transportation. Moreover, the utili- zation of truck equipment is normally quite low for several reasons. First, the sharp curves, steep grades and poor paving of most high- ways impose very low average speeds. Then, a substantial part of every truck fleet is constantly out of operation for repairs or because  SURFACE TRANSPORT 125 of difficulty in employing skilled mechanics and getting spare parts; and the problem of maintenance is aggravated by the excessive wear and tear from poor highway conditions. A third factor is the very high accident rate, caused by the combination of unskilled drivers and poor roads. The high accident rate is an important factor in the use of lighter equipment, since the cost of repairs and the overhead cost for laid-up equipment is less for small trucks. These operating conditions greatly reduce the life of highway equip- ment, which increases the depreciation on an already high original cost and adds further to the cost of truck transportation. The records of one efficient operator of truck fleets in both the United States and Colombia indicate that the life of similar truck types in Utah, a mountainous state with highway problems comparable to Colombia's, was two to three years longer. Operating Costs and Rates There is a great variation in truck operating costs, depending on the highway used, the efficiency of the companv, the kind of cargo, and many other factors. It may be useful, however, to undertake a general examination of the costs of truck operation, from the stand- point of their influence on rates. Extensive field investigations showed motor truck costs ranging from about 10 centavos per ton-kilometer to a maximum of approximately 22 centavos per ton-kilometer; this range is for terminal-to-terminal trips over 20 kilometers, and does not include the more expensive pick-up and delivery service. In gen- eral, costs decrease with the length of haul. In the case of one large fleet operator, the unit cost for a 250-kilometer haul was approximately 20 percent less, and for one of 500 kilometers about 30 percent less, than that for a 50-kilometer haul. Adverse operating conditions affect almost every item of expense. The high costs of original purchase, depreciation and maintenance have already been noted. The mileage obtainable from gas, oil and tires is low because of the heavy grades and poor highway corditions. The result is that, according to the company records mentioned above, truck operating costs in Colombia, leaving capital charges out of account, are almost three times those in Utah. Total operating ex- penses per mile, including capital charges, would be considerably more than three times as high in Colombia as in the United States. 126 THE BASIS OF A DEVELOPMENT PROGRAMI FOR COLOMBIA Table 29 shows typical motor truck rates between various cities. The non-compensated rates-i.e., rates not designed to attract return loads on routes with a heavy one-way traffic-average from 10 to 15 centavos per ton-kilometer. It should be pointed out that rates often vary according to the commodity transported. Moreover, despite pro- visions for the Government's regulatory machinery, highway rates in practice are based on what the traffic will bear. Competition among TABLE 29 TYPICAL MOTOR TRUCK RATES FOR GENERAL MERCHANDISE, 1949 Rate per Ton- Rate Kilometer From To per Ton Kilometers (centavos) Bogota Bucaramanga Ps.$ 60.00 479 12.5 Buenaventura* 45.00 663 6.8 Cali* 40.00 521 7.7 C6cuta 70.00 615 11.4 Girardot 15.00 134 11.2 Medellin* 55.00 573 9.6 Pereira 40.00 362 11.0 Buenaventura Armenia 50.00 376 13.3 Bogot6 100.00 663 15.1 Cali 25.00 142 17.6 Medellin 90.00 614 14.7 Cali Armenia 30.00 211 14.2 Buenaventura* 13.00 142 9.2 Pasto 55.00 451 12.2 Medellin Bogota 85.00 573 14.8 Cali 50.00 472 10.6 Cucuta 130.00 1188 10.9 Girardot 70.00 521 13.4 Xlanizales 40.00 264 15.2 Pereira 40.00 293 13.7 (*) Rates compensated to attract return loads on heavy one-way traffic routes. various alternative means of transportation is often based less on rates than on speed, the incidence of breakage, pilferage or other losses, and other service factors. Therefore, even though the average freight charges on the highways exceed those for water or rail transportation, a strong preference has grown up in recent years for through motor- truck transportation rather than combined hauls by boat, rail and truck. The construction of an integrated network of through highways would greatly increase the contribution which this form of transDort can make to economic development in Colombia.  SURFACE TRANSPORT 127 PORT AND WATER TRANSPORT FACILITIES Maritime service between Colombian and foreign ports is adequate and fairly direct. Foreign flag shipping has recently been supple- mented, and to some extent supplanted, by the Greater Colombian Merchant Fleet, jointly organized and operated by the Governments of Colombia, Venezuela and Ecuador. There is currently a project under way for the Gran Colombiana Line to acquire more ships and to ex- tend service to Europe. While the initial venture was defended on tl-he grounds that the possession of a few ships afforded protection to Colombia against exorbitant freight charges on its imports and ex- ports, this argument hardly applies to a further extension of opera- tions. This traditionally is a competitive field in which returns have been low. It would appear that Colombia could realize greater returns from its savings by investing them in internal developments than by an extension of activities in ocean shipping. The Colombian Government has recently attempted, through its import and export licensing, to control the routing of vessels to distribute traffic among the ports in accordance with their respective cargo-handling capacities. A fair evaluation of this attempt has not been possible, however, because of the exceptional congestion in the postwar period. Port Facilities The principal seaports of Colombia are Barranquilla, Cartagena anid Santa Marta on the Caribbean Sea, and Buenaventura and Tumaco on the Pacific Coast. The operation of port and waterway facilities at Barranquilla and Cartagena is under the control of the Directorate oi Navigation, Ministry of Public Works. Table 30 shows the volume of freight handled through each of these ports annually for the five years ending with 1947. Barranquilla is situated 12 kilometers above the mouth of the Magdalelna River and is dependent upon that waterway for access both to the ocean and to inland areas. It has grown rapidly as a processing center for raw materials received by water. A jettied en- trance channel, known as Bocas de Ceniza, completed in 1936, was expected to secure a depth of 33 feet, but the dependable minimum depth has so far not exceeded 18 feet. Large vessels seeking to enter the port must unload or "top-off" cargoes at Cartagena or Santa Marta. Contraction works and dredging to increase the depths through Bocas de Ceniza are in progress, and maintenance of the channel costs about Ps.$2 million annually. A marginal quay provides berthage for 7 ocean steamers at a time, and a paved wharf with 8 concrete ware-  TABLE 30 ANNUAL VOLUME OF COMMERCE THROUGH TIIE PRINCIPAL SEAPORTS, 1943-1947 (nmetric tons) IMPORTS EXPORTS Santa Carta- Santa Carta- Year Marta B3arranquilla gena Buenaventutra Tumaco Marta Barranquilla gena' B3uenaventura Tumaco 1943 ....... .... 692 85,852 27,862 118,082 1,148 1,228 119,013 83,875 199,677 1,739 1944 -...... 2,098 122,757 105,842 121,822 1,304 13,143 123,239 60,072 174,939 2,811 1945 . . 6,729 198,693 130,783 182,331 1,802 31,878 119,044 76,815 156,221 2,856 1946 .. . 8,595 259,002 103,366 263,360 2,668 48,813 112,090 30,645 216,460 1,876 1947 . . . 13,097 411,446 145,239 348,662 3,559 65,516 97,243 21,544 211,478 2,688 TOTAL . 31,211 1,077,750 513,092 1,034,257 10,481 160,578 570,629 272,951 958,775 11,970 gEARLY AVERAGE . 6,242 215,550 102,618 206,851 2,096 32,116 114,126 54,590 191,755 2,394 * Excludes exports of petroleum.  SURFACE TRANSPORT 129 houses and ample river frontage affords adequate space for transfer of cargo between seagoing and river vessels. Cartagena has one of the best natural harbors of South America, with a protected roadstead of 35-foot minimum depth, adequate for a fleet of modern ships and tankers many times as large as that now using the anchorage. The modern quay and piers, equipped with 6 concrete warehouses and suitable mechanical facilities, can accommo- date 5 ocean vessels and handle as much as 500,000 tons of cargo a year. The Tropical Oil Company has established a crude-oil loading pier at Mamonal, in the outer harbor, capable -of loading 9,000 barrels an hour into deep-sea tankers by two pipelines from the interior. Like Barranquilla, Cartagena depends on the Magdalena River for communication with the more densely settled districts in the central highlands. It is connected with the river port of Calamar by a 105- kilometer railroad and by the 142-kilometer Canal del Dique which is capable, if properly maintained, of carrying all of the shallow-draft commerce of the port in Magdalena-type river boats. The northernmost port, Santa Marta, has a commodious, protected harbor of 25-foot minimum depth, with a modern dock mechanically equipped for loading bananas. Its communications with interior com- mercial centers, and even with its own extensive and potentially pro- ductive hinterland, are poor and roundabout. Buenaventura is located 16 kilometers up Buenaventura Bay from the Pacific Ocean. Minimum depth over the entrance bar is only 24 feet, but a 13-foot tidal range permits the entry and clearance of vessels of modern draft. The port's terminal facilities are now being extended and modernized and, when completed, should be adequate for the expected future freight volume. Buenaventura is linked to the interior by both railroad and highway, but the capacity of these routes is overtaxed by the freight diverted from Caribbean ports. The ter- minal lacks facilities for transfer between ships and motor trucks, which tends to aggravate the congestion that has plagued this port for the past several years. The division of responsibility for operation of the port-its facilities are under the control of the Railroad Adminis- trative Council while release of cargo is independently controlled by the customs authorities-adds to the confusion. Tumaco, situated on the Pacific Ocean near the southern boundary of the Republic, functions largely as a local port for the Pasto-Ipiales area of Narifno, and has little importance in the foreign commerce of the country at large. The old port was destroyed by fire in 1947, and the National Government is constructing a modern concrete quay and community settlement on the adjacent island of El Morro. The 130 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA current dredging program will provide 33 feet at favorable tide stages. Air service connects Tumaco with the interior, and a 108-kilometer railroad connects it with the national highvvay system. Although the ports of Colombia are adequate, or capable of being made so from the standpoint of marine facilities, two allied problems remain to be solved-namely, terminal handling and transportation to the interior. The latter problem tends to aggravate the former. For example, the increasing deterioration of the Magdalena Channel during the dry seasons has contributed to the diversion of foreign commerce from Barranquilla and Cartagena to Buenaventura. The added traffic through the latter port has, in turn, contributed to the breakdown of its transportation facilities to the interior, and its terminal handling facilities and administration. Numerous detailed studies have been made of the very slow un- loading of ships at Buenaventura, but the facilities, labor practices and other methods in use are not yet adequate for the present volume of cargo. Reports of traffic handling made by W. R. Grace & Company over the past five years reveal that the same difficulties persist, and this port has come to be known as the slowest and most expelnsive port on the West Coast of South America. Much of this difficulty stems, of coturse, from the inadequacy of transport out of the port. Table 31 shows the cargo in the port of Buenaventura during 12 months of TABLE 31 AVERAGE DAILY CARGO IN PORT OF BUENAVENTURA, 1948-49 (tons) Average Total Average Average Daily Average Daily Daily Cargo Daily Cargo on Cargo in Aboard Cargo Mlonth Year Wharves Warehouse Ships in Port October 1948 6,317 13,247 1,357 20,921 November 1948 7,416 16,046 2,245 25,707 December 1948 8,332 13,493 2,546 24,371 January 1949 10,185 12,393 3,737 26,315 February 1949 13,344 12,883 3,967 30,194 March 1949 19,271 13,333 3,902 36,506 April 1949 26,967 16,235 7,194 50,396 May 1949 22,311 20,474 4,572 47,357 June 1949 20,002 22,963 3,445 46,410 July 1949 16,793 25,335 2,644 44,772 August 1949 13,928 25,957 1,164 41,049 September 1949 7,548 17,044 1,419 26,011 Monthly Average 14,368 17,450 3,183 35,001 Source: Computed from records of Traffic Department of National Railways.  SURFACE TRANSPORT 131 1948-1949, and Table 32 the rate at which it was moving out of the port by rail and highway. It is estimated that at present the railroad handles about 75 percent of this traffic and the highway about 25 per- cent. The former is handicapped by inadequate equipment and poor utilization of that available. Highway service has been constantly im- peded by landslides and washouts and is limited by the small capacity of the trucks employed. TABLE 32 AVERAGE DAILY CARGO MOVING FROm BUEINAVENTURA, 1948-49 (tons) Month Year By Railway By Highway Total October .................... 1948 1,020 188 1,208 November .................... 1948 1,057 166 1,223 December .................... 1948 939 114 1,053 January .................... 1949 1,015 122 1,137 February .................... 1949 1,024 147 1,171 March ............ ........ 1949 952 173 1,125 April .................... 1949 977 191 1,168 May .................... 1949 904 181 1,085 June .......... .......... 1949 900 179 1,079 July .................... 1949 911 173 1,084 August .................... 1949 939 182 1,121 September .................... 1949 964 182 1,146 Monthly Average 967 166 1,133 Source: Computed from records of Traffic Department of National Railways. Coastwise Transportation The interchange of commerce among the various Colombian sea- ports, large and small, is accomplished wvith a wide variety of types and sizes of vessels. They range from large units of the ocean-goillg fleet customarily making more than one domestic port-of-call per voyage to the smallest motor-driven packets capable of navigating open coastal waters between nearby ports in favorable weather. Some portion of this coastwise freigllt is transported in light-draft vessels which also ply rivers such as the Sinu and the Atrato. At the present time, the Government-sponsored National Navigation Company operates a 350-ton seagoing motor vessel along both coasts which also serves for transfer of freight to and from river vessels on the Colombian tributaries of the Orinoco and Amazon Rivers. The traffic consists principally of petroleum products, lumber, livestock, agricultural products, ores and building material. Table 33 gives the average annual tonnage interchanged, by ports, for the last seven years of record. 132 THE BASIS OF A DEVELOPMENT PROGRANM FOR COLOMBIA TABLE 33 AVERAGE ANNUAL COASTWISE FREIGHT MIOVEMENTS, 1940-1946 (metric tons) Port Receipts Shipments Barranquilla . 26,260 41,890 Buenaventura 20,604 6,806 Cartagena 34,252 27,805 Rio Hacha .... 3,486 2,261 San Andres and Providencia Islands 1,130 3,406 Santa Marta 8,370 11,067 Tumaco 5,170 3,647 Turbo 10,115 13,161 Smaller ports . ....... 5,350 4,694 TOTAL .................................... 114,737 114,737 Inland Waterway Transportation The Magdalena River and its principal tributary, the Cauca River, have for centuries formed the backbone of the inland transport sys- tem, connecting the Caribbean seaports and lowlands with the moun- tainous interior. In addition, there is a small amount of commercial navigation on the Sindi and Atrato Rivers flowving into the Caribbean Sea, and on the Arauca and Meta Rivers flowing into the Orinoco. The Government-sponsored National Navigation Company also maintains a token service on the Guaviare, Caqueta and Putumayo Rivers, which affords practically the only communication, except by air, with the vast Ilanos region. The average annual volume of commercial traffic on these rivers. in the last five years for which statistics are available, is showvn in Table 34. TABLE 34 AVERAGE ANNUAL COM-MERCIAL INLAND WVATERWAY TRAFFIC, 1943-1947 Percent Percent of Ton- of River Metric Tons* Total Kilometers Total Magdalena . 1,167,800 94.7 582,054,000 94.9 Cauca 25,200 2.1 12,095,000 2.0 Sinu 25,507 2.1 9,693,000 1.6 Atrato 4,788 .4 2,394,000 .4 Arauca . . 1,422 .1 988,000 .2 Mleta .5,243 .4 3,827,000 .6 Tributaries of the Amazon 2,857 .2 2,149,000 .3 TOTAL . . 1,232,817 100.0 613,200,000 100.0 (*) Does not include duplications or Ci6naga Canal traffic.  SURFACE TRANSPORT 133 The Magdalena River. The Magdalena River drains the broad valley lying between the Central and Eastern Cordilleras of the Andes. Both historically and practically, despite the lack of year-round dle- pendability of its upper reaches, it is a major and essential artery of commerce, forming with its railway and highway feeders the only surface connection betveen the Caribbean ports and the important inland areas around Medellin, Bogota and Bucaramanga. The annual freight traffic moved by river craft on the Magdalena for the past five years averaged 1,167,800 metric tons. Table 35 shows the division of this total among the several river ports where freight is trans- shipped inland. The upper river has a marked tendency to meander in separate, unstable, shallow channels over a broad flood plain, and to form shifting gravel bars after each high water season. Consequently, during the twvo annual dry seasons of approximately three months each, navigation of the 333 kilometers above Puerto Wilches is very tlifficult and tuncertain. Sporadic measures over many vears to blast TABLE 35 AVNRAGE AN Nt A\. IA(GDALEN A Riv}.R TRAFFic, 1943-1947 Kilometers Metric Tons above Port mouth ON OFF Barrancluilla 12 202,094 314,749 (Cartagena - 32,309 48,634 Calamar .. 103 52,434 60,001 Magangu6 .......... . 250 15,262 45,379 El Banco 391 9,834 16,154 (Gamarra . 485 12,764 9,948 Puerto Wilches 609 27,744 58,801 Barrancabermeja .. . 643 437,187 28,113 Puerto Berrio .742 63,368 197,793 Puerto Salgar 898 48,425 104,224 La Dorada 899 79,269 166,969 Honda . . . 942 19,354 4,959 Intermediate Ports 167,756 112,076 TOTAL 1,167,800 1,167,800 out the gravel bars and confine the current to the main channels by training dykes and contraction works have not produced visible permanent benefits above Puerto Wilches. Whether this failure is due to lack of a coordinated, continuously prosecuted plan of better- 134 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA ment, or to inherent difficulties of that section of the river, cannot be definitely stated. A Ps.$ 2 million project for stabilizing the channel at Puerto Wilches by means of bulkheads, spur dykes, and bank revetment is being carried on actively by the National Government, and two short critical sections below this point will probably have to be similarly dyked and protected (at an estimated cost of Ps.$1 million) to maintain the existing channel. It is also believed that periodic dredging costing about Ps.$1 million annually must be car- ried on in this reach if navigation is to proceed unimpeded from Barranquilla to Puerto Wilches. Canal del Diquie. This canal, 142 kilometers long, with a project depth of 8 feet and a project bottom width of 147Y2 feet, affords a navig,able connection between the harbor of Cartagena and the Magdalena River at Calamar, 124 kilometers above the mouth. Navi- gation on the Canal del Dique dates far back into the colonial period. There have been several progressive enlargements and much money has been spent to dredge the channel at irregular intervals, but it is subject to the deposit of sediment from the river at flood stages, and needs more or less constant maintenance to preserve navigable depths throughout. About 50 kilometers of the seaward section are badly shoaled and encroached upon by aquatic growth at present. Approxi- mately 50,000 tons of freight per year are currently transported over this route in each direction at the regular river rate of 4 centavos inbound and 2 centavos outbound per ton-kilometer. The balance of the traffic betveen Cartagena and the river, about the same volume, is carried by the railroad to and from Calamar. When properly maintained, the canal has ample capacity for all the freight available. Its effective maintenance is estimated at Ps.$2 8 0 thousand a year. Equipment anzd Operationzs. Boats and barges of various sizes and means of propulsion compose the river fleet. Table 36 shows the size of the major fleet operated in public service, and its growth in capacity from 1941 to 1948, which wvas due in part to the addition of modern diesel-powered propeller-type towboats. TABLE 36 MAGDALENA RIVER PUBLIC SERVIcE FLEET, 1941, 1948 Item 1941 1948 Increase Number of towboats .................... 65 128 63 Freight capacity in tons ..................... 20,980 49,100 28,120 Number of barges. ......................... 156 176 20 Freight capacity in tons ................... ... 26,100 43,500 17,400  SURFACE TRANSPORT 135 In addition to this public service fleet there are 28 self-propelled vessels and 96 barges in the private petroleum trade, with a total capacity of 60,828 metric tons. There are also 16 towboats and 25 barges in various private industrial services on1 the river with a total of 13,111 tons capacity. Forty-seven of the larger towboats and the 4 larger passenger "express boats" are of the obsolete stern paddle- wheel type. Their operation under existing handicaps is inefficient and unprofitable, and about 30 of these vessels are now out of service at Barranquilla. There are 16 fairly new diesel-powered propeller- type towboats and 40-odd new barges now in public service, which are much more efficient in their operation. These towvboats are more powerful than the sternwheel type and, because they draw less water, burn less fuel and employ a smaller crew, their annual opera- tion is more productive and profitable. The practice of assigning cargoes to the vessels according to the sequence of their arrival-the so-called "turn" system-is a handi- cap to efficient operation of river transport. Under this system, the first vessel to discharge cargo at a port has a prior right to load any available cargo and depart, regardless of the suitability of the vessel for the cargo in question or its comparative ability to navigate the river successfully under the conditions then obtaining. This prac- tice frequently results in long delays, both for vessels running aground with their cargo and for others awaiting clearance of less efficient boats before they can secure freight. It is not possible to estimate the value of time lost in monetary terms per ton, but the loss is real and often conclusive in influencing the shipper's choice of other routes and modes of transportation because, in effect, he has to gamble on the type of ship to which his cargo will be assigned. Moreover, there is no difference in rates for different commodities, types of ves- sel or qualities of service. Operatinzg Costs and Rates. The comparative operating characteris- tics of the two principal types of river carrier on the existing Magda- lena waterway are shown in Table 37, calculated from records of 3 typical round trips for each of the two types. The modern, diesel-powered, propeller-type toxvboats are much more efficient and economical in the lower reaches of the Magda- lena River, but they also encounter difficulties in navigating the upper 333 kilometers during the semi-annual dry seasons. Even when their lighter draft permits passage over the shoals of that sec- tion, the propeller-type boats show an incurable tendency to lose steerage way in the shallow reaches of the channel and to ground their barges against the banks. The improvement program now 13(0 lTe BASIS ()F A D)EVEJI.01'1ENT PROGRAM FOR COLOMBIA TABLE 37 CO-MPARATIVE OPERATING CT,TS \-f S lT\TISTICl FOR STERN WHEEL AND PROPELLER-TYPE VESSELS BASED ON ROUND TRIP BETWEEN BARRANQuILLA AND LA DORADA Sternwheel Propeller Item Type Type Rated horsepower 480 600 D raft in feet ................... .......... 4.5 3.5 Average upstream cargo (tons) ... ... 632 1,400 Average downstrealm cargo (tonis) ...... 330 330 Running time betweeti Barranquilla and Wilches (days) ..................... . 11 9 Standby time between Barranquilla and Witches (days) .....................-.. 6 6 Running time between Wilches and Dorada (days) . 23 20 Standby time between Wilches and Dorada (days) 21 9 Fuel and lubricants between Barranquilla and Wilches Ps.$2,135 I's.$1, 765 Fuel and lubricants between Wilches and Dorada .. Ps.$4,44 8 Ps.$3,883 Wages, food, costs of social legislation between Barranquilla and Wilches.... . . Ps.$7,544 Ps.$ 4 .180 Wilches and Dorada . . ..... . Ps.$17,705 Ps.$8,080 Initerest and amortization (including barges) (a) between Barranquilla and Wilches... . Ps.$2,620 Ps.$2,760 (b) between Wilches and Dorada ..... ..... .. Ps.$6,780 Ps.$5,340 Cost per ton-kilometer between Barranquilla and W"ilches Ps.$ 0.0213 Ps.$ 0.0083 Wilches and Dorada Ps.$ 0.1037 Ps.$ 0.0345 under way can be expected to afford dependable depths at all sea- sons for existing vessels of the major fleet with maximum draft of 4Y2 feet only as far south as Puerto MVilches, 609 kilometers above the river mouth. If the present improvements do not succeed in sta- bilizing the channel between Puerto Wilches and Bocas del Rosario. 50 kilometers dowinstream, the limit of certain navigability at all river stages might be contracted still farther. Full benefit of the economies possible from use of diesel-type propeller equipment, with fewer crew members than are needed on the older. steam-propelled, sternwhlieel vessels is not possible, however, because certain labor agreements require the employmenit of larger crews thani are neces- sarv, or 'crewv featherbedding," and to that extent the capital invest- menit in this more efficient eqcuipment has been wasted. Alagdalena River freight charges are based on a scale of 4 centa- vos per ton-kilometer upstream and 2 centavos per ton-kilometer downstream, irrespective of the type of vessel used. Green coffee in bags is giveni a 1 percent discount under the base rate. In addition, stevedore organizations at the river ports impose a flat charge of  SURFACE TRANSPORT 137 Ps.$9 per ton, "on and off", (i.e., Ps.$4.50 from warehouse to boat at point of origin and Ps.$4.50 from boat to warehouse at the transship- ment point). This high charge results from contracts with the steve- (lores' organization which exclude boat crew members from assisting in loading and unloading operations at the Mlagdalena River ports, and call for very strict rules as to hours, overtime pay, and pay for manual labor displaced by mechanical loading and unloading devices. This is several times the rate of Ps.$1.40 per ton charged, for example, by railroad employees for comparable services, and greatlv increases the cost of river transportation and reduces its ability to compete \vith alternative transport media. On an upstream haul from Ba- rranquilla to Puerto Wilches (597 kilometers), the transportation charge would be Ps.$23.88 per ton; a Ps.$9 loading and unloading charge would therefore represent about 28 percent of the total cost ()f shipment. For shorter hauls the importance of this item would rise proportionately and, for downstream traffic, where the freight rate per ton-kilometer is halved, its relative significance is sharply increased. This charge was reduced to Ps.$5 at the end of 1949 apparently in an attempt to recapture some of the traffic lost to other means of transport, but there is no indication as yet as to the effect, if any, of this change. The new rate is still high in relation to the cost of similar services on other routes and to the overall value of the products transported. This high rate, coupled with careless handling and widespread pilferage, has been an important factor in the diver- sion of traffic from the river to the overland route from Buena- ventura. The flat charge for loading and unloading is imposed, moreover, without regard to the nature or value of the cargo. As the develop- iment of Colombia proceeds, the river should more and more become the artery for moving heavy goods, machinery, and raw materials, as distinguished from the higher value general merchandise whiclh nIow formns so much of its traffic and which will probablv be carried to an increasing extent by the railway, highway and airway systems. Thus the impact of this flat charge is likely to become increasingly serious, and might offset any potential improvements in the utility of the river. The ports of Calamar, Puerto Wilches, Barrancabermeja, Puerto lierrio, Puerto Salgar. La Dorada and Honda all have modern ware- hoouses. which appear to be of ample capacity for storage and( trans- fer of freight betweeln the river and the connectinig railroads. How- ever, the fluctuations of freight volume with the seasons results in extreme congestion at certain periods, with consequent costly delays. Handling costs are high, for although the ports are equipped with  138 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA varied loading and unloading apparatus, labor agreements require payment on a manpower basis for all transshipments handled by mechanical means. The ports are not closely supervised nor held financially responsible for loss and breakage of cargo; hence the pilferage and damage rates are scandalously high. The effect of these various factors is indicated by a comparison of transportation and related costs for general merchandise from Barranquilla to various inland centers with those from Buenaventttra, and the comparative costs for export of coffee. (Table 38) Strictly on a cost basis, without considering differences in quality of service, Barranquilla compares unfavorably with Buenaventura in many cases. The latter's advantage is strengthened by the seasonal disability of the Magdalena River route. Barranquilla can continue to compete for the coffee export traffic only through special rates for volume contracts. For example, the cost under regular tariffs from Manizales via Barranquilla was Ps.$54.79 per ton, but a special contract tariff brought it down to Ps.$46.95, somewhat under the Buenaventura rate. Similar dis- counts are offered to other coffee-producing centers to meet the competition of the overland route. PIPELINES Pipelines are currently handling approximately one-half of the total ton-kilometers of freight transported in Colombia. 6 For this reason, they constitute one of the most important agencies of trans- portation. In the past most of this tonnage has been crude petroleum for export. As the demands of the Colombian economy for petroleum products increase and the supplies of crude petroleum diminish, which is the pattern of future development, the transport problem will be- come increasingly one of internal distribution to major consuming centers from the refinery facilities. There is little doubt that pipelines afford the most economical means of transportation for some petroleum products under certain specified conditions. In the first place they require substantial and steady volumes to insure utilization of the investment. As a matter of principle, it does not pay to construct small capacity lines since the original cost is not proportionately lower than higher capacity, and hence more economical, lines. For this reason it is sound to build pipelines only to the few major consuming centers; thereafter dis- 6 Pipelines were transporting approximately 45 percent of the total freight ton- kilometers in 1947, which was before the inauguration of service through the line between Barrancabermeja and Cantimplora-Puerto Berrio, one of the most productive in the system. See Figure 2 for location of present pipelines.  SURFACE TRANSPORT 139 TABLE 38 COMPARATIVE TRANSPORTATION RATES PER TON FOR IMNPORTS AND COFFEE EXPORTS, APRIL AND MAY, 19491 Trans- portation Warehouse Other Local Total Charges Charges 2 Charges Hauling Rates General Imports via (a) Barranquilla to: Bogota ............... Ps.$56.80 Ps.$1.50 Ps.$33.313 Ps.$ - Ps.$ 91.61 Ibague ................ 58.01 .50 33.31 - 91.82 Girardot .............. 63.09 .50 33.31 - 96.90 Manizales .......... 52.51 .50 33.31 - 86.32 Medellin ... .......... 52.33 1.50 33.31 - 87.14 Neiva .......... ..... 73.54 .50 33.31 - 107.35 (b) Buenaventura to: Bogota ............. 75.82 - 18.004 - 93.82 d .............. Ibague 51.35 - 18.00 - 69.35 Girardot ... .......... 60.16 - 18.00 - 78.16 Manizales ... ..... 42.84 - 18.00 - 60.84 Medellin ...... 55.29 - 18.00 - 73.29 Neiva .................. 71.72 - 18.00 - 89.72 Export of Coffee via (a) Barranquilla from: Fredonia ... ......... 34.46 1.50 20.975 3.20 60.13 Girardot ...... .... . 34.28 .50 20.97 1.84 57.59 Armenia ........- 46.66 .50 20.97 1.40 69.53 Manizales .... ... 32.48 .50 20.97 .84 54.79 Medellin ..... ..... . 35.16 1.50 20.97 1.43 59.06 Ibague .............. 34.17 .50 20.97 1.50 57.14 (b) Buenaventura from :6 Fredonia .. ...... - . 42.45 - 9.077 3.20 54.72 Girardot ....... ... 42.72 - 9.07 1.84 53.63 Armenia .............. 31.55 - 9.07 1.40 42.02 Manizales 39.06 - 9.07 .84 48.97 Medellin . ............ 53.27 - 9.07 1.43 63.77 Ibague ........... _ 36.46 - 9.07 - 45.53 l Rates for imports, April 1949; for exports, May 1949. 2 Includes Ps.$0.50 per ton for receipt and redispatch of shipment. 3 Includes Ps.$10.31 for import taxes, Ps.$14.00 for insurance, and Ps. $9.00 for loading and unloading charges. 4 Includes Ps.$10.00 for import taxes and Ps.$8.00 for insurance. 5 Includes Ps.$7.97 for export charges, Ps.$4.00 for insurance, and Ps.$9.00 for loading and unloading charges. 6 At Buenaventura insurance, loading and unloading and wharfage charges are included in transportation charges. 7 Represents export charges only. Source: Boletins de Estadistica de la Federacifn Naciontal de Cafeteros. 140 THl-F BASIS OF A DEVELOPMENT PROGRAM FOR COLOMNIBiA tribution is best handled by other means of transport-railroads and trucks-which can reach ultimate consutimers. Finally, pipelines solve only a part of the problem of petroleum products transportation. For example, a so-called "vhite products" line cannot carry aviation gaso- line because of the contamination from the other products which utilize the line. 7 Similarly, a crude-oil line cannot be used for the transportation of gasoline and many other refined products. One other economiiic consideration is wvorthy of note in the case of pipelines. They do divert traffic from other means of transporta- tioII and, although the transportation of petroleum products per se by pipeline may be cheaper, it is not necessarily a saving to the economy as a whole. This is especially true if the added traffic to the railroads, for example. w,vouldl allownmore profitable operations of this means of transport. In some cases of this type, it might be eco- ionliciC for the alternate means of transport to meet the pipeline rate. Since it is felt that the present pipeline systemn, wvith minor modi- fications, is adequate to handle the crude petroleum for export, barring any unforeseen discoveries of neew oil fields, this Report deals pri- marily with the pattern of pipelines to handle present and future distribution of internal requirements. At the present time Colombia imports a part of its requirements for refined petroleum products primarily through the ports of Barranquilla and Buenaventura. The balance of its requirements are produced at the refinery at Barran- cabermeja. 5 If it is assumed that the latter refinery will be equipped to furnish the needs of the large interior markets for most refined products, the transportation problem will focus on this point. Twvo major deficiencies exist in transportation from Barranca to these mar- kets. In the hirst place. B3ogotci and the suirroutindinig area of Ctuldina- imarca, one of the largest markets, must now rely in part on a pipeline from Barranca south to Puerto Olaya. river bar-e from there to luerto Salgar and railroad to Bogota. During the drry season trucks are titilized from Puerto Olaya to Barbosa anid railroad from there to BogotA." The amouiit of handling and storage required in these movements is expensive andI inefficient when the size of present and potential deemalds for petroleum prodlticts from this area are conisidered. Thle other deficiencv involves movement of petroleum lproducts from Barranca to Medellin and the markets of Antioquia, Caldas and \T alle del Cauca. This transportation involves pipeline from Barranca 7 "Whlite products" include such items as gasoline, kerosene and diesel fuels. 8 The refinery at La Petr6lea supplies a small local area in Norte de Santander. 9 These routes can be located on Figure 2.  SURFACE TRANSPORT 141 to Puerto Olaya and railroad to Medellin, an(l theuice by rail or truick to the ultimate consumer. Because of the inability of the Antioquia Railroad to handle the volume to M\edellin from Puerto Olaya, this has presented a real problem. As noted above, certain products will probably have to be in- ported, such as highl-octane aviation gasoline, and still other goods will have to move by means other than pipeline. This wvill require adequate transportation betveen Buenaventura and Cali. The need for such products in the Barranquilla-Cartagena area can be handled by direct import to those points. Recommended solutions for these petroleuim transport problems will be presented in Chapter XX.  CHAPTER VIII Air Transport When the country's extraordinarily difficult terrain and widely separated centers of population are considered, it is not surprising that Colombia has the oldest commercial airline in America, organized in 1919. In the ensuing thirty years, commercial aviation in Colombia has growvn steadily and rapidly, and is nowv a very important part of the transportation system for both passeng,ers and freig,ht. Since the war the rate of groNvth has been acceleratcd; in 1948, for example, the numuber of passengers carried by air w,as more than four times, and the amount of freight over twvelve times, as great as in 1945. This outstandin- growth resulted from (1) the availability of war surplus aircraft from the United States, and (2) the establishment in Colombia of several new airlines. The airlines in 1948 accounted for more than twvice as nmany passenger-kilometers as first-class railroad traffic, and are overwhelmingly the principal carrier for such travel over distances exceeding 50 kilometers. In that year, it is estinmated the airlines also carried about 10 percent as much freight traffic, in ton-kilometers, as the railroads and highwvays. Until the postwar period, wvith a few minor exceptions, the original SCADTA line, and its successor company, AVIANCA 5 had a monopoly of commercial air transport in Colombia. As cheap surplus aircraft became available, a total of sixteen newv airlines wvas established and nine are still operating. However, AVIANCA and four other companies 2 now carry about 97 percent of all com- mercial traffic, as shown in Table 39. I These abbreviations will be used to designate the companies: SCADTA-Sociedad Colombo-Alemana de Transportes Acreo. AVIANCA-Aerovias Nacionales de Colombia. 2 These companies and their designations are as follows: (1) LANSA-Lineas Aereas Nacionales, S.A. (2) SAMI-Sociedad Aeronautica Medelliln, S.A. (3) SAETA-Sociedad Aerea de Tolima, S.A. (4) LATCO-Lineas Aereas Transatlanticas Colombianas, Ltd. 142  AIR TRANSPORT 143 TABLE 39 ESTIMATED DISTRIBUTION OF COMMERCIAM AIR TRAFFIC JANUARY-JUNE, 1949 No. of Kilos of Passengers Cargo (percentage) AVIANCAI .......... ...... ..... 66.2 27.2 LANSA 27.9 21.3 SAM - 31.1 SAETA 4.2 7.7 LATCO - . 9.1 Sub-Total ... 98.3 96.4 OTHERS 1. .7 3.6 Industry Grand Total... 100.0 100.0 l Includes wholly owned subsidiary, Aerotaxi. Source: Based on records of Aeronautica Civil and companies. Table 40 shows that air passenger traffic is now concentrated in relatively few markets. The twenty routes shown account for nearly 60 percent of the total passenger revenues for the industry, and involve operations into only thirteen cities; ten of these routes, involving eight cities, provide nearly half the passenger revenues. In part, this reflects the concentration of economic activity in Colombia, but it results partly from inadequate attention to other potential markets. In any event, the possibilities for further develop- ment of passenger traffic appear substantial. In the next five years, it can probably be doubled without any change in the general char- acter of the service. If, however, the airlines are able to provide a lower class of service, competing to some extent with third-class surface travel, a total expansion of 300 percent might be expected. This "tourist class" service is a definite possibility being seriously considered by the airlines, but no definite action has been taken to date.3 3 Although AVIANCA operated a two-class service on an experimental basis during the postwar period, the "tourist class" was not priced low enough to attract a sufficient volume of traffic and was abandoned. 144 M-FE BASIS OF A DEVELOPMENT l'ROGR.ANI FOR COLOMBIA TABLE 40 TN1'ENTY MN1AJOR PASSENGER REVENUE MARKETS. JutLY 1949 Estimated Percent of Total Industry in MIarket Passenger-Kilometers 1. Bogota-Barranquilla 12.5 2. Bogota-Cali . 8.7 3. Bogota-Medellin . 6.5 4. Barranquilla-Medellin . 5.9 S. Bogota-Cartagena . 3.9 6. Cali-Medellin . ............. 3.4 7. Bogota-Bucaramanga 2.8 S. Bogota-C6cuta 2.4 9. Cartagena-Medellin . 1.7 10. Bogota-Neiva 1.7 11. Cali-Ipiales 1.6 12. Bogota-Pereira . . 1.2 13. Barranquilla-Cartagena 1.2 14. Bogota-Manizales 1.1 15. Barranquilla-Pereira .8 16. Barranquilla-Bucaramanga .8 17. Barranquilla-Santa Marta .. . .7 18. Bucaramanga-Medellint .7 19. Bucaramanga-Ciicuta .6 20. Bogota-Villavicencio .6 58.8 Air freight traffic is even more concentrated in major markets, as shown in Table 41. Nearly 70 percent of the total freight ton- kilometers are generated on 20 routes involving only 12 cities, and two markets, Barranquilla-Bogota and Barranquilla-Medellin, alone account for more than 34 percent of the total. Freight rates are already lower than woould normally be expected for DC-3 operations on a fully allocated cost basis. Thus freight traffic development will depend upon the extension of present service into new markets, the more intensive development of present markets, and eventually the use of essentially lower cost equipment. Because the potentialities of air freight have not so far been developed as much as those of passenger traffic, it is estimated that freight volume may quadruple over the next five years. This is based on the assumption that the airport system wvill be improved to handle a greater volume of DC-4 and C-46 traffic and night flying. Colombia is one of the few nations where commercial aviation has been largely developed by private capital. There have been, of  AIR TRANSPORTI 145 course, some public subsidies-gifts of land to the companies for- airports,,overnment construction of airports, and particuilarly the contract for carrying air mail, which has been an AVIANCA monopoly. Nevertheless, the major burden of development-incluld- ing the construction, maintenance and operationi of numerouis airports, and some airport-to-city highways, and the provision of comimunica- tions and air navigation facilities, as well as airline operations in the narrow,er sense-has been borne by the private compainies. TABLE 41 TWENTY MAJ OR FRs IGHT-PRODUCING MASRKETS, JULY 1949 Estimated Percent of Mvarket Total Ton-Kilometers 1. Barranquilla-BogotA . ...... . .. ............ 17.1 2. Barranquilla-Medellin ..... .... 17.1 3. Bogot~-Cartagena . .. .....-.. 6.2 4. Cartagena-Medellin . .... 4.1 5. Barranquilla-Cali .... .... 3.7 6. Bogot:1-Medellin ........ 3.6 7. Medellin-Planeta Rica 3.6 8. BogotA-Cali ~ ......... .. .. ....... . .. 3.3 9. Bucaramanga-INede]lin . -..... 2.2 10. Barranquilla-Bucaramanga 1.3 11. BogotA-Planeta Rica . .... ............ 1.3 12. Cali-Miedellin ... -.... . . .. ...... - 1.2 13. M edellin-M onteria .. _ ....... ... ....... ... 8 14. 13ogotfA-Bucaramanga . ........... 7 15. Barrancabermeja-Planeta Rica .6 16. BogotA-C6cuta .5 17. Barraiiquilla-C6icuta .4 18. Barranquilla-Mlanizales .3 19. Arauca-Cilcuta .. 20. Jiarranquilla-Mfagangu6 ... 2 68.4 The development of air transportation under these conditions wvas somewhat retarded. Flight and ground equipment was generally handed down from more highly developed countries, such as the United States, where the aviation industry has benefitted froml greater public subsidies. Operations were largely restricted to tihe few localities where the demand for service was strongest. These limitations were greatly eased by the special circuimstances which prevailed just after the war, but the sudden expansion of air transport during this period produced new problems which must be solved if this essential service is to realize its potentialities. 146 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMIBIA THE GOVERNMENT AND AIR TRANSPORTATION Law No. 89 of 1938 is the basic lawv governing the relationship of the government to the air transportation industry in Colombia. It provides in general for control and exploitation of the national atmospheric space and for registration of aircraft; regulates the ownership of aircraft engaged in public air transportation; defines air navigation services as public utilities; specifies the ability of the government to ownI, operate or invest in air transport companies under certain conditions; and governs the supervision of airports, the licensing and training of personnel, and the organization of the Direccion General de Aeronautica Civil, the government regulatory agency. Aeronautica Civil The Direcci6n General de Aeronautica Civil is part of the Ministry of War. All other forms of transportation-railroads, highways and wvaterways-are under the general jurisdiction of the Minister of Public Works. Aeronautica Civil, although created by the law of 1938, did not really become active until after the war when it was reorganized by Decree No. 969 of 1947. The reorganization had many good results, but three factors have impeded the agency's effective functioning. First, as part of the Ministry of War, it is subject to overriding military influence, although the employees of Aeronautica Civil itself are mainly civilians. While civil aviation certainly is important to national defense, it is necessary also to take account of economic objectives which do not necessarily coincide with military priorities. For example, the location and planning of an airport with a view to military use is not always consistent with its maximum commercial utility, but the final authority on investment of funds in national airfields rests with the Ministry of War. The development of com- mercial aviation in Colombia has gone far enough, and the possibilities for its future development are sufficiently great, to require a more balanced consideration of its needs. The fact that the law of 1938 was not implemented for almost ten years indicates the secondary interest of the military in civil aviation. Second, Aeronautica Civil's ability to achieve the purposes of the laxv has been hampered by budget limitations, aggravated by the fact that the allocation of revenues specified by law does not conform to the most important needs of the industry. Aeronautica Civil has been given responsibilities for the management and improvement of several airports which it cannot carry out properly with its present funds.  AIR TRANSPORT 147 Third, with few exceptions, Aeronautica Civil has lacked trained personnel of the calibre necessary to accomplish its purposes. This is due partly to low salary levels, partly to its status as an appendage of the Ministry of War, and partly to an insufficiency of persons trained and experienced in these fields in Colombia. This organization has not, therefore, been able to function with full effectiveness as a national regulatory agency-for example, to set up a system of airways for the nation, or to prepare and enforce appropriate regulations governing airline operating and maintenance standards, the licensing of personnel, and the direction of airports and air navigation and traffic control systems. With regard to the granting of route franchises, the basic air law made very general provision in Article 44, as follows: "In order for an enterprise which has complied with Article 40 to be able to establish a regular air service in Colombia, within its boundaries or in transit to other countries, it is required that the project be submitted for consideration by the Government, which will study the possibilities and the advan- tages as they affect public security and the economic interests of the National Industry of Air Transportation. According to the results of this study, the corresponding permit will be granted or denied. These permits must be subject to periodic renewal." As used in Article 22, "regular air service" is understood to be any exploitation of the national atmospheric space which is subject to tariffs and schedules published by the company. This provision, how- ever, like many others, has never been effectively implemented. At present, two companies, AVIANCA and LANSA, have more or less blanket permits to operate into any city in Colombia, over virtually any route, carrying either passengers or cargo. Aeronautica Civil has never found it politically expedient to refuse permission to operate to any company that indicated a desire and reasonable proof of ability to do so. Thus, as has been indicated earlier, many air transport companies have come and gone in the postwar period, and no precedent exists for Aeronautica Civil to limit a company's opera- tions to any specific routes or to any particular kind of service. As a result, the companies have not had security from uneconomic compe- tition nor encouragement to develop the full potentialities of the route structure. The subject of rate regulation is not mentioned in the basic air law but is left up to the Division of Transportation in the Ministry of Public Works. In reality, there has been no real regulation of rates except through inter-company agreements. This has produced cha- 148 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA otic competitive conditions and the danger of restrictive agreements against the public interest. The present problems -with regard to regulation of communica- tions, air traffic control, air navigation and airports are treated below. Technical regulation is exercised in two other important fields-in setting standards and granting licenses for flight personnel, and in setting and enforcing maintenance standards for the com- mon carrier airlines. The present organization of Aeronautica Civil provides for these functions, but their practical implementation has been hampered by lack of personnel and funds. The basic air law does not provide for a hearings procedure for either economic or technical regulation of the industry. The power to make decisions is vested in the Director of Aeronautica Civil alone. There is no process of hcarings or appeal to which an interested party may resort, except through a review by the civil courts which is normally too complex and lengthy to offer practical relief. Lack of sufficient administrative safeguards is a substantial defect in the relationship between the Government and the air transportation industry. Government Air Services Law No. 89 of 1938 aiso provides that the Government may itself invest and engage in air services if private capital is not fulfilling the needs. Article 45 provides: "When the needs of territorial exploitation demand it or the financial revenue of the routes prevents the establishment of civilian air services by private enterprises, the government is hereby authorized to: (a) participate as stockholder in private air transport enterprises in the manner of a subsidy. (b) In this case the government may demand the yield of the stock in stocks of the same enterprise; and, (c) establish its own transportation services. In this case these services will depend directly from the Direcci6n General de Aeronautica Civil." In addition. Article 46 provides that "The government is hereby like- wvise authorized to participate as stockholder in international air transport enterprises. Thus far Aeronautica Civil has not engaged directly in air trans- portation services. It does, however, own approximately 4 percent of the capital stock of AVIANCA. In addition, the Army has engaged in air services in those areas where the commercial airlines operate only infrequently, especially in the Ilanos and the country south of  AIR TRANSPORT 149 Bogota. The Air Force operations are defined in Decree No. 2639 of 1949 and Resolution No. 1810 of August 23, 1949: to provide trans- portation to the inhabitants of the regions of the South, the islands of San Andres and Providencia, the eastern l1anos, La Guajira and whatever other locations require the service for subsistence, develop- ment of the national economy or to foster colonization. Although the participation of the Government in air transportation, through Aero- nautica Civil and the Army Air Force, has so far been quite limited, the present law leaves considerable leeway for possible uneconomic competition by the Government with the commercial carriers. Air Mail Service Air mail service in Colombia is at present an AVIANCA mnonop- oly, established by contract with the Government. AVIANCA handles the entire operation, including the sale of air mail stamps and the pickup and delivery of mail. The actual contract expired in December 1942, but the arrangement has been continued on a day- to-day basis and gives AVIANCA an annual subsidy of more than Ps.$1.5 million. Table 42 shows the estimated revenue per ton-kilometer received by AVIANCA for the carriage of mail in the years 1945-1949. Dur- ing this period these payments, after deducting the cost of ground handling, averaged Ps.$13.64 per ton-kilometer. In the same period, the company's revenue from passenger service averaged 88 centavos per ton-kilometer, and for freight and express service 65 centavos. Thus AVIANCA's mail revenue per ton-kilometer is 15 and 20 times its passenger and air cargo revenues, respectively. In other countries, however, mail revenue generally runs from 112 to 3 times the pas- senger-cargo revenues per ton-mile. During 1949, AVIANCA will receive approximately Ps.$2 million for the handling of air mail, an average of about Ps.$9 per ton- kilometer. The prevailing rates for other air services are approxi- mately Ps.$1.25 per ton-kilometer for passengers, Ps.$1 per ton- kilometer for air express, and 40 centavos per ton-kilometer for air freight. Since very few, if any, air mail flights are operated without some other revenue as well, it is reasonable to assume that a subsidy of Ps.$2 per ton-kilometer wvould be more than adequate to cover expenses for the flight handling of mail, plus a reasonable profit. If a competitive system of air transportation is to be maintained in Colom- bia, it would appear desirable to make this subsidy available on an equitable basis to other companies by permitting them to participate in the air mail, perhaps on the basis of route franchises. 150 THE BASIS OF A DEVELOPMENT PROGRAMI FOR COLOMBIA TABLE 42 AVIANCA- ESTIMATED REVENUE PER TON-KILOMETER: MAIL, PASSENGER, EXPRESS AND FREIGHT, 1945-1949 Express and Mail1 Passenger Freight 1945 .. .. . ...... Ps.$20.S4 Ps.$1.10 Ps.$1.17 1946 ...... 17.12 .90 .70 1947 ....... 14.58 .76 .59 1948 .. . . . 11.43 .83 .60 1949 (6 mos.) . . 9.18 .97 .53 Average ..... Ps.$13.64 Ps.$ .88 Ps.$ .65 1 Mail revenue includes the subsidy from the Government as well as the proceeds from the sale of stamps less total cost of operating ADELCA, the ground service organization for handling the mail. THE AIRLINE ROUTE SYSTEM The first requisite for healthy Idevelopment of air transport is a satisfactory route system. In Colombia, the present route structure 4 has grown up in response to a variety of economic and political influ- ences. The most obvious needs have been filled, but the air route structure has growvn haphazardly. Both AVIANCA and LANSA, however, are now operating fairly extensive systems, which include a number of small, marginal markets largely developmental in nature. The principal all-cargo carrier, SAMI, is also operating into several such markets, and is providing a reasonably diversified cargo serv- ice to the major cities. SAETA runs a passenger service only from Bogota to Girardot and Ibague, and its cargo services have genierally been concentrated in the major markets, duplicating the services rendered bv AVIANCA, LANSA and SAMI. The same is true of LATCO, the last of the five significant surviving airlines. The only assurance against unreasonable competition is the fact that the capital requirements for airline operation are relatively high, as compared witth the probable returns. On the other hand, no com- munity can obtain air service unless the various companies consider its profit potentialities high enough to make it worth their while. The result tends to be over-competition for the more lucrative routes and types of service amid a general reluctance to assume the risks of developing new markets. The system is uneconomic in many respects and does not derive from any clearly defined public policy. 4 See Figure 4.  CO LOM H A PRINCI PAL AIR SANTA MARTA RANSPORT ROUTES BARRANQUILLA CAGA CARTAGENA VALLEDUPAR I \~~~~~~~~~~~~~JI MON ERINAAT\\ \ / M~~~ARGOSX :A CH MACO~~~~~~~~~~~~~~~~~~~~~~~~L PLANE IVL ARRA~ RAAUT B~~~~~~UIS 6ENAVNURO FIUR 4BO X / \>o~~~~~~~~~~~~~~~~~~~~~~~~~~~~~H PSO- 0 / PRIVATE // AODCRoA ,~~~~~~~~~~ IVLARAUT ~ ~ CLo ~~~~~~~~~~~~~~ / XIlAES- E WTCA-LzD opAYA IGREN 152 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA A basic policy question is whether the air transport system will be directed toward monopoly or competition. Colombia has had experience with both-a practical monopoly before the war and active competition since. In principle, a competitive system may be expected to result in better service and lower rates, and thereby to develop a greater volume of traffic. Colombian experience seems to bear out this expectation. Since the war, rates for passengers and cargo have been much reduced, flights made more frequent, and equipment improved. Traffic volume, especially of cargo, has greatly increased and new markets have been opened tlip. To some extent, of course, these improvements are attributable to the availability of relatively low-priced war surplus equipment, quite apart from competition, but there are numerous examples of favorable results stemming clearly from the latter factor. To cite only one case, the city of Cucuta could not receive competitive service until 1949 since the only airport was owned by AVIANCA. The standard of service it received was very low compared wvith cities of comparable importance. However, when LANSA competition wvas introduced, as a result of the building of a new airport in October 1949, AVIANCA immediately undertook to enlarge its airport facili- ties to allow service with four-engine equipment, and to provide a broader range of both cargo and passenger flights. Similar examples are plentiful in the short history of airline competition in Colombia. The results of competition have been equally impressive in terms of traffic development. For example, the all-cargo carrier, SAM, is equaling or slightly bettering AVIANCA's cargo volumes despite the latter's 27-year head start. The reason is obvious. Since cargo pre- sented the least profitable traffic, especially in the early years, AVI- ANCA did relatively little to promote this business, but concen- trated on the more lucrative passenger traffic. Competition, therefore, has been a desirable force in Colombian air transportation. On the other hand, the amount of competition was undoubtedly excessive for a time, as is shown by the high mortality rate for airlines. At one time Colombia had seventeen com- mercial airlines; the number has now been reduced to five, for all practical purposes, of which three carry about 90 percent of the traffic. Destructive rate wars and additional services offered by vari- ous companies to attract business characterized the period of peak competition. They resulted in temporary benefits to shippers and travelers, but the consequent instability of rates and services is un- favorable to sound long-range development of the industry and to the general economic interests of Colombia.  AIR TRANSPORT 153 RATES AND REGULATION Airline rates for passengers and cargo have an important bearing on the development of the Colombian economy, as well as on the financial position and growth of the airlines themselves. Before the postwar competitive period, rates were determined largely by what the traffic would bear, taking into account the slowness and inade- quacies of the competing surface transportation. Passenger Fares During the period from 1938 to 1945, passenger fares increased and the average rates were high. The competitive struggles of 1946- 1949 brought about widespread fare cuts to less than half the 1945 rate in some cases. For the twenty major markets, the average fare per kilometer in July 1949 was about one-third less than in 1945, as shown in Table 43. Considering the very substantial increase in other prices over the same period, this decline is the more notable. At the time of the lowest average rates, in November 1946, AVIANCA was operating a luxury service and a tourist service, the fare depending on the type of equipment used. LANSA was gener- ally meeting and in some cases beating the lowest AVIANCA fares. In addition, there were reductions of 20 percent for round-trip passage, group rates and other special discounts, and many other promotional and discriminatory pricing practices wvhich normally accompany cut-throat competition. TABLE 43 PASSENGER FARES IN TWENTY PRINCIPAL MIARKETS, 1938-491 Nov. July August 1938 1945 1946 1949 1949 Average ................ 12.4 14.8 8.9 10.0 13.3 (Centavos/Kilometer) Average ......... ....... 19.9 23.8 14.3 16.1 21.4 (Centavos/Mile) Average ................ 11.1 13.6 8.2 8.2 11.0 (U.S. Cents/Mile) 2 1 These markets generate about 60 percent of the total industry passenger revenues. 2 Converted at official rate: Ps.$1.75=U.S. $1.00 (1938, 1945, 1946) Ps.$1.95=U.S. $1.00 (1949) Source: Computed from company records. 154 THE BASIS OF A DEVELOPMENI' PROGRAM FOR COLOMBIA Recognizing the danger of this situation to their own interests, the two main competitors for passenger traffic, AVIANCA and LANSA, signed an agreement effective in August 1949, which raised fares by an average of 33 percent for the twenty major markets listed in Table 40. The new fares were based on a formula recognizing distance, surface competition, terrain and other pertinent factors. This agreement was made under the auspices of Aeronautica Civil, the government regulatory agency. However, the basic Aviation Law provides no legal authority for Aeronautica Civil to regulate rates. It can merely act as a voluntary referee and, through its membership on the National Council of Transportation, intercede with that body for a review of the equity of rates in the light of industrial and agri- cultural interests, as well as those of the airline operators. These procedures, however, are quite unsatisfactory for securing effective rate regulation and enforcement. In effect, unless the companies agree among themselves, regulation is non-existent. The history of air freight rates furnishes an example. Air Cargo Rates There have been extended discussions of air cargo rates among the companies but no agreement had been reached as of October 15, 1949. Freight tariffs are much more complex than those for pas- sengers. Moreover, so long as public policy toward air competition has not been determined, the activities of the stronger companies are likely to be dominated by the question whether it would be possible to beat the competition to its knees in a rate war and thus eliminate it and, if so, whether it would be worth the cost. For the companies that derive a large share of their revenue from passenger traffic, there is a strong temptation to approach the hauling of cargo on an added, rather than a fully allocated, cost basis. If this is done with a viewr to better utilization of available space, or in anticipation of the more efficient cargo planes of the future, the reasoning is sound. But operations at or below cost are often motivated chiefly by a desire to eliminate competition. Such cut-throat tactics may favor the shipper in the short run, but they lead almost inevitably to chaotic, rapidly changing rates, widespread discrimination and unsatisfactory service. Table 44, which shows an estimated breakdown of current freight traffic by commodities, indicates that even at present rates air freight in Colombia is by no means restricted to the movement of high- value, light-weight cargo. For example, an estimated 25 percent of the total air freight movement consists of fruits, vegetables, meat, seafoods and other perishables. Most of these products, however, move at or near "compensation rates", which are rates calculated to  AIR TRANSPORT 155 cover only direct operating costs for the normally light traffic return flights from inland centers to the port cities. (A similar practice is followed by the highway carriers, as has been noted in Chapter VII.) For example, the rate from Barranquilla or Cartagena to Bogota approximates Ps.$300 per ton, while the compensation rate in the reverse direction is Ps.$150 per ton. As a result, perishables and foods account for upwards of 60) percent of the air freight ton- nage carried from Bogota to Barranquilla and Cartagena. Compensa- tion rates have two desirable results: first, they provide new market outlets for meat, vegetables, fruits and other foodstuffs, permitting a greater specialization and efficiency in agricultural production; and second, they provide compensatory traffic to help support other air- line operations. As airline operating costs are reduced by use of more efficient equipment and operating methods, this traffic may be expected to increase. TABLE 44 AIR FREIGHT TRAFFIC BY COMNIODITY GROUPS, JULY 1949 Percent of Commodities Total Manufactured merchandise .. ................................................ 30 Perishable foods ................................................. 25 Textiles . .20...................... ................. . 20 N ewspapers and periodicals ......................................... ........ 10 D rugs and pharm aceuticals .................................. ............... 7 Tobacco ................................................. 5 Leather .................................................. 3 100 This brief discussion indicates the complexity of the factors involved in the fixing of economically sound rates, and the necessity for a stable structure which, with all factors considered, will allow the carriers a reasonable profit margin and will move the various commodities for which airplanes are an economic means of transport. The uncontrolled rate war has consistently violated these basic economic principles. A more satisfactory system of rate regulation seems essential to protect the public interest and to permit the healthy expansion of the aviation industry in Colombia. 156 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA COMMUNICATIONS, AIR TRAFFIC CONTROL, NAVIGATION AND AIRPORT SYSTEMS Various technical, administrative and financial problems beset the present communications, air traffic control, navigation and airport systems in Colombia. Technical adequacy in these systems is vital to safe airline operations. However, as the capital requirements and operational complexity of these systems have increased in line with technical advances, and as the volume of traffic has grown, the airlines have found it more and more difficult to carry the burden. In the early period of development the airports, air navigation aids and other facilities maintained by the Government were wholly inadequate for SCADTA's expanding operations. It was necessary for the company to provide them itself. At first, the financial require- ments for this purpose were not great, but by December 1948, 22 percent of AVIANCA's total assets, and 43 percent of its fixed assets, were in land, buildings, improvements and construction, prin- cipally airports. And despite this large investment, AVIANCA's systems of communications, air navigation, air traffic control and airports are insufficient for its present operations and certainly cannot provide adequately for future expansion. The creation of new airlines since the war, and the concurrent increase in private and military flying, have aggravated the problem. Since all the communications and air navigation systems and many of the most important airports are owned and operated by AVIAN CA, the safety of all flight operations depends on a single company which is in commercial competition with the others. AVIANCA, in fact, has regarded its ownership of these facilities as a basis for monopoly of commercial flying in Colombia, but while this attitude has been substantially changed, present arrangements cannot be considered satisfactory for sound development of commercial aviation. Air Traffic Control and Air-Ground Communications All the air-ground communications facilities for controlling the movement of aircraft in Colombia are currently owned and operated by AVIANCA. After the war, the inauguration of service by several other airlines made necessary some agreement between them and AVI'ANCA for use of these facilities, since it was technically and financially impossible for the various companies to operate separate systems of flight control. The agreement finally reached in 1946 provides, briefly, that the other companies pay AVIANCA a blanket fee of Ps.$7.50 per flying hour per plane for furnishing air-ground communications, air traffic advisory service, local meteorological observations at airports and air navigation aids.  AIR TRANSPORT 157 This was the only solution possible at the time, since the Govern- ment did not have either the capital or the personnel necessary to take over the AVIANCA system or to establish one of its own. But there are important administrative defects aside from the ques- tion of technical adequacy. In the first place, in controlling traffic AVIANCA avoids assigning specific altitudes and approach sequence numbers, or taking other positive actions usually associated with an orderly system of air traffic control. This is wholly understand- able, for such action would entail a degree of responsibility for the operations of other companies which no operating airline could afford to assume. In the second place, the competing companies inevitably criticize the service they receive and allege that preferential treatment is given to AVIANCA aircraft. On the other hand, AVIANCA insists that the arrangement is unprofitable and is reluctant to make improvements in procedures or facilities. Hence, the present system is more a traffic advisory service than a system of air traffic control. In other words, position reports of other aircraft are made available to each plane, but subsequent decisions are generally left up to the individual captains rather than to the control center. With several aircraft making independent decisions on altitude, approaches, holding points and the countless other elements invblved, the margin of safety in flight operations is seri- ously reduced. This is especially true at major airports, where traffic density is such as to warrant much more positive controls. Table 45 shows the estimated average number of landings and takeoffs per day during 1949 at principal airports. In interpreting these figures several points should be borne in mind. First, all traffic is concentrated in daylight hours, from approximately 6 A.M. to 5 P.M. Second, traffic demand further concentrates the flights at certain peak hours. Third, there is no comimon system of airways and check points for all aircraft. Fourth, certain airports (for example, the Cali military training field, which is used by two com- mercial companies) are also used by numerous other aircraft, some- times flying without radio and under no control. Fifth, these are average figures and do not show peak days or peak months. These estimates, therefore, give a very conservative picture of current opera- tions, and are much below the volumes that may be anticipated in the future. For safe operations under these traffic conditions, a better system of approach control at the major airports is clearly required. There is also need for effective control of aircraft en route between airports, although it is less urgent than approach control. There are no minimum altitudes for various conditions of flight and no assigned altitudes for specific flights. This lack of 158 THE BASIS OF A DEVELOPMENT PROGRA'M FOR COLOMBIA route control again leaves too much responsibility to the individual captains. TABLE 45 AVERAGE NUMBER OF DAILY COMIMERCIAL AIRLINE LANDINGS AND TAKEOFFS AT PRINCIPAL AIRPORTS, 1949 Daily Average 1. Bogota ..... ........ . . _ .......... .... .......... 120 2. Barranquilla .. ................... .......... .............. 101 3. Medellin .. ............ _ _ ......... ................... 100 4. Cali ................................. .... 54 54.......... 5. Cartagena ................. ...... ............................. 48 6. Manizales, Pereira and Armenia Area ......... ........ ........ . 47 7. Barrancabermeja .. ............................. ............... 28 8. Bucaramanga ......... ................ ................... 20 Soturce: C.A.A. Mission to Colombia. Based on company records of AVIANCA, LANSA, SAM, SAETA and LATCO. One favorable aspect of the problem of control of aircraft opera- tions in Colombia is that because of the mountainous terrain there is no frontal weather. There is some morning ground fog at the coastal cities, especially Buenaventura, and on the northern coastal plain along the MVlagdalena River. During the so-called "smoky season" in the early months of the year, especially February and March, operations are often hampered at various individual airports. The smoke results from burning over land to make way for new planting and severely limits lateral visibility. None of this "veather," however, presents very difficult problems of traffic control or neces- sitates expensive equipment or complicated procedures. The Airport System The pattern of ownership and operation of airports in Colombia is a complex one. According to a recent survey made by the Direccion General de Aeronautica Civil in Mlay 1949, there wvere 198 air fields owned as follows: No. of Percent Airports of Total Airlines .... ....... . .... 60 30.3 National Government .... .. 35 17.7 Municipal Governments . . ...... 8 4.0 Air Force .7 3.5 Private individuals and corporations .88 44.5 198 100.0  AIR TRANSPORT 159 The most important municipal airport is that of Medellin, which ranks with Bogota and Barranquilla in volume of traffic. Of the other seven municipal fields, the most important are at Armenia, Pereira and Tulua. The military field of most significance from a commercial standpoint is at Cali; it is used by LANSA and SAM. Before the failure of one of the larger airlines (TACA de COLOMBIA) and the construction of a new field by LANSA, the military field near BogotA (Madrid) had a large volume of commercial traffic. Its distance from the city, however, reduced its utility. Villavicencio is now the military field of second importance for commercial pur- poses. Few of the private fields are used by commercial airlines. The one at Cartagena is of some importance, however, and AVIANCA also owns an airport at that city. About three-fourths of the airline-owned fields belong to AVIANCA, including the two most important in Colombia at Barranquilla and Bogota. LANSA has duplicate airports at both these cities and fields at other less important localities, some of which duplicate AVIANCA facilities. SAETA has two ficlds, at Girardot and Ibague. Ownership of the principal fields by the airlines has been used by them, especially by AVIANCA, to restrict competition. In the immediate postwar period, AVIANCA refused to open its airports and other facilities to competing companies, arguing that it had had to build its owin fields in order to engage in the business of air transportation, and that a similar obligation should be assumed by other companies. Various governmental airports were open to the competing companies, however, so that they were able to get a toehold. As soon as possible, LANSA began to build facilities at the main traffic centers from which it had been blocked by AVIANCA. These new airports were made public upon completion. Faced with the reality of competition on the one hand and the loss of potential revenue on the other, AVIANCA opened up some of its fields to public use but, with minor exceptions, only where there were duplicate facilities. In general, AVIANCA's policy has been to keep its airports closed wherever it could gain a competitive advantage thereby. Inevitably the development of airports in this way has resulted in unecouomic duplication of facilities at numerous localities. There is not now, and will not be in the foreseeable future, any city in Colombia with a traffic volume requiring more than one adequiate airport. The word adequate is emphasized, because in many cases 160 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA two or even more inadequate fields have been constructed at a cost equal to or exceeding that required for a single airport. Table 46 showvs the principal duplications, wvith the average daily takeoffs and landings at each field. Even at the two largest cities, Bogota and Barranquilla, the number of planes is not sufficient to tax the capacity of one properly constructed field with a satisfactory system of air traffic control, especially in view of the favorable weather conditions. Depending on the season, the two airports at Bogota handle 1,000 to 1,500 passengers and 40 to 50 tons of cargo per day, which could easily be handled at one field. The investment in duplicate facilities at the four cities of BogotA, Barranquilla, Cartagena and Cucuta is over Ps.$3,500,000; and the capital requirements for maintenance, improvement and expansion will greatly increase this amount in the future. In the light of the anticipated need for heavy investments in new aircraft, maintenance plant and equipment, and the importance of reducing the cost of transportation, it seems apparent that the possibility of eliminating this unproductive overhead cost should be carefully explored. TABLE 46 ESTIMATED AVERAGE DAILY LANDINGS AND TAKEOFFS IN LOCALITIES WITH DUPLICATE AIRPORTS, 1949 Landings and City Airport Owner Takeoffs Bogota Techo Avianca 98 St. Cecilia Lansa 22 Barranquilla Soledad Avianca 65 Las Nievas Lansa 36 Cartagena Manizales Avianca 32 Lopez Privatel 16 Cucuta - Avianca 16 San Luis Private2 3 Gamarra Totunal Avianca 4 Acarutana Lansa 2 Magangue Avianca 20 - Lansa 10 Nortelibano Avianca - El Pindo Lansa 4 San Marcos - Avianca 5 Lansa 4 Sucre - Avianca - Malvarez Lansa 2 1 Constructed by TACA DE COLOMBIA before it failed. 2 LANSA has a 25 percent capital interest. Source: Aeronautica Civil and C.A.A. Mission Records.  AIR TRANSPORT 161 The competing companies readily accept this reasoning in theory, but in practice they are most unwilling to alter their policy. They argue that: (1) construction of duplicate airfields enabled them to get into business; (2) they could not count on the continued avail- ability of other fields so long as they are owned by a competitor; and (3) ownership of an airport is actually a sound investment, especially when landing fees are considered. In any event, the fact that Colombian airlines have been able to provide for themselves both airport and communications facilities without going to the wall is an indication of the strong demand for air transportation. The National Government, through Aeronautica Civil, operates about 35 airports, which can be used to a greater or less extent for commercial service. During 1947, Aeronautica Civil also had charge of the commercial use of military fields; since 1948, however, the Army has had responsibility for administration of the latter. Only 16 of the national fields produced revenue during the first nine months of 1949, since many of them do not currently have commercial operations, and the Government exempts from landing fees any carrier making less than eleven landings per month. The most important national field is at Bucaramanga, followed by Popayan, Neiva, Santa Marta and Ipiales. Of these, only Bucaramanga ranks among the top ten airports for commercial volume. National airports are now constructed, maintained anid operated under Law 73 of December 6, 1948, which created a National Airport Fund cffective as of January 1, 1949. This Fund consists of proceeds from the aviation gasoline tax, the landing fees at National airports, any other airport revenues, (e.g., rents, franchises, etc.), and any special appropriations that may be made. Sixty percent of the Fund is to be allocated to build airports at the capitals of depart- ments now without such facilities and 40 percent to construction, expansion, improvement, or maintenance of other National fields. Estimated revenue in 1949 was about Ps.$1,000,000 from the gasoline tax and Ps.$400,000 from landing fees. The revenue from landing fees should increase in the future, since some of the fields were com- pleted during 1949 and others were inoperative for long periods. Revenues from commercial use of military fields, however, go into the general Air Force funds, and are not specifically available for main- tenance and improvement even of the military airports. The arbitrary requirement that 60 percent of the Airport Fund be spent on facilities for departmental capitals, together with the lack of any overall policy or plan for development of other airfields, has made it difficult for Aeronautica Civil to spend the available funds with full effectiveness or adequate weighing of the economic or 162 THE BASIS OF A DEVELOPMENT PROGRAMI FOR COLONIBIA operational necessity of alternative projects. That agency has appar- ently been in some difficulty also in obtaining from the Treasury the entire revenue from the gasoline tax and landing fees. In August 1947, the National Government announced a scale of landing fees for all aircraft at public airports, based on .0037 centavos per kilo of gross weight. There was an added provision that the first ten landings per month would be free and the next twenty would obtain discounts of 25 to 50 percent from the standard fee, in order to encourage service to cities whose traffic potential was not large. Under this formula, the landing fee for a DC-3 (without discount) would be about Ps.$42 per landing and for a DC-4 about Ps.$120 per landing. 5 These rates apply to all National airports without regard to type, location or services available; and they have served as a general standard for determining charges at fields oxvned by the airlines, municipalities and private persons. They are far above the average for most countries which provide a superior type of facilities, and must be a severe strain on Colombian airlines. Airline manage- ments reason that it is often cheaper in the long run to own fields at heavy traffic points, especially if they can count on revenue from other airport users at these rates. There is now active competition between the two major companies for the airport business of third parties. For example. SAAM, which owns no airports, initially used the facilities of LANSA, but later found it possible to make a better arrangement with AVIANCA. Aeronautica Civil does not at present have adequate personnel or facilities for airport inspection. In view, of the importance of safe operations, some better provision for establishing and enforcing standards seems desirable. FLIGHT EQUIPMENT The flight equipment used for commercial air transport in Colom- bia was first developed and used in other countries. Until the end of the war many types were used. For instance, in 1945 AVIANCA scheduled service with six basic types of equipment: Ford Trimotor, Junkers U-34, Boeing 247, Consolidated PBY, Douglas DC-2 and Douglas DC-3. Such a heterogeneous fleet was expensive to operate and maintain, but since replacement equipment was difficult to obtain and costly, the company continued to use what it had, assigning the various aircraft on the routes best adapted for their use in each case. The availability of more efficient war surplus aircraft from the United States brought about practical standardization of operations 5 See Decree No. 2670 of August 6, 1947.  AIR TRANSPORT 163 around two types of equipment, the Douglas DC-3 and DC-4. Both types were available in large numbers after the war; the DC-3 (or the C-47 as the military cargo version was called) could be obtained for about U.S.$25,000, and the DC-4 for about U.S.$100,000. Depend- ing on whether the plane was to be used for cargo or passenger service, conversion costs varied from about 50 to 100 percent of this original cost. Even after the most expensive conversions, the total price was less than half what the aircraft had cost originally, and often they were practically new. Spare parts and engines, mainte- nance and radio equipment, and all other materials needed for a complete airline operation were available at similarly attractive prices. Table 47 lists the aircraft owned by the five largest airlines in Colombia as of October 1949, and their capacity at current levels of utilization. The overall utilization averages about four hours per plane per day. This low figure is the result of three factors: first, all flight operations are restricted to the daylight hours from approxi- mately 6 A.M. to 5 P.M.; second, airline distances are very short, involving many landings and takeoffs per hour of flight; and, third, the lack of reserve coverage, inefficient maintenance practices, and an inadequate inventory of spare parts make it necessary for the companies to have much of their maintenance work done in the United States. Some of these factors are remediable, but certain operational and economic limitations are inherent in Colombian conditions. TABLE 47 ESTIMATED PRODUCTIVE CAPACITY OF COMMERCIAL AIRLINES, OCTOI.ER 1949 Estimated Ton- Estimated Aircraft Number of Kilometer Capacity Percent of Company Type Aircraft Daily Annual Industry AVIANCA Douglas DC-3 23 75,268 27,472,820 Douglas DC-4 81 111,920 40,850,800 Consolidated PBY 2 902 329,230 TOTAL AVIANCA 33 188,090 68,652,850 60.2 LANSA Douglas DC-3 19 55,237 20,161,505 17.7 SAM Douglas DC-3 11 38,500 14,052,500 12.3 SAETA Douglas DC-3 3 7,560 2,759,400 2.4 LATCO Curtiss C-46 4 11,550 4,215,750 3.7 SUBTOTAL 70 300,937 109,842,005 96.3 ESTIMATED OTHER COMPANIES - 11,563 4,220,495 3.7 ESTIMATED INDUSTRY TOTAL 70 312,500 114,062,500 100.0 1 Includes 2 planes of this type on order to be delivered in November 1949. Source: Company records. 164 THE BASIS OF A DEVELOPAIENT PROGRAM FOR COLOMBIA Only four Colombian airports are operationally adequate at present to handle four-engined DC-4 equipment; these are the AVIANCA airports at Bogota, Barranquilla and Cali and the Medellin municipal field. Even at these airports, except Barranquilla, restrictions in payload are imposed by the length of the runways or the altitude of the fields. Thus, it is impossible to operate a DC-4 on any schedule in Colombia without some payload restriction; such restrictions presently range from about 10 percent to as high as 40 percent of maximum payload. Similar payload limitations, also varying from about 10 to 40 percent, apply to the operation of DC-3's at various airports. Even with these restrictions, operational standards in Colombia are lower than those in the United States, and the margin of safety is correspondingly reduced. Operating Costs and Rates The best estimate of overall operating costs of DC-3's in Colombia is approximately Ps.$300 per hour. This is an average figure for both cargo and passenger type aircraft, including indirect expenses as well as direct flight costs. Both direct and indirect costs, especially the latter, are somewhat higher for passenger than for cargo opera- tions, but the average figure illustrates the general economic limita- tions of this type of aircraft. Under average operating conditions in Colombia, the DC-3 will produce approximately P75 ton-kilometers per hour. Thus, as a general rule the break-even point for operations with DC-3 equipment is approximately 34 centavos per ton-kilometer. Air freight rates now average about 39 centavos per ton-kilometer. This is only 4 centavos above the fully allocated cost for efficient DC-3 operations under present conditions, and about 10 centavos above that for C-54 aircraft. The profit margin for DC-3's is not enough to permit accumulation of the reserves necessary for re-equipment or other contingencies, nor are present rates low enough to attract many kinds of potential air freight. Nevertheless, cargo carriers using DC-3 type aircraft have been able to compete sucessfully with surface transportation, although surface rates are only 6 to 15 centavos per ton-kilometer. For one thing, air distances are generally very much shorter than surface routes. For example, from Bogota to Medellin by air is only 238 kilometers, whereas by highway it is 573 and by rail 757 kilometers. The actual cost of air transport between the two points is much lower, therefore, in relation to surface transportation than present rates would indicate. In August 1949 the Bogota-Medellin air freight charge was approximately Ps.$100 per ton, while the highway rate  AIR TRANSPORT 165 was about Ps.$85 per ton. Moreover, air freight offers great savings in time, in cost of packaging and in pilferage and breakage. With these natural competitive advantages the airlines have been able, even with the essentially uneconomic DC-3 aircraft, to make impres- sive penetrations into many freight markets. Under the present rate structure, the DC-3 is much more eco- nomical as a passenger than as a cargo aircraft. Before the last fare increase, effective August 1, 1949, the average fare per ton- kilometer for passengers and baggage was about Ps.$1. The new rate averages approximately Ps.$1.25 per ton-kilometer. Thus the revenue per ton-mile from passenger service is over three times that for carrying cargo. There are, of course, several compensating factors that enter into the comparison. There is a loss of some 5 percent in the payload of a passenger airplane as against a cargo plane; the provision of passenger service involves greater indirect costs; and it is normally easier to obtain a high load factor in freight service, especially since it is usually operated on a non-scheduled basis. Considering all these factors, it is a fair assumption that the DC-3 produces 10 to 15 percent more revenue at present rates in passenger service than as a cargo carrier, and hence provides a satisfactory profit margin for an efficient operator, even though he must furnish a substantial share of air traffic control, navigation, communications and airport services. Substantially lower rates cannot be anticipated, however, until much more economical types of equipment are brought into use. Moreover, the profit margin on passenger service at present rates enables the passenger carriers to haul freight on an added-cost basis to build up cargo volume and revenues. For these reasons, the present passenger tariffs can be considered fairly stable for the near future. But despite its low cost, the DC-3 is not a very economical operating unit. It must be remembered that the basic design of the DC-3 is over thirteen years old, and that it did not contemplate the kind of service for which it is now being used in countries like Colombia. The best estimate now available of average DC-4 oper- ating costs in Colombia is about 29 centavos per ton-kilometer, approximately 15 percent less than the costs for DC-3 equipment. However, the use of DC-4's is restricted to a very few airports and to those times of day when relatively large traffic volumes are avail- able. These limitations are especially serious in the carriage of air cargo, since the DC-4 cannot provide the flexible multi-airport service required in the cargo field. If, however, airport facilities were im- proved to make unnecessary the payload restrictions which now 166 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA prevail and open such cities as Cucuta, Buenaventura and Bucara- manga to C-54's, a larger proportion of freight tonnage could be flown with the latter aircraft and overall production costs substan- tially lowered. Inauguration of night flying at principal airports would also help to lower the cost of freight carriage, through better utilization of cargo equipment and the attraction of a greater volume of traffic by providing overnight service. One other type of aircraft has been used to some extent for commercial operations in Colombia-the Curtiss C-46. This is a twin-engine plane, presently licensed by Aeronautica Civil only for cargo service; its payload in this service has averaged about 5.5 metric tons, or approximately 36 percent more than a DC-3 cargo plane. The only company to use the C-46 has been LATCO, and it has not had a sufficient period of continuous operations to provide accurate cost information. Based on experience in the United States, however, the operating costs of this type of aircraft normally run about 10 to 15 percent higher than those for the DC-3; with a 36 percent greater payload, it is thus substantially more economical. A number of C-46 planes, together with spare parts, engines, and maintenance equip- ment, are available from war surplus. More extensive employment of the C-46 for cargo service may thus provide a partial solution to the problem of high operating costs. So far, however, two factors have limited its use in Colombia. In the first place, the companies operating DC-3 fleets have hesitated to acquire another type because of the problems of personnel training, maintenance and operational inflexibility. In the second place, unusually severe payload limitations have been imposed on the C-46 until its performance at Colombia's high altitudes and in and out of certain airports is fully established. It is believed that an efficient carrier using DC-3 equipment for one-third of its cargo traffic and DC-4's for the remainder, wxhich would be entirely possible with a modestly expanded airport system, could reduce production costs to 25 centavos per ton-kilometer. This estimate is based on out-of-pocket rather than fully allocated costs, so that it could be attained only by a company engaged in both passenger and cargo service. It is difficult to estimate what level of costs might ultimately be attainable, since there is no basis of experience with other types of aircraft. From an euginieering stand- point alone, however, a production cost of 15 centavos per ton-kilo- meter within five years appears entirely feasible. In any case a cost of 25 centavos per ton-mile would enable the airplane to compete with surface transport media in most of the important markets of Colombia for many kinds of traffic. The future of air freight trans- portation in Colombia can, therefore, be regarded very optimistically.  AIR TRANSPORT 167 Future Equipment Possibilities There is no aircraft now available which is particutlarly suited to Colombian operational conditions. The new aircraft being used in commercial service in the United States, such as the Convair-240, Douglas DC-6, Lockheed Constellation, and Martin 202, are larger and faster equipment which require better airport facilities, greater traffic demands, and generally longer hauls than exist in Colombia. Two new types have been considered for use in Colombia-the Douglas Super DC-3 and the Fairchild Packet. The Super DC-3 is a modified version of the older DC-3, with higher performance char- acteristics, primarily speed and increased payload. Because of the short-haul nature of most Colombian air traffic, higher speeds are not of major importance; an average passenger trip is about 350 kilo- meters, or less than an hour and a half of flight time in a DC-3, and the average freight haul is about 450 kilometers. Thus, the loss of payload to obtain higher speeds is not economically justified. Besides, the present price of the Super DC-3 is approximately U.S.$325,000, which would be a large expenditure to write off if an aircraft more suitable to operating conditions in Colombia is developed later. The Fairchild Packet, on the other hand, is so far strictly a military plane, and the company has indicated no desire to place it in com- mercial service. The commercial operating costs, therefore, are not accurately known, and its purchase price would probably exceed U.S. $500,000. This plane does not for the present, therefore, offer any practical alternative to existing equipment. In all probability, however, an aircraft could be developed to serve the needs of countries like Colombia without great difficulty if the manufacturer could be assured of sufficient sales to recover the development costs; and there are many countries, particularly in Latin America, faced with similar operating problems. This pos- sibility, however, will take time to develop, and plans for the immediate future should emphasize more efficient utilization of presently avail- able types. In fact, with improved utilization, the present capacity of the commercial airline fleet will be sufficient to meet a substantial portion of Colombia's transport requirements during the next three to five years.  CHAPTER IX Health and Welfare Health is probably the most important single component of a standard of living. At the same time it provides one of the most important determinants of that standard. Poor health status means not only failure to reach maximum productivity, but also a direct drain on wealth and resoturces. Low levels of health result in many direct and indirect costs, diverting funds and facilities which should be used to strengthen and build the economy. Poor health is expen- sive in terms of time lost at the farm or the work bench, in terms of the vast needs for more hospitals and facilities of all kinds, in terms of increased costs of welfare, insurance, and sickness and accident payments. For these various reasons the Mission considered health and sanitation an integral part of its survey of Colombia's economy and resources. PHYSICAL FACTORS AFFECTING HEALTH General sanitation, including the purification of water and milk supplies, proper disposal of sewage and wastes, and the eradication of disease-bearing insects and rodents, are the first steps toward elim- inating the acute infectious diseases. Other environmental factors which have a direct or indirect bearing on health must also be con- sidered. These include climate, natural resources, the nature and fer- tility of the soil, housing, and general working conditions. The climate of Colombia ranges from tropical to temperate and even cold in different areas. This means that Colombia is subject not only to all the diseases that threaten health in other countries of the Western Hemisphere, but also to conditions arising from or aggra- vated by tropical climate. Thus, while the incidence of such diseases as malaria, yaws, and leprosy is negligible in the United States, they thrive under Colombia's environmental conditions. Climate affects health in many other ways. In combination with the terrain, for in- stance, it limits the kinds, amounts and varieties of food that can be grown. Limited production and poor transportation of essential foods make for inadequate diet, which produces malnutrition and aggravates other disease conditions. In tropical climates greater precautions are necessary to preserve food and to prevent contamination and spoilage. The availability of natural resources-for example, fuels, water, soil and minerals-and the extent of their development may also have a decided effect on health status and on the kind and quality of health protection. 168  HEALTH AND WELFARE 169 Water Supply and Waste Disposal Colombia almost completely lacks elemental sanitary facilities, as is shown in Chapter X. Unsatisfactory water conditions consti- tute a menace to health even in the largest cities. For example, an investigation of a typhoid epidemic in Medellin showed that the public water supply was largely responsible for the outbreak and for the con- tinued high incidence of the disease. Since 1943, Medellin has averaged not less than 1,000 cases of typhoid per year; from January to May 1949, the period of the outbreak, there were 1,282 cases of typhoid. Water supply in rural areas is even less satisfactory. Only a few have adequate wells and pumps. A great number are supplied from irriga- tion ditches, brooks, rivers and, especially in the Atlantic Coast area, from ponds. The general lack of adequate sewage and waste disposal systems in Colombia undoubtedly accounts, to a great extent, for the high incidence of intestinal diseases. Sewage disposal facilities are in an even worse state than water supply and, while the individual can take some precautionary measures by boiling water of poor quality, proper sewage disposal must be largely a community responsibility, with the individual comparatively helpless to raise sanitary standards. The final disposition of garbage and waste is very unsatisfactory in most localities. This is one of the most important reasons for the prevalence of mice, rats, insects, and other pests. Housing The great majority of people in Colombia live in dwellings that are inferior when measured by standards of space, sanitation, com- fort, or the ordinary amenities of life.' Although less obvious and dramatic, rural housing is probably worse than housing in urban areas. Even the better homes afford little protection against flies or mosquitoes; moreover, thatched roofs or sides provide ready har- borage for rodents, fleas and other vermin that may be instrumental in the transmission of disease. Serious overcrowding is common, especially in sleeping quarters. Inadequacy of floor area, lack of space heating facilities and serious shortages of beds and bedding contribute to the inconveniences and health hazards in housing. Other characteristics are the absence of modern household appliances, running water and sewerage. Rural dwellings in particular provide only limited protection against the elements. I For fuller discussion see Chapter XI. 170 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMIBIA Milk and Food In Colombia only minimum measures are taken to assure sanitary food and milk. For many generations the practice has been to boil all milk consumed whole, which has proved to be a wise precaution. Over a period of approximately 25 years, attempts have been made to promote the use of pasteurized milk, but they have had only limited success. Some of the pasteurization plants were visited by the Mission and, in general, the equipment was of obsolete design, often in poor repair, and as far as could be determined from daily records, rather poorly operated. Because of faulty practices on pro- ducing farms and delays in transportation, much of the milk arrives in bad condition. In one or two of the plants visited, the equipment for sterilizing the bottles had apparently not been used for several days. In one instance, this may have been due to the small quantity of water available in the area. In a large number of the public markets visited, particularly in the tropical areas, food was displayed out in the open, unprotected from flies, insects and human contamination. For the most part, the market areas were small, congested and ill-kept. The amount of food lost through spoilage is appalling, constituting a serious drain on the overall food supply. Meat is not believed to be a great sanitary hazard, although much of the meat processing system could be improved. All meat must be butchered at the municipal slaughterhouses; these, however, are essentially just floors for killing. All meat is sold to the meat markets and processing plants before noon of the dcay on which it is killed. There is practically no refrigeration except that available in the better homes. In the markets, sea fish is refrigerated but river fish is not. Insects and Rodents Modern methods of controlling infectious diseases stress elimina- tion of disease-carriers such as flies, fleas, mosquitoes and rats, and their parasites and breeding places as well. For instance, in wiping out the foci of murine typhus fever, which is spread from rats to human beings by the bite of the rat flea, it is important to eradicate the fleas, the rats and their lairs. In Colombia, where sanitary con- ditions in general are extremely poor, insects and rodents known  HEALTH AND WELFARE 171 to be carriers of many highly infectious diseases are abundant. For instance, there are said to be eight mosquito vectors of malaria in Colombia, three of which were discovered recently. Against one of these, Anopheles Eiseni, DDT residual spray is not effective because these mosquitoes bite during the day outdoors. It is one 6f the chief vectors in the coffee-producing areas, since it breeds in the water of the moats around recently planted coffee trees, and has been found breeding from sea level up to an altitude of about 1,800 meters. Another specie, Anzopheles Albananus, is the principal vector along the two coasts. The mosquito Anopheles Darlinigiis the principal vector in the Ilanos and the lower Magdalena River valley. HEALTH STATUS Several indices may be used to appraise health and health re- sources: life expectancy, birth and death rates, the incidence of illness, physical and nutritional status, and records of work absences due to illness or disability. Taken together, they provide a useful yardstick to measure Colombia's health status at the present time. Life Expectancy According to official statistics, the mean expectation of life of the average Colombian is 46.3 years. It is doubtful, however, that this figure is reliable. It is based on national vital statistics which are not supported by local spot checks. It seems that a more realistic figure would be around 40 years. This is similar to most South American countries though well below the U. S. or Canadian average. This relatively short expectation of life results from a high death rate, especially in infancy. Had the death rate been reduced to levels prevailing in some countries in the past twenty years, population might have attained 14 million, instead of 11 million, in 1949. Birth Rate The population of Colombia has grown rapidly in spite of the high death rate. During the census periods from 1900 to 1938, the population increased from 3,878,000 to 8,700,000 and is estimated to have reached 10,545,000 in 1947, more than doubling its population in this period. Although the rate of increase is considerably higher than that of Chile, Mexico, and the United States, as shown in Table 48, it is far below the rates of Argentina and Brazil. 172 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA TABLE 48 ESTIMATED POPULATION OF SEVERAL AMERICAN COUNTRIES, 1900 AND 1947 Estimated Population Percentage Country 19001 19472 Increase (thousands) Argentina ............... ........... 3,955 16,109 307 Brazil .............................. 14,434 47,550 229 Colombia ........ ..... ............. 3,879 10,545 172 Chile ...................... ........ 2,712 5,526 104 United States ......... ............ ...... 75,621 144,034 90 Mexico ....... .... .................. 12,492 23,434 88 Peru ...... ........................ 4,610 7,922 72 I l¢ter-American Statistical Yearbook, 1942, Raul C. Migone, Marcelo F. Aberas- tury, Emilio Fuente, and Jorge E. Iturraspe. Macmillan Company, New York. 2 Demographic Yearbook, 1948, prepared by the statistical office of the United Nations in collaboration with the Department of Social Affairs. Lake Success. New York, 1949. Since there has been little recent immigration to Colombia, the increase in population may be regarded as largely internal. The birth rate reported officially (Contraloria General) usually ranges from 30.2 to 33.8 per 1,000 population. This figure may rest on faulty statistics since it is likely that a number of births, especially in rural communities, are not reported. In fact, these figures are inconsistent with data provided by the Contraloria on the rate of increase of the population (indicated rate is 20.3 per thousand, while the difference between birth and death rates also reported officially is 17.4 per thousand). Moreover, it is not confirmed by spot checks made in urban centers by the "Direcciones Seccionales de Estadistica", which report the following: Birth Rate per Thousand M anizales ... .... ...... .. 38.3 Barranquilla 43.1 BogotA 31.4 Medellin ....... 41.7 Average .. 38.6  HEALTH AND WELFARE 173 It is likely that the last figure, or even a slightly higher rate (38.8 per thousand) reflects reasonably accurately the secular trend in births. It compares with the highest rates prevalent in the northern part of Latin America: Birth Rate per Thousand 2 Colombia . ... . . 38.8 Mexico :. . . .. .... . 43.7 Costa Rica .. . 42.4 Salvador ........ . .... .. ... 36.1 Venezuela . . . . 38.4 In the United States, the birth rate is not much over half that indi- cated for Colombia. Death Rate Although gross death rates have only a limited validity, they are of some value in comparing the state of health in several nations, and as a rough measurement of the relative effectiveness of public health programs. A nation with a low general death rate is likely to have preventable diseases under good control. Judged by this cri- terion, Colombia, although surpassing some of the countries listed in Table 49, falls well below the health level of the United States. It should be pointed out in extenuation, however, that most of the preventable diseases find a favorable environment in the tropics where they are more difficult to control than in colder climates. Colombia's official figures on death rate have fluctuated between 17.3 and 15.6 per 1,000 population during the period 1938 to 1946. Death rates based on studies made by the Mission in selected urban centers show higher rates, however, as follows: Death Rate per Thousand Manizales . . . .. ... . ... . 19.3 Barranquilla . . . .. .... . 14.83 Bogota . .......... . . . . 19.6 Medellin . . ........ ........... 20.4 Average .......... . .... ....... ....... 18.5 2 Colombia, 1947 figures; others, 1946. 3 Reported figure for Barranquilla also seems questionable; it is more likely to be about 20 per thousand. 174 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA TABLE 49 DEATH RATES OF SEVERAL ANIERICAN COUNTRIES, 1938-46 Number of deaths per 1,000 populationil Country 1938 1940 1942 1944 1946 Mexico . 22.9 23.2 22.8 20.6 19.4 Guatemala ......... ........ . 20.1 19.0 20.9 18.4 17.2 Chile . . ..... 23.5 21.6 20.3 19.5 17.2 Colombia . . 17.3 15.2 16.0 16.4 15.6 Venezuela ... ......... 18.3 16.6 16.3 17.2 15.0 United States.. 10.6 10.7 10.4 10.6 10.0 Argentina .12.4 11.3 10.9 10.4 9.4 1 Demiiographic Yearbook, 1948, prepared by the statistical office of the United Nations in collaboration with the Department of Social Affairs. Lake Success, New York, 1949. Table 20, p. 312. Since health programs are designed to conserve life and increase the useful span of human existence, mortality rates of different age .groups may be taken as a fairly critical measure of their effectiveness. The age periods shown in Table 50 for Colombia, Venezuela, Alexico and the United States are not strictly comparable, but the data are revealing. Again it is shown that Colombians tend to die young, with the death rate for children under one year of age-a rate which could be expected to drop with effective health measures-actually showing an increase since 1938. Only the rates for persons of advanc- ing years compare favorably with those of other countries. One of the consequences of the high birth rate and the short life expectancy is the high ratio of four dependents per adult worker which, of course, reduces the productivity per capita. Data on mortality classified by cause may have value in judging health status. This is probably true even for Colombia, although two-thirds of the deaths are not certified as to cause by a physician. Except for data on tuberculosis, the figures shown in Table 51 seem to corroborate prevailing impressions and spot studies made by health agencies. An important characteristic of Colombia's mortality picture is the very high proportion of deaths attributed to causes amenable to known methods of control. Among these in order of frequency are: the intestinal infections, including diarrhea, enteritis, typhoid  TABLE 50 DFATH RATES BY AGE GROUIS FOR DESIGNATED AAIERICAN COUNTRIES FOR SPECIFIED YEARS Number of deaths per 1.000 population by agel All Under 60 and Country Year Ages 1 Yr. 1-4 5-9 10-14 15-19 20-24 25-29) 30-34 35-39 40-44 45-49 50-54 55-59 Over Venezuela .................. 1945 15.3 97.7 21.4 5.3 3.5 6.9 10.8-- -- 13.7 22.2 63.5 Colombia . . .. ....... 1938 17.3 150.5 28.5 -4.5- -5.3- 7.7- 9.7 12.7 18.8 57.9 2 Colombia 1946 15.6 163.0 26.0 4.0 4.2 5.8 8.4 12.7 50.7 United States . 1946 10.0 45.3 1.8 0.8 1.7 2.3 3.7 11.3 51.0 Chile . . 1940 21.5 239.9 31.5 3.1 7.9 9.8 11.8 19.8 68.0 Mexico ....... ..... 1940 23.3 205.3 48.2 6.1 7.3 10.7 14.1 21.4 75.8 1 Dem1ofgraphic Yearbook, 1948, prepared by the statistical office of the United Nations, in collaboration with the Department of Social Affairs. Lake Success, New York, 1949, Table 22, pp. 386-387. 2 Anitario General de Estadistica. Contraloria General de la Rep6blica, 1946.  TABLE 51 DEATHS AND DEATHi RATES FOR SELECTED CAUSES IN DESIGNATED AMERICAN COUNTRIES Colombial j United States Mexico Veniezuela 10000 No.pe No. per No. per perpe No.00 Total 100,000 Total 100,000 Population Total 100,000 Selected Causes of Death 1946 Population 1946 Population 1940 1938 Population All Causes. 160,460 1,555.1 1,395,617 1,060.7 2,282 64,009 1,865.6 Typhoid anid Paratyplhoid Fever.,...... 2,077 20.1 407 0.1 31 313 9.1 Dysentery ... 1,270 9.1 952 0.3 54 397 11.5 Whooping Coughi. . .......... 3,309 32.0 1,241 0.6 41 154 4.4 Diphtheria ., .... ..... . . 544 5.3 1,259 0.5 - 79 2.3 Tuberculosis (all forms) 4,480 43.5 50,911 36.3 56 3,349 97.6 Malaria . ...... .... .... . . ... 4,976 48.2 341 2 119 1,394 40.6 Syphilis ....... 744 7.5 12,955 8.4 7 323 9.4 Smallpox 396 3.8 - - - 256 7.4 Measles .......... 2,232 21.6 --- 280 8.1 Typhus .... 1,149 11.1 - - - - - Cancer (all forms) ...... 3,409 33.0 182,005 157.4 23 814 23.7 Diabetes Mellituis .242 2.3 34,731 33.1 65 1.8 Intracranial Lesions of Vascular Origini .. . 2,072 20.1 125,646 88.6 19 347 10.1 Diseases of Heart (all forms) ...... 5,835 56.5 429,230 374,3 54 1,621 47.2 Pnieumonia anid Bronchopneunionja 10,657 103.2 53,541 36.5 348 1,691 49.2 Bronchitis.9,166 - - - - - Diarrhea, enteritis, etc . ..... 19,761 191.0 8,090 4.3 480 3,452 100.6 Appenidicitis.216 2.1 5,285 3.6 - 59 1.7 Cirrhosis of the Liver.3..... ...... 4 3,3 13,451 11.9 25 397 11.5 Nephritis ........- ..... ... 4,579 44.3 81,701 52.6 24 918 26.7 Diseases of Pregnanicy, Childbirth anid Puerperium 1,873 18.1 5,153 2.7 23 377 10.9 Puerperal Septicetmia.264 2.5 1,771 1.0 141 4.1 Congenital Mallormnations anid Premnature Birth ... 14,201 137.8 57,667 39.3 56 1,172 34.1 Suicide ........ .........- I...- 234 2.2 16,152 12.0 1 142 4.1 H-omiicide........ . ....... 1,184 11.5 8,784 3.1 67 279 8.7 Motor Vehiicle Accidents ........ 352 3.4 33,411 18.1 1 Other Accidents 3,516 34.2 64,622 43.9 5 1,019 29.6 Uinspccified or Ln'nTown Causes ..... 29,4923 285.8 - 39,524 61.4 I About 58,209 deathi certificates (36 percent of total) were signied by a physician. About 102,251 dIeatlh certificates (64 percenit of total) were niot signcd by a phbysician. About 12 plague dleath certificates wvere not signed by a phiysiciani. 2 Less than .05S. 3This figure is 18 percenit of the total number of deaths. Sources: For Colombia Anuiario G;eneral de JUtadisti-a. Cointraloria Genieral de la Repbiblica, 1946. For United States : Statistical Albstract of the United States, 1948. 15,-, V- -I . d- qnicid v Aqiittpnir T,';t,1 103R Vini~prrmn,l S~ Social. Ca-nrics.  HEALTEI AND WELFARE 177 and paratyphoid fevers, and dysentery, malaria, and the acute infec- tious diseases, such as whooping cough and measles. Childbirth in Colombia seems to be particularly hazardous, both to mothers and infants. In the United States, on the other hand, degenerative and chronic diseases-such as diseases of the heart, kidneys and blood vessels, cancer, and diabetes-account for most of the deaths. The reported mortality from tuberculosis in Colombia does not correspond to the general impression, which is supported by other evidence, of its allegedly high prevalence. One possible explanation is that some of the tuberculosis deaths may be included under "bronchitis", because of the similarity of symptoms. A final item which makes mortality data in Colombia of doubtful value is that 18 percent of deaths is attributed to "unspecified or unknown causes". Incidence of Illness No nation has yet devised a satisfactory method of assembling current data on illness for the entire population. In Colombia it is especially difficult to gather such data since an unusually high pro- portion of its citizens, even those who are seriously ill, are not at- tended by a physician. There are, however, indirect methods for estimating the character and extent of illness. During the calendar year 1948, the C'olombian Ministry of Hygiene received reports regularly from 209 of the 815 municipalities of the country; the reported incidence of disease in these municipalities is shown in Table 52. The reporting municipalities have a combined population of 5,420,010, about one-half of the national total, and are fairly representative of the entire country. It should be noted, however, that the data include only those cases reported by practicing physicians or discovered in public clinics. Despite obvious limitations, these data have value since they point to the high incidence of malaria, intestinal parasites and tropical anemias (probably related conditions), amoebic dysentery, and other diarrheal disorders. Such conditions as relapsing fever, yaws, pinta, and typhus fever deserve special mention because of their frequent occurrence and their public health importance. Although they are easily preventable by immuni- zation, such diseases as diphtheria, smallpox, and whooping cough are still problems of some magnitude. Figures on syphilis represent new clinical cases. Similarly, the reported cases of tuberculosis do not portray the total prevalence of the disease since they are limited to cases discovered during the year. These data, although inadequate in many respects, are by them- selves sufficient proof that illness among the people of Colombia 178 THE BASIS OF A DEVELOPMENT PROGRA-M FOR COLOMBIA TABLE 52 INCIDENCE OF SELECTED REPORTED ILLNESSES IN COLOMBIA, 19481 Number of Rate Disease Cases2 per 100,0003 TOTAL ................ ............. .... 504,618 Malaria ......................... ........ .... 89,727 1655 Influenza ........ .... .... ... 75,756 1398 Intestinal Parasites ...... . .. ..... 72,421 1336 Hookworm Infestation 40,228 742 Amoebic Dysentery 38.395 708 Gonorrhea ..... . .... . .... ...... ....... 29,614 960 Syphilis .. 27,158 501 Whooping Cough ........ ..... .... .. 20,057 859 Typhoid and Paratyphoid Fevers ... ............................ 11,207 207 Measles .. 11,169 478 Scabies . . ...... ................................. 10,273 189 Tuberculosis of the Lungs . . .... .... 8,667 160 Pneumonia .. ...... .... .... 8,599 158 Chancroid . . ....- 7,802 253 Smallpox .. ........................................... 7,356 71 Diarrhea and Enteritis (under 2 years of age) 6,875 1459 Erysipelas ...... ..... ..... 5,255 97 .Mycosis . .. ... .. .. . .... .. .. . .. . 3,883 71 Typhus ............................ 3,471 90 Pinta . . . ...... . 3,395 62 Relapsing Fever 3,085 57 Chickenpox ' 2,954 54 Mumps . ..... 2,790 51 Yaws ....... 2,357 43 Diphtheria 2,238 96 Impetigo Contagioso 2,126 39 Ophthalmia Purulent 1,940 36 Lymphogranuloma 1,517 49 Granuloma Inguinal ... . 8 .... 2 7 8... 822 27 Puerperal Fever ... ..... -1 .. 813 77 Infectious Hepatitis .............................. ........... 640 12 Bacillary Dysentery ..-... ..... . 445 445 8 Tuberculosis (other forms) .. . ... .. 416 7 Tetanus Infantile .. 301 171 Rubella . .... . .. .... 287 13 Leishmaniasis .... 270 0.. Dengue 95 2 Poliomyelitis . 6 7 .. .67 67..... 3 Filariasis ........ ... J9 5 1 Epidemic MNeningitis 24 .4 Bartonellosis 25 .5 Scarlet Fever .... 23 .4 Trichinosis .. 12 .2 Undulant Fever ....................... .................. 4 .07 1 Total number of municipalities in Colombia, 815; municipalities reporting, 209. Total population of the country estimated as of July 5, 1948: 10,998,920. Population in reporting areas: 5,420,010. Classification of the covered population: Under I year of age, 175,696; 1 to 2 years of age, 295,344; 3 to 14 years of age, 1,863,703; Adults, 3,085,264; Women (14-45 years), 1,051,151. Total number of cases reported, 510,160 (refers to 57 diseases). The cases of the 44 diseases listed above are 99 percent of all reported cases. 2 This column shows the number of new cases reported within the year. 3 The population of over 14 years of age was taken for the computation of rates for gonorrhea, chancroid, lymphogranuloma and g-ranuloma ing-uinal. For puerperal fever the female population between 14 and 45 years of age was taken. For whooping cough, measles, diphtheria, poliomyelitis, etc., the population under 14 years of age was taken. For diarrhea and enteritis the population under 2 years of age was taken. For tetanus infantile the population under 1 year of age was taken. Source: Second Annual Epide;niological Report. 1948. Ministry of Hygiene Biostatistics Division.  HEALTH AND WELFARE 179 is a serious drain on the country's economy. It seems clear that Colombia suffers not only from a high incidence of communicable diseases common to temperate zones, but is also confronted with all the diseases found in tropical and subtropical climates. Impressions gained from field observations, as well as opinions expressed by practicing physicians and health officers, substantially confirm the statistics. Health officers in various localities differ with respect to the order of importance of their health problems, but the follow- ing diseases appear in almost every list: malaria, intestinal parasites and intestinal infections, tuberculosis, venereal diseases, and mal- nutrition. Malaria. The seriousness of the malaria problem is shown in part by the deaths attributed to this disease. These are listed by Depart- ment in Table 53. It should be recalled, however, that relatively few people who contract malaria die from it; thus the actual prevalence of the disease is far greater than the death reports indicate. Generally, malaria is widely distributed up to an altitude of about 1,000 meters. Above that elevation the distribution is spotty. The disease is most prevalent in the lower valley of the Magdalena and Cauca rivers, in the llanos and along both the Pacific and the Caribbean coasts. Inatestinal Infections.For the nation as a whole, intestinal dis- orders rank with malaria as a major health problem. TIn many sections of the country, the former are even more significant from the stand- point of incidence and public health implications. Included in this broad grouping are intestinal parasites, typhoid and paratyphoid fevers, the dysenteries and diarrheas from other causes. Most of the Colombian people are afflicted by one or another of these conditions during the course of a year. Children are affected with particular severity. Practically all children, especially those in rural areas, harbor one or more species of intestinal parasites, and a very large proportion of deaths among infants and young children is attribut- able to intestinal disorders. Moreover, the condition commonly diagnosed as tropical anemia, which also hits hard at Colombian children, is very often only a manifestation of heavy parasitic infestation. Basically, the problem of intestinal infections and infestations arises from three broad sources-improper disposal of human waste, pollution of the water supply, and contamination or spoilage of the food supply. The situation with respect to sanitation facilities is  TABLE 53 NUMIsBER OF DEATHS FROMr ALL CAUSES, FROM MALARIA, AND RATES PER 100,000, 1939-1943 Deaths from All Causes Deaths from Malaria Percent Number Per Number Per Malaria Population 100,000 100,000 Deaths of Department 1938 Census Total Population Population Total All Deaths TOTAL ....... ..... . 8,500,319 148,060.7 17,418.3 82.8 7,039.6 4.8 Antioquia .................................... . ... ... .... 1,188,587 21,769.8 18,315.7 63.6 756.0 3.5 Atlantico .................................................. 268,409 4,507.6 16,793.8 67.0 179.8 4.0 Bolivar ............ ................ 765,194 7,232.0 9,451.2 136.7 1,045.7 14.5 Boyaca ... ............... ..... ................. ........... 737,368 12,394.6 16,809.2 29.3 216.2 1.7 Caldas ........... ...................... 769,968 15,729.6 20,428.9 45.9 353.4 2.2 Caucal .. . .. 346,583 6,381.2 18,411.8 183.7 636.6 10.0 Cundinamarca ................................. 1,174,607 21,076.8 17,943.5 27.5 323.0 1.5 Clhoco .. ............................... 111,216 1,423.0 12,794.9 92.4 102.8 7.2 Huila 2 . .. .................. 216,676 2. 3,638.7 16,793.3 32.4 70.2 1.9 Magdalena . ................................ 342,322 4,748.0 13,870.0 238.9 817.7 17.2 Narinio ......... ........................ 465,868 9,037.0 19,398.2 177.3 826.2 9.1 Santanider del Norte 3 ................ ........ 3 36 ,8 0 3 6 ,58 5 .8 19 ,5 5 3 .0 1 33 .9 4 5 1 .0 6 .8 Santander del Sur ............... .................. 615,710 11,749.8 19,083.3 64.0 393.8 3.4 Tolima 4 ........... ...................... 483,162 8,248.2 17,071.3 43.9 212.1 2.6 Valle del Cauca . ........................ 613,230 12,650.6 20,627.5 77.3 473.9 3.7 Intendencia del Meta .-......................... 51,674 796.0 15,404.3 328.2 169 6 21.3 Iitenidenicia de San Andres y Providenlcia 6,528 74.0 11,335.8 134.8 8.8 11.9 Intendencia del Amazonas . .... .. .... 6,414 18.( 2,806.4 43.7 2.8 15.6 The following municipios were not included as mortality data were not available: 1 The Municipio of L6pez. 2 The Municipio of Toa. 3 Municipio of Villa Caro. 4 Municipios of Alpujarra, Alvarado, Carmen de Apicala, Casablanca, Falan, Santa Isabel, Suarez and Villahermosa. Source: Ministry of Hygiene. S.C.I.S.P., Division of Malaria, Colombia.  HEALTH AND WELFARE 181 examined elsewhere ;4 however, it is worthy of emphasis here that facilities meeting any reasonable standards are almost wholly lacking, especially in rural areas. Tuberculosis. Although the figures for deaths attributed to tuber- culosis in 1946 (3,966 to pulmonary tuberculosis and 514 to other forms) may give the impression that this disease is not an out- standing health problem, practicing physicians and health officers are convinced that the contrary is true. This opinion, based on everyday experience, is borne out by other more concrete evidence. During the four-year period from 1944 to 1948 health agencies examined, usually with the aid of X-ray, 1,348,365 persons. Some 51,100 new cases of tuberculosis were found in this group, and 80 percent of these cases needed active treatment. Among those ex- amined were individuals actually sick and coming to clinics and persons who required a physical examination as a condition for employment or for entrance into the army or schools. Except for the age distribution, the group examined was considered fairly repre- sentative of the total population. Thus, it is reasonable to assume that the actual number of tuberculosis cases among Colombia's total population is several times the number discovered in these surveys, and the disease is a far more serious problem than mortality figures would indicate. Venereal Diseases. From all accounts it appears that venereal diseases are very prevalent in Colombia. One measure of proof is the fact that of a group of 113,620 persons admitted to public clinics in various parts of the country for general diagnosis and care or for physical examinations for work certificates, 19,209 showed positive findings for syphilis, 16,311 for gonorrhea, and 10,813 for other venereal diseases. These figures need qualification-the number of cases does not always correspond to the number of persons since multiple infections may occur in the same individual. Moreover, the diagnosis of syphilis is based, for the most part, solely on blood tests, which may be misleading because of faulty technique or because of the presence of other diseases which give similar and confusing reactions. The percentage showing positive serological reaction for syphilis (16 percent), although high, is smaller than other surveys have indi- cated for selected groups and selected areas. One departmental health officer, for example, reported a positive reaction of 25 percent in a 4 Chapter X. 182 THE BASIS OF A DEVELOPFIENT PROGRAAI FOR COLOMIBIA sample of 3,000 individuals said to be representative of the general population. Another health officer reported the occurrence of syphilis in epidemic proportions, much of which was believed to be trans- mitted by non-venereal contact. Yaws, a disease closely related to syphilis both clinically and serologically, is found in many parts of Colombia. It is most prevalent along the Pacific Coast and is also found along the Caribbean coast and the major rivers. Prostitution is common throughout Colombia, even in the smaller towns. Just what part prostitutes take in the transmission of venereal diseases has not been determined, since little effort is made to trace sources of infection. Health officers assume that clandestine operators are more important in the spread of infection than registered public women. This opinion, which is undoubt- edly based on the system of licensure with its examination and treatment, is not borne out by the record. In a sample study of 9,703 public women, 8,349 were found to have gonorrhea, 4,686 had syphilis, 2,337 chancroid, and 374 climatic bubo (presumably lympho- granuloma). Moreover, in one large city where the registration pro- gram was said to be operating particularly well, only 889 of the 1,703 registered prostitutes were reporting regularly to the control clinics. Leprosy. Leprosy is mentioned as a special problem in Colombia, not so much for its epidemiological importance as for the drain which this disease imposes on the budget of the Ministry of Hygiene, and thereby on the national economy. For 1949 a total of Ps.$18,823,331 wvas appropriated for the Ministry of Hygiene; of this sum, Ps.$4,825,860, or more than one-fourth of the total, was devoted to leprosy control and care of well children of leprous parents. The number of persons afflicted with the disease, however, is compara- tively small; local surveys in 1938 placed the number of leprous persons at about 17,000. The director of the national leprosy pro- gram believes that leprosy has lost its expansive force and that the increase in leprosy since 1938 has been proportionately less than the increase of the general population. The present program centers around segregation of infected persons and separation of presumably well children from leprous parents. Individuals with leprosy are granted a subsistence allowance of Ps.$1.10 per day. The Ministry operates three leprosaria which accommodate 6,555 patients and 1,570 well children of leprous parents.  HEALTH AND WELFARE 183 Nutrition Not only are nutritional deficiencies the direct and indirect cause of many diseases, but the state of nutrition itself provides a measure of health status. Poor nutrition is characteristic of a large proportion of the people in Colombia. It is manifested in various ways, such as altered height, weight, and body measurements, lowered wvork capacity, and the presence of specific clinical findings. The immediate cause of nutritional deficiencies is a diet proportionately low in proteins, fats, vitamins, and essential minerals. For many individuals the problem is aggravated by the presence of debilitating diseases and parasitic infestations. Health authorities in Colombia rate the factors underlying maalnutrition as lack of popular understanding. economic considerations, and dietary habits-in that order. Through studies made by the National Institute of Nutrition, it has been found that the chemical composition of foods varies among regions and that the values are not in agreement with those reported by other countries. Through its studies of diets in certain areas the Institute has found that agricultural workers have a total caloric intake of 1800 to 2000 calories per day. Not only is this insufficient for persons doing active physical work, but the caloric sources are inappropriate. For balanced nutrition, 10 to 15 percent of the total calories should be obtained from protein, 25 to 30 percent from fat, and 60 to 65 percent from carbohydrates. Among the group studied in Colombia, however, 8 percent of the caloric intake came from protein, 12 percent from fat, and 80 percent from carbohydrates. As expenditures for food represent from 60 to 80 percent of the total budget of the great majority of Colombian families and as the status of nutrition has a direct bearing on the planning of agricultural production, a more complete treatment of the whole problem was deemed necessary. This will be found in the appendix on nutrition.5 People along the coastal areas depend mainly upon rice, which is supplemented by coconut, seafood and bananas. In the coffee areas. corn is the basic food staple, but the diet also includes browvn sugiar (panela), platano and yucca. People in the mountainous regions, especially in Antioquia and Caldas, prefer corn and beans supple- menited by platano and yucca. The poorer classes in the colder areas rely mainly on potatoes and to a lesser extent corn. Notwithstanding these differences, similar dietary deficiencies based on a universal scarcity of meat, fish, milk, dairy products, vegetables and fruits are noticeable everyxvhere to a greater or lesser extent. S Appendix B. 184 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA Among the specific nutritional disorders revealed through sur- veys made by the Institute, the following are the most important,: simple goiter; anemia, which was found in more than 70 percent of the children examined; nutritional edema, attributable to the low intake of protein; dental caries, presumably caused by a fluoride de- ficiency; scurvy, which was discovered most frequently along the coastal areas; some pellagra; and both skin and eye manifestations of Vitamin A deficiency. Because of its peculiar implication, simple goiter merits considera- tion apart from the other general nutritional disorders. This condi- tion is extremely prevalent throughout Colombia. A study of 165,600 school children selected as representative of twelve depart- ments disclosed perceptible enlargement of the thyroid gland in 55.4 percent of the children examined. The lowest percentage of positive results (27.8 percent) was found in the highly urbanized and coastal Department of Atlantico; other departments ranged from about 40 to 80 percent positive. HEALTH FACILITIES AND RESOURCES Essentially, a nation's health services fall into three major cate- gories: (1) its public health organization; (2) its facilities for medical care, such as hospitals, clinics, health centers, nursing homes, and the like; and (3) its professional and scientific personnel, who promote preventive health measures and minister to the sick and injured. Supporting the work of these main groupings are professional and voluntary organizations, advisory groups, independent research and related institutions, and the public welfare structure. Each of the three major groupings will be examined in turn. Public Health Services The Ministry of Hygiene is the principal health agency. It is responsible for administering a program of preventive health services, medical care and public welfare for the National Government. At the lower governmental levels, i.e., the departments and municipalities, the administration of health services is apt to be divided between the local health authorities and the "Beneficencia" (which is described in greater detail below). The organizational structure of the Ministry is shown in Figure 5; the functions of the Ministry and the other public health organizations, as well as the relationship and flow of services between each, are depicted in Figure 6. In general, the Ministry sets standards, gives financial aid and consultation to the other health agencies, and carries on some direct  Centra I Board of Idi | Medical Diplomas. Etc. O __ National Council of Food and Nutrition _ ;° uv National Council of fltZ _ the Protection z uJ of the Child -|Councl _ of Hyqiene <Z Carlos Finlay | N al InspecTon °= t< °0irb _ _ I nstitute PublicAssistance r Z; Z Inter American uu 'ui - Cooperative Service Sanitary Dept. z ~~~~ of Public Health I Nati al Instituteuu NationalI _ I Sanitary Police Narcotics Control Ul _ _u; H <~~~~~~~~~~~~~~~~~~~~~~~~enra Disases | I < LZ | Z~~~~~~~~~~~~~~~ ui Ve -| ~~~~~~~~~~Legal Section O< z -1 - eroy | 0 ) di~~~~~~~~~~~~~ 0 < _ _| Tub1 Malriology _ Un~~~~w _ O <1 ul vs ir | _ | O | | | ~~~~Coordinatio | Mlrooy | 0 1: -Inc-1.1~~~0 _ l | g " | | |~~~~L Organization of 0u _| o> s - Services for Emerg |- Nutrition and Food | uuO | Planning and li< Zl -' iConstruction iz o an gin naono SociaI Srvice and r | |Requirements Sta tistics||Mtra-hliShos W r u093 Hospitals, Asylm | ~~ I~ t______ I 0Z<. 5e efand oranegen e - N ood-Communicab_ _ |g | [ | giZx ; < | _l ~~~~~~~~~Diseases l | v Social Security I e| | || | z <o] Institutions | _| -- ~~~~~~~~~Biostatistics | | tD | || X l l ~~of Public Service 1 toO _ Purchasing C. | I Dept StoresI ||< General 1- W Cashier-Accounfi~ng |Gs Ej | |_| Seneral Administratn en I<] l of Leprosaria ! - ~ _| Departmental Heada | 186 THE BASIS OF A DEVELOPMENT PROGRAMI FOR COLOMBIA FIGURE 6 FUNCTIONS OF MINISTRY OF HYGIENE AND OTHER HEALTH AGENCIES ADVISORY COUNCILS MTNISTRY OF INTERNATIONAL Sanitation HYGIENE BODIES Infant hygiene Development of stand- S.C.I.S.P. Institutions ards UNICEF Food & nutrition Financial stipport- Pan American Sani- grants, contracts, in- tarv Bureau snection and control Rockefeller Foundation Consultatory services I Direct operations-in- stitutions, laborator- ies, field services DEPARTMENT HEALTH DEPARTMENT BENEFICENCIA AUTHORITY Financial support Fiancial support Inspection & control Inspection and control Consultatory service Direct operations - general Direct operations-mobile health hospitals, asylums, treatment units, special clinics, labora- clinics tories, law enforcement. MUNICIPAL HEALTH MUNICIPAL BENEFICENCIA CENTER General hospitals Preventive clinics . . Immunization ______ Treatment clincs School health service Public assistance Home nursing & midwifery Sanitation operations. Both the departmental health authorities and the Bene- ficencia also give support to lower level groups and offer many direct services, while the municipal health organizations and Beneficencia together operate local preventive treatment and public assistance pro- grams. There are no consistent working agreements among the three levels, but some coordination is achieved through various administra- tive devices. These include interlocking budgets, joint housing and use of personnel, cross-referral of clientele and overlapping mem- bership on directing boards or advisory councils. Departures from the general pattern shown in Figure 6 are numer- ous. Variations occur among the several service programs and at all three administrative levels. For example, the Ministry of Hygiene  HEALTH AND WVELFARE 187 now operates directly the public health services in the departments of Boyacat, Narino, Santander, and Tolima, all of which were formerly independent. As another illustration, a stlum of about Ps.$2,500,000 is made available to the Alinistry annually to be used in areas where the needs and opportunities are greatest. Somie of these funds are dis- tributed as grants, some under contract, and some may be used to defray in part the costs of services provided by the Ministry in lieu of funds. Certain special programs concducted by the Ministry, such as control of malaria, venereal diseases and tuberculosis, and maternal and child health, are set up under similar arrangements. Moreover, there does not seem to be any uniform pattern for operation of any of these arrangements. With the departments, the system is equally varied and ill-defined. Departments show an even more marked tendency to perform jobs vhich, in theory at least, should be administered by local authorities. Lack of interest on the part of local officials, as well as inadequate local revenues, seems to invite greater financial and administrative participation by units higher up on the governmental ladder. In gen- eral, the wealthier departments and municipalities tend to exercise greater autonomy than the poorer ones, but there are many exceptions to this rule. Analysis of the budget and program of the Ministry of Hygiene for 1949 (Table 54) reveals that a total of Ps.$8,084,054 is allocated essentially for curative and custodial services ;6 and Ps.$2,180,050 of the sum shown under the budget item for "Sanitary Engineering" are used for construction of sanitary facilities, and should therefore be classified as a capital outlay. That leaves Ps.$8,559,227, or an expendi- ture of 79 centavos per capita, available to the Ministry of Hygiene for commonly accepted preventive and public health services. The detailed budget breakdown contains other items which are confusing or not adequately defined. For instance, the broad category "Administration" includes such diverse functions as biostatistics, sup- plies, transportation and other staff and housekeeping services. Sim- ilarly, such activities as health education, nutrition, malaria control and the operation of selected health centers are, to a great extent, provided for under the item "Cooperation with S.C.I.S.P. and Rocke- feller Foundation." Because of its peculiar setting in the Ministry of Hygiene, the Servicio Cooperativo Inter-Americano de Salud Publica (S.C.I.S.P) 6 This sum is made up of Ps.$3,258.194 for "Public Assistance", Ps.$4,407,860 for "Control of Leprosy", and Ps.$418,000 from the budget item "Mlaternal and Child Health' for the care of well children of leprous parents. 188 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA TABLE 54 BUDGET OF THE MINISTRY OF HYGIENE, 1947-1949 Fiscal Year Item 1947 1948 1949 Administration ................ Ps.$ 1,652,980 Ps.$ 1,917,780 Ps.$ 1,959,180 Control of: Bartonellosis . ... ............... 30,000 8,080 15,000 Yaws . .50,000 55,160 70,000 Epidemic Diseases, and Disaster Relief 50,000 13,780 20,000 Venereal Diseases 80,000 121,140 200,000 Narcotics . .20,000 13,460 30,000 Malaria . .50,000 50,000 250,917 Tuberculosis.. 440,000 390,280 700,680 National Institute of Nutrition - - 100,000 Cooperation with Departments and other local governments . .2,500,000 4,495,780 2,856,000 Schools of Hygiene and Nursing ... - 75,000 200,000 Cooperation with S.C.I.S.P. and Rocke- feller Foundation . .1,090,000 1,090,000 1,175,000 Port Sanitation .45,000 16,650 90,000 Maternal and Child Healthl ... 1,365,120 1,351,850 753,760 Sanitary Engineering 2 . . 3,334,360 3,439,292 2,736,740 Public Assistance . .................... 3,301,794 2,782,231 3,258,194 Control of Leprosy. . 3,834,260 3,765,060 4,407,860 TOTAL . .. ........... ... _.. .. Ps.$17,843,514 Ps.$19,585,543 Ps.$18,823.331 l Including amounts for care of well children of leprous parents No data 393,548 418,000 2 Transfer from Fomento Municipal for Construction. ... No data 2,850,982 2,180,050 merits separate consideration. This organization is a local unit of the Institute of Inter-American Affairs, under the administration of the Department of State of the United States. The basis of the Servicio's operations is an annual arrangement worked out with the appropriate ministry. In the past, the Institute of Inter-American Affairs has given assistance in the construction of several health facilities in Colombia, including the National School of Nursing, xvater treatment plants, and health centers. The value of current budgets for health purposes for this program is estimated at Ps.$1,960,000, of which amount S.C.I.S.P. contributes Ps.$190,000, or approximately 10 per- cent. The remainder is provided either in the form of funds or services from sources within Colombia. In addition to its monetary contribu- tion the Institute of Inter-American Affairs supplies the director and some of the technical personnel for the projects it handles. However, financial support, as well as the management of a number of these projects, is gradually being taken over by the Ministry or local authorities.  HEALTH AND WELFARE 189 The Rockefeller Foundation formerly matched Colombian Govern- ment funds to finance a yellow fever campaign. It was also largely responsible for the construction of the Carlos Finlay Institute in Bogota and the Roberto Franco Institute in Villavicencia, both of which are now supported almost entirely by the Ministry. The Foun- dation has now virtually terminated its support of the yellow fever program. It is, however, making substantial contributions to the support of the National School of Nursing and the National School of Hygiene now being organized. A complete listing of all persons engaged in public health work in Colombia was not obtainable. Table 55, however, shows the number of professional personnel, in selected categories, employed by the Ministry of Hygiene, and those employed jointly by the Ministry and the departments and municipalities. This table will serve to illustrate the group usually included on public health staffs and their proportionate representation. TABLE 55 PERSONNEL EMPLOYED IN THE MINISTRY OF HYGIENE AND UNDER CONTRACTS BETWEEN MINISTRY, DEPARTMENTS AND MUNICIPALITIES Employing Agency Joint Group Ministry Contract Total TOTAL ................. .... ... 1,508 1,274 2,782 Physicians ............................................ 209 190 399 Dentists ............................................ 25 88 113 Nurses ............................................ 344 247 591 Sanitary Engineers ......................... ..... 371 3 40 Sanitary Inspectors .... ........................ 120 452 572 Other ................. ........................ 773 294 1,067 l Of this group, 23 are employed by Fomento Municipal. Source: Ministry of Hygiene, Colombia. Except for a very few large cities, the municipality is a weak unit of public health administration. Some fifteen years ago, in an effort to coordinate and augment local activities, the health center movement -was launched and soon became quite extensive in coverage. Many of the health centers, however, were poorly staffed and housed in quarters unsuited to their purposes. Because of these and other factors, most of the early centers soon passed out of existence and an itinerant health service provided by the departments was the only substitute. An effort is now being made to reestablish these centers, or some other facilities to serve similar purposes, either by the muni- cipality alone or in conjunction with the local Beneficencia. Some of 190 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLONIBIA the existing centers are for a single purpose, such as child health. while some may undertake a combination of functions. For reasons similar to those given above, the schemes of financial support are often confusing. Although an attempt is made here to describe the work of the public health agencies and the Beneficencia separately, the tvo should be thought of as closely related, especially at the municipal level. They are intimately linked also with their departmental counterparts and, to a somewhat lesser extent, to those of the National Government. The public health organization in the department of Narifio will serve to illustrate the organization in one very poor department in wlhiclh the National Government is especially concerned. Narifio is essentially a rural department with less than average resources in relation to its current estimated population of 528,950. The budget available for all public health work in 1949 was Ps.$306, 5 50, or Ps. $0.571 per capita. Of this total Ps.$171,614 was contributed by the National Government, Ps.$102,000 by the department. and Ps.$32,936 by the municipalities-or 56, 33.3, and 10.7 percent, respectively. All except two of the 49 municipalities made some contribution, but 12 of them contributed less than Ps.$500 each. A number of the munici- palities also provide space and some supplies for clinical and other activities, but these are not assigned any monetary value in the budget. The public health staff of Narifno consists of 7 physicians, 2 dentists, 14 inspectors, 15 nurses, 3 laboratory technicians, and 14 administra- tive, clerical and custodial employees. Figure 7 shows the general structure of the health organization in Narifio and the functions assigned to each of its administrative units. According to this chart, the program is directed primarily toward public health work; in certain municipalities, however, the program is combined with the activities of the Beneficencia. Although the health centers are shown at specific locations, each center also serves a number of adjacent municipalities. In addition, the more remote areas of the department are reached regularly by mobile units manned by health personnel and carrying clinical equipment, which operate out of the departmental health office. All the health problems common to other parts of Colombia exist it, Narifo, where they are agaravated by poverty and a climate which ranges from hot along the Pacific Coast to cold in the highlands. Tuberculosis, venereal diseases, and the disorders of early childhood occur here with considerably more than average severity. Malnutri- tion is widespread. Moreover, in recent years the people of Narifno have been exposed to major outbreaks of bartonellosis and louse-borne  VI'IsUKMX / HEALTJI ORGANIZATION AND FUNCTIONS--DEPARTMENT OF NARINO DIRECTOR OF PROGRAM AND LABORATORIES SECRETARY GENERAL TECHNICAL SECTIONS | LABORATORY MOBILE HEALTII STATISTICS HEALTII CENTER REGIONAL REGIONAL SECONDARY HEALTH CENTER UNITS AND HEALTHI PASTO HEALTH HEALTH HEALTH BARBACOAS EDUCATION CENTER-IPIALES CENTER- CENTER- TUQUERRES SAMANEIGO Epidemiology Epidemiology Sanitary map- Preventable Preventable dis- Preventable dis- Preventable dis- Preventable dis- Public hygiene Health piIng disease control ease control ease control ease control ease control Investigations education Census and Tuberculosis Venereal dis- Venereal dis- General General Diagnostic Vaccination surveys control ease control ease control sanitation sanitation service Insect control Report analysis Venereal dis- Maternal & child Maternal &child Health education Yaws control Control of water Communicable Preparation of ease control hygiene hygiene Malaria control Venereal dis- and foods disease control technical Maternal &child Dental hygiene Dental hygiene ease control Storage of bio- Sanitation bulletins hygiene Port sanitation General logicals & Special problems Publications Dental hygiene General sanitation sanitation vaccines Preparation of General Health education Health education Special problems graphs &charts sanitation Healtlh education |ADMINISTRATON SECTION _ _ _ _ I _ _ _ I_ _ i I ACCOUNTING STORES ARCHIVES INVENTORY Budgets Purchases Files Property control of Fund control Storage Books Central Office Balanice and financial Distribution Maps Laboratories statements Other Health centers Monthly account report Mobile units 192 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA typhus fever. Confronted with such problems of disease against a background of great poverty, the staff of 41 professional and technical public health workers is completely overwhelmed. Obviously, they can expect to make little headway with the disease and ill-health of Nariflo. Hospitals, Clinics and Related Facilities Colombia's need for general hospital facilities undoubtedly exceeds that of the United States, because of the greater prevalence of illness and the lack of suitable home care facilities. During recent years, hospitals and related facilities have been expanded considerably in attempts to meet this need. However, the number and adequacy of these facilities still fall substantially below the standards set in more highly developed countries. There are now about two hospital beds per thousand population, a little more than half the ratio prevailing in the United States. However, there is a wide variation in this ratio (0.6 to 3.6) among the departments, and 540 municipalities lack any hospital facilities whatever. Many of the existing general hospitals are seriously inadequate by modern standards. The Social Security Institute, in a 1947 study of 253 hospitals, found only 125 equipped for surgery, and only 153 with maternity, 63 with laboratory, and 22 with X-ray, facilities. Of the 20,200 beds then recorded, admittedly optimistic estimates made by the Institute placed not more than 10,000 beds in facilities meeting reasonable standards for active hospital care. Disregarding these qualitative deficiencies, Table 56 gives a sum- mary by departments of the number and capacity of existing hospitals and related facilities and of the estimated requirements, according to official data. The total number of beds available is an approximation only and is probably somewhat low. The information available from official sources on the number of beds in private hospitals is quite fragmentary; unofficial estimates put the total for private hospitals and clinics at some 3,000 beds. This includes about 26 private general hospitals and 12 hospitals operated by industrial firms largely for their own employees. The figures in Table 56 do not include hospitals under construction, some of which are completed but unused. In Cali, for example, a 1,500-bed departmental hospital was substantially completed at least two years ago but remains idle because of lack of funds for furnishings and equipment. A similar situation exists in other localities as well. Table 57 shows the total number of units and beds for general and specialized hospital facilities in Colombia. Some qualifications should be made as to the figures in this table. For instance, facilities  TABLFE 56 NUMBER OF BEDS AVAILABLE AND REQUIRED IN GENERAL AND ALLIED SPECIAL HOSPITALS Beds Available Bed Requirements Bed Estimated Construction Costl Department Population Per 1000 Per 1000 Defici- 1948 Total Population Matcrnal General Total Population encies Total Per Year (thousands) TOTAL ......... 10,777,278 20,212 1.87 8,843 49,023 57,866 5.37 37,654 Ps.$188,270 Ps.$51,405,99 2 Antioquia ............ ........... 1,431,920 3,648 2.54 1,627 6,962 8,589 5.99 4,941 24,755 6,719,760 Atlantico .... . .. 379,350 461 1.21 351 1,632 1,983 5.22 1,522 7,610 2,069,920 Bolivar.......... ......... 993,940 656 0.65 518 2,976 3,494 3.51 2,838 14,190 3,859,680 Boyaca ........... ......... 782,050 949 1.21 522 3,716 4,238 5.41 3,289 16,445 4,473,040 Caldas ........... ......... 1,036,790 2,385 2.30 1,015 4,739 5,754 5.54 3,369 16,845 4,581,840 Cauca .......... .......... 436,140 258 0.59 385 2,175 2,560 5.86 2,302 11,510 3,130,072 Cundinamarca .................... 1,416,470 4,659 3.28 1,014 6,715 7,729 5.45 3,070 15,350 4,250,000 Choc6. ... ........... 112,220 137 1.22 36 250 286 2.54 149 745 202,640 Huila ......... .......... 235,820 473 2.00 216 1,383 1,599 6.78 1,126 5,630 1,531,360 Magdalena ................... 436,920 496 1.13 230 1,257 1,487 3.40 991 4,955 1,347,760 Narifio ... ....... ............. . 546,010 551 1.00 470 2,568 3,038 5.72 2,487 12,885 3,504,720 Norte de Santander .......... 417,470 740 1.77 327 2,167 2,494 5.97 1,754 8,770 2,385,440 Santander .................... 730,920 2,184 2.98 593 4,214 4,807 6.57 2,623 13,115 3,567,280 Tolima ........... ......... 709,480 906 1.27 525 3,100 3,625 5.10 2,719 13,595 3,697,840 Valle del Cauca .927,120 1,436 1.54 929 4,674 5,603 6.04 4,167 20,880 5,667,120 Intendencias and Comisarias .................. 184,658 273 1.47 85 495 580 3.14 307 1,535 417,520 1 Construction cost estimated at Ps.$5,000 per bed. Source: Servicio Hospitaloria en Colombia de Acuerdo con la Natalidad y la Mortalidad. 194 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA for the care of children should probablv be combined with the general hospitals, since these facilities differ only xvith respect to the age groups they serve. General hospitals also contain beds for the care of children, maternity cases, tuberculous patients and other patients wvith various ailments. There are about 1,600 beds available for tuberculosis patients in general and special hospitals throtughlout the TABLE 57 TOTAL UNITS AND BED CAPACITY OF HOSPITALS AND RELATED INSTITUTIONS Type Charity Private Total Units Beds Ulnits Beds Units Beds TOTAL ................... 330 38,530 18 1,0611 348 39,591 General ................... 222 17,131 18 1,0611 240 18,192 Children ................... 9 1,003 - - 9 1,003 Tuberculosis .................... 7 860 - - 7 860 Mental ................... 5 3,761 - - 5 3,761 Homes for Aged ............ .. 50 5,388 - - 50 5,388 Homes for Orphans .., . 34 3,832 - - 34 3,832 Leprosaria ................. 3 6,555 - - 3 6,555 1 This figure is underestimated. It may be as high as 3,000. Source: Report of Miinistry of Hygiene. country. Some patients in mental hospitals undergo active therapy, but the great majority simply receive custodial care. Homes for the aged and, to a lesser extent, orphanages contain infirmary units vhere the occupants can obtain treatment wvhen they are ill. Private hospitals provide only a minor part of all general hospital accommodations and have scarcely any significance in other fields, but they furnish most of the care for high income groups and for the employees of certain industries. Hoxvever, many of the so-called charity hospitals make substantial collections from patients: nearly 17 percent of the approximately 20,000 beds devoted to general and allied special care were supported at least in part from fees paid by or on behalf of the occupants. The available data did not permit a separation of the cost of general hospitals from the cost of other institutions, or a tabulation of the amounts by source. Hovever, the figures shown in Table 58, which were obtained for all public hospitals and institutions, exclusive of leprosaria, showv expenditures for these institutions. An estimate of the total cost of operating the public general hospitals may be obtained by multiplying the average annual maintenance cost per bed, Ps.$717.2, by the 20,212 beds available. This yields a figure of Ps.$14,496,046 as the approximate annual cost of operation for the public general hospitals.  HEALTH AND WELFARE 195 TABLE 58 EXPFNDITURES OF PUIBLIC HOSPITALS AND INSTITUTIONS EXCLUSIVE OF LEPROSARIA Percent Category Amount of total Administration, including salaries .......................... ... Ps.$ 5,355,712 24.6 Food ..................... .................... 5,633,231 25.9 Drugs and other therapeutic agents . ............... 1,717,554 7.9 Utilities .................................. . ..... 1,174,070 5.4 Clothing ......................................... 491,237 2.2 Debts ................. ........................ 285,394 1.3 Construction and repairs ...................... .................. 3,380,265 15.5 Other ............. .............. ............. 3,754,010 17.2 TOTAL . Ps.$21,791,4 7 3 100.0 Source: Ministry of Hygiene, Colombia. Studies made by the Social Security Institute, covering 187 gen- eral and 4 tuberculosis hospitals. revealed the following information on costs and operations: General Tuberculosis Hospitals Hospitals Average annual cost per bed . . Ps.$71 7 .2 Ps.$845.6 Average duration of patient's stay (days) .......... 18.0 134.3 Average cost per patient ..... . Ps.$ 37.36 Ps.$291.46 Average cost per patient day . ....... Ps.$ 2.07 Ps.$ 2.17 Thus the average cost per day of patient care, and the average annual maintenance cost per bed, are less in general hospitals than they are in tuberculosis hospitals. Since bed rest is an important element in the treatment of tuberculosis, the relatively lower costs in general hospitals wvould indicate that many of their patients are not undergoing active therapy; this observation wvas confirmed by visits in the field. Further substantiation is given by the long aver- age stay per patient-18 days, as contrasted, for example, with 11.44 in the United States. On the other hand, the average stay of 134.3 days for tuberculosis patients in Colombia is usually too short a period to expect much improvement. Actually, isolation seems to be the main objective in the hospitalization of the tuberculous; this is borne out by the fact that 53.5 percent of the patients die in institutions. Professional and Technical Personnel Perhaps the most important elemelnt in maintaining a high na- tional level of health is personnel with the scientific training and technical competence necessary to apply preventive health measures and to provide proper medical care. Both the organization and the 196 THE BASIS OF A DEVELOPMENT PROGRAMI FOR COLOMBIA physical facilities are mere shells in the absence of qualified staff. Although the physician may be the central figure in the actual per- formance of medical care, a comprehensive program of health service draws upon personnel of diverse interests and technical backgrounds. An effort was made, therefore, to determine not only the individuals who are actually engaged in activities identifiable with health service in Colombia, but to determine the reservoirs of talent that might be available for an expanded program. There is no register of scientific and technical personnel in Colom- bia. In its absence, such information as could be obtained was pieced together to give a picture of Colombia's medical and professional personnel. The following census figures represent only an approxi- mation of the number of personnel in active practice for the three specialized groups of particular interest from the standpoint of pub- lic health: Type of Personnel Number Physicians ......................... - 3,327 Dentists, Graduates .... .... . .. ......... . ........ 1,000 Dentists, Licensed .. ......... ...... ... 600 Nurses, General 400 Nurses, Midwives ... ... 200 Health Visitors 200 These data require several qualifications. For example, the count of physicians probably is an overstatement since it undoubtedly in- cludes physicians who have retired. The figures for both classifica- tions of dentists are admittedly very rough estimates. Licensed dentists in Colombia are practical dentists with varying amounts of training, who were blanketed into the profession when the Dental Practice Act became effective. Figures given for nurses of various designations and for health visitors represent an estimate of the number who probably meet the requirements for their respective grades. Some additional data shown in Table 59 indicate the distribution of physicians by location and professional interests. This table reveals that there is one physician in Colombia for every 3,310 population as contrasted with one physician per 730 population in the United States in 1949. This general ratio for the whole of Colombia masks such wide variations as 10,877 persons per physician in Narifno and 1,511 persons per physician in Cundinamarca. The ratios for the intendencias and comisarias are close to the national average, but these figures fail to take account of the large areas and sparse popu-  TABLE 59 DISTRIBUTION OF PHYSICIANs ACCORDING TO POPULATION;, INTERESTS AND LOCATION Plhysicians Location of Physicians NUmber of Municipalities Public Population General Health Clinical With Without Population per Prac- Special- Special- In In Other Physi- Physi- Departments (1949) Physician Total titioners ists ists Capitals Communities Total cians cians TOTAL .. 11,015,210 3,310 3,327 2,539 15 773 2,065 1,262 817 379 438 AlntiOquia . ... . 1,458,850 2,455 594 422 3 169 392 202 100 72 28 Atlantico .392,700 2,169 181 113 - 68 164 17 20 7 13 Bolivar .. 1,020,280 3,807 268 236 _ 32 114 154 60 40 20 BoyaC6 . . ... 786,660 8,644 91 83 - 8 25 66 125 26 99 Caldas. . . . 1,068,090 4,092 261 1711 1 89 59 202 43 43 0 Cauca ............. ...... 445,080 10,350 43 36 1 6 30 13 33 9 24 Cundinamarca . ... 1,443,240 1,511 955 662 9 284 812 143 112 47 65 Choc6 . ......... ...-. 112,320 6,240 18 17 - 1 8 10 11 6 5 Huila . . . . . . 237,820 6,606 36 33 - 3 19 17 31 7 24 Magdalena ..... ... ...-. 447,710 4,762 94 76 - 18 30 64 33 25 8 Nario . . . . 554,750 10,877 51 50 - 1 31 20 49 8 41 Norte de Santander . . 425,35(0 5,004 85 66 - 19 54 31 34 8 26 Santander . . ... 743,500 4,200 177 154 - 23 67 110 73 22 51 Tolima . . . 728,070 8,273 88 72 - 16 40 48 41 19 22 Valle del Cauca . 966,240 2,867 337 306 - 31 178 159 38 28 10 Comisarias .. . 125,350 5 3,844 48 42 1 5 42 6 14 12 2 1 1946 figures. Source: Report of the Ministry of Hygiene of September 23, 1949. 198 THE BASIS OF A DEVELOPMENT PROGRAMI FOR COLOMBIA lation in these districts. Almost two-thirds of the physicians are located in departmental capitals which, with their surrounding muni- cipalities, contain about 12 percent of the population. Slightly more than one-half of the municipalities have no physicians. Of particular significance for public health and preventive medicine in Colombia is the small number of physicians who claim public health as a spe- cialty. Few of those who list themselves as public health specialists have had formal training in public health or engage in this specialty exclusively. Several noteworthy steps have been taken to develop reservoirs of technical competence in the public health professions. The National School of Nursing, supported jointly by the Ministry of Hygiene and the Institute of Inter-American Affairs, is taking an active part in training nurses for teaching and higher staff positions. The Ministry of Hygiene, through its Maternal and Child Health Division, is helping to organize and support courses for auxiliary nurses, nurse- midwives, and health visitors. In cooperation with the National University and the BogotA Public Water Supply, the Sanitary Engineering Division of the Ministry of Hygiene has org-anized a short practical course for water plant operators. Perhaps most sig- nificant from the standpoint of public health is the recent establish- inent of the National School of Hygienc as a cooperative endeavor bet\veen the Ministry of Hygiene and the Rockefeller Foundation. Although this school is nexw and, at the time this survey xvas made, had graduated no health vNorkers, great hopes are held for it. Courses for physicians who would be trained to take administrative responsi- bility for public health activities at all levels were expected to start in December 1949. It is anticipated that training will also be given to laboratory technicians and eventually to other groups of public health \vorkers. The nursing situation in Colombia is in a state of flux. Until recently nursing as it is knowvn in the United States was practically non-existent in Colombia. It was common practice for a hospital or a physician to certify a girl as capable of performing the duties of a nurse after varying periods of employment in either a hospital or a physician's office. Most of the girls had little formal education. There are now perhaps a half dozen institutions in Colombia wvhich call themselves "schools of nursing" but except for the national school they are not recognized by the National Government, mainly because of poorly organized teaching programs and inadequate facili- ties for practical instruction. The Nursing Practice Act, passed in 1946, set up the following four groups of nurses, plus a classification  HEALTH AND WELFARE 199 of health visitor, according to the amount of education and experi- ence required: 1. Nurse, General-Completion of secondary school, three years of instruction and training in the National School of Nursing or a school of similar status, two years of practice, and registration. 2. Nurse, Hospital-Four or more years of secondary school, three years of training in a recognized hospi- tal, and registration. 3. Nurse, Auxiliary-Four years of secondary school, one year of training in a general hospital, and regis- tration. 4. Nurse, Midwife-Four years of secondary school, one year of training in a maternity hospital, and re-is- tration. 5. Health Visitor-Three years of secondary school, six months of training in a health center, two vears of practice, and registration. In the field of sanitation, little progress has been made toward the classification of engineers, entomologists, sanitary inspectors, operators of sanitary utilities, and similar specialists. Few of the 14 engineers employed by health agencies and the 23 employed by the Municipal Development Fund have had any specialized train- ing in sanitary engineering. As a group, inspectors get little or no formal education in the sanitary sciences but must depend on what they can learn by experience. Frequent turnover of personnel, espe- cially among inspectors, adds to the difficulties of building up ade- quate professional staffs. The problem of developing a competent staff for public health services is made exceedingly difficult in Colombia by two very serious handicaps: (1) a low salary scale for public employees, and (2) very poor personnel practices and policies. These conditions are not peculiar to the public health agencies but are characteristic of the entire structure of government; there are few, if any, local excep- tions to this rule in the health field worthy of mention. Staffing problems would be encountered with either low salaries or insecurity of tenure, but the two in combination make it utterly impossible to attract and retain a sufficient number of qualified people to staff even the authorized positions. The inadequacy of salaries for public health personnel becomes obvious when the figures given in Tables 60 and 61 are contrasted with the cost of living and general income data. Although those tables give only selected and fragmentary data, they point to the extreme inadequacy of salary levels for professional and responsible health workers. 200 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA TABLE 60 NUMBER OF PERSONS EMPLOYED BY SELECTED DEPARTMENTS AND MUNICIPALITIES, ACCORDING TO SALARY LEVELS Monthly Salary Levels In- Laboratory (in pesos) Physicians Dentists Nurses spectors Technicians Total TOTAL ............. 146 50 188 328 17 729 Below 100 ............. - - 15 1 - 16 100-149 .......................- - 45 116 1 162 150-249 ....................... 1 1 124 209 2 337 250-349 ..................... 22 20 4 - 7 53 350-449 ................... 36 29 - - 5 70 450-699 ............... 60 - - 1 2 63 700-999 .................... 25 - - 1 - 26 1,000 and over ............. 2 - - - - 2 Source: NMinistry of Hygienie, Colombia. To consider physicians in greater detail, those showvn in the very low salary intervals may be disregarded since it can be assumed that they are part-time public health workers and devote only a small portion of their time to official duties. On the other hand, all the physicians appearing near the top of the scale are departmental health officers or chiefs of divisions in the Mlinistry of Hygiene or in the departments. Very few salaries are in the neighborhood of Ps.$1,000 a month; none are above. According to physicians in private practice and industrial firms which employ physicians on salary, even recent graduates from medical school are not attracted to full-time positions which pay less than Ps.$1,000 per month. Thus, very few competent young physicians look forwvard to a career in public health, especially in view of the insecurity of tenure character- istic of such a career. If a physician does not possess independent means, he cannot afford to adopt public health as a specialty unless he supplements his income in some manner, usually through private practice. There are very few standards or job qualifications established for the public health professions in Colombia. Job descriptions are usu- ally limited to the broad requirement that a position is to be filled by a physician, a dentist, or the appropriate technician. Appointments are made without objective examination to determine the applicant's fitness; moreover, promotions and transfers are purely at the dis- cretion of the appointing authority. All appointments are made, in fact, by the Chief Executive of the Nation, the department or the municipality, and all are subject to the will of the executive. Under these circumstances, frequent turnover of personnel, without any  HEALTH AND WELFARE 201 TABLE 61 NUMBER OF EMPLOYEES ACCORDING TO TYPE OF POSITION AND SALARY LEVELS, 1 MINISTRY OF HYGIENE Salary per Month Number of Position (pesos) Employees Total Physicians .......... ....................... 851-1000 18 Physicians .......... ....................... 501- 850 123 Physicians .......... ....................... 201- 500 137 278 Dentists ........ ......................... 301- 500 25 Dentists ........ ......................... 1- 300 76 101 Supervising Health Nurses .. .......................... 301- 500 3 Public Health Visitors .................................. 1- 300 65 Public Health Nurses .................................. 1- 300 36 General Nurses .......... ... ............ 1- 300 296 400 General Male Nurses ................................. 1- 200 70 Male Nurse Vaccinators ................................. 1- 200 41 111 Sanitary Engineers. ................................. 850-1000 3 Engineers ................... .............. 500- 850 16 Surveyors ......... ........................ 301- 500 3 Architects . .................................. 301- 500 2 Sanitary Draftsmen .................................. 301- 500 4 28 Supervising Sanitarians ................................. 301- 500 4 Supervising Sanitarians .................................. 1- 300 32 36 Sanitary Inspectors ........................... ...... 1- 250 528 528 Laboratory Workers .................................. 300- 500 4 Laboratory Workers .................................. 1- 300 24 28 Fumigation Officials ................................. 301- 500 1 Fumigation Officials ................................. 1- 300 20 21 Pharmacists ... ............................... 1- 300 32 32 Administrative Employees ................. ............ 850-1000 1 Employees .................................. 500- 850 7 Employees ................................. 301- 500 40 Employees ................................. 1- 300 875 923 1 The salary of the Minister has been increased to Ps.$1600 per month. Source: Ministry of Hygiene, Colombia. 202 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA right of appeal by the employee, is to be expected. This, in fact, is the rule. Although no data were available on the volume of turnover at the time of writing, there is ample evidence to support the statement that excessive employee changes take place throughout the country and in all agencies. One city health officer reported that during the course of one year the equivalent of two-thirds of his staff had changed ap- proximately every four months. It was said that between 50 and 55 percent of the employees of the Ministry of Hygiene were replaced during 1948. Health officials and other employees who were inter- viewed gave general insecurity and arbitrary handling of personnel by higher authorities as their most common complaints. Many qualified persons now in private work stated they had been dismissed without cause or had left public employment becatuse of the fear of arbitrary dismissal. Recently, attempts have been made to improve this situation, either through the institution of a comprehensive civil service or merit sys- tem. but these have generally been limited to certain specific groups. Moreover, the effectiveness of these programs is as yet undetermined. Only 1,155 employees are now under the Administrative Career initi- ated in 1940, almost ten years ago; of these, only 53 are in the Mlinistry of Hygiene. PUBLIC WELFARE Public welfare and social security systems are closely related to public health activities. In many countries, these programs are ad- ministered by the same governmental agency. Public health is an organized community effort to promote high standards of health: public welfare may be termed an organized community effort to in- sure the necessary social conditions to make good health and better living conditions possible. Under public welfare are included all the measures to provide social, disability and other forms of insurance, to safeguard vulnerable groups in the population, and to provide assis- tance to the needy and aged. In Colombia the public welfare system, like the public health structure, is poorly organized and only partially effective. Hampered by a lack of trained social workers and other professional personnel, these programs in many places fail to reach all the people who need assistance. Moreover, the system is characterized by duplication and overlapping in some places and by important gaps in others. Public welfare services are provided by the public health agencies at all governmenital levels, by private industry and by the Bene-  HEALTH AND WELFARE 203 ficencia system, which operates mainly at departmental and local levels. Since the latter is the most important single agency operating in this field, it will be examined in some detail. Beneficencia The Beneficencia system corresponds generally to what are termed public welfare services in the United States. The major difference between the two countries is that in Colombia almost the entire budget is devoted to the operation of various institutions, including general hospitals, whereas in the United States a substantial part of the budget is provided in the form of funds and supplies for individual or family relief and for the protection of children not in institutions. Another point of difference is the source of funds. Beneficencia is supported principally by departmental lotteries and earmarked taxes (usually on amusements) while in the United States public welfare funds are appropriated out of general revenues. In general, Beneficencia is a departmental responsibility, both as to administration and financial support, with the National Government supplying only general supervision and limited funds. Beneficencia programs shoxv great variations among departments, reflecting dif- ferences in resources and problems. The administrative scheme also shows minor variations from the typical pattern, which is character- ized by a central board of authority, or "junta". Administrative authority is vested in this board, which contains representation from the Ministry of Hygiene, the department, civic and professional in- terests, and usually the Church. The junta employs a manager and a paid staff to administer the program. Funds are also allocated by the department among the municipali- ties for the support of local programs. Local boards exercise general authority in the municipalities and employ an executive, usually on a part-time basis, to operate the continuing program. In some depart- ments, the central Beneficencia is said to do little more than apportion funds among the municipalities, but in others it operates many facili- ties directly and exerts a strong influence over the local juntas. Both the national and departmental governments are represented on the municipal junta which operates withiln broad regulations set by the higher governmental authorities. The Beneficencia of Cundinamarca, although not wholly typical since its resources and services probably exceed those of other de- partments, may nonetheless be used to illustrate the program and finan- cial structure of the Beneficencia in broad outline. The Beneficencia 204 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA of Cundinamarca, like its counterparts in other departments, receives funds from a variety of sources-lotteries, earmarked taxes, revenue from real estate and other holdings, and gifts. In 1949 this Bene- ficencia reported expenditures of Ps.$5,855,418 for its general hospital and institutional care program and for services of a recurring nature. It also spent Ps.$3,677,842 for construction purposes, including the construction of a commercial building owned directly by the Bene- ficencia, as well as construction and repair of its hospitals and cus- todial institutions. The major item in this section of the budget was devoted to a new surgical unit of 750 beds at the San Juan de Dios general hospital. Finally, the Beneficencia allocated Ps.$984,012 for distribution to the 15 district and 12 municipal hospitals in the outlying areas of the department. Slightly less than half of this sum was budgeted for routine operations, and slightly more than half for construction. In Cundinamarca, as elsewhere in Colombia, the Beneficencia pro- gram is limited almost entirely to institutional care, with only some 1,000 families given direct relief each year, in amounts varying from Ps.$2.5 to Ps.$20 per month. The vast majority of children supported by the Beneficencia spend their entire childhood in an institutional environmnent. A few of the more gifted children are given scholarships in secondary schools but most of them get only elementary education and some vocational training. In 1948 some twenty children were sent out for adoption but in 1946, according to official records, the number was somewhat higher. Most of the institutions listed in Table 62 are old, butt in general they are in reasonably satisfactory condition and are meeting the normal physical needs of the inmates. This table, derived from the Cundinamarca Beneficencia report for 1947, gives the census figures and movement of inmates for the various institutions under the direct management of the Beneficencia, and is the closest approach possible to a picture of its volume of services. However, the current volume of activities is somewhat greater than the amount shown in the table. Furthermore, the data do not include figures for the out-patient de- partment of the San Juan de Dios hospital, which had some 122,000 visits in 1946. Besides the age and quantitative deficiencies of the institutions operated by the Beneficencia, there are serious gaps in service. Most of the facilities are overcrowded, especially the institutions for children and the mental hospitals. There is little opportunity to segregate patients by type, and the professional staff is not adequate enough to provide active therapy for the patients who require such care.  TABLE 62 MOVEMENT oFPERSONNEL ASSISTED IN THE ESTABLISHMENTS 'UNDER THE GENERAL JUNTA BENEFICENCIA OF CUNDINANIARCA, 1946 Departures .Re- Trans - Ceosus Entries turned ferred to Cured Census Dec. 31, during to Other ]i- or Im- Other Dec. 31, Establishment 1945 Year Total Death Family stitutions proved Escaped Causes Total 1946 Averagel TOTAL .7,5 .... 7,356 20,981 28,337 1,828 514 754 14,355 347 2,133 21,190 7,147 - 1. Hospital, San Juan de Dios . 1,081 16,455 17,536 943 - 318 13,414 25 1,828 16,528 1,008 1,044 2. Hospice, Bogota-Sibate (boys and girls). 6 2 7 . 6217 197 824 2 45 104 - 1 10 162 662 644 3. Hospice, East Section (boys and girls) .. . . ... .. 952 41 993 20 1 59 - 15 144 239 754 853 4. Hospice, School of Domestic Work (girls) . .. 407 62 469 - 42 50 40 - _ 132 337 372 5. Hospice Sala-Cuna. . . 26 241 267 14 13 192 - - 9 228 39 33 6. Hospice, San Jose Trade School (boys) 216 142 358 1 10 - _ 41 50 102 256 236 7. Dormitory, wayward boys 93 797 890 _ - - - - 839 51 72 8. Boarding School, Agriculture No. 1 (boys) . ... 160 112 272 _ _ _ _ _ 113 159 159 9. Boarding School, Agriculture No. 2 (boys) .1 3 ... 139 101 240 _ _ _ _ _ _ 128 112 126 10. Boarding School, Agriculture . No. 4 (boys) . ......... ...... 35 59 _ . 10 49 36 11. Observation Center (girls) ... 25 144 169 _ _ 169 - 25 12. Asylum, insane men .. ......... 904 986 1,890 213 105 2 388 233 6 947 943 924 13. Asylum, insane woomen .. 1,048 884 1,932 276 137 - 469 14 - 896 1,036 1,042 14. Asylum, indigent men ......... .. 806 487 1,293 152 73 24 44 16 80 389 904 855 15. Asylum, indigent women .... 848 297 1,145 207 88 5 - 2 6 308 837 842 'Average nuosiber of persons in designated institutionis at the end of the years 1945 and 1946. Source: Cundiniamarca Beneficencia Report, 1947. 206 THE BASIS OF A DEVELOPAMENT PROGRAMI FOR COLOMBIA Social Security In the preceding discussion we have been concerned with public health services which are financed out of the public budget and under- taken according to particular needs. In addition, the Colombian law provides for social security legislation of various kinds. This legis- lation includes a set of requirements imposed upon employers under Law 10 of 1934, Law 53 of 1938 and Law 6 of 1945. In addition, Colombia initiated an ambitious program of social insurance under the Social Security Act of 1946. The older social security provisions cover a comprehensive range of programs, including severance pay, paid vacations, occupational illness and accident, maternity and old age benefits, etc. Though com- prehensive where applicable, the coverage under these provisions is mostly limiUted to persons employed in the larger establishments. The payments, which are financed entirely by the employer, are dependent upon the size of the enterprise and on the whole only a very small part of the population is covered by these provisions. Workers cov- ered tend to belong to the relatively high wage group. The Social Security Act of 1946 marks the beginning of a far-flung social security program looking towards a combined scheme of health, disability and retirement insurance. The Act established the Colom- bian Institute of Social Security to administer the program. The Institute is set up as a quasi-public body and is designed to operate outside the pressure of politics. Its Board of Directors is composed of four representatives of the National Government and three repre- sentatives each of the medical profession, industry and employee organizations. Each representative is appointed by the President for a term of three years, and upon recommendation of the Board the President also appoints the General Manager of the Institute, wvho serves a five-year term. The law directs the Board to give priority to the introduction of health and maternity benefits but beyond this the Board retains wide discretion in determining the speed and direction in which the program is to be developed. The range of benefits to be provided is comprehensive. In time it is ex- pected to replace many of the functions now performed by budgetary welfare provisions, the Beneficencia and by industrial services ren- dered under the older social security laws. The program includes general health and maternity insurance, occupational illness and wvork accident insurance as well as invalidism, old age and death benefits. The envisaged program, therefore, is all-inclusive except for unem- ploynment insurance and general relief to low-income families. The coverage is to extend eventually over the entire population, including agricultural workers and self-employed persons.  HEALTH AND WELFARE 207 The Board is entitled with Presidential approval to impose payroll taxes for the financing of the program, but the intention is to proceed slowly. Thus far some of the services envisioned under the law, have been instituted in Bogota where medical, maternity and some dis- ability benefits are now provided for approximately 50,000 workers. The system is financed by the imposition of a tax equivalent to g percent of the payroll, toward which the employer pays 4 percent, the employee 2 percent and the Government 2 percent. The annual yield is estimated at about Ps.$6,400,000. The Institute is now con- ducting studies in Medellin and Pereira with a view to determining the feasibility of setting up social insurance programs in those localities. The Institute recognizes that a widespread extension of medical benefits would call for an enormous increase in hospital facilities, wvhich in turn would require large construction funds. To meet this difficulty the Institute plans to proceed with the introduction of the old age insurance program at an early date, to finance this program on a reserve basis and to use part of the excess of X itributions over benefit payments in the early years to defray the cost of additional hospitals. The present plan for old age insurance provides for a 4 percent payroll tax, benefit payments ranging from a maximum of about 60 percent of income earned on the average over the years of coverage for those who contributed 40 years, to a minimum of 33 percent for those who contributed five years, with benefit payments to begin at age 60 or 65. Looking beyond old age insurance, it is estimated that the cost of the entire program may eventually entail an outlay equal to 24 percent of payroll. According to tentative plans, S percent would go for health and maternity, 4 percent for old age, 4 percent for invalidism, 4 percent for survival and 4 percent for work accident insurance. The cost would be borne by joint employer, em- ployee anld Goverinmental contribuitions.  CHAPTER X Electric Power and Community Facilities In recent years Colombian towns and cities have grown sub- stantially faster than the general population. The census of 1938 showed an urban population, i.e., in centers of over 1,500, of 2,533,680, or 29.1 percent of the total. Recent studies indicate that by 1948 the urban portion of the population had increased to about 34 percent, or about 3.66 million out of an estimated population of 10,765,000 in that year. Table 63, showing the estimated growth rates and 1950 popu- lation of various municipalities,' indicates how rapid has been the increase. TABLE 63 ESTIMATED GROWTH OF VARIOUS MUNICIPALITIES, 1938-50 Estimated Annual Estimated 1938 Increase 1950 Municipality Population (Rate per 1000) Population Bogota . ..................... 330,312 42.39 543,590 Medellin ...................... 168,266 38.43 264,570 Barranquilla ...................... 152,348 43.88 255,050 Cali ...... ................ 101,883 41.10 165,200 Manizales ....... .............. 86,027 33.04 130,060 Monteria 64,192 52.06 118,010 Cartagena ...................... 84,937 25.45 114,830 Pereira ...................... 60,492 45.72 103,405 Armenia ...................... 50,838 55.05 96,710 lbagu6 .................... .. 61,447 36.06 94,000 CUcuta ........................ 57,248 33.72 85,240 Bucaramanga ...................... 51,283 36.76 79,070 Cienaga .......... ............ 47,333 33.04 69,920 Pasto ......... . 49,644 27.18 68,490 Palmira .......... ............ 44,788 25.57 60,630 Calarca .......... ............ 35,230 30.59 50,580 Santa Marta ...................... 33,245 31.04 47,970 Buenaventura ...................... 27,777 42.03 45,520 Girardot ....................... 25,307 32.26 37,040 Tunja ....... ............... 20,236 32.47 29,690 All Colombia ...................... 8,701,816 21.53 11,236,200 Source: Contraloria General de la Republica, Censos Nacioniales. The growth of the strictly urban population has, in fact, probably been even more rapid than is indicated by Table 63, which includes substantial rural populations in most municipalities. An attempt has been made in Table 64 to break down the population estimates l The word "municipio" (municipality) as it is used in Colombia does not neces- sarily refer to a city or village but to the local administrative entity which may be partially or entirely rural in character. In fact, all the municipalities have some rural population. 208  ELECTRIC POWER AND COMMUNITY FACILITIES 209 for the country as a whole (excluding intendencias and comisarias) according to the size of the principal urban center in each municipality. TABLE 64 ESTIMATED URBAN AND RURAL POPULATION OF MUNICIPALITIES BY SIZE OF URBAN CENTERS, 19501 Number of Muni- Estimated Population Population of cipalities Urban Centers in Group Urban Percent Rural Percent Total Over 100,000 ............ 5 1,325,778 98.7 17,462 1.3 1,343,240 50,000-100,000 5......... 346,140 70.0 148,345 30.0 494,485 20,000- 50,000 ...... 15 519,282 61.6 323,708 38.4 842,990 10,000- 20,000 ......... 31 458,460 51.2 436,970 48.8 895,430 5,000- 10,000 ...... 91 657,860 36.6 1,138,165 63.3 1,796,025 2,000- 5,000 188188. 698,152 28.3 1,768,613 71.7 2,466,765 Under 2,0(02 461 - - - - 3,358,000 TOTAL ........ 796 11,196,935 1 Intendencias and comisarias excluded. 2 No estimate of the urban population of this group has been attempted, since it is impossible to determine from available statistics how many villages of less than 1,500 population in 1938 may have grown sufficiently to be classed as "urban" in 1950. Source: Estimates of Contraloria General de la Repiiblica, Censos Naciontales, adjusted for the estimated rise in the proportion of urban population. NEED FOR COMMUNITY FACILITIES Although Colombia has made great strides in the past 20 or 30 years in developing such facilities as electricity, water supply and sewer systems, schools, hospitals and the like, the need for them has almost everywhere outrun their availability. Many of the facilities built in the 1920's and 1930's are obsolete, or have become wholly inadequate for the populations they now serve. In some cases poor niaintenance, resulting partly from the difficulty of importing spare parts and materials in the war and postwar years, has greatly im- paired their efficiency. And the majority of Colombian municipalities, including some that have grown into sizable towns, are alnmost wholly without modern utilities and sanitary services. Establishment or improvement of these facilities is a major aspect of economic development in Colombia. Electric pouer, of course, is the basis of modern industrial growth. Proper water supply and waste disposal facilities are almost equally necessary for certain industries. Other types of community services are less directly con- nected with production, but their importance should not be under- estimated. Improvement of health and educational standards is fundamental to all progress; and in countries where economic devel- opment is most advanced the value of better housing, sanitation, 210 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLO-MBIA and other basic amenities of life has been increasingly recognized, not only for their humanitarian benefits but also as practical aids to higher productivity. It is difficult to get a complete and accurate picture of existing community facilities in Colombia. Available statistics usually lay major stress on the financial position of municipal services rather than their physical capacity or condition. Therefore, while the Mission could not make a detailed study of conditions in all com- munities, it did undertake to obtain in some detail specific information from a number of the principal cities to supplement the more general data available from National Government agencies. Inevitably, much of the data obtained from both national and local sources is fragmen- tary and does not adequately reflect qualitative differences; but these data do afford some basis for measuring, in aggregate terms, the capacity and requirements of some of the most important com- munity facilities in Colombia. ELECTRIC POWER FACILITIES Installed generating capacity of Colombian power plants in 1950 has been estimated by the Mission at about 270,000 kw., or 24 watts per capita. "Public service" plants account for 241,000 kw. of this capacity, and the remainder consists of generators used only by the factories in which they are installed. Industrial uses apparently absorb some 30 percent of the power produced by public service facilities and 38 percent of the country's total power output. About 26 percent of the public service plants are privately owned and the rest are mostlh under municipal ownership. Twelve major centers 2 account for three- fourths of the total power output. Although data on power production and consumption are inadequate, it is estimated that demand increased 9 percent per year in the last decade, a rate approximately in line with the rate of growth in industrial production and in the demand for fuels. About one-fourth of the capacity installed is thermal, and the balance hydroelectric. The choice of the type of power generator used has been determined, of course, by geophysical conditions, or the availability of coal or oil. Thus, all the plants in Atlantico, Bolivar, Magdalena and the Choc6 are thermal, and so are more than half the plants in the Santanders and about one-third of those in the Valle del Cauca. About half the privately owned public service plants are thermal, the most important among them having been installed by a subsidiary of American and Foreign Power in Cali and Barranquilla. 2 Bogota, Medellin, Barranquilla, Cali, Cartagena, Manizales, Bucaramnanga, Arme- nia, Popayan, Girardot. Neiva and Santa Marta.  ELECTRIC POWER AND COMMUNITY FACILITIES 211 General Use of Power Table 65 summarizes the existing public service facilities for power generation in Colombia. (It does not include private powver plants installed by some industrial and commercial establishments, wvhich are estimated to have aggregate capacity of 30,000 kw. more.) It indicates an average of 21.5 watts per capita of installed public TABLE 65 ESTIMATED PUBLIC SERVICE GENlERATING FACILITIES BY SIZE OF URBAN CENTERS SERVED, 19501 Avail- Installed able Generating Watts Size of Urban Popula- 2 Capacity per Centers tion (kw.) Capita Remarks Over 100,000 .. ..... .. 1,426,394 170,756 120 Also serves various rural communities, whose popula- tions are not included. 50,000-100,000 ......... 370,009 20,566 55.6 20,000- 50,000 ........... 496.350 15,074 30.4 Also serves various rural corimmunities, not included. 10,000- 20,000 ........... 429,771 15,132 35.2 Generating capacity includes (1Minus Barranca- 7,500 kw. for oil fields at bermeja) ............ (417,816) (7,632) (18.3) Barrancabermeja. 5,000- 10,000 632,916 7,285 11.5 20 of 91 towns in this class apparently have no power supply. Existing capacity also serves various rural communities, not included. 2,000- 5,000 639,668 8,628 13.5 Generating capacity includes (MXiinus Condoto) . (636,772) (6,128) (9.6) 2,500 kw. for gold mines at Condoto (Choc6). 70 of 188 towns in this class ap- parently have no power supply. Under 2,000 and rural 7,241,0923 3,795 0.5 159 plants for 461 munici- palities. Total 11,236,200 241,236 Average for country . . 21.5 Average for urban centers . . 60.2 l Does niot iinclude intendencias alnd coinisarias. 2 Population figures for different classes of cities differ from those in Table 64 because the power plants in major urban centers usually serve a number of smaller localities as well; in such cases the urban populations of the latter have been added to those of the distributing centers, and deducted from the class to which they normally belong. -Urban generating facilities also frequently serve part of the adja- cent rural area, but the latter are not included in the population figures or per capita availability of power, except for the "under 2000" class. 3 Largely rural population. Source: National Institute of Water Utilization and Electrical Development and individual municipalities and power companies. 212 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA service capacity. The comparable figure for the United States at the end of 1947 was 359 watts; for Uruguay in 1948 it was some 72 watts; and for Chile about 63 watts per capita. Even this relatively low figure of installed capacity in Colombia probably presents too favorable a picture, for the following reasons: 1. Some units which were in the later stages of construction in 1949 are included, although they will not be in operation until the end of 1950 or even later. 2. Installed units are rated at their theoretical capacity, al- though the poor condition of some generation and distribution systems substantially reduces actual output. Some units are operated only infrequently. 3. Hydroelectric installations frequently cannot operate at full capacity throughout the year. In Table 65 the peak capacity of hydro- electric plants is used, and standby thermal plants are included as well. These overall statistics also conceal very wide variations among individual localities. Table 66 shows a breakdown by departments. In the country's five largest cities, generating capacity ranges from an estimated 32 watts per head in Cartagena to 194 in Medellin,3 and annual consumption from about 100 to 800 kwh. per capita. The differ- ences in the various power systems result from variations not only in generating capacity and condition of equipment, but also in rate structures and consumption patterns. In Medellin the residential rate is lower than the industrial rate and much lower than that charged in other cities; moreover, the rate per unit is lowest for the smallest residential users. This factor may account in part for a comparatively lavish residential power consumption in Medellin and a slower rate of growth in the use of industrial power than has prevailed in Bogota and other cities during the past five years. Apparently, moreover, the relatively high rates charged by the Medellin company for industrial power, as well as the shortages in power resulting in part from the high residential use, have influenced several large industrial consumers to install their own generating facilities. During the past five years of rapid economic expansion the demand for power-for industrial, commercial and residential uses alike- has climbed considerably faster than the rate of expansion in gener- ating facilities. This has led in some areas to serious power shortages, which in turn have restricted the installation of additional power- using facilities and have undoubtedly significantly hampered more 3 These figures, unlike those in Table 65, include the entire population of the municipality, not just the urban portion. The population of the largest cities, however, is almost wholly urban. For more complete information on power facilities of prin- cipal cities, see Appendix C.  ELECTRIC POWER AND COMMUNITY FACILITIES 213 TABLE 66 PUBLIC SERVICE GENERATING FACILITIES, BY DEPARTMENTS, 1950 Generating Generating Capacity Capacity (watts) Department (kw.) per Capital Antioquia ........................................................ 59,074 39.7 Atlantico ................................ _............................ 32,019 78.8 Bolivar ................................ ... 5,118 4.9 Boyaci ... . 2,131 2.8 Caldas ................. .................. 19,582 17.8 Cauca ......... ........................... 2,773 6.1 Cundinamarca .................................... 72,016 49.0 Choco ..... ............................... 2,9242 23.3 Huila ...................... ............. 1,575 6.6 Magdalena .................................... 3,122 6.8 Narino ...... .......................... ... 2,125 3.9 N orte de Santander .................................... 4,390 10.1 Santander . ................................... 10,7193 14.2 Tolima .................................... 4,082 5.5 V alle del Cauca .................................... 19,586 19.5 I Based on population estimates for 1950 of Censos Nacionales, Contraloria Gen- eral de la Republica. 2 Includes 2500 kw. for mining operations at Condoto. 3 Includes 7500 kw. at Barrancabermeja. rapid economic development. The overall utilization of power gener- ating capacity has apparently increased substantially since the end of the war. The average loaLfactQr throughout the country, which was about 3,000 kwh. per kilowatt of generating capacity (34 percent) in 1944s/45, is probably well above 40 percent at present. But by far the largest part of the load is residental consumption, mainly lighting, which produces very sharp daily peaks; the higher load factor in many cases has been achieved partly at the expense of a serious fall in voltages under peak loads. In some localities the supply of electricity has to be cut off entirely from part of the distribution area during peak periods in order to maintain service in the rest of the system. Thus it is clear that the generating capacity in Colombia is seriously inadequate either to make possible rapid economic develop- ment or to meet a minimum standard of residential consumption. It is not difficult to identify the principal reason why the development of power facilities has failed to keep pace with the demand. A decade ago the installation of local units which could meet forecast demands involved only a small investment. Now the economics of power development require the construction of huge plants which can pro- duce power at lower unit cost but which involve initial capital outlays too large to be undertaken by most private or municipal concerns. 214 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA Mioreover, wvith the extension of power service over wider geographic areas, the traditional local administrative and regulatory mechanisms are proving inadequate. This situation, common in Latin America, calls for a different approach to the planning and financing of poxver enterprises to enable them to meet a broader, longer range demand. A National Institute of Water Utilization and Electrical Development was established in 1946 in an attempt to meet this problem. The Institute is charged with responsibility for formulating a comprehensive national plan of power developrnent. It also holds the National Governmnent's shares in various hydroelectric "centrales", which are mixed enter- prises (usually involving participation by national, departmental and local governments) for the generation and transmission of power. A few of the largest of these projects planned or in construction under the sponsorship of the Institute of Water Utilization-together with one or two independent enterprises such as the mixed municipal- private Bogota. Power Company-may form the nucleus for an eventual integrated national power network. At present, however, inadequacy of funds and technical personnel seriously restricts the work of the Institute on projects already under way and in making plans and setting priorities to meet the nation's future power needs. The Institute has estimated Colombia's overall power require- ments, based principally on residential nceds, at 1,800,000 kilowatts of generating capacity, which would be nearly seven times the present total. Clearly, achievement of this level will be a long and costly process. An attempt is made in Chapter XXIII to estimate the most urgent needs and the amount of expansion realistically possible over the next five years. A considerable program of power development is already under way. According to a report submitted by the Institute to the Mission, 4 the following large projects have been started: Projected Investment Ultimate Made or Capacity Capital Area Project (kw.) Available Bogota El Salto Nuevo 30,000 Ps.$10,825,000 Medellin Rio Grande 75,000 20,620,0005 Cali Anchicaya 70,000 5,710,0006 Bucaramanga Lebrija 18,000 2,115,0005 Manizales Caldas 30,000 5,475,0005 Ps.$44,745,000 T'he investmiients so far made in these projects constitute in most cases only a minor part of the total necessary for their ultimate 4 In!forine Sobre Electrificaci6n y Irrigaciin del Pais, 1949, pp. 21-24. 5 Up to January 1949. 6 Up to July 1948.  ELECTRIC POWER AND COMMUNITY FACILITIES 215 capacity. While they will find their principal markets in the major centers shown, they will also serve many smaller communities and rural districts. A number of smaller local plants, with total capacity of some 10,000 kw., are also being constructed with assistance from the Institute and the Municipal Development Fund (Fondo de Fomento Municipal). WATER SUPPLY AND SEWERAGE A good supply of pure water and a satisfactory means of disposing of human excrement are essential to the health and welfare of every community. The present inadequacy of water and sewer facilities in Colombia is a serious hazard to public health, and it is likely to become more so as urbanization and industrial development continue. Therefore, the provision of such facilities deserves a place of high priority in the health and sanitation program for Colombia. At present, as is shown in Table 67, most of the large cities of Colombia have some public water supply, but in many the volume or purity of the water is unsatisfactory. Most small communities and a number of large towns have no public supply at all; their water is drawn from polluted wells and rivers, often quite a distance away; and in some villages the people have to depend on peddlers who bring wvater in carts or drums and sell it in the street. Apart from the health hazard, these primitive means of obtaining water are extremely inefficient. TABLE 67 WATER SUPPLY FACILITIES BY SIZE OF URBAN CENTERS, AUTUMN OF 19491 water Conductioli and Distribution Purifica- Number Systems tion of Plants in Population of Munici- In In Con- Definitely Exist- Urban Centers palities Existence struction Planned2 ence3 Over 100,000 ..... .... . 5 5 5 50,000-100,000 . 5 _ _ 4 20,000- 50,000 15 14 - - 11 ........ 10,000- 20,000 ... . 31 8 13 1 5 5,000- 10,000 91 10 24 11 4 2,000- 5,000.188 29 47 13 3 Under 2,000 and rural4 . 461 445 47 33 1 1 Departments only. 2 Projects for which plans are complete and materials fully procured or on order. 3 In addition, some 15 municipalities have water supplies whose physical and chemical condition is acceptable without purification. 4 Includes three localities which could not be definitely identified. 5 In addition, some twenty wells have been drilled in rural areas. Source: Sanitary Engineering Division, Ministry of Hygiene, and individual municipalities. 216 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA There is a similar lack of modern sewerage facilities. No city in Colombia has a sewer system covering the whole urban area; Carta- gena and several other cities and large towns have none at all (Table 68). There are no sewage treatment plants. Moreover, in most places which have sewers, street drainage and sewage are handled through the same system; true sanitary sewers are almost non- existent. TABLE 68 SEWER FACILITIES BY SIZE OF URBAN CENTERS, AUTUMN OF 19491 Number Population of Number of Having Sewer Number in Urban Centers Municipalities Systems Construction Over 100,000. . . .. 5 4 0 50,000-100,000 ... ... 5 3 2 20,000- 50,000 . ... 15 9 3 10,000- 20,000 . ... 3 110 6 5,000- 10,000 ......... ...... 91 26 24 2,000- 5,000 ... .. .... 188 37 32 Under 2,0002 .. . 461 622 39 TOTAL . .. .... 796 151 106 1 Departments only. 2 Includes one unidentified locality. Source: Sanitary Engineering Division, Ministry of Hygiene, and individual municipalities. There are wide variations in the adequacy of water and sewage disposal facilities in different regions and cities.7 The Atlantic Coast departments are least adequately provided for; facilities of both types are almost wholly lacking outside the capitals of departments and the number of projects now under construction or definitely planned for this region is very small. The National Ministry of Hygiene has outlined an ambitious con- struction program for water supply and sewer facilities, to be financed in large part through the Municipal Development Fund. During the period from April 1, 1040, when the Municipal Development Fund started operations, and December 31, 1948, 79 water supply and 98 sewer projects were completed, and at the end of 1948 a further 276 water supply and 150 sewer projects were in construction; many of the latter have since been completed. There were still in construction, in the latter half of 1949, some 130 water supply systems; 60 more 7 See Appendix D.  ELECTRIC POWER AND COMMUNITY FACILITIES 217 were ready to be started when sufficient materials arrived, and plans had been drawn up for nearly 100. Over 100 sewer projects were also under way in the autumn of 1949. Most of these projects are in small and medium-sized towns, and a surprising number are in communi- ties which were classified as wholly rural (having no community of as much as 1,500 population) in the 1938 census. Some expansions of water and sewage systems in the larger cities are also being made or projected, but are proceeding less rapidly; such works involve more complex plans and larger expenditures, and receive proportionately less help from the Municipal Development Fund. The construction plans of the Ministry of Hygiene contemplate equipping all the municipalities in the nation and 200 "corregimientos" (subsidiary communities within the municipality) with a sewer sys- tem and a water supply planned for 70 gallons per capita per day, con- nected to each house. The financial estimates of the Ministry for the water supply portion of this program follow: Facilities in construction or projected for 1949-1950 .............. Ps.$ 26,000,000 Filtration plants for existing systems and those to be built in 1949-1950 ............................................... 30,000,000 700 new systems, with necessary filtration plants .................. 130,000,000 Improvement of existing systems ................................................ 84,000,000 Total ............. ................... . ............. Ps.$27 0,000,000 Perhaps 60 to 65 percent of this amount would be in foreign exchange -about U.S.$87,000,000. The estimates for the sewer construction program are: Projects in construction or planned for 1949-1950 ................ Ps.$ 15,000,000 750 new sewers .. .................................... . ....... 120,000,000 Extension of existing sewers ................................................ 25,000,000 Sewage treatment plants ............................................... 20,000,000 Total .................. ............................. Ps.$180,000,000 The progress made during the past few years is encouraging, and the construction program outlined for the future is even more ambitious and costly. This program. however, seems to lay undue emphasis on rather elaborate facilities for a great number of small communities -where the per capita cost is several times greater than for medium- sized towns, where the financial resources and technical skills avail- able for upkeep of complex systems are small, and where only a few houses have interior plumbing. It should be possible to meet the most urgent needs more quickly and at less cost by giving priority to relatively simple facilities as suggested in Chapter XXIII. 218 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA TELEPHONES In 1948, the number of telephones connected in Colombia was some- thing, less than 70,000. (See Table 69). This is about 7 telephones per thousand population, compared with 14 per thousand for South America as a whole and 242 per thousand in the United States. Sub- stantially all telephones are in cities over 20,000, and there is no rural service at all. The number of telephones in the ten largest cities, all of wvhich have local telephone networks, averages a little more than 41 per thousand. TABLE 69 TELEPHONES IN SERVICE, BY SIZE OF URBAN COMMUNITIES, 1946-19481 Number per Populationl of Number of Telephones on Dec. 31 1.000 Urbali Urban Centers 1946 1947 1948 (1948 estimate) Over 100,000 .42,62 ..... 42,628 45,532 49,342 40.6 50,000-100,000 10,742 12,852 14,0082 44.4 20,000- 50,0003 2,401 3,006 3,40724 7.7 10,000- 20,000 ..... 672 682 876 2.0 5,000- 10,0005 367 40S 4092 0.7 2,000- 5,OO0 16 20 202 0.03 Total . .... 56,826 62,500 68,062 Average for urban ceniters over 2,0003 . 18.7 1 Departments only. 2 Partly 1947 data. ENot including Girardot. for which data are not available. 4 Includes Neiva, where service was initiated in January 1949. S Only 1945 data available for Quibd6. Source: Contraloria General de la Republica. supplemented bv data fromn indi- vidual cities. Each local system is independent. MIost are municipally owned, but a few are in private hands. In addition, hoxvever, departmental telephone systemls have been established in most of the country, wvhich link up public systems in the principal towns of each department. Lon,g distance service is provided by agreement among the various local and departmental systems. In view of the cost of the facilities and the generally low level of agricultural incomes, there is little prospect of initiating any ex- tensive rural telephone service in the near future; while the depart- mental systems may be expanded somewhat, they will probably still  ELECTRIC POWER AND COMMUNITY FACILITIES 219 be confined to a few public telephones in urban communities. But there is apparently a strong demand for increased service in the prin- cipal cities. During the five years 1944-1949, according to information given to the Mission by the various telephone enterprises, the num- ber of connections in Barranquilla has increased by about 25 percent; in Bogota by nearly 40 percent; in Medellin by about 50 percent; in Bucaramanga (where the telephone company is privately owned) by 80 percent; in Armenia by nearly 100 percent; and in Cali by 110 per- cent. Proposed increases were still hampered during part of this period by the war-created shortage of equipment, and the various local companies have ambitious plans for further expansion and im- provement of their facilities during the next five years. Bogota pro- poses a further increase of about 120 percent, Bucaramanga of nearly 100 percent, and Cali, Medellin and Barranquilla of about 70 percent. SCHOOLS, HOSPITALS AND RELATED INSTITUTIONS Chapters IX and XII contain an analysis of the adequacy of hos- pitals and related facilities and of schools in Colombia. PUBLIC MARKETS AND SLAUGHTERHOUSES The food distribution system typical in Colombia, in which public markets serve both wholesale and retail functions, seems to be gradu- ally changing. Bogota, for example, is planning to establish a single large wholesale market near the railway station, and to eliminate the several public markets now scattered about the city. The new market would be financed largely by the sale of the public markets which would be replaced by private retail shops. Manizales has a new Ps.$2 million market in construction; Bucaramanga is planning one of similar size; Barranquilla is projecting new buildings to cost Ps.$600,000; Mledellin plans several satellite markets in the city at an estimated cost of Ps.$1 million; Cali and Popayain plan new markets at Ps.$400,000 and Ps.$200,000, respectively; and Armenia proposes to refurbish its present facilities at a cost of Ps.$200,000. Part of these estimated costs is for land, and so does not really represent new in- vestment, but the proposed expenditures for new construction are substantial. In most localities, however, the present pattern is likely to persist for some time. Many of the existing public markets are a sanitary hazard, with serious overcrowding, high food spoilage, and inadequate waste disposal and water facilities. The usual method of handling meat is for cattle and other ani- mals to be brought, usually on foot, to the local cattle market 220 THE BASIS OF A DEVELOPMENT PROGRAiM FOR COLOMBIA adjacent to the public slaughterhouse, and there to be sold to meat wholesalers or retailers who pay a fee to have them butchered. These low-volume operations do not require elaborate facilities, but the slaughterhouses in a number of towns need to be expanded to keep up with population growth. Several cities have informed the Mission that they have definite plans for such expansion: Medellin and Barranquilla propose to build new slaughterhouses; the former is to cost an estimated Ps.$1,400,000, while the latter's cost is unspe- cified; Popayan plans a Ps.$200,000 project to provide the city with proper slaughtering facilities for the first time; Cali and Manizales plan expansions to cost Ps.$500,000 each; and Bucaramanga is installing cold storage facilities at an estimated cost of Ps.$60,000. Probably, however, the growing demand for meat will be met to some extent by locating modern slaughtering and packing plants close to the principal sources of supply and transporting meat, rather than live cattle, to urban centers. This should result in more efficient handling, better quality meat, and less waste and spoilage. The major need for community facilities in this field is for cold storage facilities to reduce waste and the danger of contamination and to permit better organized slaughtering and marketing. At present, cattle are usually butchered at night for the following day's sales and a surplus cannot be kept over from day to day. Adequate cold storage space at wholesale and retail distribution centers is a necessary part of a system of centralized slaughtering and packing. OTHER SERVICES Other municipal services, such as street paving, street cleaning, and garbage and waste collection, are hardly less important than those discussed. Information about their present extent and quality and about the capital required to provide them on an adequate scale is, however, very fragmentary. Various cities indicated to the Mission their general plans for extension of streets and improvement of street cleaning and waste and garbage collection. These plans are summarized in Table 70. The extent to which these plans are actually put into effect will depend, of course, on the availability of funds from year to year, but they suggest the order of magnitude of capital outlays planned for these purposes. The seven cities shown contemplate expenditures for street paving of some Ps.$38,000,000 over the five years to come; and foreign exchange expenditures of nearly U.S.$800,000 for street cleaning and waste collection equipment, assuming that unit costs given by some cities will apply to others as well.  TABLE 70 PROJECTED EXPENDITURES OF VARIOUS CITIES FOR STREET PAVING, STREET CLEANING AND WASTE COLLECTION, 1949-1954 Paving of Streets Street Cleaning and Waste Collection Total Total Planned 1949-54 Additional Vehicles Km. of Km. Km. Paved Cost Present Present 1949-54 City Streets Paved 1944-49 Km. (millions) Vehicles Workers No. Estimated Cost Bogota ................................................... n.a. n.a. n.a. 1000 Ps.$25.0 44 813 None planned Medellin 3........................... 369 185 70 2351 6.6 13 328 6 n.a. Barranquilla . 5 00........................ 500 130 12 21.2 2.382 21 130 50 U.S.$500,000 Cartagena ........................... . 142 42 1 25 1.25 73 78 8 60,000 Manizales .. .. ... n.a. 404 64 5 n.a. 4 120 4 n.a. Bucaramanga .1 36........................ 136 56 26 75 2.5 4 98 10 n.a. Arnenia .... ............... .... 33 10 - 5 .2 4 50 2 20,000 1 100 Km. of paving and 135 Km. of repairing. 2 The unit cost of paving is greater in Barranquilla than in most other locations because concrete is used rather than asphalt. 3 Privately owned, employed on contract basis. 4 Estimated. 5 Plans are indefinite but it is proposed to increase the rate of paving over that of the last five years. Source: Municipal authorities. 222 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA UTILITY RATES It has not been possible to make any comprehensive analysis of the financial position and rate structure of Colombian utility enter- prises. However, present rates for electric light and power for several cities are shown in simplified form in Table 71. They vary considerably from city to city, both in their amount and in component factors. Industrial rates are generally a combined figure, based partly on the connected load and partly on actual power consumption. The level of average effective rates for industrial power is not known for all the cities listed, but those shown range from a little over two to nearly six centavos per kilowatt-hour. As regards residential rates, their average levels vary even more widely; combined rates are less common, although in Medellin and Manizales the charge for electricity consumed is additional to a flat monthly payment; and a much larger share of the total consumption is unmetered. Water rates have a somewhat more uniform general structure in the four cities-Bogota, Medellin, Barranquilla and Cali-for which up-to-date information is at hand. In each case there is a fixed monthly charge, on a sliding scale rising with the assessed valuation of the property, which entitles the subscriber to use a limited quan- tity of water per month. Where meters are installed, principally in industrial and commercial establishments and the more expensive houses, an additional charge is made for each cubic meter used; in Cali this rate also varies directly with the value of the property, in Barranquilla it varies inversely with the amount used, and in Medellin there is a flat charge per unit of excess consumption. It is clear from the differences in local rate structures that uni- form rate-fixing policies and standards have not yet been defined for the country as a wlhole. The several municipalities apply quite different criteria, and the requirement that their decisions be ap- proved by the Ministry of Commerce and Industry has not produced a consistent pattern. In the field of electricity, where the divergencies are greatest, their continuance might handicap the development of an efficient nationwide power network. In some cases the rates are apparently designed to subsidize or tax certain economic groups, rather than to encourage efficient opera- tion and healthy growth of the utility systems. For instance, electric rates to small residential consumers are often lower than to large industrial users, although the unit cost of service is greater for the former than for the latter. In Medellin the effective rate for indus- trial power is higher than the residential rate. Such policies do not promote industrial growth or efficient and balanced use of generating  TABLE 71 RATES FOR ELECTRICITY IN CERTAIN CITIES, 1949 INDUSTRIAL RESIDENTIAL Flat Rate Flat Rate (per HP Connected Metered Rate Average (Per Watt Metered Rate Average per month) (per KWH) (per KWH) Per Month) (per KWH) (per KWH) Bogota Ps.$1.00 plus Ps.$0.015-.03 Ps.$0.03439 Ps.$0.021 Ps.$0.03-.09 (light) Ps.$0.0588 0.01-03 (heating) Medellin 0.752 plus 0.016-.02 0.0215 _ 0.30 per Ps.$1000 0.01853 valuation plus 0.007/KWH Barranquilla 2.60-3.254 plus 0.026-039 - - 0.325-.156 l Cali 2.0-2.504 plus 0.031-041 0.0.79 - 0.035-12 0.0696 Cartagena 0.9755 plus 0.026 _ 0.02 0.065- 146 Manizales 6 1.0 plus 0.012-025 - 0.02 3.60-9.507 plus - 0.015-.02/KWH Cucuta - _ 0.0478 - _ 0.0478 Bucaramanga _ 0.046 - 0.059 Armenia 2.50 _ - 0.01-.03 (light) - 0.003 (heating) - Neiva _ 0.05 0.05 0.01 (light) 0.10 0.005 (heating) _ Popayan 2.00 0.015-03 - 0.025 0.03-.05 I For "barrios abreros" there is a special rate of Ps.$1 for 100 watts connected. 2 Ps.$1 per kilowatt connected. 3 Average is Ps.$0.012/kwh for property valued at Ps.$200; Ps.$0.042/kwh for valuation of Ps.$200,000. 4 For establishments having several motors a discount of 10-30 percent is made in the flat rate charge. 5 Ps.$3.90 for first HP, Ps.$0.975 for subsequent. 6 Those rates, representing a substantial increase from previous levels, have been authorized by the Manizales Municipal Council and are awaiting approval by the National Government. 7 Depending on connected load. 8 Average for all sales to metered consumers in first six months of 1949. Source: Individual municipalities or power companies. 224 THE BASIS OF A DEVELOPAMENT PROGRAM FOR COLOMBIA capacity, and in the long run they may actually increase the burden on small consumers by making it profitable for industries to install their own generating plants. Another difficulty is that a large proportion of sales of water, and to a lesser extent of electricity, is still unmetered. This tends not only to reduce the revenues of the utility enterprises, but also to encourage wasteful consumption, especially by residential users. In general, the desirability of installing meters seems to be recog- nized by the utilities, but foreign exchange restrictions have retarded their efforts in this direction. ADMINISTRATION AND FINANCING Public utility enterprises in Colombia were established at first by private capital. Some private companies have been taken over by local governments; others still remain. But the prospects for further large-scale private investment in these fields appear dubious. There are several reasons for this: (1) Colombian Government policy has generally been to encourage public development of these facilities; (2) existinig private companies have found it increasingly hard to obtain satisfactory rate changes, expropriation settlements and other financial arrangements from public agencies; (3) exchange restric- tions have made foreign capital wary of investment in fields where expenditures must be largely in foreign exchange and revenues are entirely in local currency; and (4) Colombian investors are not attracted by the relatively low returns to which public utilities are normally held. The probability, then, is that future development of community facilities in Colombia will be mainly under public auspices. Substantially all proposed new enterprises of this kind are to be financed largely or wholly from public funds. But the assumption of this responsibility by governmental agen- cies has not greatly altered the basic administrative or financial problems involved in development of community facilities. It is still necessary to set proper rates for utility services, wlhether the enter- prises are publicly or privately owned; to secure adequate public revenues to support services, such as schools or sewers, which are not financially self-sustaining; and to provide for competent manage- ment for both types of services. The fiscal resources of local governments, which must be the principal source of financing non-revenue-producing facilities, are analyzed in Chapter XIII. The fundamental problems affecting the establishment and administration of modern community services are  ELECTRIC POWER AND COMMUNITY FACILITIES 225 the extreme weakness and poverty of most Colombian municipali- ties. In 1946, 450 of them-nearly three-fifths of the number for which detailed statistics were available, and which contained 32.5 percent of the total population-had revenues of less than Ps.$25,000 each; the average income for this group was less than Ps.$11,000. An additional 147 municipalities had revenues of Ps.$25,000 to Ps.$50,000, with an average of Ps.$35 ,000. These figures included substantial help from the national and departmental governments, amounting to about 40 percent of the total. 8 Finally, it is essential that the municipal authorities be equipped to deal efficiently with their growing responsibilities-and the adminis- trative mechanisms and techniques required are likely to be quite different from those devised to carry on traditional local government functions. The separation of powers which generally characterizes the Government of Colombia is carried down to the local level. Municipal councils are popularly elected, but mayors are appointed by the departmental Governors, who in turn are appointed by the President. The executive branch of the local government is thus under the general supervision of the national administration. This system helps to coordinate executive policy at all levels, but it may sometimes hamper cooperation between the mayors and local councils, especially in periods of active partisan controversy. An attempt has been made in most of the larger municipalities where community facilities are publicly owned to insulate them to some extent from politics, and to provide for continuity of manage- ment by establishing the "empresas municipales" on a more or less autonomous basis. The generailpattern -isquite typical, but there are considerable differences in detail. The most elaborate setup is that of Medellin, wvhere the Empresas Municipales are divided into three sections: (1) the electric power company; (2) the telephones, buses and streetcars, and water supply system; and (3) the slaughter- house, public markets, cattle markets, milk treatment plant, pawn- shop, pipe and tile factories, experimental farm, and gravel pit. In BogotA, each of the several municipal enterprises is operated as an independent entity. In other localities their composition, direction and degree of administrative and financial autonomy vary consider- ably. Where the establishment of the major municipal services has been financed in large part by loans, the lending authority.has some- times insisted on appointing one or more members of the board of directors of the "empresas", with a preponderant voice in their poli- cies and management. In several such cases the lender has been the 8 See Appendix E. 226 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA Banco Central Hipotecario; in Cartagena, the National Government itself; in Barranqeuilla, a Chicago bank, etc. Local interests are usually represented by including an appointee of the Municipal Council, or sometimes of local business or banking groups, on the board of di- rectors. This general pattern of "empresas muniicipales" has worked quite well in a number of cities, less so in others. Perhaps the most impor- tant determinant of success has been the extent to which the "em- presas" have been truly autonomous. This type of administrative ar- rangement does not, however, solve the problems of the great number of municipalities with very small populations and financial resources. Their legal position is theoretically the same as that of the largest cities, but they are clearly quite incapable of assuming corresponding responsibilities for the administration of essential community serv- ices. Aid now given them by the national and departmental gov- ernments is confined almost entirely to financing and even that is inadequate. National assistance and supervision are generally limited to the period of construction. Although other agencies are supposed to provide help in the maintenance and operation of community facili- ties-e.g., the Ministrv of Hygiene for sanitation services and the Institute of Water Utilization and Electrical Development for power plants-their personnel is very limited and they have no means of en- forcing satisfactory standards of performance. The Ministry of Hy- giene has a program for bringing prospective operators of new water systems into Bogota for a period of training, but it has no effective voice in the selection of the trainee or in whether he gets or keeps the job when he returns home. Fondo de Fornento Municipal (FFM) As a means of promoting the development of improved community facilities, the Fondo de Fomento Municipal (Municipal Development Fund) was established by Decree No. 503 of March 8, 1940. It is attached to the Ministry of Finance and administered by a Directive Committee comprising the Ministers of Finance, Education, Industry and Commerce, Labor, Hvgiene and Public Works. It has a central secretariat and a very small procurement and engineering staff. Most of the work of reviewing projects and plans is delegated to the con- struction divisions of other Ministries-the Ministry of Hygiene for water supply systems, sewers and hospitals, Education for schools, and Industry and Commerce for power projects.  ELECTRIC POWER AND COMMtUNITY FACILITIES 227 The FFM is authorized to make grants of not more than the following amounts for the construction and expansion of essential municipal services: Water Suipply -60 percent of the cost, up to limits scaled according to population, with a maximum of Ps.$200,000 for any municipality. The contribution may be in- creased up to 90 percent for municipalities having less than Ps.$12,000 annual revenues, up to 80 per- cent for those with less than Ps.$50CCOO income, and up to 70 percent for those with revenues under Ps.$80,000. Sewer Systems -60 percent of the cost, up to limits based on popula- tion, with a maximum of Ps.$150,000. The contri- bution may be increased to 70 percent or 80 percent for municipalities with annual revenues of less than Ps.$50,000 or Ps.$12 ,000, respectively. Electric Plants -Maximum contributions range from 20 to 50 percent of the cost of a plant, the larger percentage for municipalities with the smallest revenues, and xvith a top limit of Ps.$250,000 for any one project. Schools -No maximum limit, but an effort is made to obtain as large a local contribution as possible. Hospitals -No fixed limit. At present FFM confines its assistance mainly to construction of water and sewer systems and schools. The projects completed and in progress with the help of FFM, up to the end of 1948, are shown in Table 72. While the FFM helps with construction costs, the poorest municipalities may find it impossible to finance even 10 percent of an expensive project out of funds in hand. But it is certainly desirable for even the poorest municipalities to make some financial contri- bution to their owvn development. Revenues earmarked for aid to municipal development through the FFM yielded Ps.$9,629.562 in 1948 and are estimated at Ps.$9,315,000 in the 1950 budget. In addition, in recent years Ps.$700.C00 a year from the National School Fund of the Ministry of Education have been allocated through the FFM for school construction. Table 73 shows the revenues received and expected by the FFMI up to the end of 1949, the purposes for which they have been expended or committed, and the contributions made by departments and municipalities to  TABLE 72 WORK~S COMPLETED AND IN PROGRESS UNDER AUSPICES OF FONDO DE FoMENTO MUNICIPAL, DECEMBER 31, 1948. PROJECTS COMPLETED PROJECTS IN CONSTRUCTION PROJECTS UTNDER STUD)Y Water Elec. -lospi- Water Flec. Htos'i. Water Elec. Grand DEPARTMENT SLupply Sewer P'ower tals Schools Total Supply Sewer Power tal s Schiools Total Sup'ply Sewer Power Total Total Antioquia ....... ... 28 7 16 1 73 125 20 31 10 2 110 173 12 7 0 19 317 Atlantico ..... 0 1 2 5 42 50 2 0 0 1 23 26 12 3 2 17 93 Bolivar ... .... . . . 0 0 2 6 61 69 14 0 3 8 33 58 14 2 0 16 143 BoyacA .. .... 14 21 0 0 45 80 29 10 5 4 80 128 11 21 4 36 244 Caldas .......... 12 8 3 0 1 8 41 33 14 2 0 121 170 6 2 2 10 221 Cauca.0 7 0 0 86 93 16 11 1 2 84 114 15 13 1 29 236 Cundinaniarcal . 10 19 3 0 50 82 26 35 6 0 88 155 23 32 0 55 292 Choc6.1........ .... 0 4 0 25 30 6 0 0 2 11 19 1 2 9 12 61 Huila.-..... . .. . .. 0 1 0 0 41 42 10 5 1 1 24 41 6 8 1 15 ~ Magdalcnia .... .. ... 0 0 0 6 50 56 7 2 4 1 24 38 14 4 1 19 113 Narifio ... ....... .... 0 0 0 2 28 30 20 8 2 1 81 112 11 21 0 32 174 Norte de Sanitander..... 0 1 0 2 36 39 20 7 0 2 49 78 10 12 0 22 139 Santander ....... ... . 6 9 0 2 77 94 25 8 4 7 46 90 16 23 0 39 223 Tolimna... . . .. ...... 5 10 1 2 87 105 13 4 7 1 65 90 11 15 0 26 221 Valle del Cauca ........ 2 12 1 1 24 40 28 11 6 1 106 152 4 7 0 i1 203 Intendencias & Corniisarias 1 2 7 4 37 51 7 4 6 4 66 87 3 3 0 6 144 TOTAL .... ... 79 98 39 31 780 1,027 276 150 57 37 1,011 1,531 169 175 20 364 2,922 1 Not iiicluding Bogot6.  TABLE 73 FINANCIAL OPERATIONS OF FONDO DE FoaMENTO MUNICIPAL, 1940-1949 National Govt. Sharel Local Contributionsl Total Funds Revenues Purposes Committed Expended Departments Miunicipalities Total Committedl RECEIVED TO 9/30/49, FROM Slhare of City of Ministry of Finance Ps.$44,952,515 Bogota Ps.$ 9,307,418 Ps.$ 9,094,198 Ps.$ - Ps.$ - Ps.$ - Ps.$ 9,307,418 IVMinistry of Education (National School Funid) 2,892,376 Water systems 16,245,353 11,143,002 7,738,048 2,243,550 9,981,598 26,226,951 Sewers 9,271,184 7,463,081 4,170,412 1,014,361 5,184,773 14,455,957 Total Ps.$47,844,891 Electric plants 2,387,660 1,921,261 1,295,659 1,734,310 3,029,969 5,417,629 Hospitals 2,220,289 1,979,312 1,629,051 129,576 1,758,627 3,978,916 Schools 11,703,901 8,896,814 4,519,640 2,798,616 7,318,256 19,022,157 PROSPECTIVE RECEIPITS, FROMT Sanitary eiigilieer- ing offices 859,671 328,344 195,283 11,400 206,683 1,066,354 Balance from 1948 6,008,153 Vehicles 61,280 61,280 - - - 61,280 Proceeds of ear- Bond service 2,030,645 2,015,944 - - - 2.030,645 marked revenues Jan.-Aug. 1949 7,085,886 Technical control 362,000 307,929 - - - 362,000 Expected proceeds Administration 378,000 3,933 - - - 378,000 Sept. -Dec. 1949 2,914,114 Expense of tax Expected share of collection 311,580 257,940 - - - 311,580 National School Fund 700,000 Shop materials - 2,827,547 - - _ Total Ps.$16,708,153 General expenses _ 44,962 - - - Furnishings, etc. 10,243 - - - Total Budget, .__ 1940-1949 Ps.$64,553,044 Total Ps.$55,138,981 Ps.$46,355,790 Ps.$19,548,093 Ps.$7,931,813 Ps.$27,479,906 Ps.$82,618,887 I Includes national contributions to September 30, 1949; local contributions to end of 1948 only. 230 TIlE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA these purposes. As of September 30, 1949, Ps.$55,138,981 of National Government money had been committed, and Ps.$46,355,790 actually expended. About Ps.$9.4 million of the funds budgeted for 1949 re- mained to be committed. In addition, the FFM has issued bonds totaling about Ps.$21.3 million, which have been turned over to various municipalities under- taking expensive long-term projects. The intent was to provide as- surance that money would be available to complete these projects, and future allocations due from FFM to the cities concerned are com- mitted for bond service. However, apparently only a small part of the bonds has been sold by the receiving cities, or pledged as security for loans to nndertake the approved projects, as the investment market has not been receptive to them. Annual revenues of the FFM are divided as follows: 15 percent for the city of Bogota; 17 percent in equal shares to each depart- ment; and the remaining 68 percent to the departments in propor- tion to their population. Thirty percent of the shares distributed to the departments, in addition to the money derived from the National School Fund, are earmarked for school construction and the rest is devoted mainly to water supply and sewer systems. Specific pro- jects are submitted by the departmental governors; they are reviewed by the appropriate agencies of the National Government and, if they are found meritorious, are submitted for final approval to the Direc- tive Committee of the FFM. The size of local contributions to match the national grants, beyond the minimum required by law, is negoti- ated with the departmental governments, which in turn work out whatever arrangements they can with the municipalities concerned. Other National Government Aid In some cases, the National Congress authorizes a special grant to supplement the FFM contribution for a particular project-i.e., part or all of the "municipal contribution" specified by law is actually provided from the National Treasury. There are no general rules or established criteria for such special laws; their introduction and passage appear to be based mainly on political considerations. Grants from the National Treasury to finance municipal public works are frequently made also in recognition of historic occasions (e.g., the anniversary of the founding of a city) or at the time of other events of extraordinary local significance. Other ad hoc arrangements have been made for national aid to specific cities or projects. In Cartagena, by a special act of Congress and an agreement between the National Government and the muni-  ELECTRIC POWER AND COMNIUNITY FACILITIES 231 cipality, the former has taken over full responsibility for constructing or improving a number of public works in and around the city, including water supply, sewers, street widening and paving, a stadium, schools, a new slaughterhouse, parks, incinerators, privies, nearby highway and water transport facilities, etc. So far, however, little work has actually been done. In return the municipality transferred to the nation several of its existing public works and utilities-the public markets, slaughterhouse, water supply system and power plant -and the revenues of certain specified local taxes. The administration of these properties and taxes, and of the facilities to be built, was turned over to an independent board designated in effect by the National Governrment. Similar arrangements, though less far-reaching, apparently prevail in other cities. Finally, various agencies of the National Government are carrying on programs for improvement of community services in various fields, parallel in some cases to the normal municipal functions. The National Ministries of Hygiene and Education are making substantial outlays for the construction and support of schools and health centers and the conduct of sanitation campaigns. As mentioned above, the National Institute for Water Utilization and Electric Development was established recently to study Colombia's potentialities for hydro- electric power development and to assist in the planning, construction and financing of specific projects. But real improvement of community facilities in Colombia-particularly in the smaller municipalities which are now least adequately served-requires the establishment of more effective machinery to guide the development of such facilities along practical lines, to reinforce or supplement local financial resources where necessary, and to provide technical training, help and super- vision in both the construction and operational phases. Some sug- gestions as to the general character of such new machinery may be found in Chapter XXIlI.  CHAPTER XI Housing Statistical data on building in Colombia are quite inadequate since the last complete census was made in 1938. However, estimates have been made by Colombian experts which demonstrate that despite an increased number of units, no improvement has taken place in the housing situation between 1938 and 1948. As Table 74 shows, the density of occupation per house has risen to 6.4 persons per dwelling. This in part may be attributable to a change in the nature of the dwellings, since apartment buildings are being introduced rapidly, but it results mainly from a lag of dwelling construction behind the rate of population increase. Indeed, population grew 23'2 percent between 1938 and 1948, but the number of dwelling units increased by about 15 percent. Buildings, on the other hand, increased by almost 20 percent. TABLE 74 ESTIMIATED NUMBER OF BUILDINGS AND DWELLINGS, 1938 AND 1948 1938 1948 (thousands) Buildings .................. ....... ...... 156.0 185.2 Urban dwellings ................................ 379.6 435.2 Rural dwellings .......................... 1,074.7 1,232.1 Total dwellings .......................... 1,454.3 1,667.3 Persons per dwelling .......................... 6 6.4 In spite of the relatively modest increase indicated by these figures, many Colombian towns seem to have expanded tremendously in the past decade or so. This is explicable by the type of building construc- tion in recent years. Large investments have been made in modern office buildings, large factories, and high quality apartment houses. Wealthy Colombians have built an impressive number of large modern homes and helped finance clubs and movies. But little, relatively speaking, has been done in the field of small, low-cost urban or rural dwellings. Table 75 presents estimates of investment in buildings by types in 1939 and 1947. While overall investment more than tripled in this nine-year period, investment in commercial buildings increased more 232  HOUSING 233 than fivefold and that in factories by almost sevenfold. Their relative importance in the total practically doubled, while the percentage in- vested in both rural and urban dwellings remained about the same. TABLE 75 INVESTMENT IN BUILDINGS BY CATEGORY 1939 1947 Million Percent Million Percent Pesos of Total Pesos of Total Dwellings-rural . ... 16.9 33.8 56.7 33.4 -urban .... . .... 19.1 38.2 66.3 39.0 Commercial buildings . . 2.8 5.6 17.2 10.1 Factories ..... . .. . 1.1 2.2 7.5 4.4 Government buildings . . . 11.1 22.2 22.3 13.1 Total .50.0 100.0 170.0 100.0 Building construction in 1947 contributed about 2.5 percent of the total national income in Colombia. At the same time it was an impor- tant component of capital formation amounting to Ps.$170 million, or about 28 percent of gross capital formation. The building trade has also an important influence on the balance of payments, since al- most 20 percent of materials entering into building construction are imported. HOUSING CONDITIONS Although there are some 100,000 Colombian houses which compare with the most acceptable and comfortable abodes in any part of the world, the great majority of the population live in dwellings that are inferior when measured by standards of space, sanitation, comfort, or ordinary amenities of life. Although less apparent, rural housing is probably worse than housing in urban areas. Houses are con- structed of four general types of materials used in varying combina- tions: (a) Brick or concrete with tile roof. This type in general is occupied by the very wealthy and upper income groups. (b) Adobe w-ith tile roof. These may be quite satisfactory and are used predominantly by the middle class throughout Colombia. (c) Wattle and mud wall with tile or sheet-metal roof. This type is used by a very large proportion of the low income groups, both urban and rural. (d) Bamboo or similar frame with thatched roof and siding of palm leaves or straw. Such dwellings are found most frequently in rural sections where the climate is hot. 234 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLONIBIA Floors of houses occupied by the lower income groups, especially in rural areas, are of natural earth but occasionally of brick. Higher up the economic scale one finds concrete or tile but seldom wood except in multi-story dwellings, which are not numerous. Climate seems to have little influtence on architecture or building materials; these are related almost entirely to income. Even the better dwellings afford little protection against flies or mosquitoes. Moreover, thatched roofs or sides provide nesting places for various vermin. Especially in rural areas, and in smaller towns wvhere space is available, it is common practice to cook, wash and perform similar household activities in the open or under a lean-to which is not part of the house proper. Not only is additional space thereby made available for other purposes, but disagreeable odors arising from such operations are prevented from entering the living quarters. During the day and early part of the evening families tend to live outdoors, thus relieving congestion in the home; nevertheless serious overcrowding does occur and especially in sleeping quarters. Floor area is only one factor; space heating is seldom available and there are serious shortages of beds and bedding. No provisions are made for the thermal insulation of dwellings, though in higher altitudes the temperature frequently approaches, and occasionally falls below, the freezing point. Other characteristics of many houses are lack of household appliances, run- ning water and sewerage, and only limited protection from the ele- ments. Both quantitatively and qualitatively housing is inadequate. The average dwelling of about 20 square meters (10 feet by 20 feet) shelters 6.4 people. Some 200,000 shelters are estimated to be under 12 square meters (9 feet by 12 feet), an indication of shocking over- crowding. ABILITY TO PAY FOR HousING In general terms, six different and important family income levels' have been estimated in Colombia, as shown in Table 76. Only a small TABLE 76 INCOME LEVELS, 1947, 1950 Number Average of Income Annual Average Average Earners Family Income Income Income per at Current (1947) (1950) Family Prices A. Farmer, depressed area Ps.$ 400 Ps.$ 540 1V2 Ps.$ 810 B. Average farmer ...... .... 600 810 1X2 1,215 C. Average urban worker.... 885 1,192 1.9 2,264 D. Skilled urban worker ... 1,455 1,964 1.9 3,732 E. White collar employee - 2,000 1 X2 3,000 F. Wealthy ... - - - over 4,000  HOUSING 235 fraction of total income is available for expenditures on housing. While in more developed countries the ratio between outlays on rent or mortgage payments and total income reaches 20 percent on the average, it is believed that only 10 percent of the Colombian families can afford such a ratio. The average Colombian farmer, urban laborer, and white collar worker cannot use more than 10 to 15 percent of his earnings for housing. Assuming that either the credit for the purchase of dwellings or the value of their rentals would be calculated on the basis of 20- to 30-year loans bearing interest at 5 percent, the value of houses which various income classes can afford is calculated in Table 77. It will TABLE 77 AVERAGE VALUE OF DWELLING FOR VARIOUS INCOME GROUPS Percent- Annual age of Amount Family Income of Rent or Approxi- Income Available Mortgage mate (Current for Payable Value of Groups Prices) Housing Per Year Terms Dwelling A. Farmer, depressed area ................ Ps.$ 810 10 81 5%6-20 yrs. Ps.$1,000 B. Average farmer.... 1,215 10 121 5%-20 yrs. 1,600 C. Average urban worker ....... ...... 2,264 15 339 5%-20 yrs. 4,000 D. Skilled urban worker ....... ... 3,732 20 746 5%-20 yrs. 8,000 E. White-collar worker .............. 3,000 15 450 5%-30 yrs. 6,000 F. Wealthy ........ ... over 4,000 20 over 800 Variable over 8,000 be noted that better terms are assumed for the white-collar worker than for others. This is justified, as he can be relied upon to take better care of his dwelling; further, it is desirable because he is among the least privileged of income earners. Major housing prob- lems concerin income groups A, B, C and E, which can afford dwellings only from Ps.$1000 to Ps.$8000, since commercial and mortgage banks apparently can finance homes valued at or above Ps.$8000 without major difficulties or structural changes. FINANCING OF HOUSING Some attempt has been made to overcome the inability of low income groups to finance their own housing through the provision of easy housing credit. Adequate planning of housing and the introduc- 236 THE BASIS OF A DEVELOPMENT PROGRAMI FOR COLOMBIA tion of better and cheaper techniques in dwelling construction wvill also be of assistance but thus far their success has been limited. The two agencies most prominent in fostering low and medium cost housing are the Instituto de Credito Territorial (ICT) and the Federaci6n Nacional de Cafeteros. Instituto de Cr6dito Territorial The statutory function of this organization, founded in 1939 with a capital of Ps.$3,500,000, is to promote the construction of low and medium cost dwellings in cooperation with all official and private entities working toward the same aims. The Instituto is authorized to loan not more than Ps.$4,000 at 2 percent interest to low income farmers whose patrimony does not exceed Ps.$10,000; a maximum of Ps.$8,000 to well-to-do farmers whose patrimony exceeds Ps.$10,000 but not Ps.$30,000; and to hacienda owners whose patrimony exceeds Ps.$30,000 for housing of employees. In addition, it makes loans to welfare agencies; to the Government or to contractors for houses for highway workers; to the National Governrment or the Caja Agraria for farmers' houses in certain development areas; to departments and municipalities for small rural dwellings; and to housing cooperatives constructing rural dwellings, provided they sell houses under the minimum established by the Instituto. Also, the Instituto may construct rural dwellings on property acquired by it to rent to farm laborers who are not land owners. The annual rent of these dwellings may not exceed 3 percent of their value plus 1 percent for maintenance. For urban housing, the Instituto may make loans to the Govern- ment, the departments and municipalities; to employees and workers whose patrimony is less than Ps.$30,000; to any one who, though not an employee or worker, derives his principal income from his own work and whose patrimony does not exceed Ps.$30,000; to housing cooperatives, and to workers' or employees' associations, to Cajas de Protecci6n or Prevision Social for the purpose of housing for their members. Also, the Instituto may itself construct large apartment units and popular housing developments to sell or rent tc w orkers or middle class persons. The powers of the Instituto are thus very broad, but its sources of income have not been correspondingly large. Consequently, its relatively small-scale and scattered operations have made little impact on the housing problem. The balance sheet of the I.C.T. shows that in June 1949, its loans and investments outstanding amounted to Ps.$17 and Ps.$33 million, respectively, while the total  HOUSING 237 of all its new loans and investments since 1939 was only very slightly higher. While the actual number of dwellings built with these funds is not known, estimates indicate that it could not have exceeded 10,000 and was probably less. In comparison, in the period 1939 to 1949 at least 190,000 new dwellings were built, and at least 80 percent of them would have been eligible for I.C.T. financing. In part, this deficiency is explained by the inadequacy of the funds available. Obviously, the Colombian public is not ready to subscribe to bonds yielding 3 percent. Therefore, the I.C.T. had to use its small capital from 1939 to 1946 until a law forced certain categories of taxpayers to invest 5 percent of their incomes above Ps.$10,000 per year in these instruments. Since then, about Ps.$6 million per year have become available to the Instituto. Recently, however, it was decided that the Instituto had to share the funds provided by this surtax with the steel plant at Paz de Rio. While the yield of the 2Y2 percent surtax now accruing to the I.C.T. may grow rapidly, the funds are still insignificant in terms of the needs for housing. But also it seems that a considerable portion of the funds were not applied to dwellings. The Instituto attempted to engage by itself in the construction of dwellings at excessive cost and, in addition, the choice of the size of typical units was unfor- tunate. Thus I.C.T. funds benefited much more the well-to-do farmer or worker than those wvho needed housing most-the lowest category of urban and rural income earners. The price of I.C.T. housing was exorbitant since the average cost of their dwelling- construction in 1948 was Ps.$4,800 to Ps.$4,900 for rural workers and small farmers; Ps.$8,000 to Ps.$10,000 for urban workers; and Ps.$18,000 to Ps.$30,000 for salaried employees. In comparison, small farm dwellings in Tolima were built for Ps.$1,000 and the Coffee Federation built some homes for coffee growers for Ps.$1,600. Federaci6n Nacional de Cafeteros The Rural Hygiene Campaign of the Coffee Federation was or- ganized by law in 1942. For its purposes, the yield of a 6 per thousand export tax on coffee is turned over to the Federation. The tax is p;aid half in nmoney and half in coffee which is then sold on the market. Funds are distributed on the basis of coffee production in the various departments over a three-year period. In twelve departments, de- partmental committees administer these funds. One part of the Rural Hygiene Campaign concerns rural housing, which is concerned with (1) construction of new housing; (2) sanitation of existing houses; and (3) fumigation of houses wvith DDT. 238 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA The types of houses to be constructed with Coffee Federation funds have been carefully studied. They are as follows: "A"-Small capacity, for family up to 5 persons. Consists of dining area, bedroom, dormitory, kitchen, tool room, and outdoor latrine. Total area: 72 square meters. "B"-Same capacity and number of rooms as "A" but with inside toilet and bath. Total area: 81 square meters. "C"-Medium capacity, for family up to 8 persons. Consists of dining area, bedroom, double dormitory, kitchen, storeroom, tool room, and outdoor latrine. Total area: 87 square meters. "D"-Same capacity and distribution as "C" but the storeroom space is used for toilet and bath. Total area: 87 square meters. "E"-Large capacity, for family up to 12 persons. Consists of dining area, 2 bedrooms, dormitory, kitchen, tool room, and outdoor latrine. Total area: 91 square meters. `F"-Same capacity and number of rooms as "E", but with inside toilet and bath. Total area: 101 square meters. Table 78 sho-ws the cost and area by type of the 388 houses con- structed in 1948 by the Coffee Federation. TABLE 78 COST AND AREA OF DWELLINGS CONSTRUCTED BY COFFEE FEDERATION, 1948 Area Average Cost (Square Type Number Meters) Per Dwelling Per Square Meter 00 "A" ......................... . " . ..... 158 572P 72 Ps.$1,6 .50 .16 0 0Ps Ps.$22.23 22 3 "B" ................ 149 81 1,877.80 23.18 "C" 32 87 2,245.98 25.82 D .. "D" ...................... ~~~~21 ........... 2 .......87 730 3,076.99 69 35.37 53 "El, ......... ...... _. 3 91 2,644.52 29.06 "F'' .......... ...... 25 101 3,567.13 35.32 Small coffee growers may receive aid from the Coffee Federation in home construction if (a) they owvn the property on which the  HOUSING 239 house is to be constructed; (b) the production of the finca does not exceed 1,000 arrobas a year; (c) they possess a total liquid patrimony not greater than Ps.$30,000, at least 60 percent of which is connected vith coffee production; and (d) they make a cash contribution to cover part of the total cost, the proportion determined by a set scale according to their coffee production and economic situation. Preference is given to fathers of large families and to those who devote at least 25 percent of their land to the growth of foodstuffs on a permanent basis. The house must be used as a home and not for business or other purposes which would take the farmer from cultivation of his land. Technical assistance and the procurement of building materials at cost are services furnished large coffee growers. The Federation buys any available materials from the landowner himself and con- tracts with and supervises a builder who carries out the work. The operations of the Coffee Growers' Federation have so far been suc- cessful and realistic. They have, however, been kept on a small scale. Also, since they have been limited to the relatively well-to-do coffee farmers, they have failed to reach the really needy groups. The foundations have been laid, however, for a sound rural housing policy. Other Forms of Housing Promotion Enterprises of specified capitalization and payroll are authorized to use as tax offset sums devoted to housing for workers and salaried employees. Excess expenditures for this purpose during any one year may be carried over or credited in succeeding years. Reports indicate that during 1947-48, 1,527 dwellings were built under this provision, 1,224 for workers and 303 for salaried employees, at an estimated cost of Ps.$4,910 for the former group and Ps.$13,000 for the latter. It is estimated that enterprises spend about Ps.$2,500,000 annually for dwelling construction. Municipalities having tax receipts of Ps.$25,000 and over are required by law to devote to home construction the folloWing propor- tions of these receipts: Percentage of Receipts Tax Receipts Earmarked for Housing Ps.$ 25,000- 50,000 .......................... 3 percent per annum Ps.$ 50,000-100,000 . . . ... ... 4 percent per annum Ps.$100,000-and over ............ ........... ..... 5 percent per annum 240 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA It was not possible to secure full data on housing operations by muni- cipalities. Three such projects, however, w\Aere visited and the follow- ing information obtained: Sevilla -24 dwellings had been completed over the past several years and 6 were under construction at the time of the visit. The latter were of brick with tile roof, 6 rooms (ex- clusive of toilet and bath) with connections to city water supply and sewer. Construction cost was Ps.$3,000 and rent was Ps.$15 per month. At the end of 20 years full ownership would be achieved. Armenia -35 houses under construction, mostly for middle income class and above. Typical house visited contained 10 rooms; construction cost Ps.$16,000, plus land estimated at Ps. $4,000 furnished by the purchaser. Down payment equal to 20 percent of construction cost, monthly rental Ps.$90 for 20 years, at expiration of which time full ownership is acquired. Medellin -Some 20 homes were built in this workers' borough. A typical unit consists of 2 bedrooms, living-room, dining- room, kitchen, plus toilet and shower. House has water and sewer connections. Both monthly rental and construc- tion cost are less than half those in Armenia. According to the Superintendencia de Cooperativas, there are 28 cooperatives in the country dedicated exclusively to the building of residences for their members and 123 which, in addition to other activities, devote some of their resources to housing. The Instituto de Credito Territorial is required by law to assign not less than 20 percent of its available funds to cooperatives. The exact number of dwellings built by the cooperatives was not obtained but the cost per house wvas reported to range from Ps.$4,500 to Ps.$30,000. Thus, though the cooperatives seem to have an adequate institutional set- up for the promotion of low cost housing, their performance to date has not been impressive since too much emphasis has been given to wvhat actually is high cost housing. It has long been the custom for thc military to construct houses which the Government continues to own but rents to its officer personnel. Recently a cooperative was organized to undertake the provision of houses for the military residing in Bogota. The current project calls for ten dwellings. If successful, further expansion of this method is contemplated.  CHAPTER XII Education and Training Education, like health, is both a criterion and a component of the standard of living. It has a direct bearing on the level of productivity and at the same time contributes to the appreciation and enjoyment of life. The extension of education to all the people should undoubtedly be an integral part of any program of development in Colombia. While a great deal has been done to extend educational facilities in recent years, especially through the efforts of the Ministry of Educa- tion and the Church, much still remains to be accomplished. One measure of the inadequacy of education is the prevalence of illiteracy. The following figures' show the number of illiterate adults and children in 1937 and 1947. Adults: 1937 1947 Men ........ ...................... 1,048,501 1,265,360 Women . ....... 1,253,960 1,476,253 2,302,461 2,741,613 Children 7 to 14 years of age: Boys ............................ ..... 499,972 601,046 Girls ......... ............. ....... 473,712 569,412 973,684 1,170,458 Total illiterates ............ .................... 3,276,145 3,912,071 Total population . 10,5 14,670 The population above seven years of age in 1947 was about 8,818,000; of this number apparently about 44 percent were illiterate, J though there is doubtless considerable variation between different sections of the country. The Government has taken a number of measures to provide for adult instruction, but it is in the field of primary education that the real challenge lies. This fact is demon- strated by the above figures which show that in 1947, in spite of efforts to expand school facilities, the total number of illiterate children of school age was greater than it was ten years earlier. 1 The statistics set forth in this chapter were supplied by the Contraloria General de )a Rep6blica, or the Colombian Ministry of Education. Though they may vary somewhat from other data, they are believed best to represent the true situation. In each instance, the year used is the last year for which adequate statistics are available. Statistics for private education are doubtless incomplete in some instances because private schools often fail to report desired information. 241 242 THE BASIS OF A DEVELOPMIENT PROGRAM FOR COLOAIBIA PRIMARY EDUCATION In any effort to overcome widespread illiteracy, primary educa- tion is most important, but the most serious deficiency in Colombian education at present is in primary education. Under Law No. 56 of 1927, parents or guardiaus are obligated to see that their children receive ali adequate primary education, either by sending them to school or by obtaining satisfactory home instruction for them. Be- tween the ages of 11 and 13, all children are to take tests to determine whether this requirement has been fulfilled. Statistics on school enrollments, however, indicate that the stand- ards cstablished by law are very imperfectly complied writh. About 46 percent of the number of children estimated to be between 7 and 11 years *of age in 1948 were in public primary schools, and another 3 percent probably were in private schools, principally in the cities. Table 79 conmpares primary school enrollmenit in 1948 with the esti- mated nuimber of children of primary school age. TABLE 79 ESTIMXATED NUMBER OF CHILDREN OF PRIMARY SCHOOL AGE COMPARED WITH ENROLLMENT IN PUBLIC SCHOOLS, 1948 Percentage Number Average of Children of Nulmiber Number of 7-11 years Public of Size of Children Number2 of in Public School Pupils Urban Centers 7-11 yrs.1 Pupils Schools Rooms per Room Over 100,0003 ........... 165,240 58,392 35.3 1,330 43.9 50,000-100,000 ......... 42,926 .. 16,957 39.5 280 60.6 20,000- 50,000 ........... 65,003 26,329 40.5 509 51.7 10,000- 20,000 .......... 58,468 25,497 43.6 510 50.0 5,000- 10,000 ........... 83,274 49,449 59.4 969 51.0 2,000- 5,000 ............. 88,407 60,628 68.6 1,399 43.3 tUnder 2,000 and rural3 953,768 437,196 44.8 10,458 41.8 TOTAL . 1,45/,086 674,4,84 4J.O 15,455 43.6 1 Estimated. 2 Data for Antioquia, Boyaca, Caldas, Cauca, Choc6, Magdalena and Norte de Saintander are for 1947. 3 Private school enrollment partly accounts for the low percentage of public school enrollment in the largest urban centers. Also the figures, except for the "under 2000" category, include only schools classed as "urban" by the Ministry of Education. All "rural schools', whatever the size of the municipality, are included in the last group. In the case of urban centers over 100,000, the percentage of pupils in "urban schools" is 90.8 percent of the total public primary school population of the five municipalities involved, whereas their estimated urban population is 98.7 percent of the total (see Table 64, Chapter X). The presumption is that some schools in districts which have become urbanized in recent years are still classed as "rural" in the education statistics. For smaller cities and towns there is less discrepancy between the urban percentage in the school population and that in the population as a whole (except for the 2000-5000 group), and in all cases the former is the larger, as would be expected. 4 In addition, there were an estimated 43,660 pupils in private primary schools, mostly in the larger centers.  EDUCATION AND TRAINING 243 Table 80 shows the school facilities and number of pupils in the various departments, and compares the percentage of the public school enrollment in each with its approximate share of the national population. This percentage comparison is only indicative, since the age distribution of the population in the different departments is not identical, and since the estimated number of private school pupils is not included. Thus the higher proportion of primary school pupils in Antioquia may be due in part to the prevalence of large families in that region, and the relatively low ratios in Atlantico and Cundi- namarca may result partly from the preponderant weight of Barran- quilla and Bogota, whlere private schools are a significant factor. The low ratio of pupils to school rooms in Atlantico and Cundi- namarca-as compared, for example, with Antioquia-apparently indi- cates that the low level of school enrollments in the former depart- ments is not primarily due to a shortage of facilities. Nevertheless, in many areas adequate school facilities are lacking. In general, the number of pupils per room is quite high: the national average is 43.6; for the fast-growing cities of 50,000-100,000 population the average is over 60 per room; and in some instances, of course, the number is substantially higher. Although estimates from official sources vary considerably, apparently at least 600,000 children are without pri- mary school facilities and, without taking into account the steady increase in the population, this number may be considered the mini- mum for whom facilities should be provided in the coming years. The resources available for school construction in the fiscal year 1948-49 are shown in Table 81. The National Government is in a position to make grants, through the Municipal Development Fund and the National School Fund, of a little over Ps.$4 million annually. 2 These funds are divided among the departments according to a formula based partly on population and partly on equal shares to each department. Contributions are sought from the municipal governments to supplement the national grants, but there are wide discrepancies in the proportion contributed by the various municipali- ties. The total estimated cost of construction for the fiscal year 1948-49 was about Ps.$5.3 million. In addition to the shortage of school facilities, primary education has long suffered from a shortage of teachers of adequate caliber and training. Colombia has made progress in recent years in meeting this problem but the total number of teachers is not yet adequate for present school facilities. In 1946 there were 16,650 primary school teachers in Colombia of which 4,150, or about 25 percent, were men 2 See Chapter XIII. for discussion of activities of Municipal Development Fund.  TABLE 80 SIZE AND ENROLLMENT OF PUBLIC PRIMARY SCHOOLS, BY DEPARTMENTS, 19481 Urban SChOOlS2 Rural SChOolS2 Approxinmate 1 Pupils Total Percentage Pupils PUPI S Total Percentage of NatioInal Departments Pupils RooinS per room Pupils Rooms per room Pupils of Total Population Antioquia ..... .................... 60,896 1,137 53.6 63,510 1,128 56.3 124,406 18.5 13.5 Atlalltico ..... ..... ... 10,686 277 38.6 2,150 96 22.4 12,836 1.9 3.6 Bolivar ................... 21,695 451 48.1 29,969 760 39.4 51,664 7.5 9.4 Boyaca ......... .......... 19,568 458 42.7 25,347 548 46.6 44,915 6.7 7.4 Caldas ........... ........ 34,029 571 59.6 39,775 788 48.9 73,804 10.9 9.8 Cauca ................... 8,022 202 39.7 19,212 450 42.6 27,234 4.4 4.1 Cundinamarca . ......... 40,338 1,153 35.0 28,258 1,040 27.2 68,596 10.2 13.4 Choc6 .. .. 3,323 79 42.1 5,052 149 34.0 8,375 1.2 1.1 Huila ................... 7,797 143 54.5 10,536 210 48.0 18,333 2.7 2.2 Magdalena ...... ....... 9,949 237 42.0 17,330 469 36.6 27,279 4.0 4.1 Narifio ......... .......... 14,458 326 44.3 20,464 401 51.3 34,922 5.2 5.1 Norte de Santander .... .... 9,319 279 33.4 14,812 418 35.6 24,131 3.6 3.9 Santander .. ....................... 17,747 415 42.8 21,210 473 44.5 38,957 5.8 6.9 Tolima ................... 18,107 381 47.5 26,276 532 49.2 44,383 6.6 6.7 Valle del Cauca ............ .... 40,462 884 45.8 34,151 1,000 34.2 74,613 11.1 8.8 TOTAL .................. 316,396 6,993 45.4 358,052 8,462 42.3 674,448 100.0 100.0 I Data for Antioquia, BovacA, Caldas, Cauca, Choc6, Magdalena and Norte de Santander are for 1947. 2 Schools classed as urban and rural, respectively, by Ministry of Education; totals differ from Table 79 because numerous schools in communities under 2,000 population are classed as urban.  TABLE 81 NATIONAL PRIMARY SCHOOL CONSTRUCTION PROGRAM FOR THE FISCAL YEAR 1948-1949 Quotas of National Number of Projects Estimated Costs School Building Still in National Local Departments Funds Completed Construction Share Share Total Antioquia .......... ................... Ps.$ 534,266 7 29 Ps.$ 372,445 Ps.$ 87,750 Ps.$ 460,195 Atlantico ..... .............................. 152,248 2 8 278,013 94,000 372,013 Bolivar ..... .......... .......... 358,492 1 5 41,500 21,895 63,395 Boyaca .......... ........................ 346,939 7 53 442,892 176,610 619,502 Caldas .................................. 360,474 3 20 360,474 185,000 545,474 Caucas ....... .............................................. .......... 188,628 16 38 335,056 143,866 478,922 Cundinamarca ....... ........................... 391,331 - 14 72,696 - 72,696 Choc6 ....... ........................... 86,988 7 20 185,104 56,701 241,805 Huila . ............................................................ 130,771 4 17 107,742 48,236 155,978 Magdalena .................................. 182,993 - 10 151,518 67,348 218,866 Nariiio ............ ...................... 234,224 - - _ _ Norte de Santander . ................................. 184,535 10 27 337,398 236,165 573,563 Santander . . ............... 296,432 11 55 526,742 158,162 684,904 Tolima ....................... ........... 268,238 8 20 178,107 59,393 237,500 Valle del Cauca . ............................... .. 295,403 6 22 236,000 220,000 456,000 Intendencias and comisarias .......................... 157,458 2 24 99,695 30,000 129,695 TOTAL .................................. Ps.$4,169,420 s......... 84 362 Ps.$3,725,382 Ps.$1,585,126 Ps.$5,310,508 246 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA teachers. About 53 percent of the total were teachers in urban schools. Many of the primary school teachers were untrained, as indicated by Table 82. These figures include teachers in private primary schools, where a large proportion of the trained teachers in urban schools is located. Even including the private school group, only about 30 percent of the teachers of the country have been trained. 3 TABLE 82 TRAINING OF PRIMARY SCHOOL TEACHERS, 1946 Elementary Superior Without Bachelor Normal Normal degree degree School School Total Urban .4,196 678 816 3,112 8,802 Rural ..... ... 6,399 144 616 689 7,848 TOTAL ......... 10,595 822 1,432 3,801 16,650 The present low level of salaries paid to teachers accounts for the failure to attract more persons of desirable caliber to teaching and the loss of many of the best qualified who often leave teaching for more remunerative fields. Under the present system, the munic- ipality provides the school building, the nation supplies books and equipment, and the department generally pays the salaries of pri- mary school teachers, with the result that salaries vary from one department to another, according to the financial status of the de- partment. At best, the remuneration received by primary school teachers is not in line with that of other professions and in depart- ments which confront difficult financial situations, teachers are even more at a disadvantage. The latest available figures indicate that the average salary of public primary school teachers in urban and rural schools is Ps.$124.09 per month. Table 83 gives a breakdowvn of salaries received in 1946 and shows a very wide range, despite supposed minima set by law. SECONDARY EDUCATION In Colombia, four years of primary school must be completed for admittance to secondary school, The following figures indicate the number of secondary schools, as well as the number of pupils and teachers in 1946: Pupils Teachers Schools Total Boys Girls Total Men Women Public . . 146 19,324 15,706 3,618 1,576 1,277 299 Private . 491 26,354 13,691 12,663 2,524 1,478 1,046 Total 637 45,678 29,397 16,281 4,100 2,755 1.345 3See the section on normal school education for a further discussion of teacher training.  EDUCATION AND TRAINING 247 TABLE 83 MONTHLY SALARIES OF PUBLIC PRIMARY SCHOOL TEACHERS, URBAN AND RURAL, 1946 Salary Level No. of Up to Ps.$31 Ps.$51 Ps.$71 Ps.$91 Over Departments Teachers Ps.$30 to 50 to 70 to 90 to 100 Ps.$100 TOTAL URBAN ..... 7,389 4 323 1,298 1,921 817 3,026 Antioquia .1,290 - 1 6 139 106 1,038 Atlantico .347 - 2 - 21 15 309 Bolivar .493 - 10 202 244 37 - Boyaca .430 - - 34 104 209 83 Caldas .698 - 3 6 38 157 494 Cauca .255 1 90 70 91 - 3 Cundinamarca 968 - - 19 77 27 845 Huila .169 - - 39 80 31 19 Magdalena .222 1 24 108 41 - 48 Narifno .252 - 184 62 - 5 1 Norte de Santander 315 2 - 300 11 - 2 Santander .406 - 1 20 324 16 45 Tolima .367 - 1 60 253 - 53 Valle del Cauca 999 - 7 296 433 188 75 Intendencias 121 - - 27 64 20 10 Comisarias 57 - - 49 1 6 1 TOTAL RURAL ........ . 7,796 39 868 2,985 2,578 352 974 Antioquia .1,113 2 13 32 831 1 234 Atlantico .77 - - - 21 5 51 Bolivar .696 - 1 565 129 1 - Boyaca .. 524 - 112 367 45 - - Caldas .. ......... 757 3 9 58 440 204 43 Cauca .454 18 310 116 10 - - Cundinamarca . 1,045 3 31 89 244 81 597 Huila .175 - 2 79 89 5 - Magdalena ...... 342 - 35 255 38 - 14 Narino .299 3 281 15 - - - Norte de Santander. 379 2 - 370 7 - - Santander .386 8 4 42 301 24 7 Tolima .446 - 3 239 190 - 14 Valle del Cauca . 916 - 61 629 198 23 5 Intendencias .139 - 2 92 32 7 6 Comisarias .48 - 4 37 3 1 3 Roughly perhaps a little more than half those who complete primary school each year enter secondary schools. Table 84 shows the comparative size of the various secondary school classes in 1946. 248 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA TABLE 84 SECONDARY SCHOOL ENROLLMENT BY GRADE, 1946 Prepara- torv Ist 2nd 3rd 4th 5th 6th Total Gracde Year Year Year Year Year Year Public: Boys 15,706 2,117 4,499 3,050 2,188 1.562 1,257 1,033 Girls ... 3,618 761 1,427 641 447 177 98 67 Private: Boys 13,691 2,162 3,215 2,708 2,126 1,523 1,129 828 Girls ... 12,663 1,897 3,652 2,901 1,860 1,204 599 550 Total 45,678 6,937 12,793 9,300 6,621 4,466 3,083 2,4781 1 The total graduating from secondary schools reached 3,046 in 1948. As indicated, the full secondary school course is completed by few except those who plan to go on to university studies, for the number enrolled in first-year university courses is approximately equal to the number graduated from secondary schools. The total number of students who graduate from secondary schools each year is strikingly small for a country of some 11 million population, especially when it is considered that the secondary schools should be a primary source for the great numbers of technicians, clerks and supervisors needed in Colombia's developing economy. Some additional students, of course, graduate from foreign preparatory schools. Public secondary schools are supposed to be the responsibility of the National Government, but actually some are supported by the departments and municipalities. In general, the Government tries to stimulate private education in the secondary field in line with the program of the Ministry of Education and, as shown by the abovc tables, both the number of private schools and their enrollment exceeds those of public secondary schools. Many of the private schools receive a subsidy from the Ministry of Education, which inspects the schools to see that requirements established by law are met. Standards for graduation are controlled, for example, through the issuing of all diplomas by the Ministry of Education. Although there is no widespread shortage of secondary educational facilities, such as is found in primary education, facilities in many instances need improvement. The very limited number who have the benefit of secondary education is regrettable and indicates clearly the need for extension. The superior Normal School at Bogota trains teachers for secondary schools, but there are still a great many second- ary school teachers without the desired training.  EDUCATION AND TRAINING 249 NORMAL SCHOOL EDUCATION It has been pointed out that an acute shortage of teachers trained for primary education exists and that many of those who enter the teaching field leave because of low salaries. In secondary education the situation is better, but more trained teachers are nevertheless needed. To meet the shortage of teachers, the Government has made a real effort to expand normal school facilities. Students who enter normal schools must have completed primary school; a large propor- tion of the students is selected and appointed *on scholarships which cover tuition, board and room. Although the curriculum has been changed frequently, at present the first four years of regular normal school are the same as the first four years of secondary school. During the last two years of their schooling the future teachers receive special training. The number of normal schools in 1946, as well as the number of pupils and teachers, is shown below. Pupils Teachers Schools Total Boys Girls Total Men Women Public .. . 48 5,667 1,721 3,946 689 359 330 Private ... 23 765 12 753 146 50 96 4 TOTAL .. . 71 6,432 1,733 4,699 835 409 426 The heavy turnover among students generally found in Colombian schools is also encountered in normal schools. In fact, the total number of graduate teachers produced by all existing training facilities seldom reaches 800 per year. This figure is distressingly small in view of the tremendous need for trained teachers throughout the country. Another serious factor is the loss of graduate teachers to other pro- fessions. In fact, only about 30 percent of those who graduate actually become teachers, which means that the funds spent on normal schools are only producing about a third of the results possible. Because of the urgent need for more teachers, the rural normal schools give a shorter course than the regular normal schools-a three-year course instead of five-but most of the rural normal school graduates actually go to the urban schools if they go into teaching. Normal schools, like others in Colombia, are short of adequate facilities. Some of the public normal schools are supported by the National Government, some by the departments, and some by the municipalities. Certain funds of the National School Fund go each year to normal school construction, but progress is very slow. 4 All of the schools are not devoted exclusively to normal training. 250 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA VOCATIONAL EDUCATION The development of a system of vocational schools has long been an objective of prime importance in Colombia and has received parti- cular attention during recent years. Lack of funds has restricted the accomplishment of a program of the magnitude desired, but a number of schools have been established under a program intended to cover the particular needs of the various sections of the country. Industrial and Arts and Trades Training The figures below indicate the number of industrial and arts and trades schools in 1946, together with the number of pupils and teachers. Schools Pupils Teachers For For Total Boys Girls Mixed Total Boys Girls Total Men Women Public . 45 21 20 4 3,775 2,115 1,660 412 310 102 Private . 17 9 8 - 478 378 100 55 45 10 TOTAL .. 62 30 28 4 4,253 2,493 1,760 467 355 112 The relatively small number of pupils in technical schools is due largely to the limited facilities available. Technical schools are sup- ported by the National Government, the departments, municipalities, and by private funds. In addition to the schools included in the above tabulation, there were in 1946 some 157 public and 52 private "comple- mentary schools" ("escuelas complementarias") with enrollment of 9,514 and 1,103 pupils, respectively. These schools supplement primary schools with two years' schooling which gives major emphasis to general education but also includes some technical or manual training. Among the more important courses offered by industrial and arts and trades schools at present are those in the following specialties: mechanics, foundry, forging and welding, electricity, motors, metal working and electrotyping, carpentry and cabinetmaking, tailoring, shoemaking and saddlery, tanning, jewelry making, typography, ceramics, and industrial drawing. The Ministry of Education plans to expand the vocational education program to include additional indus- tries but funds have not yet been obtained. Plans call for the establish- ment of a number of additional schools as soon as possible. Although this type of school is expensive, specialized training will doubtless become increasingly important as the industrialization of the country proceeds. As a matter of fact, the courses at present offered do not nearly satisfy the current demand for trained persons in various fields.  EDUCATION AND TRAINING 251 Agricultural Training Agriculture in Colombia is of stich basic importance that the extent of agricultural education is likewise of great significance. Resources are available for expansion of Colombia's agriculture but the educa- tional attainments of the rural people are so low as to retard that expansion. The study of Tabio made in 1945 gives some information on the level of education in one rural community in Colombia.5 This community is located near Bogota in an area probably somewhat above the average in income and level of living for rural communities in Colombia, and probably also above the average as to education available. The study shows that men have more years of education than women, farm operators than farm laborers, and villagers engaged in non-agricultural pursuits more education than those engaged in agri- culture. Three-fifths of the population over ten years of age are able to read and write. The amount of schooling the male heads of house- holds in Tabio have is indicated below. Farm Operators Farm Laborers Others Total Years of School- Nutn- Per- Num- Per- N um- Per- Num- Per- ing ber cent ber cent ber cent ber cent 0 58 33.0 67 45.9 8 17.4 133 36.1 1 16 9.1 16 11.0 4 8.7 36 9.8 2 29 16.5 22 15.1 6 13.0 57 15.5 3 .39 22.2 29 19.9 14 30.4 82 22.3 4 21 11.9 11 7.5 7 15.2 39 10.7 5 4 2.3 1 0.6 4 8.8 9 2.4 6 7 3.9 0 0.0 2 4.3 9 2.4 7 0 0.0 0 0.0 1 2.2 1 0.3 S 2 1.1 0 0.0 0 00 2 0.5 Total 176 100.0 146 100.0 46 100.0 368 100.0 Lack of education no doubt contributes to low labor productivity on farms and at the same time makes more difficult the introductionl of newv farming practices. Modern and improved agricultural methods are essential to improved -productivity in a-riculture. Colombia has realized that much can be accomplished through agricultural educa- tion, but thus far the measures taken have been only a modest begin- ning in a field which warrants much attention and future development. NVhen the agrictiltural vocational school system was initiated in 1941, based largely on recommendations of a Puerto Rican Mission, the plan was too ambitious. It later became necessary to reduce the schools in operation to a more practical number and to concentrate 5 Smith et al., op. cit. 252 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA on improving those remaining. In 1949 there were 23 agricultural vocational schools in operation, with about 800 students, although the attendance figures vary considerably from time to time. There are tAvo agricultural normal schools, one for cold climate training and the other for hot climate training. These schools, which have a combined enrollment of about 150, are contributing in a small way to training needed agricultural personnel and to providing trained teachers for the agricultural vocational schools. The National Coffee Growers' Federation maintains about a dozen two-year vocational schools available free of charge to farm children who have comapleted a certain amount of public schooling. Those in attendance devote part time to indoor classes and part time to practical ivork outdoors where, in addition to learning improved methods of coffee culture, they are taught how to growv a variety of foods that xvill improve the usual diets of farm families. There are two -eneral agricultural colleges, one at Niedellin and the other at Cali, and a college of Veterinary -Medicine at Bogota. Total enrollment in the three colleges is about 300, xvhich means that they graduate but a small number of personnel trained in such im- portant subjects as crop and livestock production, marketing methods and research techniques. In addition to the agricultural schools mentioned, educational wvork in agriculture is supplemented to some degree by an Agricultural Extension Program 6 and by an educational program for veterinarians, particularly among cattlemen. Commercial Training As showvn by the figures beloxv, there are 188 schools for com- mercial education in Colombia. and more than five-sixths of them are private. Commercial education also suffers from the shortage of facili- ties found elsewvhere. Private education in this field is probably more extensive than the figures suggest, since many private institutions have admittedly failed to report statistics. Until lately, the Ministry of Education has made little effort to organize commercial training, but recently extensive plans have been made for basic commercial training programs. As of 1946, the number of commercial education schools, pupils and teachers wvere as follows: Pupils Teachers Schools Total Boys Girls Total Men Women Public 26 1,995 716 1,279 265 153 112 Private ... 162 4,532 1,233 3,299 551 252 299 Total 188 6527 1,949 4,578 816 405 411 6 See Chapter V for discussion of the Extension Program.  EDUCATION AND TRAINING 253 HIGHER EDUCATION In the realm of higher education, the National University at Bogota is the leading public institntion, and in general its courses of study serve as a pattern for other public institutions. There are also several departmental and several private universities, as well as a few other institutions offering advanced courses. Below are shown the number of schools of higher learning, the number of students enrolled and the number of teachers in 1946. Pupils Teachers Sclhools Total Boys Girls Total Men Women Public ..... 35 5,422 5,010 412 818 803 15 Private ... 17 1,915 1,748 167 382 373 9 Total . .... 52 7,337 6,758 579 1,200 1,176 24 As indicated, the number of Colombians taking advanced training is not very large, and those who graduate from institutions of higher learning are, of course, even fewer in number. EXPENDITURES FOR EDUCATION Table 85 shows total municipal, departmental and National Govern- ment expenditures for 1948, together xvith the amounts devoted to education. Five percent of total national expenditures were for edu- cation, while from 2.1 to 10.8 percent of municipal expenditures were for education. Much higher proportions of departmental expenditures -from 14.6 to 27.8 percent-were for education. Total per capita expenditure in 1948 for education was Ps.$5.5, excluding Choc6 and the comisarias and intendencias. It is estimated that about 1,531,000 persons xvere in school in 1948; thus the expenditure per pupil was approximately Ps.$37.4.  TABLE 85 MUNICIPAL, DEPARTMENTAL AND NATIONAL EXPENDITURES-TOTAL AND FOR EDUCATION, 1948 Municipal Expenditures Departmental Expenditures Natio al Expenditures Per- Per- Per- centage centage centage for for for For Edu- For Edu- For Edu- Departments Total Education cation Total Education cation Total Education cation Antioquia ...... Ps.$ 38,546,102 Ps.$1,257,881 3.3 Ps.$ 25,992,011 Ps.$ 5.254,927 20.2 Atlantico ... 6,381,515 134,986 2.1 9,153,443 1,996,694 21.8 Bolivar] ................ 4,338,879 189,409 4.4 7,891,111 1,810,192 22.9 Boyacal ....... . .......... 2,317,963 207,817 9.0 6,054,294 882,960 14.6 Caldas .................. 10,252,862 623,411 6.1 15,261,056 2,799,120 18.3 Cauca .................. 1,309,189 131,231 10.0 3,858,714 818,150 21.2 Cundinamarcal ................ 33,250,166 2,139,242 6.4 20,155,533 3,843,390 19.1 Huila .................. 1,528,354 106,714 7.0 3,207,237 511,355 15.9 Magdalenal ..... .. ........ 1,690,878 126,788 7.5 7,620,000 1,646,850 21.6 Nariilo ....... ......... 803,878 86,785 10.8 3,594,136 825,317 23.0 Norte de Santander ........ 2,960,308 185,054 6.3 5,052,237 1,405,250 27.8 Santander .................. 3,837,542 216,805 5.6 9,605,530 1,725,678 17.9 Tolima .................. 4,758,247 366,472 7.7 7,888,908 1,515,536 19.2 Valle del Cauca ............... 18,293,065 866,146 4.7 20,638,081 4,801,033 23.3 TOTAL ...... ............ Ps.$130,268,948 Ps.$6,638,741 5.1 Ps.$145,972,291 Ps.$29,836,452 20.4 Ps.$414,600,000 Ps.$20,800,000 5.0 1 Data supplemenited witlh data for previous years.  CHAPTER XIII Public Finance Fiscal developments in Colombia, as elsewhere, have tended toward increasilng importance of the national vis-a-vis departmental and local finances. The national budget, which before the war accounted for less than half of total public expenditures, now accounts for about 60 percent. Moreover, the finances of the departments and munici- palities are regulated to a large measure by national legislation. This is but another expression of Colombia's highly centralized form of government. REVENUES AND EXPENDITURES OF THE NATIONAL GOVERNMENT Expenditures The expenditures of the National Government tripled during the 1940's, but so did the level of national income. The share of the national budget in the nation's income apparently increased only slightly. The rising level of governmental expenditures, like the rising level of national income, reflects primarily increased prices; the provision of more services accounts for only the smaller part of the increase. The composition of budget expenditures for 1940, 1945 and 1947 is shown in Table 86. Nearly all budget categories shared in the up- ward trend, while the composition of expenditures remained relatively stable. The most significant increase was in outlays for public works of various kinds. Such outlays represented 15 percent of prewar budget expenditures but now absorb about 25 percent. Military expenditures similarly increased from 13 to 18 percent of the budget total, an increase which has been largelv a postwar and not a wartime development. Administrative expenses for general governmlient rose at a slower rate than did the budget total. Outlays on debt service remained nearly unchanged in peso terms and thus declined in rela- tive importance. Interest payments on public debt now absorb about 6 percent of budget expenditures, compared with 15 percent in the budget of the United States. The total contribution of lnational finances to capital formation is larger than indicated by public works expenditures alone. Some capital investments, such as buildings, are included under categories other than public works; other items, such as iniprovements in the national railroads, remain altogether outside of the budget. Road construction and maintenance, which amounted to one-half of public 255. 256 THE BASIS OF A DEVELOPMENT PROGRAMI FOR COLOMBIA TABLE 86 EXPENDITURES OF NTATIOi\TAL GOVERNMENT, 1940-471 Millions of Pesos Percent of Total Functions 1940 1945 1947 1940 1945 1947 General Government 12.9 23.6 18.7 11.5 12.7 5.5 Foreign Relations 1.8 2.5 10.7 1.6 1.3 3.3 Justice and Police . - - 18.2 - - 5.4 Fiscal Administration . 420 29.7 54.7 37.3 15.9 16.2 Interest on Public Debt. 42. 15.3 21.1 8.2 6.3 Military Establishment . . . 14.8 26.2 48.0 13.2 14.1 14.2 Public Works . . 17.3 44.6 89.9 15.4 23.9 26.6 Education ... 7.7 12.1 19.9 6.8 6.5 (5 Mail and Telegraph 5.3 10.2 16.4 4.7 5.5 4.9 Public Health .- - 16.2 - - 4.8 Agriculture . . . 3.2 6.3 11.8 2.8 3.4 3.5 Commerce .... ... ....l Mines and Petroleum .3 .7 1.1 .3 .4 .3 Other . . .. .. 7.2 15.1 10.9 6.4 8.1 3.2 TOTAL.112.5 186.4 337.4 100.0 100.0 100.0 Debt Anmortization . . . 19.5 26.1 31.1 - - - Total, including Debt Amorti- zation .132.0 212.5 368.5 _ _ 1 1940-47 from Informe Fisanciero de la Contraloria. For details see Appendix F. Fiscal year for national government coincides with calendar year. capital expenditures prior to the war, accounted for nearly two-thirds in 1947. Construction of public buildings is the next important item. In 1947, public wage and salary payments amounted to Ps.$73 million, or somewhat less than one-quarter of the budget total, exclu- sive of debt service. Compared with budgets of more developed countries, this is a rather low ratio. It reflects in part a difference in the composition of public services and in part the low wage and salary scale of public employees in Colombia. The average monthly wage of National Government employees in 1948 was only Ps.$173, while 60 percent of public employees received monthly wages of less than Ps.$150. This is considerably above the average income for the population as a whole, but it is low compared with salaries paid for similar services in private employment, especially in the more skilled positions. General Revenue Structure Like other countries, Colombia has come to rely increasingly upon income taxation. While direct taxes provided about one-third of national tax revenue before the war, these revenue sources now pro-  PUBLIC FINANCE 257 vide over one-half of the total yield. Indeed, the rise in income tax yield from Ps.$12 million in 1940 to an estimated Ps.$164.5 million for 1950 provided one-half of the total revenue gain over this period. However, the term "income tax" as used in Colombia is somewhat unusual. In effect it covers a group of taxes including (a) a tax on net income, (b) a tax on excess profits, and (c) a rather general prop- erty or patrimony tax. Of the total income tax yield estimated for 1950 about Ps.$110 million come from the tax on net income, Ps.$18 million from the tax on excess profits, and about Ps.$38 million from the patrimony tax. All three taxes apply to both natural persons and corporations. The income tax proper provides for specific exemptions of Ps.$1,000 for single and Ps.$2,000 for married taxpayers, plus an allow- ance of Ps.$500 per dependent. For taxpayers with incomes of less than Ps.$10,000, exemptions are double this amount. The rate sched- ule begins with 1 percent applicable to the first Ps.$2,000 of taxable income, reaches a bracket rate of 14 percent at Ps.$25,000, 27 percent at Ps.$100,000 and rises to a top bracket rate of 45 percent applicable to incomes in excess of Ps.$5,000,000.1 The exemptions apply to natural persons and corporations alike, as do the basic income tax rates of 1944 and the 35 percent addition of 1946. However, the special rates applicable to high incomes, enacted in 1948, do not apply to companies. The rate applicable to companies, therefore, reaches a maximum of about 30 percent on incomes of Ps.$5 million. To avoid duplicate coverage, dividends from shares in corporations taxable in Colombia are excluded from the shareholder's taxable income. 2 Moreover, the Colombian law pro- vides for an interesting extension of this principle to other than divi- dend payments. The amount of salary paid each employee which corporations may deduct as costs is limited to Ps.$10,000 or, in the case of execuitives, to Ps.$15,000. The employee in turn includes in his taxable income only the first Ps.$10,000 (or Ps.$15,000) of his salary. Thus, an executive receiving a net salary income of Ps.$17,000 (and claiming marital and dependency credits of Ps.$2,000) would pay the same basic income tax as another executive with a salary of Ps.$50,000. 3 I The rates quoted include the basic income tax provided for under the law of 1944, the 35 percent addition to this basic liability as provided for in 1946, and the special rates applicable to large incomes provided for in the 1948 law. 2 This exclusion, however, refers to the basic income tax rates only. The special rates applicable to high incomes (Act of 1948) apply to income from dividends. 3 Again this provision does not apply for the special 1948 rates on high incomes which are assessed on total salary income. The total tax liability of the Ps.$50 thousand executive, therefore, would be higher. 258 THE BASIS OF A DEVELOPMIENT PROGRAMI FOR COLOMBIA The property (patrimony) tax likewise applies to both corporations and natural persons. It is assessed on the taxpayer's net assets as of the end of the year. Government security holdings, reserves other than depreciation reserves, and debts may be deducted. Also excluded are holdings of shares in corporations taxable in Colombia, such equity being taxed directlv as part of the corporation's property. Goodwill is assessed for tax purposes and included in the patrimony. iNatural persons may exclude furniture and clothing and other items of per- sonal property. The first Ps.$20,000 of patrimony are tax exempt. Rates range from Ps.$1.35 per thousand on1 the first Ps.$10,000 of taxable property to Ps.$4.05 on taxable property between Ps.$100,000 and Ps.$150,000, Up to Ps.$14.85 on taxable property in excess of Ps.$1 million. 4 The excess profits tax is based upon the rate of earnings on1invested capital. To determine invested capital, certain items are added to taxable property as declared for property tax purposes, including holdings of government bonds and of corporate shares. To compute excess profits, all earned income (waages, salaries, professional fees, etc.) is deducted from net income as declared for income tax purposes. Also deducted are income tax and property tax paid. Excess-profits net income thus defined is taxed at rising rates depending upon the ratio of excess-profits net income to invested capital. Excess-profits net income equal to 12 percent of invested capital is tax exempt; profits from 12 to 15 percent of invested capital are subject to a tax of 18 percent; profits from 25 to 35 percent of invested capital are taxed at a rate of 34 percent; and the peak rate of 51 percent applies to profits in excess of 50 percent of invested capital.5 Taxpayers whose patrimony does not exceed Ps.$25,000 at the beginning of the year do not pay excess profits tax. In the field of indirect taxes, custom duties are still the most important source of revenue even though their relative importance has declined sharply since prewar days. The revenue showvn in Table 87 under consumption taxes is derived very largely from the taxation of gasoline. Taxes on matches and playing cards are also of some importance. Eight percent of the yield shown under other indirect taxes is derived from levies on the purchase of exchange and 4 Includes 35 percelnt addition as -well as basic rates- 5 These rates include the basic rates of the 1944 law, the 35 percent added in 1946 and the 20 percent added in 1948.  PUBLIC FINANCE 259 TABLE 87 REVENUES OF NATIONAL GOVERNAIENT, 1940-47 (millions of pesos) 1940 1945 1947 DIRECT TAXES: Income Tax Total.. . ... ... ... 11.9 59.2 114.3 Basic Taxes, Personal and Corporation Income 3.9 44.8 54.2 Patrimony (Property) Tax ....................... 5.5 10.6 20.8 Excess Profits Tax .. , ............ 2.5 3.8 8.5 Surchargesl ........ .. ..... - - 30.8 Inheritance and Donations ........................ ................ 1.8 4.6 9.7 Military Service Revenue ..................... .3 ...... .4 .8 T ax on M ines ......................................... .1 .1 .1 Real E state T ax ............ ....... ...................... - 1.1 1.6 Other Direct Taxes ... ...... ..... ....... ............ .9 1.7 3.6 Subtotal .................. ....................... 25.0 67.1 130.1 INDIRECT TAXES: Custom Duties ............ ............................. 27.7 41.3 65.7 Consumption Taxes .......... ..... ... ................ 6.4 8.6 19.2 Stamp Tax ........ .... .......................... ......... 4.8 8.3 14.6 Export Taxes ............ .................. 1.1 1.2 1.5 Other Indirect Taxes ...... .. .. .............. 5.7 16.5 22.6 Subtotal ... ..... .......... 45.7 75.9 123.6 OTHER REVENUE .... .. 13.6 24.2 51.3 TOTAL ....... ...... ........ 84.3 167.2 305.0 I Includes surcharges of 35 percent of liability under basic income and patrimony tax plus 55 percent of liability under excess profits tax. Source: Estadistica Fiscal y Admiinistrativca. 1947. on exchange remittances provided. The item "other revenule" covers proceeds from public property, national services and governmental participation in various enterprises, including the oil companies. Distribution of the Tax Burden Since the total liability under the overall income tax includes income, excess profits and property taxes, liabilities at any income level vary considerably with the composition of the taxpayer's income. Table S8 shows the liabilities for an individual with wage and salary income only. In the case of a married taxpayer wvith three dependents, 260 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA TABLE 88 1 TAX LIABILITIES AT SELECTED SALARY LEVELS (Married taxpayer, three children) Tax Liability Net Income Salary Income from before Company Subj ect to Exemptions Income Tax Other Sources Percent of Percent of Income Income Ps.$ 8,000 Ps.$ 10 0.13 Ps.$ 10 0.13 10,000 35 0.35 35 0.35 15,000 423 2.82 423 2.82 25,000 423 1.69 1,249 5.00 50,000 1,019 2.04 4,617 9.23 100,000 5,116 5.12 15,502 15.50 1 No property income or patrimony. For details see Appendix F. the first Ps.$7,000 are exempted. At an income of Ps.$15,000, a liability of Ps.$423, or 2.8 percent of income, is reached. Due to the special treatment of high salaries paid by companies, liabilities above this level depend on the source of the salary income. If the salary is derived from a company taxable in Colombia, the tax liability reaches 2 percent of income at the Ps.$50,000 level and 5 percent at a salary level of Ps.$100,000. 6 If the income is derived from other sources, such as professional fees, the tax liability rises somew-hat faster and reaches a rate of about 15 percent for an income of Ps.$100,000. Since dividend income is not taxed to the shareholder, income tax liabilities remain unaffected by additional income in the form of dividends. However, in that case the patrimony and excess profits taxes become applicable. Table 89 shows tax liabilities at various levels of patrimony and profit income. To simplify matters, it is assumed that property income only is received. 7 Since the excess profits tax liability depends upon the ratio of profits to invested capital, each level of incoimie is cocnhirned with a loxv and a high profit- to-capital ratio. The resulting tax liabilities are considerably above those applicable to the previously considered case of salary income. Whereas a professional man with an annual fee or salary income of, say, Ps.$50,000 pays a tax of less than 10 percent, a man with a similar profit income pays from 15 to 20 percent or more, depending 6 We assume that the taxpayer's position is such that the company may deduct Ps.$15,000 rather than Ps.$10,000. N"Tote that the tax rate is regressive for incomes from Ps.$15,000 up to the level at which the special 1948 rates on high incomes begin to apply. 7 Includes property income other than dividend income only. For the case of com- bined property and salary incomes, see Appendix F.  TABLE 89 TAX LIABILITIES AT SELECTED LEVEL.S OF PATRIMONY AND PROFIT INCOME1 (pesos in thousands) Company 4 3 Position before Tax Individual Taxpayer Individual Total Total Net Income Excess Amount Amount before Income Profits Patrimony of Percent of of Percent of Exemptions 2 Patrimony Tax Tax Tax Tax Income Tax Income Ps.$ 12.0 Ps.$ 30.0 Ps.$ .1 Ps.$ .2 Ps.$ * Ps.$ .3 2.8 Ps.$ .3 6.8 13.5 30.0 .3 1.7 * 2.0 14.9 2.0 20.1 13.5 60.0 .3 .5 .1 .9 6.5 .9 8.7 53.5 150.0 5.5 7.3 .4 13.3 24.8 12.4 24.8 53.5 250.0 5.7 2.9 1.0 9.8 18.3 8.7 17.3 103.5 250.0 15.9 16.4 1.0 33.3 32.1 29.8 29.8 103.5 500.0 16.6 4.9 3.5 25.0 24.1 20.7 20.7 503.5 1,500.0 124.1 52.7 17.1 193.9 38 5 160.4 32.1 503.5 3,000.0 106.4 23.2 39.4 169.0 33.6 132.1 26.4 1,003.5 3,000.0 _ 93.1 39.4 419.7 41.8 343.6 34.4 1,003.5 6,000.0 2 . - 84.0 373.7 37.2 289.9 28.9 10,003.5 80,000.0 3,720.7 _ 1,184.6 4,905.3 49.0 3.,964.0 39.6 *Less than Ps.$100. I For details see Appendix F. 2 Profit income other than dividends. 3 Married taxpayer, three children. 4 Assumes company with net income after exemptions equal to that of individual taxpayer. Liability under patrimony tax and excess profits tax is the same. Liability under income tax is less because special 1948 rates on high incomes apply to natural persons only. 262 THE BASIS OF A DEVELOPMENT PROGRAMI FOR COLOMBIA upon his profit-to-capital ratio. Assuming a profit-to-capital ratio of 30 percent, the combined tax liability tends to be about twice that of the salaried taxpayer, and rises sharply writh the taxpayer's profit- to-capital ratio. MVhile a smaller capital results in a lower patrimony tax, it also results (for any given amount of profits) in a higher excess profits tax, and usually the latter is considerably larger than the former. It is in the taxpayer's interest, therefore, to show a large invested capital, wvhich explains why property tax assessment has provided relatively little difficulty in Colombia. The last column of Table 89 showvs tax liabilities applicable to a company rather than a natural person. Except for the lox-er part of the income scale, the company liability is some\vhat less since the 1948 special rates appli- cable to high incomes apply to natural persons only. While the general level of income tax rates is low compared with the United States or European countries, the distribution of the income tax burden is, nevertheless, fairly progressive. High exemp- tions and low initial rates hold down the burden for the low and middle income ranges, compared to which the rates applicable to the upper brackets (though moderate in absolute terms) are relatively high. Consider Table 90, which gives the distribution of 1947 income tax returns by size groups of income. The bulk of personal returns falls into the low er income brackets, whereas the bulk of the yield is derived from the higher brackets. While 90 percent of the returns come from incomes of less than Ps.$10,000, they provide only 20 percent of the yield: over 80 percent of the yield comes from the top tenth of the returns. Countries such as the United States showN the same general picture, although a relatively larger fraction of the yield is draw n from the lower to middle income ranges. This reflects the fact that the gefl yield requirements of the personal income tax are less severe in_ lombia. Also, a larger fraction of the taxable income appears to fall into the middle and higher income ranges, thus indicating a more unequal distribution of income. An equally high degree of concentration is found in the distribu- tion of income tax returns by companies. Table 90 shows that the top 33 companies, or 3 percent of the total number of companies subject to tax, declared two-thirds of the total profit income for 1947. A breakdown by industrial sources shows textile, beer and tobacco companies to be the most important sources of income tax revenue from companies, accounting jointly for more than one-half of the total yield. The contribution of agricultural companies is negligible. In order to obtain a more complete picture of the burden of tax distribution, indirect taxes must also be included. These taxes are estimated in 1950 at Ps.$151 million. As noted before, the indirect  PUBLIC FINANCE 263 TABLE 90 DISTRIBUTION OF INCOME TAX RETURNS, 19471 Net Income after Number of Tax Exemptions Returns Income Liability (millions) INDIVIDUALS Ps.$ 0- 2,000 45,663 Ps.$ 36.5 Ps.$ .4 2,000- 5,000 17,784 57.2 .8 5,000- 10,000 9,331 65.3 1.4 10,000- 20,000 4,730 64.9 2.1 20,000- 50,000 2,200 65.4 3.4 50,000-100,000 556 37.9 2.9 100,000-500,000 194 30.6 3.4 over 500,000 4 3.0 .4 TOTAL 80,459 Ps.$360.8 Ps.$14.8 COMPANIES Ps.$ 0- 5,000 672 Ps.$ 8.0 Ps.$ .3 50- 100,000 113 8.1 .6 100- 500,000 125 26.4 2.9 500-1,000,000 32 21.3 2.9 1 -5,000,000 28 54.5 9.5 over 5,000,000 5 65.9 13.8 TOTAL 975 Ps.$184.2 Ps.$30.0 I Taxable returns under income tax only included. Does not include excess profits or patrimony tax. Source: Estadistica Fiscal y Administrativa, 1947. tax vield stems largely from custom duties, taxes on the purchase and remittance of exchange, and taxes on gasoline and stamp taxes. The custom duties and exchange taxes together account for two-thirds of the total yield of indirect taxes. To the extent that imports are commodities for mass consumption or materials to be used in the domestic manufacture of such products, custom duties and exchange taxes fall more heavily on the lower and middle income groups. Analysis of imports shows that perhaps one-half of the total belongs in this category. The stamp tax proceeds, -which in 1950 amount to about Ps.$18 million, enter into the cost of mass consumption goods to a limited extent only. The Ps.$80 million derived from gasoline taxes are reflected largely in consumption costs since truck transporta- tion is important in the marketing, of staple goods. Considering the wveight of these indirect rates, whlaich account for about one-half of the estimated yield for 1950, the distribution of the total tax burden is much less progressive than appears from the income tax. This is broutght out further if departmental and municipal taxes are taken into consideration. 8 8 See discussion below. 264 THE BASIS OF A DEVELOPMENT PROGRAMI FOR COLOMBIA Taxation and Capital Formation There is no evidence that taxation in Colombia has tended to reduce the overall level of investment either by cutting the supply of savings or by reducing investment returns and hence the willing- ness to invest. Profit margins above tax, as well as the supply of funds, have been at record levels. As shown in the preceding section, average rates of tax (tax liabilities as percent of income) are moderate, even for large incomes. Bracket rates (the rate of tax applicable to the top bracket of taxable income into -which the taxpayer's income extends) rise to fairly high levels, but the top rates have very limited applicability. Bracket rates (including regular income tax and excess profits tax) applicable to companies may rise to an upper limit of 65.6 percent although in practice they rarely exceed 50 percent. 9 Bracket rates applicable to a person receiving profit (other than dividends) may rise to an upper limit of 70 percent. This is of no practical importance, however. In 1947 there were only 200 returns which were subject to income tax rates of 36 percent or more, and few of these paid additional excess profits taxes at the peak rate. In appraising the impact of these rates upon investment, it must also be kept in mind that the actual tax burden is usually less severe than provided for in the statutes. Liberal interpretation combined wvith under-reporting results in actual tax burdens which are sub- stantially lower. Over-evaluation of goodwill and liberal treatment of deductions cut down the excess profits tax base. The exclusion of capital gains from taxable income invites tax evasion by conversion of profits into gains, and so forth. A word might be said here about the extent of integration of corporate and personal income tax. While dividend payments are excluded from the shareholder's taxable income and corporate profits are taxed at the corporation level only, this does not assure integration of these two taxes. Since the same exemptions and rates apply to both individuals and corporations, and since corporation income is apt to be substantially larger, dividend income is taxed more severely at the corporation level than wvould be the case if it were taxed to the shareholder and excluded from corporation income. Moreover, insofar as the excess profits tax is concerned, dividend income is sub- ject to taxation at both the corporation and the individual level. But in view of other advantages, this inequality does not seem to have been a significant deterrent to incorporation. 9 The rate of 65.6 percent includes a top bracket rate for the income tax of 29.7 percent plus a top bracket rate for the excess profits tax of 51.5 percent. Since the latter applies to profit income after income tax only, it is in effect equal to a rate of 35.9 percent only. The rate of 50 percent would apply to a company with profits of Ps.$l.l million and a profit-to-capital ratio of between 25 and 35 percent.  PUBLIC FINANCE 265 In some instances, the tax law endeavors to direct investment by granting exemption from property or income taxes for certain limited periods. Thus, companies engaged in the manufacturing of iron and steel are exempted from such taxes for a ten-year period. A further significant factor in this connection is the exclusion of capital gains (other than gains incurred in the regular line of business) from taxable income. Capital gains, under conditions of investment boom such as prevail in Colombia, much exceed in importance the volume of capital losses. Their exclusion from taxable income has tended to. direct investment into speculative channels, such as real estate and unimproved lands-investments \vhich do not meet the development needs of the Colombian economy and which contribute to the further: inflation of capital values. This tendency, moreover, is accentuated by the greater ease of tax evasion in the reporting of real estate, as distinct from industrial, income. Since the level of rates is relatively low, the Colombian tax system does not offer any significant barrier to the inflow of foreign capital. Compared with exchange regulations, tax provisions are of secondary importance in this respect. Foreign companies doing business in Colombia are subject to Colombian tax laxv but their liability is limited to income obtained from sources within Colombia. Salary payments to individuals not resident in Colombia may not be deducted, but notwithstanding this limitation it is claimed that foreign companies appear to evade Colombian income tax by making excessive deductions for costs imputed to their offices in Colombia. Salaries earned by individuals residing in Colombia are taxable under Colombian law, even though they may be paid to accounts abroad. Tax Administration While the Colombian tax structure is fairly well designed on the whole, the system of tax administration is entirely inadequate. Pre- cise estimates of under-collection are difficult to obtain, but it is generally felt that better administration and enforcement might raise the total yield by one-third or more. Perhaps the most importan' cause of poor tax administration is the lack of adequate staff and trained personnel. This is partly a matter of insufficient budgets and low salary scales, and partly a matter of training. Even with more substantial funds, properly schooled candidates for employment would be difficult to find. Apart from the inadequacy of the administrative staff, rigorous enforcement of the law is difficult because taxpayers frequently fail to keep proper accounting records. The failure to collect all tax obligations is due in part to non-declaration by tax- payers subject to tax and in part to under-declaration in returns filed. 266 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA Non-declaration occurs primarily with regard to individuals and part- nerships, while under-declaration is important xvith regard to all cate- gories of taxpayers. Under-declaration of property is less serious than understatement of income, since the larger taxpayer may reduce his excess profits tax liability by registering a higher invested capital. Under the present arrangement, the bulk of the tax returns are processed in the Regional Offices which are subject to the general supervision of the Central Office. There is one Regional Office for each department. In 1946, some 1,400 people were employed in tax administration; of these, one-half were employed as local collectors; about 45 percent were employed in the Regional Offices and less than 5 percent in the Central Office. Property tax assessments are not subject to the jurisdiction of these units. They are made by the Catastro Office, but also under the supervision of the Finance Ministry. The Regional Offices collect tax returns, compute liabilities on the basis of information provided by the taxpayer, inform the taxpayer of the amount of tax assessed and collect the payment. Tax declara- tions are due by March 1 of each year and the assessments are largely returned by October. After receipt of the assessment, the taxpayer is required to pay wvithin fifteen days. In checking the taxpayer's declaration and computing the tax, the auditors are authorized to request additional information and to inspect the books wlhere neces- sary, but in practice this is seldom done. Due to lack of trained per- sonnel, auditing usually does not go bevond arithmetic checks of the taxpayer's return. The statutory responsibility of the Central Office is to issue policy7 directives to the Regional Offices and to check their tax assessments. However, the staff of the Central Office is too small to permit exten- sive checking; out of over 50,000 returns assessed in the Regional Offices, only about 500 are checked in the Central Office. Returns checked in the Central Office include the more difficult returns of large companies. Also, the Central Office handles all appeals, about 500 a year, except those based on purely arithmetic errors. It takes six months on the average to return a claim to the taxpayer. If he is unvilling to accept the decision, he may appeal again and if he rejects a second decision of the Central Office, he may resort to the courts. But even though a taxpayer has entered a claim, he must pay the tax as initially assessed by the Regional Office and wait for later refunds. This frequently causes hardships. A further important function of the Central Office is to value goodwvill in computing invested capital for assessment of the patrimony and excess profits tax. A complicated procedure is established for this purpose, reflecting one of the inherent difficulties of excess profits taxation. Also, the Central Office rules  PUBLIC FINANCE 267 on the amount of salary deduction per employee to be permitted to companies. The checking of tax returns, and especially retuirns from high in- come individuals and companies, requires considerable knowledge of accounting and business finance. Individuals possessing this knowl- edge cannot be attracted by the salary levels oftered to employees in the revenue administration. In 1948, for instance, high ranking audi- tors in the Regional Office for Cundinamarca received monthly salaries of Ps.$450, while the salary for others (liquidators) ranged from Ps.$200 to Ps.$320. In the Central Office, the salary of the Chief of the Income Tax Section, the most important unit in the revenue adminis- tration, was Ps.$700, while the salary of lawyers and accountants in this same office ranged from Ps.$400 to Ps.$500. Although the ac- countants have to travel extensively, no special allowaance is made. Inadequate salaries and unavailability of trained personnel thus impair the efficiency of tax administration and result in wastage of public revenues. Budget Legislation and Procedure The Colombian budget system as now constituted is an outgrowth of Professor Kemmerer's budget law of 1923. A revision of the orig- inal law was undertaken by Kemmerer in 1931 and since then there have been several further changes, notably those of 1945, and Decree No. 164 of January 24, 1950. The intent of the first Kemmerer law was evidently to construct a statute which would assure a policy of balanced budgets. Accord- ingly, it was provided that the Executive when submitting his budget to Congress must hold expenditures within the limits of estimated revenue, other than borrowing. Throughout the following discussion, the term "revenue" is defined to include tax yield, fees, proceeds from public enterprises, etc., but to exclude borroxving. Only expendi- tures on public services which are self-liquidating (in the sense of allowing a fee income sufficient to service the debt incurred) were exemnpted from this rule. Next, it ivas provided that revenues (except for nexv sources) shotuld be estimated to equal the average yield of the three preceding years. This was to prevent wavilful overestimation of yield. In order to prevent the budgetary balance from being upset by Congress, the law forbade Congress to increase expenditures above the proposed total without also providing for new revenue. Congress was, however, to be permitted to change expenditure items withill the limits of the proposed total. In order to assure that the budgetary balance should not be upset in the process of budget execution, the 268 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA law provided that the administration may not make expenditures in excess of those provided in the budget. As may be expected, these overly rigid rules wvere not adhered to and had to be amended. Kemmerer's revision of 1931 aimed at intro- ducing some flexibility. The new law permitted the government to make additional expenditures in excess of appropriations if this ap- peared necessary while Congress was not in session. Such additional expenditures, howvever, were subject to the limitation that new provision for revenue must be made at the same time.1 0 With unfortunate lack of clarity the Act referred to the requirement for new revenue as "nuevo ingreso" without making it clear whether the term "ingreso" was to include borrowing or only revenues as defined above. While the former interpretation came to be adopted, it is evident that the narrow interpretation of revenue was Kemmerer's intent in the 1931 Act. It did not in any way relax the basic require- ment that the Government should present a balanced budget. Indeed, the 1923 provision that strictly self-liquidating public works might be loan financed was dropped in the 1931 law.1 ' Nor was there any relaxation of the estimating formula. A further liberalization was introduced by the law of 1944 which abandoned the rigid formula for yield estimating. The Government xvas then free to base estimates upon its appraisal of economic con- ditions, as long as there was an adequate explanation of the estimate. Congress, similarly, assumed the right to revise such estimates. Not- withstanding these adjustments, budget law and practice remain highly unsatisfactory. In some respects actual practice disregards the intent of the laxv; in others, practices developed to circumvent the lawv in turn produced distortions of their owvn. Notwithstanding the seemingly clear and still applicable requirement of the 1931 lawv that proposed expenditures should not exceed estimated revenue, the administration has consistently included provision for loan finance as ,vell as revenues in the budget proposal. Also, in contradiction to the intent of the 1931 Act, the Executive showed an increasing ten- dency to undertake additional (extra-budgetary) expenditures on the basis of loan finance. Much of this tendency to resort to additional credit, in turn, may be traced to the provision of the laxv which holds that Congress may shift expenditure items but not increase the total. To circumvent this provision, Congress adopted the practice of sub- stituting non-essential expenditure items for essential items proposed by the government. As a result, the government had to undertake 10 See Budget Act of 1931, Article 30D. The requirement for new revenue holds only if there are no balances available which are not appropriated for other uses. 11See Article 3, Budget Act of 1931.  PUBLIC FINANCE 269 these essential expenditures, which had been dropped from the bud- get, as the basis of special credit. In recent years additional expendi- tures of this kind rose to nearly 40 percent of appropriations, thus resulting in a severe distortion of the whole budgeting process. The liberalization of the estimating procedure provided for in the 1945 law also led to abuse on the part of Congress. Congress frequently raised yield estimates without justification, merely to permit raising the overall level of appropriations within the limitations imposed by the law. Recently, the general rule that the proposed budget must be bal- anced has been dropped.' 2 In future, expenditures will be divided into "ordinary expenditures," which cover the essential minimum functions of government; "secondary expenditures," which include less essential items and development projects; and "extraordinary expenditures" arising from domestic disturbances, wvar or other catastrophes. Proposed ordinary expenditures will remain within the limit of estimated revenues, but provision for loan finance may be recommended with regard to (1) extraordinary expenditures or (2) those secondary expenditures which are for developmental purposes and the loan financing of which has already been provided for by congressional debt authorization. Revenue estimates again will be made subject to a formula, although a less rigid one than provided for originally. Ii warranted by economic conditions, the estimated yield might be as much as 110 percent, or as little as 70 percent, of the preceding three-year average. To avoid the distortions arising from the substitution of non-essential for essential expenditure items by Congress, and the resultant need for special credit, Congress will not be allowed to reduce proposed items of ordinary expenditure. Also, Congress will be permitted to increase total expenditures only if this does not alter the budget balance as provided for in the proposed budget. While this is a crucial point in the whole plan, the decree is ambiguous as to the interpretation of this rule.13 Also, it provides that the additional expenditures wvhich the Government may undertake while Congress is not in session will be limited to 10 percent of appropriations. Finally, a Budget Bureau is to be 12 Decree No. 164 of January 24, 1950. 13 The experience since 1921 indicates the importance of a clearly written budget statute but unfortunately the decree is far from clear. What does a requirement of not changing "the budgetary balance" mean? Does it mean that Congress should provide additional tax revenues for all additional expenditures? Does it mean that Congress may base all additional developmental or extraordinary expenditures on loan revenue? Or does it mean that the original revenue to total expenditures ratio as proposed in the Government's budget must be kept intact? In this, as in other respects, more careful legislation is needed. To avoid confusion, the general term "ingreso" might be avoided altogether; reference should always be specifically either to revenue (as defined above) or loan finance. 270 THE BASIS OF A DEVELOPMENT PROGRAMI FOR COLOMIBIA established. Under the direction of the Finance Minister, this bu- reau will have the function of preparing the budget and of coordinating the requirements of the various ministries. The establishment of a Bureau of the Budget is an important and altogether desirable step in improving the administrative 1nechan- ism of the Government and in strengthening the position of the President in his relation to the various ministers. The merits of other aspects of the decree are less clear-cut. There is a basic ques- tion whether it should be the function of budget legislation to assure budgetary balance, or whether any statute can be written wvhich will do so effectively. Responsible legislation on public expenditures cannot be undertaken, of course, independently of provision for their financing; and in a country like Colombia, the economy of wvhich points toward a predominance of inflationary conditions, tax rather than loan finance wvill generally be favored. Thuis, there is a case for constructing the basic budget lawv so as to discourage loan financed expenditures. At the same time, the evidence shoxvs that attempts to legislate a balanced budget have been unsuccessful and that their primary effect has been a distortion of the general process of budget making. Budget Presentation Distinct from the problem of budget formulation and execution, though with important bearing on good budget making, is the prob- lem of budget accounting and presentation. In this respect the Colombian system is wholly unsatisfactory and in urgent need of reform. The present form of presentation of financial data is such that it is virtually impossible for the citizen and legislator to obtain a clear picture of the state of Government finances. The concept of deficit or surplus as used in the official statements is of little economic significance. There is no ready w-ay of determining the effects of fiscal transactions upon the size of the public debt, or of assessing their contribution to the level of demand in the economy. The absence of such essential information, in turn, encourages fiscal legislation xvithout due consideration of the economic issues involved. REVENUES AND EXPENDITURES OF DEPARTMENTS AND MUNICIPALITIES Departments The fifteen departments into \vhicll the country is divided are important administrative units even thoutgh they do not possess any great degree of political autonomy. Total departmental expenditures for the fiscal year 1947-1948 amounted to Ps.$140 million, or somewhat  PlUBLlC FINANCE 271 over one-third of the national budget. Departmental, as -vell as national, expenditures have shown a sharp increase from prewar vears and are noxv at about three times their 1940 level. The composition of departmental expenditures is shown in Table 91. Expenditures for the judicial system, hygiene, education and dlevelopment are the major items in the budgets of the departments. Somnewhat over 10 percent of total expenditures are transfers to municipalities. The level of departmental services differs greatly by departments. As shown in Table 92, per capita expenditures for 1948 ranged from over Ps.$24 in Atlantico and Ps.$22 in Valle del Cauca to less than Ps.$7 in Narifio. The differences in service levels are brought out even more drastically if the per capita expenditures for various specific budgetary items are compared. Per capita expendi- TABLE 91 DEPARTMiENTAl EXPFN-nTTLTRES, 1941-48 (millions of pesos) 1941-421 1945-461 1947-482 Administration ....... . 3.1 3.7 5.2 Services . ...... ..... .... 1.0 2.2 1.2 Justice ................ ... 6.3 88 13.3 Tax Administration 5.7 8.5 11.2 Hygiene and Beneficencia 3.5 8.9 13.8 Culture .. .... 11.1 16.9 25.5 Developmenit ......... 11.3 20.2 21.1 Departmental Industries ..... 4.2 9.9 12.7 Debt. 5.4 11.9 13.5 To Municipalities 6.3 9.8 16.8 Othier .2.1 4.0 5.7 TOTAL .60.0 104.8 140.0 1 4nuario Gcneral de Estadistica, 1946, p. 788. 2 Data supplied by Colntraloria General. tures on hygienie in 1948 ranged from Ps.$3.4 in Atlantico to 40 centavos in -Norte de Santander and Tolima and 30 centavos in Boyaci. Per capita expeniditures for education ranged from over Ps.$5 in Atlantico and Valle del Cauca to Ps.S1.1 in Bovaca. These differences in expenditure levels correspond closely to differ- ences in levels of departmental revenues. While the latter reflect to some extent differences in tax effort, the primary cause is the sharp disparity in the economic and fiscal capacity of the various regions.  TABLE 92 PER CAPITA EXPENDITURES BY DEPARTMENTS, 1945-481 (pesos) 1945-1946 1947-1948 Develop- Develop- Total Hygiene Education ment Others Total Hygiene Education ment Others Antioquia .................. .......... 14.7 1.7 2.3 2.4 8.3 18.2 2.3 3.7 1.6 10.6 AtlaIItico n.a. n.a. n.a. n.a. n.a. 24.2 3.4 5.3 2.2 13.3 Bolivar ..... . 7.8 .8 1.7 .9 4.5 7.9 1.2 1.8 .8 4.1 Boyaca .5.0 .7 .2 .5 3.6 7.7 .3 1.1 .7 5.6 Caldas ... ......... ......... 13.6 .8 2.2 3.3 7.3 14.7 1.6 2.7 3.2 7.2 Cauca. ..... 7.4 .4 1.3 .9 4.7 8.9 .8 1.9 1.1 5.1 Cun(linamarca . . .... .... ......... 12.2 .9 1.6 2.5 7.2 14.2 2.0 2.7 1.8 7.7 Huila . 1.2 .8 1.8 3.4 5.2 13.6 1.4 2.2 1.8 8.2 Magdalena .6.8 1.1 .8 1.1 3.8 17.4 1.6 3.8 1.0 11.0 Narifo ..... ........ .... ........ 4.7 .2 1.3 .3 2.9 6.6 .5 1.5 .9 3.7 Norte de Santaeder .10.8 .4 2.3 2.9 5.2 12.1 .4 3.4 3.1 5.2 Santallder .............. .... ] 0.3 1..... .5 1.6 1.9 6.3 13.2 .8 2.4 3.3 6.7 Tolima . ... .... .. ......... 10.7 .4 1.7 1.2 7.3 11.1 .4 2.1 1.0 7.6 Valle dCl Cauca .15.8 1.9 2.9 4.4 6.6 22.3 2.2 5.2 4.8 10.1 ALL DEPARTMENTS 10.5 .9 1.7 2.0 5.9 13.9 1.5 2.8 2.0 7.6 1 PopUlation figures for 1946 from Anitario GceIeral de Estadistica, 1946, p. 35. Statistics on1 expenditures from Contraloria General.  PUBLIC FINANCE 273 The sources of revenue for the departments are shown in Table 93. By far the most important single source of revenue is the production and sale of liquor through departmental monopolies. There are also revenues from various excise taxes, notably on beer, liquors originat- ing outside the department, and tobacco. In 1945-46 these three taxes, plus the revenues from liquor production, produced 83.5 percent of all departmental income, apart from transfers from the national and municipal treasuries and borrowings. The percentages for differ- ent departments ranged from 90 percent in Cundinamarca to 74 per- cent in Bolivar. In the last few years the proportion of revenues derived from liquor sales and taxes has declined somewhat as a result of the prohibition of chicha and guarapo, but in 1947-48 they still accounted for over 36 percent of all the departments' own revenues, as compared with 55.4 percent in 1945-46, and the proportion was much higher in some departments. TABLE 93 SOURCES OF DEPARTMENTAL REVENUES, 1941-48 (millions of pesos) 1941-421 1945-461 1947-482 Departmental property ........ . .1 .3 .3 Departmental services 1.0 2.9 4.4 Liquor production, etc . -............ 19.0 39.9 31.1 Taxes on liquor and beverages - 6.8 15.9 11.7 Lotteries .... , 1.5 3.3 2.5 Various taxes ....................... 22.7 36.7 61.3 From National Treasury ..... ... 4.2 6.7 8.9 From municipal treasuries ....... .2 .4 .1 Other revenue ....... .............. .7 1.8 6.9 Borrowing .... ........... 4.8 13.4 8.6 TOTAL .61.0 121.3 135.8 I Data supplied by Ministry of Finance. 2 Data supplied by Contraloria General. Departmental lotteries, though heavily publicized and widely par- ticipated in, provide a relatively unimportant part of the total revenue -about 2 percent in the fiscal year 1947-48. However, lottery revenue is of some special importance since it is one of the major supports of the social services rendered through the Beneficencia. 274 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA Municipalities The "municipios" (municipalities) are the units of local govern- ment in Colombia, more or less equivalent to counties or townships in the United States. There are more than 800 in all, ranging from cities of several hundred thousand population to tiny hamlets and wholly rural districts. Aggregate municipal revenues and expendi- tures for 1948, compared with 1941 and 1946, are shown in Tables 94 and 95.14 Similar data for the twelve cities with the largest budgets are contained in Table 96.1a TABLE 94 SOURCES OF M1UNICIPAL REVENUES, 1941, 1946 AND 19481 (millionis of pesos) Sources 19412 19463 19484 Municipal property ... 1.6 3.8 3.4 Services . __.................. 9.8 19.7 33.0 Taxes . .......... . 11.1 31.1 57.4 Miscellaneous income; 1.1 3.1 4.1 National Treasury .1.8 4.4 3.2 Departmental Treasuries ... ...... 6.1 13.7 15.9 Balance from previous years 3.1 4.8 11.8 Borrowings .2.0 3.9 9.9 6 TOTAL ........ 36.6 84.4 138.9 l Except the Choc6, and comisarias and intendencias. 2 Anuario General de Estadisticto 1941, p. 168. 3 Ibid., 1946, p. 794. 4 From Contraloria General. 5 Fines, forfeit of deposits, interest, etc. 6 Totals differ from sum of individual items because of rounding. In the aggregate, miunicipal budgets were nearly balanced in 1948, Nvith expenditures of slightly over Ps.$130 million and revenues, ex- clusive of borrowing, of about Ps.$129 million. Howvever, out of the latter sum nearly Ps.$72 million, or 56 percent, were received by only four cities-Bogota, Medellin, Cali and Barranquilla-and a further Ps.$17.5 million by eight others. Thus about 70 percent of the total revenues of Colombian municipalities accrued to twelve cities with about 18 percent of the country's population. All the others had aggregate current income of only about Ps.$40 million. 14 For more detailed information see Appendix F. 15 The data in these tables do not include 'valorizaciones"-assessments for special imiprovements-wlhicli play an important part in municipal development in many cities and towns but do not appear in the regular municipal budgets. For some municipalities all revenues and expenditures of municipal utilities (power, water, etc.) are included; for others only their net income or deficit, depending on their relation to the municipal government; in still others the utilities are privately owned or non- existenit and so do not appear at all.  P-UBLIC FINANCE 275 TABLE 95 MUNICIPAL EXPENDITURES BY DEPARTMENTS, 1941, 1946 AND 19481 1941 Expenditures 2 1946 Expenditures4 1948 Expenditures 6 Pesos Pesos Pesos per per per Departments millions capita3 millions capita; millions capita 7 Antioquia .7.7 6.1 20.9 15.1 38.5 26.8 Atlantico. 2.0 6.7 5.5 15.5 6.4 17.4 Bolivar ................ 1.1 1.3 2.2 2.3 4.39 4.4 Boyaca ................ 1.0 1.4 1.4 1.8 2.39 2.9 Caldas ................ 5.0 5.8 9.1 9.3 10.3 10.1 Cauca ................ 0.5 1.3 1.0 2.4 1.3 3.0 Cundinamarca .......... 9.1 7.2 16.58 12.1 33.39 23.5 Huila ................ 0.4 1.7 1.0 4.3 1.5 6.2 Magdalena ............. 0.6 1.5 1.1 2.6 1.79 3.9 Nariio ................ 0.4 0.8 0.8 1.5 0.8 1.5 Norte de Santander ... 0.9 2.5 1.2 3.0 3.0 7.2 Santander ................ 1.8 2.8 3.1 4.4 3.8 5.2 Tolima ................ 1.0 1.8 2.4 3.6 4.8 6.8 Valle del Cauca ......- 3.4 4.8 6.3 7.4 18.3 20.6 Total ......... .. 34.9 3.8 72.5 7.2 130.3 12.5 1 Except the Choc6 and comisarias and intendencias. 2 Anuario General de Estadistica, 1941, p. 170. 3 Population estimates. ibid., p. 3. 4 Ibid., 1946, p. 794. 5 Population estimates, ibid., p. 35. 6 From Contraloria General. 7 Population estimates from Contraloria General. 8 1946 figures for Cundinamarca from Contraloria General. 9 Data supplemented with information of previous years. TABLE 96 INCOME AND EXPENDITURES OF PRINCIPAL MUNICIPALITIES, 1948 Municipality Income Expenditures (thousands) Bogota .. ..... Ps.$29,992 Ps.$29,585 Medellin ... .... 29,227 31,100 Cali . ......... ................... 12,663 12,457 Barranquilla ... . .. 6,957 5,981 Manizales ........................... . 3,766 2,357 Pereira ..... ...... -. ......... 2,867 2,920 Cartagena ... ...... ........ 2,856 2,566 C6cuta . ..... 2,205 2.206 Armenia .............................. 1,735 1,164 Bucaramanga . ............................ 1,723 1,691 Ibague ....................... 1,710 1,497 Palmira .... .... ....... 1,176 1,042 Source: Contraloria General. 276 THE BASIS OF A DEVELOPMENT PROGRAMI FOR COLOMBIA The paucity of local financial resources in most cases becomes even clearer when these aggregate figures are broken down according to the size of revenues of the individual municipalities. Table 97 summarizes these data for 1946 :16 no similar breakdowvn is yet avail- able for 1948. Nearly three-fifths of all municipalities, with 32.5 per- cent of the population, had total revenues in 1946 under Ps.$25,000 each, averaging less than Ps.$11,000. This municipal poverty was especially acute in certain departments. In Boyaca, 111 out of 124 municipalities, containing 89.5 percent of the population, were in the lowest revenue class, with average revenues of only Ps.$6,208 in 1946, and a similar situation prevailed in Narinlo. Moreover, the percentage increase in these lowest municipal revenues since 1946 has apparently been less than for the wealthier communities, so that they tend to lag farther and farther behind. TABLE 97 REVENUES OF -MUNICIPALITIES BY SIZE OF REVENUES, 1946 (for 784 municipalities) Estimated Total No. of Population Percent Revenues Percent Pesos Size of Annual Munici- (thou- of Total (000 of Total per Revenues (pesos) palities sandls) Population pesos) Revenues Capita Over 1,000,000 9 1,336 13.3 49,721 58.5 37.2 500,000-1,000,000. . 7 298 3.0 4,702 5.5 15.8 100,000- 500,000 . 68 1,759 17.6 13,247 15.6 7.5 50,000- 100,000 103 1,688 16.8 7,243 8.5 4.3 25,000- 50,000 147 1,684 16.8 5,145 6.1 3.1 Under 25,000 450 3,257 32.5 4,927 5.8 1.5 Total ......... 784 10,022 100.0 84,986 100.0 8.5 Source: Committee of Financial Experts, Ministry of Finance; data from Con- traloria General. Because of the great differences in the nature of municipal func- tions in the various communities-from the elaborate complex of public utilities and services in Medellin, for example, to the rudi- mentary services provided by the municipalities in rural districts-it is hard to draw any except very general conclusions from the overall data on municipal expenditures in 1948, which are summarized in Table 98. The cost of municipal government has risen somewhat more rapidly than the level of prices or of National Government expenditures, increasing nearly fourfold from 1941 to 1948. In the same period, there were substantial changes in the relative importance of different categories of expenditure. The proportions of the budget devoted to "government," "welfare" and "education" declined, and 16 See Appendix E for more detailed figures.  TABLE 98 NUMBER AND MONTIILY COSTS OF MUNICIPAL. PERSONNEI BY DEPARTMENTS AND FUNCTIONAI. GROUPS, 1948 Cundi- Norte de Valle Functional Groups Antioquia Aflantico Bolivar Boyaca Caldas Cauca namarca Choc6 Huila agdalena Ndrilno Saontander Santander Tolima del Cauca Tota I Government No. of Employees 2,467 695 1,031 440 1,244 553 783 130 299 469 963 684 763 987 1,515 13,023 Monthly Costs Ps.$269,034 Ps.$ 76,572 Ps.$ 73,961 Ps.$18,235 Ps.$119,713 Ps.$20,151 Ps.$ 97,168 Ps.$ 5,259 Ps.$18,761 Ps.$25,254 Ps.$20,817 Ps.$53,138 Ps.$ 49,338 Ps.$ 86,112 Ps.$150,854 Ps.$1,089,367 Welfare &Hygiene No. of Employees 414 78 161 61 310 43 408 5 61 50 73 29 150 55 169 2,067 Monthly Costs Ps.$ 89,906 Ps.$ 10,385 Ps.$ 15,128 Ps.$ 1,8243Ps.$ 40,761 Ps.$ 1,494 Ps.$ 66,485 Ps.$ 170 Ps.$ 4,613 Ps.$ 3,217 Ps.$ 2,229 Ps.$ 2,240 Ps.$ 12,703 Ps.$ 4,630 Ps.$ 17,794 Ps.$ 273,598 Justice No. of Employees 83 8 IS IS 64 3 77 12 13 20 19 7 8 32 25 401 Monthly Costs Ps.$ 13,749 Ps.$ 530 Ps.$ 1,209 s.$ 328 Ps.$ 5,609 Ps.$ 120 Ps.$ 10,152 Ps.$ 527 Ps.$ 650 Ps.$ 1,185 Ps.$ 595 Ps.$ 187 Ps.$ 525 Ps.$ 1,594 Ps.$ 1,874 Ps.$ 38,834 Finance No. of Employees 412 96 363 172 603 121 519 56 73 121 133 12i 349 190 6 241 3,570 Monthly Costs Ps.$ 93,038 Ps.$ 16,988 Ps.$ 25,072 Ps.$12,376 Ps.$ 78,072 Ps.$ 7,175 Ps.$106,468 Ps.$ 3,212 Ps.$ 7,515 Ps.$ 7,962 Ps.$ 6,397 Ps.$1 ,055 Ps.$ 32,338 Ps.$ 41,240 Ps.$ 34,842 Ps.$ 488,750 Public Works No. of Employees 412 43 49 120 113 64 119 4 62 21 39 32 55 91 220 1,444 Monthly Costs Ps.$ 47,236 Ps.$ 7,920 Ps.$ 3,760 Ps.$ 6,100 Ps.$ 13,256 Ps.$ 6,598 Ps.$ 37,381 Ps.$ 960 Ps.$ 6,554 Ps.$ 1,230 Ps.$ 2,599 Ps.$ 3,265 Ps.$ 8,850 Ps.$ 27,769 Ps.$ 28,002 Ps.$ 201,470 Education No. of Employees 205 20 45 79 268 106 333 I 10 II 132 602 59 56 176 2,103 Monthly Costs Ps.$ 20,608 Ps.$ 82i Ps.$ 2,466 Ps.$ 4,015 Ps.$ 27,198 Ps.$ 4,169 Ps.$ 35,474 Ps.$ 60 Ps.$ 500 Ps.$ 470 Ps.$ 3,298 Ps.$ 5,750 Ps.$ 2,478 Ps.$ 6,820 Ps.$ 17,630 Ps.$ 131,765 Municipal Controller No. of Employees 38 19 25 I 14 4 62 I 8 I 11 10 4 - 30 228 Monthly Costs Ps.$ 13,013 Ps.$ 4,730 Ps.$ 3,580 Ps.$ 23 Ps.$ 3,305 Ps.$ 741 Ps.$ 18,371 Ps.$ 200 Ps.$ 1,710 Ps.$ 150 Ps.$ 1,100 Ps.$ - Ps.$ 2,390 Ps.$ 950 Ps.$ 6,400 Ps.$ 56,671 Other Services No. of Employees 599 3 5 30 4 11 39 - 31 3 36 11 II - 8 791 Monthly Costs Ps.$167,883 Ps.$ 220 Ps.$ 252 Ps.$ 993 Ps.$ 345 Ps.$ 405 Ps.$ 1,028 Ps.$ - Ps.$ 1,728 Ps.$ 21 Ps.$ 697 Ps.$ 1,595 Ps.$ - Ps.$ 1,440 Ps.$ 400 Ps.$ 177,007 TOTAL No. of Employees 4,630 962 1,6?4 9i8 2,620 905 2,340 209 557 696 1,406 1,486 1,394 1,426 2,384 23,627 Monthly Costs Ps.$7 14,467 Ps.$118,166 Ps.$125,428 Ps.$43,913 Ps.$288,259 Ps.$40,853 Ps.$372,527 Ps.$10,378 Ps.$42,031 Ps.$39,489 Ps.$$7 Ps.587,230 Ps.$108,622 Ps.$170,555 Ps.$257,804 Ps.$2,457,462 Number of Municipalities 97 20 42 49 40 33 52 7 28 20 46 291 73 40 34 610 Source: Contraloria General. 278 THE BASIS OF A DEVELOPMENT PROGRAMI FOR COLOMBIA there was an absolute decrease in overall municipal expenditures for "justice and public order." At the same time, the relative importance of "finance" and "'public works" rose sharply, reflecting large outlays for development and improvement of municipal services, especially by the larger cities. The revenues of local governmenits have increased generally in line with their expenditures. They are derived from three principal sources: receipts from the national and departmental treasuries, which provide about 15 percent of total municipal revenues (exclusive of borrowings); income from municipal property and services (elec- tricity, water, public markets, etc.), about 28 percent; and local taxes, about 45 percent of the total. In addition, extra-budgetary income from assessments for special improvements (valorizaciones) is quite important in numerous cities. Each of these categories will be dis- cussed briefly in the following paragraphs. National and Departmiental Aid. The relative importance of grants or shared taxes from higher levels of government varies widely among the different municipalities. In 1946 these sources provided 22 percent of all municipal income other than borrowings, but the proportion ranged from 12 percent for municipalities with budgets over Ps.$1 million each, to nearly 42 percent for those with less than Ps.$25,000 income. The latter percentage, however, is mainly a reflection of the small size of the budgets of most Colombian municipalities. In absolute terms, the sum received from national and departmental sources by the first group wvas three times that given to the last group, and the per capita contribution was more than seven times as great for the former as for the latter. 1 7 Participation in departmental taxes yielded nearly 15 percent of the municipalities' total income in 1946 and about 12 percent in 1948. The allocation of these shares is the responsibility of each separate department and in some cases it appears to be quite arbitrary or subject to ad hoc negotiation between the departmental and municipal governments. Thus this source of revenue, so important to the poorer municipalities, is usually uncertain and ill-adjusted to their needs. Additional assistance from the departmental level, in the fields of health and welfare, is given through the Beneficencia. Part of these funds goes to support hospitals and charitable institutions, and part is used to supplement municipal health and welfare programs. Even when they are used for the latter purpose, however, they are not included in the municipal budgets. 17 See Appendix E.  PUBLIC FINANCE 279 Assistance to the municipalities from the National Government is provided in three ways: 1. Certain municipalities share in the revenues frorm gold and salt mines, and oil fields, located within their boundaries. This is an important source of income for the few localities affected, but is of little significance to the great majority. 2. Special grants are frequently extended by the Congress to particular municipalities. 3. The Mtunicipal Development Fund, described in Chapter X, gives financial assistance for the construction of local public works. These funds are earmarked for specific projects and do not appear in the municipal budgets. Tax remissions and grants from the National Government, aside from allocations by the -Municipal Development Fund, totaled nearly Ps.$6.2 million in 1946, and about Ps.$3.2 million in 1948. Revenues earmarked for the Municipal Development Fund are currently yield- ing some Ps.$10 million annually; the volume of expenditures from this source fluctuates, of course, with the rate at which projects are approved and construction progresses. Assistance from the National Treasury to the municipalities might be very important as a means of equalizing the disparity in their resources and mitigating the extreme poverty of the majority of local governments. At present it does not seem to be serving that purpose effectively. In 1946, for example, the regular contribution from the National Treasury to municipalities wvith revenues under Ps.$25,000 was less than 5 cen- tavos per capita, while the localities xvith larger revenues received from 20 centavos to more than Ps.$1 per capita, the largest contribu- tions going in general to the towns with the most ample reventues from other sources. Special grants also benefited chiefly the wealthier urban centers. Apparently this is not a deliberate policy. It results mainly from the fact that the larger towns are more potent politically and are better organized to present their needs and press their claims to the Congress and national administrative bodies. Mloreover, because of the greater concentration of population in the larger centers, their requirements are likely to be more obvious and to involve more com- plex and expensive facilities than those of small villages or purely rural districts. But these circumstances are more than counterbalanced by the higher incomes and property values in urban areas, and by the existence of many sources of tax and other revenues which are not available to smaller commtunities. 280 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA Incomiie from Alunticipal Property and Services. These categories of revenue are inmportant mainly for the larger cities, where municipal utilities are well developed. They accounted for only 16.4 percent of the total income (apart from borrowings) of Bogota in 1948, but were 39 percent of the corresponding total for Medellin, 40 percent for Manizales and Cartagena, 51 percent for Cali. and 62 percent for Pereira. The difference is due chiefly to differing relationships between the respective municipal governments and the public utilities which serve the people. The financial opera- tions of the Bogota Electric Company, for example, do not appear in the municipal account, except for the dividends it pays to the city; in other localities, the major utilities are owned and administered by the city, and their gross income and outgo are included in the municipal budget. Local Taxes. The municipalities have been delegated the right to levy certain taxes and, except for the real property tax, in general to set the rates. These delegated taxes, which are the main source of or- dinary municipal revenue, fall into four main groups: real prop- erty, commerce and industry, motor vehicles, and miscellaneous (in- cluding fees and fines). A more detailed breakdown is given in Appendix F, but the specific taxes are actually much more varied and complicated than can be shown in summary form. For example, the 1949 budget estimate of Bogota contains 59 separate classifications of taxes. A few of them serve some regulatory as well as revenue functions-e.g., the taxes on wveights and measures and on street vendors and, to some extent, motor vehicle registration fees-but in general the number of small, separately collected, and frequently overlapping taxes is excessive from the standpoint both of adminis- trative efficiency and of public convenience. The various taxes on industry and commerce are important mainly in cities and larger towns. The tax base and rates vary considerably from place to place, and in some cases at least seem to have no very close relation to the actual value or profitability of the enterprise taxed. In BogotA, for example, the principal tax on industry and commerce is applied on the basis of a study made in 1922, and the rental value of the place of business is used as the main criterion for determining the tax. A special tax on foreign merchandise is levied by a number of the larger towns and cities, especially BogotA. It is, in effect, an additional customs duty. In BogotA, in the first six months of 1949, it produced Ps.$525 thousand, or more than 6 percent of the city's income from all taxes and charges.  PUBLIC FINANCE 281 The land is still the major source of Colombian production and wealth, and the tax on real property in the nature of things should be the basic financial resource of the Colombian municipalities. In fact, however, its revenue possibilities have generally been realized only to a very limited extent. This is one of the reasons for the extreme poverty of local governments in rural areas. Although the "impuesto predial" is more important than any other single tax, its total yield in 1946 wvas only Ps.$6.7 million, or only 7.9 percent of aggregate municipal revenues. The street cleaning and lighting tax, levied in some localities on the same basis as the "predial," provided an additional 2.8 percent of municipal income. The road tax, xvhich principally affects rural areas, is apparently levied in some localities on a property valuation base and in others as a uniform head tax for which labor on the roads may be substituted. The nornmal rate of the real property tax is generally Ps.$2 per thousand, to wlhich an additional 2/1000 wvas added by a special decree on July 19, 1948. This added revenue, however, goes to the National Governiment for support of the Rural Police Corps and for the Munici- pal Development Fund. Some of the larger cities have rates gradu- ated upward to 8/1000 for properties \vith high valuations or for unimproved land in built-up areas, and the maximum in Bogota is 9/1000 which, however, includes a street cleaning and lighting tax.i8 In the past, satisfactory application of the real property tax has been complicated by unequal and unrealistic assessments. In 1942, howvever, the Instituto Geografico Militar y Catastral, a unit of the Ministry of Finance, started a comprehensive reassessment of real estate throughout the country, based on a uniform and detailed classi- fication of land and improvements and on up-to-date standards of values. The value of the properties reviewved through 1948 is estimated at over Ps.$12.8 billion, and it was hoped to cover a further Ps.$5 billion wvorth of properties in 1949. As of March 1949, the reassessment had been completed in 351 municipalities and was in progress in 66. The survey had added over 160,000 properties to the tax rolls (an increase of 23 percent) and of course had brought valuations into line wvith current higher prices.' 8 The task is supposed to be completed by 1952 or 1953. It is intended to keep assessments up-to-date by checking current sales prices, and to make a general review of each locality at five-year intervals. "Valorizacion." Most of the larger municipalities have adopted-- and the others are authorized to adopt, subject to approval by the 18 See Appendix F. 282 THE BASIS OF A DEVELOPMIENT PROGRAM FOR COLOMBIA departmental governor-a system of "valorizacioni" taxes to finance such improvements as streets, sewvers, park-s and the like. These are special assessments levied against the properties wvhose value is en- hanced, or is considered by the municipality to be enhanced, by the project in question. In Bogota the procedure is to estimate the cost of the work, add 20 percent, and allocate the resulting expense among the properties affected, in proportions varying directly with the size of the property and indirectly xvith its distance from the improvement. The area affected is limited for some purposes to 120 meters, and for others to 200 meters, on each side of the improvemenit. In practice, the "valorizacion" system is open to certain abuses. The 120- or 200-meter limit on its application is an arbitrary one, and nmay have little relation to the benefit actually received by a particular property oxvner. Basing the assessment on 120 percent of the cost of the project makes provision for contingencies in the cost, but also opens the wvay to waste or diversion of funds, and offers a temptation for the municipality to expand its regular revenues under the guise of "valorizacion." But these defects are not inherent in the "valorizacion" technique, and it should not be difficult to guard against them. In priniciple, the system provides a simple, practical and generally equi- table means of financing special improvements. THE PUBLIC DEBT The composition of the public debt and its growth during the 1940's are showvn in Table 99. These data must be used with some caution since they are derived from different sources and are not entirely comparable. Nevertheless, they suffice to showv the general magnitude of the public debt and its components. Nearly three-fourths of the public debt estimated in Table 99 is domestically held. Of the remainder, about 75 percent is owned by the National Government, including obligations arising out of Government guarantees. All the external debt is oxved in dollars, except for sterling obligations of the National Government totalling about £2.2 million (Ps.$12 million). Nationcal Debt The distribution of the national debt by types of holders is dis- cussed at length in Chapters XIV and XV and need not be considered here. However, some comments may be made regarding the types of debt instrument and the level of interest rates. About half the external debt is in the form of 30-year, 3-percent bonds due in 1970, issued in exchange for various earlier National Government or Government- guaranteed issues which wvere in default or arrears during the 1930's.  PUBLIC FINANCE 283 TABLE 99 PUBLIC DEBT OF COLOMBIA, 1940-49 (millions of pesos, converted at current exchange rates for external debts) Dec. 31, 1940 May 31, 1948 June 30, 19491 NATIONAL 221.0 497.5 533.8 External 2 ............. . 129.03 146.04 165.05 6 Internal 2 92.03 351.54 368.87 DEPARTMENTAL .... .... 111.3 150.9 106.8 3 External ................ 91.08 105.49 66.55 3 Internal ............. 20.38 45.510 40.311 MUNICIPAL _............... 47.4 98.3 158.1 External 3 34.112 33.19 18.15 Internal .............. 13.33 12 65.23 10 140.02 13 TOTAL . ................ 379.7 746.7 798.7 External ................ 254.1 284.5 249.6 Internal .125.6 462.2 549.1 1 Estimated. 2 Includes both floating and funded debt. 3 Includes funded debt only. 4 Revista del Banco de la Repi'blica, November 1948, p. 1328. 5 Estimate based principally on SEC Registration Statement submitted in 1949. Bonds covered by negotiated settlements are included at new par values. 6 Does not include U.S.$21,254,000 of Export-Import Bank credits granted but uildisbursed as of June 30, 1949. 7 Revista del Banco de la Repablica, July 1949, p. 828. 8 Ibid., May 1940, p. 202. 9 Data for Dec. 31, 1947, supplied by the Ministry of Finance. 10 From statement supplied by Stabilization Fund. 11 For May 1949, from Banco de la Republica. 12 Ainuario General de Estadistica, 1940, pp. 160 and 165. 13 From Contraloria General, Banco de la Repb6lica, and individual muicipalities. The internal debt is very largely in the form of long-term bonds; short-term obligations amount to less than 20 percent of the total. The bonds carry a fixed coupon rate payable until maturity. Each year a certain fraction of each issue (stipulated at the outset) is to be retired and the particular serial numbers to be retired are determined by lot. The holder, therefore, does not know the term of his invest- ment, except that the maturity date for the issue as a whole determines the maximum possible period. As shown in Table 100, over two-thirds of the funded domestic debt outstanding in 1948 had maturity periods of more than 20 years, and less than 2 percent had maturity periods of less than 10 years. This, however, does not mean that no retirement payments will be made before the final maturity date. The annual rate of amortization 284 THE BASIS OF A DEVELOPMENT PROGRAMv FOR COLOMBIA TABLE 100 DOMESTIC DEBT OF NATIONAL GOVERNMENT BY TYPES OF ISSUE, MAY 1948 Amounts Outstanding Percent of Years to Maturity Million Pesos Funded Debt Under 10 . . .. ........ 4.3 1.4 Over 10, under 15 . . . 17.7 6.1 Over 15, under 20 _ . . 50.3 17.4 Over 20, under 25 115.9 40.0 Over 25, under 30 101.6 35.1 Total Funded Debt 289.8 100.0 Floating Debt 61.7 Total .351.5 Amounts Outstanding Rate of interest on Funded Debt Million Pesos Percent 4 . . . 53.3 18.4 5 . 56.5 19.5 6% . ...... 180.0 62.1 Total Funded Debt 289.8 100.0 Source: Stabilization Fund. is spread quite evenly over the lifetime of the bonds, so refunding reqnirements also remain at a fairly even annual rate. The lower part of the table shows the distribution of the debt by the rate of interest paid. About two-thirds of the issues carry a coupon of 6 percent per annum, the remainder being split about equally between 4 and 5 percent bonds. As previously noted, these rates are much below the yields obtainable in private investment. Departmental Debt The departments' indebtedness has decreased substantially, both in relative importance and absolute magnitude, since 1940. The size of their external obligations, in particular, has been greatly reduced by open market purchases of defaulted bonds and by the recent debt  PUBLIC FINANCE 285 settlements. -Most of the departments' foreign borrowing was for railways, roads and public works, responsibility for which has been largely assumed by the National Government; and no external loans of any consequence have been contracted by the departments since 1928, when a law was passed requiring that all such loans be approved by the National Government. Two-thirds of the funded domestic debt of the departments was issued for 20 years, and most of the remainder is of 10- or 1Z-year maturity, as is shown in Table 101. Fifty-eight percent of the bonds carry an interest rate of 7 percent, and substantially all the rest are 6 percent issues. TABLE 101 DOMESTIc FUNDED DEBT OF DEPARTMENTS BY TYPES OF ISSUE, MAY 1949 Amounts Outstanding Years to Maturity Pesos Percent Under 10 . . . . . 37,500 0.1 10-14 .. . ... ..... 11,236,230 27.9 15-19 .. .. . 2,200,200 5.4 20. . . 26,812,770 66.6 Total . . 40,286,700 100.0 Amounts Outstanding Rate of Interest Pesos Percent 4 % .. ... .... ...... .... 844,000 2.1 6 % . .. . . 15,898,160 39.5 6%2% .. .5 . 22,000 0.6 7 % ... . 23,292,540 57.8 Total. ... 40,286,700 100.0 Source: Banco de la RepTiblica. In 1949 Antioquia owed some 44 percent of total external depart- mental debts and about 25 percent of the funded internal debt, as shown by Table 102. Cundinamarca owed more than 17 percent of the external, and 16 percent of the domestic, obligations. Caldas accounted for about 16 and 15 percent, respectivelv, and Santander for a little over 4 and 18 percent. 286 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA TABLE 102 DEPARTMENTAL FUNDED DEBT, MAY 1949 External Debt Old Par New Par Department Internal Debt Values Values (000 omitted) Antioquia Ps.$10,022.4 U.S.$12,361.6 U.S.$14,833.9 Atlantico 948.3 - Bolivar 1,322.0 Boyaca ........ ...... ..... 2,109.9 - Caldas 6,212.2 4,612.0 5,534.4 Cauca .558.2 - Cundinamarca 6,620.0 4,940.0 5,928.0 Huila .1,056.8 - Nariho .. . 162.5 - Santander 7,439.2 1,243.0 1,491.6 Norte de Santander . . 37.5 - - Tolima .. . 2,379.8 900.0 1,080.0 Valle del Cauca. .. 1,327.7 4,397.0 5,276.4 Comisaria de Caqueta . 90.2 - - Total Ps.$40,286.7 U.S.$28,453.6 U.S.$34,144.3 Source: Banco de la Rep6iblica. Municipal Debt The internal debt of the municipalities consists mainly of short- term obligations to banks and commercial houses; their aggregate internal funded debt (in October 1949) was only Ps.$54,193,260.19 All the external, and 85 percent of the internal, debts were owed by the four largest cities. Their approximate debts follow: External Debt Internal Debt (000 omitted) BogotA . U S.$1,050 Ps.$ 81,376 Xledellin 5,400 32,603 Barranquilla 1.240 312 Cali . . 1,260 4,788 U.S.$8,950 Ps.$119,079 The only other cities wvith substantial debts (all internal) are MIanizales, which at the encl of 1948 had a debt of about Ps.$6.8 millioni; Pereira, Ps.$2.3 million; Armenia, Ps.$1.85 million; Bucara- manga, Ps.$1.8 million; Cucuta, Ps.$1.4 million; and Popayan, Ps. $870 thousand. 2 0 Together they accotut for an additional 11 percent of the ag gregate internal debt of Colombian municipalities. Expendi- tures for debt service for all m1unicipalities in 1948 wvere about Ps. $12.3 million, of wlich 72 percent was expended by the four largest cities shown above. The interest rate for about two-thirds of the domestic funded debt of the municipalities is 6 percent; about one- fourth is at 7 percent, and the remainder at 4 percent. 19 Bancu de la Republica. 20 From Contraloria General.  CHAPTER XIV Money, Deficits and Inflation Inflation has profoundly influenced the economic history of Colom- bia during the last decade and is still characteristic of the Colombian economy. The avoidance or control of inflation will probably con- tinue to be major problems jor years to come. It is important, there- fore, to understand the causes of inflationary developments in Colombia during recent years and what may be done to provide more effective controls in the future. This chapter considers first some general characteristics of Colombian inflation; then the roles of credit and fiscal policy are explored in some detail. CAUSES OF INFLATIONARY DEVELOPMENTS The index of consumer goods prices, wvhich1 provides the best single measure of Colombian inflation, rose from an average of 100 in 1940 to 182 in 1946 and 272 in December 1949, as shown in Table 103. This increase of 172 percent, the larger part of wvhich occurred in the postwar period, reflects about the average rate of inflation in South American republics during the 1940's. While there was a distinct slowing down in price rise by the middle of 1949, inflationary forces were still at work and carried the index to new heighlts in early 1950. Wartime inflation in Colom>bia, as in other parts of South America, resulted from expansion in the supply of money simultaneotusly with contraction in the supply of goods. During the war years the greatly expanded value of exports xvas accompanied by a forced shrinkage of imports. Export proceeds, therefore, could not be returned abroad thirough the purchase of imports and increased the domestic moneyr suipply. In.creased incomes from exports and increased holding-s of money in turn added to domestic demand. Since domestic production could not be expanded substantially and since no general system of direct controls could be effectively applied, increased demand resulted in a rising level of domestic prices. But the entire pressure was not reflected in the cost of living; much of the additional purchasing power was directed into speculation in shares, land, buildings and other capital values. Rising prices, and especially rising capital values, induced expansion of bank credit and thus added further to inflation. 287 288 THE BASIS OF A DEVELOPMENT PROGRAMI FOR COLOMBIA TABLE 103 PRICE INDICES, 1940-1949 Annual Average December 1940 1946 1948 1949 100 181.8 250.1 271.7 Prices of consumer goodsl.. Foodl . . 100 192.7 265.7 275.9 . Housingl 00 146.8 199.8 248.0 100 197.3 250.1 277.7 Clothingl Construction materials 100 226.S 254.4 286.6 Coffee 2 ... . . .. . 100 276.2 398.9 716.1 Cattle 100 217.0 335.5 415.3 Shares . ...... 100 186.9 126.5 130.1 255.0 - Wages 3 10 0 1 5 1 .0 4 I Cost of living for middle class in Bogota, see Revista del Banzco de la Rep4lblica. 2 Medellin, excelso. 3 From 1940 to 1945: estimates for Departments of Boyaca, Cundinamarca, San- tander, supplied by Contraloria General de la Republica. From 1945 to 1948: esti- mated average wages in manufacturing, same source. 4 1945 figure, 1946 not available. With the close of the war, imports again became available. Back- log demands for foreign goods were released and the wartime accumu- lation of foreign exchange provided a ready means of finance. There developed a scramble for imported capital equipment and durable consumer goods which had been unavailable during the war. Not- withstanding a continued high level of export income, exchange reserves were depleted in the course of sixteen months. Heavy imports of capital goods permitted rapid expansion in domestic manu- facturing and mechanized agriculture. The import boom and the record level of domestic investment again induced additional expan- sion of commercial credit. Increased Government expenditures, deficits and extension of credit to public lending institutions contributed further to inflation. Due to favorable conditions in the coffee market, export proceeds remained high and boom conditions continued to prevail after exchange reserves had been depleted and stricter import limitations were applied. Usually price inflation, which of course is a result of increased expenditures unmatched by equivalent increases in the supply of goods, is associated with an expansion of money supply. This in turn may be both a cause and a result of the inflationary process. The relationship between increases in money supply and prices in Colombia is shown in Table 104. The term "money supply" is here defined to include the total of currency outside banks plus demand and term deposits at commercial banks. Savings deposits are excluded.  MONEY, DEFICITS AND INFLATION 289 For the period from 1940 to 1949 as a whole, the cost of living, or price level, rose 172 percent, while the money supply increased over 340 percent. But the relationship differs for the war and postwar period. From 1940 to 1946 the money supply increased 250 percent compared with a rise in price level of 82 percent; from 1946 to 1949 the money supply increased 27 percent while prices rose by nearly 50 percent. TABLE 104 INCREASES IN MONEY SUPPLY AND PRICES, 1940-1949 1940-1946 1946-1949 1940-1949 Increase in money supplyl in pesos ...... ................ 527.8 199.6 727.4 in percent ...................... 248.6% 27.0% 342.6% 2 Increase in cost of living in index points .................... 81.8 89.9 171.7 as percent ............ ...... 81.8% 49.4% 171.7% 1 See Table 105. Figures for 1940 and 1946 are annual averages; figure for 1949 is for June 30. 2 See Table 103. During the war years, the unavailability of imports led to the postponement of purchases. Individuals held larger cash balances and funds were diverted into speculation in capital values. This is reflected in the movement of share prices and real estate transactions. The price of shares increased by 85 percent from 1940 to 1946 and the value of annual real estate transactions rose from Ps.$65 million to Ps.$311 million. With the reappearance of imports, available funds were directed into the purchase of capital equipment, automobiles and other durable consumer goods; and as the newly available goods remained scarce, these prices were bid up rapidly. The movement of share prices, at the same time, was reversed; notwithstanding excel- lent profit prospects, share prices declined during 1947 and 1948. Real estate transactions continued to increase but at a slower rate. The same development may be seen when examining changes in the ratio of money supply to national income. In 1940, the national income amounted to approximately four and a half times the money supply, but by 1945 this ratio had declined to a little over three. In 290 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLO-MBIA other words, during the war years purchasing power increased at a faster rate than expenditures on goods and services. By the close of 1949 the money supply to national income ratio again returned to close to its prewar level; the increase in goods and services expendi- tures apparently was more rapid during the postwar years than the further rise in money supply. Sources of Increcase in Money Supply In order to analyze the causes of inflation, it is useful to examine the sources of increase in the money supply. The money supply increased from December 31, 1940 to June 30, 1949 by Ps.$728 million, raising the total from Ps.$212 million before the war to Ps.$940 million in June 1949. Of this total money supply (excluding savings deposits) about two-thirds were in the form of deposits and one-third in the form of currency, as shoxvn by Table 105. Nearly the entire currency supply is in notes issued by the Banco de la Republica. The deposits, nearly all of which are held at commercial banks, are heavily concentrated in a small number of major banks which operate country- wide branch systems. As shown in Table 106, about 40 percent of the increase from 1940 to 1949 was in the form of currency and the remainder in the form of deposits. In addition to this increase in the money supply, there was also a sharp expansion in the volume of savings deposits which rose from Ps.$9.5 million in December 1940 to over Ps.$90 million by June 1949. Since the additional supply of money was very largely in the form of increased bank credit (deposits or notes), with the issuance of treasury currency of minor importance, our main concern is the causes of increased bank credit. Three main causes may be dis- tinguished: (1) the inflow of foreign exchange during the war years in payment for exports; (2) the expansion of the volume of bank loans to business; and (3) the extension of bank loans to the Government. An attempt is made in Table 107 to trace the increase in money supply to these three sources, with a further distinction being drawn between credit originating from the Banco de la Repdblica and from the commercial banks.1 The relative importance of these sources of I Table 107 bears some similarity to Table XXXIV in the Revista del Banco de la Rep tiblica, May 1949, page 549. How%ever, the latter table does not allocate Banco de la Rep6blica and commercial bank credit to various types of borrowers.  TABLE 105 MONEY SUPPLY, 1940-1949 (millions of pesos) DEPOSITS CURRENCY Banco de la Republica Banco de la GRANI) Dec. 31 Commercial Total Treasury Rep6blica In Banks Total TOTAL Treasury Other Banks Notes (1) (2) (3) (4) (5) (6) (7) (8) (9) 1940.11.0 13.8 107.6 132.4 28.1 62.3 10.5 79.9 212.3 1941 .11.3 13.7 117.4 142.4 28.1 74.4 7.5 95.0 237.4 1942.10.3 20.7 151.6 182.6 28.2 103.6 12.0 119.8 302.4 1943 .30.7 42.7 187.9 261.3 28.5 125.4 9.2 144.7 406.0 1944 ........ . 31.1 28.1 251.6 310.8 29.0 179.3 10.1 198.2 509.0 1945 .64.1 27.2 300.0 391.3 29.9 204.9 13.3 221.5 612.8 1946.53.2 32.6 379.7 465.5 31.9 260.1 17.4 274.6 740.1 1947.31.5 33.8 401.4 466.7 34.7 297.9 20.3 312.3 779.0 1948 .20.8 28.8 457.0 506.6 35.6 361.8 22.9 374.5 881.1 19491 .14.3 29.5 535.3 579.1 35.6 347.3 22.3 360.6 939.7 1 June 30. Column (3) Includes dlemand deposits and term deposits. Excludes savings deposits and interbank deposits. Column (5) Revista del Bnnco de la Reptiblica. Column (8) Columns (5) plus (6) minus (7). Column (9) Columns (4) plus (8). Source: Balance sheet of the Banco de la Repdtblica, Ansnual Report of Banco de la Repdiblica, 1948, and Appendix G. 292 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA TABLE 106 ANNUAL INCREASE IN MONEY SUPPLY, 1941-1949 INCREASE OVER PRECEDING YEAR Percentage Year Deposits Currency Total Increase (millions) 1941 ........ . Ps.$10.0 Ps.$15.1 Ps.$ 25.1 11.8 1942 40.2 24.8 65.0 27.4 1943 78.7 24.9 103.6 34.3 1944 . 49.5 53.5 103.0 25.4 1945 80.5 23.3 103.8 20.4 1946 74.2 53.1 127.3 20.8 1947 1.2 37.7 38.9 5.3 1948 . . . 39.9 62.2 102.1 13.1 19491 . . . 72.5 -13.9 58.6 6.7 I January 1 to June 30. TABLE 107 SOURCES OF MONEY SUPPLY, 1941-1949 (millions of pesos) Sources 1941-45 1946-48 1948-491 FOREIGN EXCHANGE ............... ......... 265.9 -121.9 -11.0 CREDIT TO GOVERNMENT AND PUBLIC INSTITUTIONS .. 25.2 163.6 13.3 Banco de la Reptiblica Government ....... ..... ... 15.8 66.4 2.8 Stabilization Fund ...............-... .............. - 1.6 28.2 -5.3 Caja de CrGdito Agrario and other mem- ber banks ................................ ..... .... -2.5 33.7 4.9 Banco Central Hipotecario .... ... ... ..... -3.2 29.0 -4.8 Caja Colombiana de Ahorros.. - 8.0 Commnercial Banks Government .......... . .... .. ......... .... 16.7 - 1.7 15.7 CREDIT TO PRIVATE BORROWERS2... 107.9 220.6 56.4 Banco de la Republica .... . -21.1 17.5 51.9 Commercial banks ...... 129.0 203.1 4.5 TREASURY CURRENCY 1.8 5.7 - TOTAL ............ ............ ... 400.8 268.0 58.7 1 January 1, 1948 to June 30, 1949. 2 Also includes miscellaneous items in balance sheets of Banco de la Rep6blica and commercial banks. Source: Anitual Report of Banco de la Rep6blica, and AppendiK G.  MONEY, DEFICITS AND INFLATION 293 increase differs sharply between the first and second half of the decade. From 1941 to 1945, exchange inflow was the largest factor of increase but subsequently exchange outflow was about equal to one-half of the initial inflow. The extension of credit to the Govern- ment was a small factor up to 1945 but it became substantial there- after. However, bank lending to private borrowers was the most important factor throughout. Though the direct extension of credit to private borrowers was largely a matter of lending by commercial banks, this could not have occurred without the concomitant increase in Banco de la Rep6blica credit. International Aspects Inflation has been connected closely with international develop- ments. To a considerable extent, it has been the direct result of the country's international position. Exchange proceeds accounted for a sizable share of the increase in money supply, and the unavail- ability of imports during the war accounted for the accumulation' of backlog demands. In addition, some degree of inflation xvas a necessary adaptation to developments abroad. While this does not fully account for the degree of inflation in Colombia, it is evident that it xvould have been difficult and, indeed, undesirable for any one country to maintain price stability in view of rising prices in the United States and other Latin American countries. A policy of preventing any price rise might have had serious disadvantages. Maintenance of a stable price level would have re- sulted in large peso profits to exporters as the price of exports would have risen with the world market, while the cost of production would have remained constant. Maintenance of general price stability, at the same time, xvould have required a decline in the prices of domestically produced goods in order to offset the higher prices of export and import goods. Thus a large section of the domestic economy would have suffered depressed conditions. In fact, short of considerable appreciation in the value of the peso, foreign exchange might have continued to accumulate. Most important, the low level of domestic income and prices would have discouraged demand for capital goods imports at high foreign prices. Thus economic develop- ment woould have proceeded at a slower rate. Considerations such as these suggest that it would be unreasonable to expect one country, such as Colombia, to isolate itself from infla- tionary developments abroad. Some degree of price inflation was necessary in order to permit Colombia to benefit from the world prosperity in the postwar period; without it, the country could not have experienced the high degree of capital formation that did occur 294 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA and the benefits of postwar prosperity could not have been spread among groups engaged in production for domestic as well as for export markets. At the same time, it is evident from the pressure on exchange controls that the actual expansion of money supply in 1947 and 1948 was excessive in relation to the prevailing rate of exchange. EFFECTS OF INFLATION The inflationary process resulted in forced savings and thus sus- tained a high though distorted rate of capital formation in the post- war years. According to estimates presented in Chapter IV, private gross capital formation rose from 8 percent of the gross national product in the late 30's to about 12 percent in the postwar years. The high profit margins and rising capital values created by inflation encouraged a record rate of investment. The accumulation of large cash balances during the war years, as well as the ready availability of new credit, enabled investors to finance their expansion programs. These capital expenditures in competition with other demands added to inflationary pressures, and by bidding resources away from other uses resulted in a high rate of capital formation. Primarily this took the form of devoting a major portion of foreign exchange resources to the importation of capital rather than consumer goods; to a lesser extent it diverted domestic resources into capital formation. Whether this high rate of capital formation was desirable or whether there should have been more imports of consumer goods is a matter of judgment. There is no objective basis on which to decide just how fast capital formation should proceed; yet it is evident that the advantages to be derived from capital formation are especially great in an underdeveloped country such as Colombia.2 Thouah inflation increased the rate of capital formation, it also contributed to the misdirected use of capital resources. Capital formation under inflationary conditions tends toward projects which will be profitable over the near-term rather than to long-term eco- nomic development needs. Thus there has been a great deal of speculative investment and of investment not directed to meeting essential needs. This appears to have been the case especially in construction. Under more stable conditions it is likely that the direction of capital formation would have been more in line witl basic needs of the economy. And since capital is scarce in Colombia, the country can ill afford misallocations. The effects of inflation upon the distribution of Colombian income are difficult to ascertain. As showvn in Table 103, the increase in prices 2 See Chapter IV.  MONEY, DEFICITS AND INFLATION 295 differed considerably in various areas of the economy. Coffee prices, in particular, increased more rapidly than did most other prices. Profit incomes, undoubtedly, rose much more rapidly than did wage incomes. An attempt was made in Chapter III to appraise the distribution of income for 1947. Those estimates w,Aere based on scanty data and there is even less information for estimating changes in income distribution brought about by postwvar inflation. The only continuous data on distribution of income by size groups are provided by income tax returns. These returns, as well as the increase of profits relative to other distributive shares, suggest that inflation has tended to increase the inequality of income distribution. From 1943 to 1947 the number of taxable returns increased from 54,800 to 80,500, reflecting a general upward shift in the size of income as well as improved tax adminis- tration. At the same time, the degree of inequality in distribution of taxable income increased. Arranging taxpayers by size, we find that the top 10 percent of taxpayers in 1943 received some 35 percent of total reported income, but by 1947 their share had risen to about 40 percent. The share received by the top 20 percent of taxpayers similarly increased from 67 to 73 percent. However, only a very small fraction of the total number of income recipients is included in the income tax data. .Some-95 percent. of the population receives incomes beloNv the exemption. limit of Ps.$1,000 _peiperson and income tax reporting is rather deficient. However, scattered data on the earnings of farm and industrial workers suggest that the picture would be similar if a larger sample were available. MONETARY AND CREDIT POLICY Structure of the Banking System There are ten domestic commercial banks of major size and four foreign banks, but nearly 70 percent of all commercial bank deposits are with the three largest domestic banks which have branches throughout the country. While the structure of the commercial banks is similar to that of the United Kingdom or Canada. the organization of the Banco de la Republica and its relation to the commercial banks are modeled after the Federal Reserve System of the United States. All commercial (and some non-commercial) banks are member banks of the Banco de la Republica. They must hold their required reserves, amounting to 15 percent of demand and 5 percent of time deposits, on deposit with the Banco de la Repuiblica. Only the Banco de la Republica has the privilege of note issue. By using its powver to rediscount and to change reserve requirements, the Banco de la Republica could exert control over commercial bank reserves and their lending capacity. Bank examination, among other functions, 296 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA rests with the Superintendent of Banks, who is appointed by the President and is independent of the Banco de la Repuiblica. In addition to the commercial banks, there are a number of semi-public credit institutions providing for savings deposits, mortgages and farm credit. These have been considered in Chapter IV. Central Banking Policy The extension of credit by the Banco de la Repuiblica is of twofold importance. When the Central Bank makes a loan to the Government or purchases paper in the market, it thereby creates deposits and thus increases the money supply. So far the result is the same as if the \ loan had been made by a commercial bank. However, credit creation .by the Central Bank also adds to the reserves of commercial banks.3 The ability of commercial banks to create credit is thereby increased; and since credit creation may proceed on a multiple basis (vith reserve requirements of 15 percent, each additional Ps.$1 of reserves permits over Ps.$6 of credit creation), 4 changes in the reserve position of conmmercial banks are of great importance. At times, lendinig by the Central Bank is aimed directly at providing commercial banks with 3 Since the relationship of Central Bank lending to the reserve position of com- mercial banks is of basic importance to monetary policy, it may be well to explain the matter in some detail. Suppose, for instance, that the Banco de la Repuiblica makes a loan to the Government. In the process, the Banco de la Republica adds Government securities to its assets and an equal amount of Treasury deposits to its liabilities. Further developments may be along two lines: (a). When the Government proceeds to spend the money, say to erect a building, it will pay the construction company by a check drawn on its account with the Banco de la Repdblica. The check will then be deposited in the commercial bank of the construction company and the construction company will receive a credit on its deposit account. The commercial bank will present the check for collection to the Banco de la Republica. The Banco de la Republica will debit the Treasury account and give a credit to the commercial bank, thus raising the reserves of this bank. The commercial bank may then exchange its increased reserves for additional cash holdings. In either case, its lending ability is increased. When the bank gaining reserves makes a loan, the proceeds are deposited in the same or another bank and in this way the familiar multiple expansion of deposits on the basis of an increment of reserves is set in motion. (b). When the Government proceeds to spend the money, it may wish to pay the construction company in currency rather than by check. In this case, the initial increase in Banco de la Republica liabilities will be in the form of an addition to notes out- standing rather than an addition to Treasury deposits. When this additional currency is passed to the Government and the Government has handed it over to the construc- tion company in payment, currency outside banks will be increased, thus raising the money supply in the hands of the public. Commercial bank reserves will not be affected initially. (Technically speaking, the addition to reserves through increased Banco de la Rep6blica credit is canceled by the loss of reserves through increased currency in circulation.) However, a substantial part of the increase in currency in the hands of the public is likely to be returned to the commercial banks, since at any time the public will have its own ideas about what fraction of its total money holdings it wishes to keep in the form of currency and in deposits. To the extent that the currency is thus deposited in commercial banks, these banks may hold the additional cash in their own vaults or they may retumr it to the Banco de la Republica in exchange for increased reserve accounts. In either case, the end result will be similar to that of (a) above. 4 Less drain on currency.  MONEY, DEFICITS AND INFLATION 297 additional reserve funds, as is the case with the rediscounting of commercial paper presented by the banks. At other times, the primary objective of credit creation by the Central Bank is to provide credit to the Government or other non-bank borrowers, either directly or through various lending institutions. But even though the primary objective of such transactions is not to expand commercial bank reserves, they will, nevertheless, have this result just as do rediscount operations. In expandin- or contracting Central Bank credit it is important, therefore, to consider the effects upon the reserve position of commercial banks. The data indicate that commercial banks throughout the 1940's were in a position to rediscount freely with the Banco de la Rep6blica. With the exception of 1941 and 1946, reserve balances of commercial banks, as well as excess reserves, showed a continuous increase. Com- mercial banks, which in December 1940 had excess reserves of Ps.$7 million, increased their reserve balances by nearly Ps.$60 million during the war years, and by another Ps.$35 million from 1946 to June 1949. Of this total increase, Ps.$60 million were absorbed in additional required reserves while Ps.$32 million were added to excess reserves. The analysis of sources and uses of reserve funds presented in Table 108 appears to be the first attempt to present this important aspect of monetary policy in Colombia. The table shows for various periods the major sources and uses of reserve funds, including inflow of foreign exchange and increase of Banco de la Rep6iblica credit as the major sources, and expansion of currency in circulation as the major drain on reserves.S The resulting net changes in commercial bank reserves, in turn, determine the ability of the commercial banks to extend credit. Again there is a sharp difference between the first and second half of the period. From 1941 to 1945 an avalanche of foreign exchange inflow, induced by high exports and war-restricted imports, resulted in an addition to commercial bank reserves of nearly Ps.$60 million. This gain in reserve funds occurred in spite of the drain on reserves which resulted from expansion of currency in circulation and increased Treasury deposits. Banco de la Rep6iblica credit expanded in 1941, but declined somewhat in 1942 and 1943 when commercial banks used part of their exchange receipts to curtail rediscounts with the Central Bank. However, the expansion of Central Bank credit was resumed with the beginning of the war boom. Notwithstanding further ex- change gains, rediscounts to commercial banks increased steadily after 5 The data are drawn from the balance sheets presented in Appendix G. Further refinement of the data will be needed, but the information provided in Table 108 is sufficiently accurate for purposes of general discussion. 298 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA TABLE 108 SOURCES (+) AND USES (-) oF RESERVE FUNDS, 1941-491 (millions of pesos) December 31 1941-45 1946-48 1941-48 1948-492 1. Foreign Exchange, inflow (+) or out- flow (-) ...... .......................... +265.9 -121.9 +144.0 -11.0 2. Banco de la Republica Credit........ ......... + 11.0 +238.5 +249.5 + 6.7 3. to National Government and Sta- bilization Fund ........................ + 14.2 + 72.9 + 87.1 - 2.5 4. to Commercial Banks ............... . + 10.5 + 43.5 + 54.0 -34.5 5. to Caja de Credito Agrario, Banco Central Hipotecario, Caja Colombiana de Ahorros, etc. ... . ........... ...... - 5.8 +103.0 + 97.2 + .1 6. to others ........................ . 7.9 + 19.1 + 11.2 +43.6 7. Treasury Deposits at Banco de la Re- publica ............... 53.1 + 95.5 + 42.4 + 6.5 8. Currency outside banks .- 142.6 -153.2 -295.8 +13.9 9. Other sources (+) or uses (-) - 23.8 - 49.5 - 73.3 + 7.3 10. Total ............ ..................... + 57.4 + 9.3 + 66.8 +23.4 REsERvF POsITION OF COMMERCIAL BANKS 11. Cash and Deposits with Banco de la Republica ... ............. + 57.4 +. 9.4 + 66.9 +23.4 12. Amounts not countable .- .3 - 1.0 - 1.3 - 1.0 13. Reserves, total .............................. + 57.7 + 10.4 + 68.1 +24.4 14. required .............................. + 27.1 + 21.6 + 48.7 +11.3 15. excess . . ................ + 30.4 - 11.2 + 19.4 +13.1 1 For annual data see Appendix G. (+) means addition to reserve funds; (-) means reduction in or use of reserve funds. 2 January 1, 1948 to June 30, 1949. 1943. As a result of borrowings from the Central Bank by the Govern- ment, the Caja de Cr6dito Agrario and the commercial banks, excess reserves of commercial banks climbed from Ps.$12 million to Ps.$34 million. This provided the basis for a near doubling of demand deposits -which followed during the subsequent years. In 1945 there occurred some slight contraction in Banco de la Rep6blica credit, btut commercial bank reserves and deposits continued to increase at a substantial rate. In 1946 the inflow of foreign exchange ceased. At the end of the year, the picture was reversed by the reappearance of peacetime im- ports and during 1947, as well as 1948, outflow of exchange exerted a heavy drain on reserve funds. To this drain was added a continued increase of currency in circulation. While this was a universal develop- ment during the forties, the currency drain was more drastic in  MONEY, DEFICITS AND INFLATION 299 countries, such as Colombia, which have a basically high currency- to-deposit ratio than in countries with more developed credit systems. However, in 1946 a moderate increase in Banco de la Rep6blica credit occurred simultaneously, with more drastic increases in 1947 and 1948. As a result of these forces, commercial bank reserves declined slightly in 1946 but increased further in 1947 and 1948. About one-third of the Banco de la Republica credit extended from 1946 to 1948 went to the National Government and nearly one-half went to various semi- public credit institutions, such as the Caja de Credito Agrario. The remainder went largely to raise rediscounts of commercial banks. 6 With the exception of 1941 and 1946, expansion of Banco de la Repuiblica credit thus permitted a continued increase of commercial bank reserves. The contraction of Central Bank credit in 1942 and 1943 fell far short of offsetting the expansionary effect of exchange irnflow. During 1944 and 1945, there xvas an actual expansion of Banco de la Republica credit, notwithstanding heavy exchange gains. The net effect of these factors was to increase sharply commercial bank reserves during the first half of the decade. During 1947 and 1948, the expansion in Banco de la Republica credit wvas at a much faster rate but, due to offsetting factors, commercial bank reserves increased only slightly. Indeed, it is evident from the data presented in Table 108 that a substantial increase in Central Bank credit was required during 1947 and 1948 in order to avoid a drastic contraction Gf commercial bank reserves which otherwise would have occurred because of the loss of foreign exchange and the further currency drain. However, the actual expansion of Central Bank credit was sufficient not only to maintain reserves but to increase themn further. Thus banks were in a position to provide the credit basis for continued nionetary expansion. To some extent the failure to place effective restraints on credit expansion might be explained by the inadequacy of available means of restriction. It should be noted here that there is no open market in Government debt and that the power to raise reserve requirements did not become available until February 1949. Under the Banking Laxv, each commercial bank is entitled to rediscount paper tup to an amount equal to 120 percent of its capital and reserves. 7 Ho\vever, there is the further condition that eligible paper be presented; among 6 For a more detailed statement of the use of Central Bank credit during this period, see Appendix G. 7Law 168 of 1938, Art. 3, and Law 38 of 1939, Art. 3. From the language of the law, it is evident that the ratio of 120 percent sets an upper limit to the amount of discounts which can be given by the Central Bank to any individual bank. It is less evident whether the law prohibits the Banco de la Rep6blica from setting a lower limit if it so desires. 300 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA other requirements, the paper must not be over ninety days' maturity. Also, a single bank cannot present for rediscount paper issued by any one company in an amount exceeding 25 percent of the commercial bank's capital and reserves. While Banco de la Republica policy, as well as the policy of the Superintendent of Banks, apparently attempted to interpret these rules as strictly as possible, "eligible" paper was plentiful and the volume of rediscounts presented remained well below the statutory limit. As a result, rediscounts of commercial banks with the Banco de la Republica showed a steady increase from 1943 through 1948, rising from less than Ps.$100,000 at the close of 1942 to nearly Ps.$70 million at the end of 1948. Commercial banks in effect could have obtained any desired amount of reserves they wished. At the same time, the rediscount rate remained unchanged at 4 percent, the level set in July 1933. Although some people advocated an increase in the rate as a desirable measure of restraint, none occurred. Since the loan rates which commercial banks may charge their customers are determined by the Banco de la Rep6blica in relation to the rediscount rate, commercial loan rates also remained unchanged throughout the period. With the rediscount rate of 4 percent, a 6 percent rate was applicable to ninety-day loans and an 8 percent rate to 120-day loans by commercial banks. Maintenance of easy credit conditions was hardly necessitated by concern for Government financing needs. Nor was continued easy money required by concern for stability in the security markets. There was no substantial increase in budget expenditures for war purposes and private trading in Government securities was quite limited. Most Government securities were closely held by a relatively small group of institutional investors who, for most of the period, were subject to compulsory holding requirements. Thus, it is ques- tionable whether a somewhat tighter policy, assuming the instru- ments to enforce it were at hand, would have interfered with governmental necessities. Commercial Bank Policy We have seen that commercial banks enjoyed an easy reserve position throughout the 1940's. This is shown again in Table 109. While entering the war with a low level of excess reserves, commer- cial banks experienced a sharp increase in reserve funds during 1942 and again in 1944. As a result, they were in a position through- out the 1940's to expand loans and at the same time to maintain a comfortable level of excess reserves. Excess reserves reached a peak of Ps.$37.5 million in 1945, but dropped temporarily to Ps.$20.2  MONEY, DEFICITS AND INFLATION 301 million in 1946. However, rediscounts with the Banco de la Repuiblica increased sharply during the following years, more than offsetting the drain on reserves due to other factors. TABLE 109 POSITION OF COMMERCIAL BANKS, 1940-491 (millions of pesos) Reserve s Total Cash and Redis- Dec. 31 Excess Required Reserves 2 Loans counts Deposits 3 1'41' 7.1 15.7 28.1 91.0 5.1 110.9 1941 ............. 4.4 16.4 26.1 120.7 16.0 121.3 1942 .... ......... 11.4 22.4 41.9 123.1 .1 156.7 1943 . . ........ 12.2 26.5 44.1 143.9 2.4 194.1 1944 ........ ..... 34.5 35.4 75.9 176.7 15.4 256.9 1945 ...... ....... 37.5 42.9 85.3 241.8 15.6 309.1 1946......... .... 20.2 52.9 80.5 356.1 24.0 389.7 1947 ............. 23.9 57.2 89.0 404.0 53.1 414.0 1948 .. ..... 26.4. 64.4 94.8 461.8 67.5 467.8 1944 .40.5 75.6 118.2 466.5 33.0 545.9 l For details see Appendix G. 2 Exceeds the sum of excess and required reserves because only part of cash hold- ings is counted as legal reserve. 3 Excludes savings deposits; includes interbank deposits. 4 January 1 to June 30. Nor was deposit expansion checked by scarcity of bank capital. Colombian law provides, in addition to the reserve requirement, that bank capital shall equal at least 15 percent of deposits. However, additional bank capital was readily available. To meet additional requirements, capital and reserves at commercial banks were increased from Ps.$29 million in 1940 to Ps.$75 million in 1948. Earnings for the large banks averaged over 8 percent in the first half of 1948 as against 6.6 percent in 1940 and 10.5 percent in 1945. The annual volume of loans at commercial banks by type of borrower is shown in Table 110. Total loans outstanding rose from Ps.$91 million in 1940 to Ps.$241.8 million in 1945 and Ps.$461.8 million in 1948. The gross amount of new loans granted per annum rose from Ps.$133 million in 1940 to Ps.$396 million in 1945 and Ps. $756 million in 1948. Throughout the period, about one-half of the loans granted wxent to commerce. Credit to industry remained fairly stable until 1945 but increased sharply thereafter, reaching about 20 percent of total loans granted in 1948. Farm credit provided by commercial banks, as well as credit to cattle raisers, increased some-  TABLE 110 NEw LOANS GRANTED BY COAIMERCIAL BANKS, 1940-1949 (millions of pesos) _~~~~~~~~~~~ _ __ __ __; . 1940 1941 1942 1943 1944 1945 1946 1947 1948 19491 Agriculture .................. ....... 5.9 6.2 7.8 11.6 16.7 21.6 36.5 40.7 39.5 16.9 Cattle .. . ............. 11.2 13.8 16.2 23.6 33.5 46.5 73.2 83.9 87.8 44.0 Commcrce ..... ............................. 72.3 87.3 88.2 121.6 150.4 213.5 304.8 319.7 378.1 198.5 Industry . 24.8 35.1 47.1 52.9 42.9 59.6 79.9 130.3 158.1 84.9 Mining ............. 1.1 .6 1.5 .8 1.4 1.0 .5 .6 .1 2 Building ............ .... 34 34....... 5.2 5.6 4.7 5.7 7.9 27.6 27.7 19.5 9.9 Official institutioins . . . ......... 6.7 8.3 7.6 20.9 23.3 25.9 21.3 31.4 31.7 20.1 Other ............... .......... 7.9 10.2 9.7 17.0 16.8 20.1 28.9 25.7 40.7 18.7 Total 133.3 166.7 183.7 253.3 290.7 395.7 572.7 660.0 755.5 393.0 1 First 6 mouths of 1949. 2 Less tlhati l's.$100,000. Source: Revista del Banco de la Rep6blica.  MONEY, DEFICITS AND INFLATION 303 wvhat faster than did total loans but remained a relatively small item. Credit for construction purposes was unchanged during the war but showed some increase in the postvar period. As commercial banks in Colombia do not enTgage in long-terimi mlortgage credit, the volume of construction loans by banks remained small relative to the total volume of mortgage funds provided from other sources. The distribution of deposits by departments showed no signifi- cant change during the period, although there -was a slight tendency toxvard a wider distribution of deposit holdings. 8 Much the largest single item of expansion was in commercial loans. During the war years, wlven there xvas no significant increase in production, the tripling of commercial loans contributed heavily to speculation in capital values. Subsequently, an important part of the additional commercial credit went to sustain speculation in inventories of im- port comniodities. These developments testify to the fallacy of the principle that the restriction of bank lending to short-term or "self-liquidating" commercial loans will assure the proper volume of credit. Yet, this was part of the philosophy of the Banking Law of 1923 which limited commercial banks to loans of less than one-year maturity and excluded them from investment in industrial enterprise or real estate.9 The commercial loan principle, once widely held, is based on the fallacious assumption that the demand for such loans, and hence the supply of eligible paper, will adjust itself to the current volume of production and thus match each peso of credit with a peso of available goods. In an inflationary period, a number of producers or merchants will bid for the same resources or merchandise, thus driving up prices. Commercial banks in meeting sulch competitive demancds for creclit add to the inflationary process, even though remaining wholly witlhin- the rule that only eligible loans should be granted. The prin- ciple that banks should grant only self-liquidating or commercial loans, therefore, in no wvay reduces the responsibility of the Central FBank to control the volume of credit by regulating the ability of commercial banks to extend loans. The basic principle of mnonetary control is that the supply of money does not regulate itself.10 Qualita- 8 See Appendix G. 9 The policy of the Banco de la Repiblica to exclude from rediscount paper of over ninety-day maturity further reduced the effective maturity on commercial bank assets. 10 In the explanations of the Banking Law of 1923, great stress was laid on the principle of self-liquidating assets. See Leyes Financieras,presentadas al Gobierno de Colombia por las Misiones de expertos americanos en los afios de 1923 y 1930 y exposici6n de motivos de estas, page 203. However, the Kemmerer Report also emphasizes the responsibility of the Central Bank for adjusting the rediscount rate as an instrument of monetary control. Ibid., p. 74. 304 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA tive control is no substitute for quantitative control of loans and deposits. A further argument for limiting banks to the extension of short- term credit was that only thereby would it be possible to assure the necessary liquidity of the banking system. This principle has some degree of validity, and the concern of the Kemmerer Mission with bank liquidity is readily understandable in view of the record of bank lending prior to 1923. However, the soundness of the banking system, in the last resort, does not depend upon the maturity of bank assets but upon the soundness of the economy as a whole. An indi- vidual bank, no matter how highly liquid and short-term its portfolio, will find itself in a xvholly illiquid position if the general level of economic activity collapses. Yet, in a healthy and expanding economy, some longer-term paper is fully compatible with a sound structure of bank assets. It appears, therefore, that the rigid restrictions imposed by the legislation of 1923 were of no merit as a means of automatic credit control; also, they went further than necessary in order to assure bank liquidity. Yet, as a result of these restrictions, there developed a complete separation of the commercial banking system from capital formation. While encouraged to provide an excessive supply of short- term funds for commercial and speculative purposes, the banking system has not been in a position to render its full contribution to capital formation. In viexv of recent experience, therefore, it seems desirable to reconsider the rigid rules imposed upon the lending prac- tices of comnmercial banks. FISCAL POLICY Budgetary expansion and deficit finance aecentuated the general inflation picture. However, they were of less importance in Colombia than in other countries, such as the United States, which diverted a large share of total output into wvar cffort. Growth of Public Expenditures The growth of public expenditures is shown in Table 111. While public expenditures 11 rose from Ps.$190 million in 1940 to Ps.$476 million in 1947, the ratio of public expenditures to gross national product appears to have declined. This is the case especially with regard to transfer payments but also holds true for goods and services expenditures. Thus, Colombia did not experience the inflationary pressure which, in the major war economies, resulted from the 11 For an analysis of public expenditures, see Chapter XIII.  MONEY, DEFICITS AND INFLATION 305 absorption of a vastly increased share of the nation's product for war purposes, although there were indirect impacts on its economy by the war. Similarly, Colombia was not left with the postwar heri- tage of an increased budget-to-income ratio, the 1947 ratio being below the prewar level. The growth of public expenditures apparently followed rather than led the rise of money income, thus acting as a sustaining rather than a causal factor in the inflation picture. TABLE 111 PUBLIC EXPENDITURES AND GROSs NATIONAL PRODUCT, 1940-19471 (millions of pesos) 1940 1945 1947 1. Gross National Product ............................ 1,196.5 2,366.6 3,673.8 Government Expenditures 2. Goods and Services.............. 168.6 252.0 434.4 3. Transfer Payments ..................... .. 21.7 38.5 42.0 4. Total. ............... ............ 190.3 290.5 476.4 5. (2) as percentage of (1) ............................ 14.8 10.8 11.8 6. (4) as percentage of (1) ............................ 17.4 12.1 12.9 1 Data from Table 1, Chapter III; includes all levels of government. Taxation and Deficifs Expansion in the size of the budget, however, is only one indicator of the contribution of Government finances to inflation. Another, and usually more important, factor is the extent to which public expendi- tures are financed by taxation or borrowing. Tax receipts failed to keep step with the expansion of expenditures with the result of grow- ing governmental deficits. This increase in public outlays, unaccom- panied by a curtailment of private demand through higher taxes, added to inflation pressures. This was the case especially because a substantial part of the newly created debt was sold to the Central Bank, thereby further increasing the reserves of commercial banks and the money supply. The development of national expenditures, revenues and deficits is shown in Table 112. Tax receipts rose from Ps.$84 million in 1940 to Ps.$335 million in 1948. Income tax yield increased about seven times, while the yield of indirect taxes tripled. 1 2 This increase in yield was due in part to the expansion of the tax base which occurred with the rise in national income, but to a considerable extent it 12 For a discussion of the Colombian tax system, see Chapter XIII. 306 THE BASIS OF A DEVELOPMIENT PROGRAM FOR COLOMBIA resulted from the imposition of higher tax rates, especially under the legislation of 1942 and 1944. Nevertheless, the growth of expenditures exceeded that of receipts and after a short period of surplus in 1941 and 1942, a series of deficits followed to 1948- TABLE 112 NATIONAL BUDGET SUMMARY, 1940-19491 (millions of pesos) BUDGET Deficit or Changes in Year Expenditures 2 Receipts 3 Surplus 4 National Debt5 1940 ......... 112.5 84.3 -28.2 +16.0 1941 ......... 104.2 107.9 + 3.7 +23.2 1942 ......... 97.9 115.3 +17.4 +11.2 1943 .. ....... 166.5 140.7 -25.8 +53.0 1944 .......... 158.6 136.2 -22.4 +15.3 1945 .. ....... 186.4 167.2 -19.2 +89.9 1946........ . 242.5 230.6 -11.9 +39.0 1947 ........ . 337.4 305.0 -32.4 +45.3 1948 ......... 369.3 335.8 -33.5 +56.5 1949 ......... 344.5 383.5 +39.0 n.a. 1 For details see Appendix G. 2 Budget expenditures exclusive of debt retirement. 3 Direct taxes, indirect taxes and other receipts, but excluding borrowing. 4 Receipts minus expenditures; does not correspond to the concept of deficit in Colombian budget statements. 5 Differs from deficit or surplus largely due to failure of budget to include all debt transactions. In order to measure the impact of budget deficits upon the level of demand and hence on inflation, the term "deficit" should be defined as the excess of the Government's cash disbursements to the public over its cash withdraw als from the public through taxation. The data on deficits showvn in the fiscal statements of the Government unfortunately bear little relationship to this definition. Indeed, it is difficult or impossible to obtain this basic information from the public data. Nevertheless, an attempt was made in Table 112 to arrive at an estimate of annual cash deficits during the 1940's. As wvill be seen from the last column of the table, the total increase in debt was substantiallv greater than the aggregate net deficit for the period. It appears that extensive fiscal transactions giving rise to debt remained outside the budget statement. Even though this unex- plained increase in debt in part reflects accounting transactions rather than cash outlays, the cash deficit is undoubtedly understated by the figures shown in Table 112. To the extent that these estimates may be relied upon, we find deficits from 1943 to 1948 amounting On  MONEY, DEFICITS AND INFLATION 307 the average to 10 to 15 percent of expenditures. While this seems mioderate in comparison with the deficits incurred by the United States or the United Kingdom during this period, it must be remem- bered that the wartime requirements upon the Colombian budget wvere much less severe. Absorption of National Debt From December 31, 1940 to June 30, 1949, the domestic national debt rose from Ps.$92 million to Ps.$369 million and the foreign debt of the National Government increased from Ps.$129 million to Ps.$165 million.1 3 At the same time, there occurred a substantial increase in departmental and municipal debt.14 Notwithstanding this tripling of national debt, the ratio of national debt to gross national product, which is frequently referred to as a general indicator of the severity of the debt problem, declined from about 19 percent in 1940 to about 14 percent in 1948. The ratio of interest payments on national debt to national income similarly fell from 1.2 to .6 percent. These ratios seem low by comparison with the United States where the national debt is in excess of the national income, but the comparison is misleading. The conditions of the capital market are wholly differ- ent in the two countries. In the United States the public debt is widely held by institutional investors, individuals and commercial banks, but in Colombia investors absorb only limited amounts of the public debt. This becomes quite evident when the record of debt absorption during the 1 940's is examined. From June 1941 to June 1948, public or semi-public institutions absorbed about 80 percent of the total increase; so-called private investors, including commercial banks, absorbed only 20 percent. Within the first group, the Banco de la Repiblica took the largest share with 36 percent. The Caja Colom- biana de Ahorros came next with 23 percent, followed by the Stabili- zation Fund which took 10 percent. Among private investors, com- nmercial banks absorbed 4 percent and insurance companies took 5 percent. If the analysis is limited to the postwar period, the general picture is much the same, with commercial banks showing a net reduction in holdings. Notwithstanding the slight participation of commercial banks, over one-half of the total increase in debt (the combined share absorbed by the Banco de la Reptiblica, the Stabilization Fund and the commercial banks) was monetized-that is, absorbed by the 13 Table 99, Chapter XIII. 14 For a discussion of departmental and municipal debt, see Chapter XIII. 308 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA banking system and paid for out of newly created money. While we have seen that substantial additions to commercial bank reserves were needed in 1946 and 1947 to offset reserve drains from other sources, the actual amount of reserve funds supplied by the Central Bank was excessive. This might have been avoided had there been less pressure on the Central Bank to absorb public debt. The failure of private investors to contribute significantly to the absorption of public debt is the more striking as compulsory investment requirements are applied to various groups of institutional investors. Thus companies, including commercial banks, savings banks and insurance companies, must invest 5 percent of their legal reserves in "Bonos Dinu del 4%" and an additional 10 percent in "Bonos Denal." These investments are formally designed to provide reserves for meeting the social security obligations of the compan- ies, but in effect are compulsory investment requirements. In addition, the following requirements apply, as of September 1, 1949: the Caja Colombiana de Ahorros must invest 20 percent of its funds in "Bonos Denal del 6%," 20 percent in "Bonos de Tesoreria del 6%," and an additional 10 percent in "Bonos Instituto de Credito Territorial del 5%." Insurance companies must place 10 percent of their legal reserves in "Bonos Denal ;" 15 percent in "Bonos Nacionales," and an additional 10 percent in "Bonos de la Caja de Credito Agrario." While these requirements may have assisted in some measure in directing capital resources into developmental uses, they have done little to reduce the inflationary impact of public financing. From the longer run point of view a private market in public debt is preferable. The development of such a market would assist in the conduct of public investment programs on a non-inflationary basis. 1 5 15 For further discussion, see Chapter XXVII.  CHAPTER XV The International Economic Position of Colombia One of the most interesting, and at the same time one of the most difficult, aspects of Colombian economic life centers around its inter- national economic position. On the one hand, Colombia is in the very fortunate position of possessing exports which command an active and growing market in hard currency areas. On the other hand, there has been constant complaint of the shortage of dollars, a continuous tendency to excess of demand for dollars over the supply. This demand was so persistent and strong that it exhausted, in a relatively short time, much of the gold and foreign exchange re- sources accumulated during the war, depleted the Central Bank's reserves to a dangerously low level, and actually, for a period, resulted in heavy arrears in payment of current obligations. Thus, we have the spectacle of a country whose dollar exports have increased sub- stantially, as contrasted with before the war, but which at the same time apparently has been compelled to have recourse to a complex system of exchange controls involving individual import and export licensing and strict control over capital movements and remittances \ abroad. Few countrics have benefited more than Colombia from the international division of labor. Its exports of coffee, petroleum and gold have enabled it to import, over the past twenty-five years, about U.S.$3 billion worth of transportation, industrial and agricultural equipment, raw materials for its growing manufactures and a variety of foodstuffs and consumer goods. Here again, however, a paradox appears. While Colombia has gained greatly from foreign trade and multilateral trade, there is at the same time evident a trend toward national self-sufficiency and a recourse to bilateral agreements. The explanation and appraisal of these apparently inconsistent developments and trends constitute one of the most interesting and instructive problems for economic study. As a background for such a study, however, a description of Colombia's balance of payments, and of the various measures adopted to meet the problems that have arisen in connection with the balance of payments, is necessary. INTERNATIONAL TRANSACTIONS AND THE BALANCE OF PAYMENTS The usual method of examining international transactions in Colombia, prior to the balance of payments work of members of the Mission, was to consider exchange receipts and exchange authoriza- 309 310 THE BASIS OF A DEVELOPMENT PROGRAMI FOR COLOMIBIA tions. The former category covers purchases of foreign exchange and o0 ne\vly mined gold by the Banco de la Republica and thus shovs foreign moneys and gold accruing to Colombia and available to buy imports and to make other foreign payments. The latter category covers authorizations or licenses granted by the Office of Exchange Control permitting the payment for imports and the making of foreign remittances. In 1948, total exchange receipts amounted to U.S.$284,476,000 while exchange authorizations were U.S.$316,815,000, as shown in Table 113. This approach to Colombia's international transactions highlights certain significant details. It shows the extraordinarily high degree to which Colombia's ability to earn foreign exchange to pay for her imports is dependent upon exports of coffee. In 1948, coffee exports accounted for 75 percent of total receipts. At the present time, this percentage seems likely to increase, with higher coffee prices and reduced transfers of foreign exchange to Colombia by the petroleum TABLE 113 COLOMBIA'S EXCHANGE RECEIPTS AND EXCHANGE AUTssORIZATIOxS, 1948 Total Percentage (thousands) Composition EXCHANGE RECEIPTS Exports of coffee. U.S.$212,320 74.6 Exports of other commodities 14,919 5.2 Remittances and services . 7,073 2.5 Iniward transfers of foreign exchange by petroleum companies ... .... . 35,068 12.3 Other inward transfers of foreign exchange 3,997 1.4 Purchases of nexyly minied gold . 11,099 3.9 U.S.$284,476 100.00lD EXCHANGE AUTHORIZATIONS Imports .U.S.$277,290 87.5 Remittances ....... ................ 7,245 2.3 Government payments (excluding debt service) ...... ......... .............. 6,357 2.0 Government debt service 9,410 3.0 Private debt service and dividends. 3,097 1.0 Other current payments 9,947 3.1 Capital payments 3,469 1.1 U.S.$316,815 100.0 * Differs from the sum of the constituents because of rounding.  TIlE INTERNATIONAI. ECONOMIC POSITION OF COLOMBIA 311 companies. These transfers, at 12 percent of the total, were the second most important source of foreign exchange in 1948, and are the only way in which petroleum affects exchange receipts. This is because the companies do not surrender directly the proceeds of their exports. Exports of other comnmodities-bananas, leather, plati- num, cattle, etc.-accounted for only 5 percent of total receipts. Purchases of neewly mined gold, down both absolutely and relatively since the prewar period, accounted for only 4 percent of the 1948 receipts. The preponderance of coffee has become even more marked of late. The price of Manizales coffee, which averaged 32Y2 cents a pound in 1948, rose by the end of November 1949 to 58.75 cents per pound, an increase of 81 percent. By March 7, 1950, the price had fallen to 50 cents, or 54 percent above 1948. With exports of about 5.5 million bags of coffee, a variation of as little as one cent per pound means a variation in receipts by Colombia of as much as U.S.$7 million. Another way of emphasizing the growing importance of coffee exports is to compare 1938 receipts with those which may reasonably be assumed for 1953, for example. In the former year, receipts were U.S.$50 million for exports of 4662Q00 bags at an average of 11 cents a pound. In 1953, if exports reach 6.5 million bags at an average of 43 cents a pound, total receipts would be about U.S.$369 million. We most definitely are not attempting to forecast the future price of coffee. The significant point, however, is the overwhelming impor- tance to the economy of Colombia of changes in the price and in the quantity of coffee exported. Exchange authorizations are dominated by those for payments in connection with the importation of merchandise-88 percent of the total in 1948. Government debt service, the next most important cate- gory, accounted for only 3 percent. While useful, a study of exchange receipts and exchange authori- zations gives an imperfect picture of Colombia's international trans- actions. The two concepts are not wholly comparable. Further, the data on receipts and authorizations exclude, or present a misleading picture of, several important items in Colombia's international trans- actions. For example, Colombia's second most important export, petroleum, is not directly included. Substantial imports of machinery and products for sale by the petroleum companies are ignored. Also ignored are imports paid for out of new capital raised abroad, etc. No account is taken of loans by the Export-Import Bank and of subscrip- tions to the International Monetary Fund and the International Bank. The data presented do not by themselves shoxv changes in Colombia's 312 THE BASIS OF A DEVELOPMENT PROGRAMI FOR COLOMBIA exchange reserve. Further, the figure for inward transfers of foreign exchange by petroleum companies is misleading if taken as a measure of the inflow of petroleum capital into the country. In an attempt to meet these difficulties, a balance of payments statement for Colombia has been constructed. The technical problems encountered in this task would be of only secondary interest to the general reader, and are therfore presented in an Appendixl which will be of particular interest to the specialist. A condensed version of the balance of payments for the years 1938, 1946-1948, and the first half of 1949 is presented in Table 114. This table brings out the very TABLE 114 CONDENSED STATEMENT OF COLOMBIA's BALANCE OF INTERNATIONAL PAYMENTS, 1938-49 Credit (+) and Debits (-) (millions of U.S. dollars) Jan.-June 1938 1946 1947 1948 1949 Merchandise exports ...................... +81 +201 +254 +286 +131 Merchandise imports ........... ......... - 89 -230 -364 -346 -143 Trade deficit.8 - 29 -110 - 60 - 12 Gold production. +18 + 15 + 13 + 12 + 7 Other current account. -181 -29 - 33 -29 - 27 TOTAL CURRENT AccOUNT - 8 - 43 -1292 - 77 - 32 Capital imports by petroleum com- panies . .............................. + 43 + 29 + 26 + 23 - 2 Other capital movements in foreign exchange . .4 + 11 + 6 - + 5 Export-Import Bank and other loans not involving foreign exchange.... ...... - + 5 + 3 + 6 + 2 Gold and U.S. dollar subscriptions to IMF and IBRD .............................. - - 1 - 12 Increase (+) in arrears of foreign payments (incomplete) ......... ......... 4 + 3 + 5 - 2 + 15 Decrease (-) in exchange reserves.... -6 + 2 + 65 + 29 + 7 TOTAL CAPITAL ACCOUNT ...... 2 + 502 + 922 + 572 + 262 Errors and omissions .......................... +10 - 7 + 37 + 20 + 6 l Includes capital debits but includes no credits as data are not available. 2 Differs from the sum of the constituent items because of rounding. 3 Based on rough estimates. See Appendix H. 4 Not available. I Appendix H.  TEE INTERNATIONAL ECONOMIC POSITION OF COLOMBIA 313 substantial expansion in exports (including petroleum) in the postwar, as contrasted with the prewar, period and the even more substantial expansion in imports. As an indication of the magnitude of Colombia's trade, it may be noted that, over the twenty-five year period 1924 to 1948, imports amounted to nearly Ps.$4.5 billion, or nearly U.S.$3 billion at current rates of exchange. Exports are dominated by coffee and petroleum, respectively 77 and 16 percent of the total in the first half of 1948. Imports, by contrast, cover a wide variety of com- modities with no dominant items. As shown in Tables 115 and 116, there has been a marked change as contrasted with the prewar period in both the destination of exports and the source of imports. The United States now takes more of the exports and supplies more of the imports than previously, while Europe's participation in Colombia's trade has declined markedly. TABLE 115 PERCENTAGE DISTRIBUTION OF COLOMBIA'S EXPORTS BY DESTINATION, 1938-48 Jan.-June 1938 1945 1946 1947 1948 United States ................... 52.7 78.2 81.9 84.4 82.5 Europe ................... 24.6 3.3 4.6 5.0 5.2 Central America & Antilles... 12.2 4.8 5.3 5.2 8.4 Canada .9.8 9.8 5.3 3.1 2.7 South America .0.6 3.1 2.8 1.8 1.2 All other counltries ..... ... 0.1 0.8 0.1 0.5 - 100.0 100.0 100.0 100.0 100.0 TABLE 116 PERCENTAGE DISTRIBUTION OF COLOMSBIA'S IMPORTS BY SOURCE, 1938-48 Jan.-June 1938 1945 1946 1947 1948 United States .......... .... 51.2 67.7 68.8 72.3 73.6 Europe .............. ..... 44.8 6.3 11.3 14.4 14.3 Central America & Antilles 1.1 5.0 4.3 2.9 2.3 Canada ...... ........... .. 1.0 2.1 2.6 2.2 1.9 South America .......... ...... 1.4 18.9 12.9 7.6 7.6 All other countries ........ ..... 0.5 - 0.1 0.6 0.3 100.0 100.0 100.0 100.0 100.0 There has been a considerable absolute decrease in the contribution of newly mined gold to Colombia's exchange receipts since before 314 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA the war, as is evident in Table 114. In 1938, production was reported as valued at U.S.$18 million. It rose to U.S.$22 million in 1941 and then dropped to U.S.$12 million in 1948. Some rise occurred in the first half of 1949 when production was reported at U.S.S7 million. The changed significance of newly mined gold in the balance of payments can be seen from its changed relation to the trade deficit. In 1938, gold production was more than double the trade deficit. In the first half of 1949, the deficit was a slightly smaller fraction of imports or exports than in 1938 but, in the later period, gold production offset only a little more than half of the trade deficit. The treatment of petroleum in the balance of payments gives rise to peculiar problems. Included in merchandise imports are petroleum- producing equipment and supplies at an estimated value of U.S.$26 million in 1948, and petroleum products for sale estimated at U.S.$12 million in 1948. The companies, all of which are foreign owned, pur- chased these goods with their own (external) resources, i.e., without drawing on Colombia's foreign exchange reserves. Equivalent amounts may, therefore, be regarded as imports of capital into the country. At the same time the companies have transferred funds in dollars to Colombia. Such transfers, amounting to U.S.$35 million in 1948, should also be recorded as part of the capital imports by the companies. These three items, therefore, mean that in 1948 the petroleum companies accounted for gross imports of capital of U.S.$73 million. This amount, however, cannot be regarded as the actual net contri- bution of the petroleum companies to the Colombian economy, or as the net capital inflow. The value of crude petroleum is included in recorded merchandise exports as shown in the balance of payments. But the companies do not return these sums directly to the country, although they may return them indirectly in the form of merchandise and inward transfers of foreign exchange. In 1948, exports totaled almost 19 million barrels, valued at U.S.$48 million. An equivalent amount thus is in the nature of an export of capital, and must be offset against the gross imports of capital amounting to U.S.$73 million in the same year. A further offset is to be found in the small remittances of foreign exchange which the Tropical Oil Company has been allowed to make from Colombia. For 1948, these remittances are understood to have been about U.S.$2 million. 2 Total offsets to gross capital imports by the petroleum companies thus amounted to 2 To the extent of such remittances, the statement in the previous paragraph that the companies purchased the goods which they imported out of their own (external) resources may be technically incorrect.  THE INTERNATIONAL ECONOMIC POSITION OF COLOMBIA 315 U.S.$50 million in 1948. It follows, therefore, that the net capital im- ports by the petroleum companies were U.S.$23 million. This is the amount shown in the balance of payments. As an indication of capital imported into (or invested in) Colombia, it would appear to be much more meaningful than the inward transfers of foreign ex- change in the exchange receipts statement. 3 Since 1946, net capital imports into Colombia by the petroleum companies appear to have been declining. Decreases in 1947 and 1948 were occasioned by the rising value of crude oil exports, caused chiefly by rising prices. This more than offset increases in the items con- tributing to the gross infiow. In 1949, the decline has been greatly accelerated. In the first half of the year, transfers of funds to Colombia were at an annual rate of only 76 percent of 1948; imports of equip- ment and supplies, 86 percent; and imports of petroleum products for sale, 73 percent. Meanwhile, rising quantities increased the value of exports of crude oil to an annmal rate of 122 percent of those in 1948 and there appears to have been an increase in the rate of exchange remittances. On the basis of these data, the U.S.$23 million capital inflow in 1948 was replaced by a capital outflow of U.S.$2 million in the first six months of 1949. This disappearance of a previously important source of foreign capital was due partly to a rise in exports of crude oil, i.e., to an increase in exports which did not produce foreign exchange. But there has also been a sharp drop in the inward transfers of funds and imports of merchandise. The petroleum companies are tending to withdraw from Colombia. This is true not only of the Tropical Oil Company, whose concession lapses in 1951, but also of others. Exploration work is being reduced. The reduction in the importation of equipment and supplies has no immediate balance of payments effect. Lower inward transfers of funds by the companies, however, mean a decline in an important source of foreign exchange-12 percent of the total in 1948. Lower imports of saleable merchandise may mean less petroleum products for sale to Colombians. The balance of payments summarized in Table 114 has fairly large "errors and omissions" items, necessary to make the payments balance or add up to zero. This matter is considered in Appendix H. Here it may be noted that one contribution to "errors and omissions," 3 The basis of the balance of payments figures is somewhat incomplete because the figures for capital imports do not include certain non-petroleum products, such as automobile tires, brought in for sale by the companies. And as a more or less complete offset, deductions have not been made on account of exports of petroleum products other than crude oil and on -account of the re-export of equipment or the proceeds from its sale. 316 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA and a serious defect in the balance of payments statement, resulted from the lack of data on the use of non-reimbursable import licenses. Such licenses have enabled importers to bring goods to Colombia using funds originating abroad, or perhaps acquired in the black market, and have been issued in the amounts of -U.S.$10 million in 1946, U.S.$60 million in 1947, U.S.$32 million in 1948 and U.S.$8 million in the first half of 1949. Their use represents an offset to imports and should therefore be shown in the balance of payments as an import of capital. While account is taken of such credits in the case of imports by the petroleum companies, and as a result of Export-Import Bank and similar loans, data are not available to de- termine the extent of other uses of non-reimbursable import licenses. This means that in certain years, perhaps particularly in 1947, the "errors and omissions" figure is larger than it would be if these data were available. Another shortcoming in the balance of payments statement arises from the incomplete nature of the data used to show changes in the arrears of foreign payments for Colombia's imports. Changes in these arrears belong in the capital account. An increase in the arrears, for example, means that goods have been imported (balance of pay- ments debit) without an offsetting outflow of foreign exchange (credit). The increase in arrears should therefore be shown as the offsetting credit. Complete exchange control data on payments arrears, however, became available only in April 1949, after which time applications for exchange registered with the Office of Exchange Control rose to U.S.$45 million. The data used in the balance of payments show the change in untransferred foreign collections of commercial banks, and cannot be regarded as completely representing the change in arrears. Despite the shortcomings of the method employed, the various receipts and payments items in the balance of payments indicate decreases in exchange reserves in 1947, 1948 and January-June 1949. Such decreases did, in fact, occur. In addition, there apparently wvere some exchange receipts not disclosed by available official data in each of these years (included in "errors and omissions"). This is indicated by the fact that the excess of exchange sales over exchange receipts was apparently greater than the loss of reserves-by U.S.$10 million in each of the years 1947 and 1948, and by U.S.$4 million in the first half of 1949. In 1946 foreign exchange reserves decreased by U.S.$2 million as a result of an increase of foreign liabilities of commercial banks. In 1947, the sharp rise in the trade deficit and the payment of the  THE INTERNATIONAL ECONOMIC POSITION OF COLOMBIA 317 gold subscription to the International AMonetary Fund resulted in a decrease of U.S.$65 million, almost entirely out of Central Bank gold reserves. Largely as a result of reduced trade deficits, the decline was reduced to U.S.$29 million in 1948 and to U.S.$7 million in the first half of 1949. But while the rate of decline in exchange reserves decreased, the gold and foreign exchange holdings of the Central Bank fell to what were regarded as dancerously low levels. At the end of April 1949, they fell to U.S.$63 million, not including the subscription to the Fund. This level was regarded as the minimum below which reserves could not be allowed to fall and increasingly severe exchange control measures wvere introduced to prevent a further deterioration. Subse- quently, reserves rose to about U.S.$87 million at the end of July 1949, then declined somewhat, but rose to about U.S.$127 million as of January 31, 1950. A final unavoidable defect in the balance of payments statement is the omission of unrecorded illegal exports and imports. We have no mealns of estiliiatinig the magnitude of such movements, although we have been assured by competent observers that the traffic is substan- tial, particularly to and from Venezuela. COLOMBIA'S TERMS OF TRADE Prior to the increase in coffee prices in the autumn of 1949, there was sometimes expressed in Colombia the view that the terms of trade had deteriorated considerably. On a prewar base (1937 or 1938), this does not appear to be borne out by available evidence, although the resuilt depends very largely on the year chosen as a base. An indication of the changes which have taken place in Colombia's export and import prices is given in Table 117. In 1948 and in the first half of 1949, the relative price of Manizales coffee in New York stood at 295 on the base of 1938 = 100. On March 7, 1950, the index stood at 455. For most practical purposes, this index of the price of coffee may be taken as representative of Colombian export prices, since coffee constitutes such a high percent- age of total Colombian exports. In the first half of 1948, coffee represented 77 percent of total exports and 91 percent of exports directly yielding foreign exchange to Colombia, i.e., exports other than crude petroleum. Although they are of limited significance, price indexes for petroleum, Colombia's second ranking export, are also shown in, the table. 318 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA Prices of Colombia's imports apparently have not risen since 1937 or 1938 by nearly so much as the prices of her exports, even before the increase in coffee prices in the autumn in 1949. This table showvs unit value indexes of exports from the United States, wvhich source supplied 74 percent of Colombia's total imports in the first half of 1948. In 1948, the unit value index for total U.S. exports stood at 206 (1938 = 100); in the first half of 1949 it wvas 198. Insofar as U.S. export prices represent the prices wlaich Colombia has to pav for her imports, it is apparent that prices of her exports have risen considerably more than her import prices. TABLE 117 COLOMBIA'S TERMS OF TRADE, 1937-49 Jan.-June 1937 1938 1946 1947 1948 1949 Exports: Coffee- Manizales, in N. Y., ¢ per lb. 11.6 11.0 21.8 30.1 32.5 32.5 Price index (1938=100) ...... 105 100 198 274 295 295 Coffee as Cc of total exports. 65 61 77 77 771 - Petroleum- Crude oil, Oklahoma-Kansas wells, ¢ per bbl. .... 116 112 131 184 251 251 Price index (1938=100) 104 100 117 164 224 224 Colombia's exports, unit value, ¢ per bbl. 113 112 135 190 254 249 Unit value index (1938=100). 101 100 121 170 227 222 Petroleum as to of total exports 23 26 12 15 161 - Irmpjorts: Imports from U. S. as % of total . 48 51 69 72 741 - Total unit valuie of LT. S. exports in- dex (1938=100)2 .108 100 163 194 206 198 Crude Materials . 113 100 183 213 245 234 Crude Foodstuffs 123 100 233 267 283 252 Maniufactured Foodstuffs . 116 100 191 237 243 199 Semi-manufactures .114 100 137 177 194 188 Finished Manufactures . . 101 100 154 181 191 187 1 First six months. 2 Constructed from index based on 1923-25=100. Only in the case of crude foodstuffs have U.S. export prices approached those of Colombia in recent years. In 1949, howvever, the price of Colombian coffee rose but the U.S. crude foodstuffs unit value index declined. On the 1938 base, the index for Colombian coffee stood considerably above that for U.S. crude foodstuffs in the first half of 1949. While Colombia does import some foodstuffs, a much  THE INTERNATIONAL ECONOMIC POSITION OF COLOMBIA 319 larger proportion of her imports falls into the categories of semi- manufactures and finished manufactures, the great bulk of which come from the United States. During 1948 and the first half of 1949, the unit value indexes of U.S. exports of these commodities have hovered around 190 on a base of 1938 = 100. Roughly, therefore, it would appear from these data that, prior to the recent sharp increase in coffee prices, the average price of Colombia's exports had about tripled since 1938 and the average price of her imports had increased to a consid- erably smaller extent-probably not much more than doubled. The feeling that Colombia's terms of trade have deteriorated was partly based upon a comparison of the price of Colombia's exports with the price at which imported goods sell in Colombia. A consider- able markup is placed upon imported goods sold in the Colombian m .ar1ef7-sfar as the individual Colombian consumer is concerned, it may be true that the prices which he paid for imported commodities, at least until recently, had increased more since the prewar period than had the price of Colombia's exports. For the Colombian economy as avwhole, however, a substantial improvement in the terms of trade appears to have taken place. INTERNATIONAL INDEBTEDNESS AND INVESTMENT Data on Colombia's international indebtedness and assets held abroad are far from complete. About the only statistics on foreign investments, exclusive of external holdings of public obligations, are those shown in Table 118. The figures in this table are not to be taken TABLE 118 FOREIGN CAPITAL INVESTED IN COLOMBIA AND REGISTERED WITH THE OFFICE OF EXCHANGE CONTROL, JUNE 1947 (thousands) Insurance companies U.S.$ 957 Gold and platinum mines .... .......... 25,392 Banks .... .... 3,238 Stocks and bonds.................... .......... .... 14,075 Petroleum companies 189,885 Other industries .. ....... . ....... . 17,779 Miscellaneous .......... .... . .. 549 Total ........... ..... U.S.$251,876 as a complete statement of foreign capital invested in Colombia. They do not include external holdings of public obligations, although they do include some imported capital which has been invested in bonds of Colombia's internal and external debt. But the data are incomplete even as to foreign capital investment outside of the Government 320 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLONIBIA sphere. They cover only the amount of capital imported into Colombia and registered with the Office of Exchange Control, such registration facilitating the transfer of dividends and subsequent re-export of capi- tal. The practice of registering capital was begun only in 1945 and it is, therefore, doubtful that completely accurate information was ob- tained on the balance of foreign investment at that time. In any consideration of foreign investment in Colombia, it should be stressed that a very substantial part of such "investment" does not, and will never, constitute a drain on Colombia's foreign exchange resources for its repayment. A vcry substantial part of the imported capital has gone into industry - petroleum, gold mining, textile manufacturing, etc. Much of this capital wvill probably remain in the country indefinitely. This is less true in gold mining vwhere amortization payments are made. But only partial capital withdrawal is to be expected in the case of the vast foreign investment in the petroleum industry. It is calculated that, in the years 1921 to 1948, the Tropical Oil Company imported about U.S.$145 million in the form of foreign exchange and equipment. As far as the company is con- cerned, "vithdrawals" have been made out of the proceeds of the sale of crude oil. But in 1951, Tropical is required to turn back to the Government its concession and its refinery-as going concerns. TI he company will retain its retail outlets but the present value of the concession and refinery is not to be re-exported. Even more important, many petroleum companies have spent huge sums on exploratory and developmental work, with little or no return. It has been estimated that, from 1936 to 1948, all petroleum companies imported materials to the value of about U.S.$170 million and that, from 1944 to 1948, they brought in about U.S.$160 million in cash. Much of these imports, having been unproductive, can be regarded todav neither as capital invested nor, in any sense, as obligations which may have to be met out of Colombia's exchange reserves. An atmosphere and economic environment unfavorable to exten- sive foreign private investment appears to have developed in Colombia. This atmosphere is compounded of a number of elements. For one thing, there has been a distrust of the permanence of the present exchange rate. Of greater significance has been the uncertainty created by the numerous laws and regulations that might be applied to foreign capital and the frequency with which these regulations are changed. The actual treatment of capital may be fair, as it appeared to be in mid-1949 but, in addition to the many conditions which must at present be fulfilled, there was an intimidating array of potential rules and restrictions hanging over the head of the for- eign investor.  THE INTERNATIONAL ECONOMIC POSITION OF COLOMBIA 321 It is not possible to generalize as to present practices because they vary from case to case and because there may have been changes since the time of our investigation. In many cases, reasonable pay- ment of dividends abroad appeared to be approved, although some- times there have been considerable lags between the application and the actual remittances. On the other hand, examples were found of companies which had had considerable difficulty in obtaining authori- zations to remit profits. Such difficulties appear to have arisen par- ticularly in the cases of recently established companies which have had to contend with almost endless red tape in trying to establish that their capital was legally imported. Applications pending for periods of over a year appeared to exist. The general attitude as to dividend payments, however, appeared to be reasonable within the limits of the general exchange control situation. Similarly, there did not seem to be any indication that domestic companies were favored over foreign companies in the granting of import quotas or licenses. It is even more difficult to generalize about the Colombian attitude toward the re-export of capital. Most industrial companies have been increasing their investment rather than reducing it. This suggests that they are reasonably satisfied with their treatment. It also means that they did not know how they would be treated if they sought to re-export capital, since the problem had not arisen. Investment has been increased by the companies' plowing back profits. Amorti- zation has, to some extent at least, been dealt with through the im- portation of new machinery-and import licenses could be obtained for this. A problem of a somewhat different nature arises from the political attitude of certain groups toward foreign companies. Foreign-owned enterprises have sometimes been regarded as convenient political and propaganda targets. Labor in foreign-owned industries has been par- ticularly strongly organized and it has been felt that on occasion their demands have been excessive and their attitudes unreasonable. For these and related reasons, there has recently been little dis- position for new foreign private capital to enter Colombia, despite the many favorable opportunities that exist. As shown in Table 119, the total external public debt outstanding and authorized amounted on December 31, 1949 to U.S.$146 million, of which about U.S.$23 million had not yet been utilized. The major portion of the debt consists of dollar obligations, the new Republic 3's due 1970 (U.S.$42 million) and the departmental and municipal 3's due 1978 (U.S.$41 million). These two bond issues are the new  TABLE 119 COILOMBIA s EXTERNAL DEBT, 1949-1950 Interest Date of Date of Outstanding Rate % Issue Maturity End of 1949 End of 1950 Purpose (thou sands ) 1. PUBLIC DOLLAR BONDS Republic of Colombia ..................... ... .................. 3 1941 1970 U.S.$ 41,710 U.S.$ 39,734 For refunding old bonds Departmental & Municipal ........................................ 31 1949 19781 40,825 39,600 (see Appendix H for City of Barranquilla ................................. ....... 1939 1964 1,345 1,227 original use of funds). TOTAL .. . .......... ..... .. ........ ................ ..... 83,880 80,561 2. OTHER DOLLAR DEBT Treasury Notes .3 ..... ...... ...... ............... .3 1949 1952 7,650 5,100 Settlement of previous indebtedness Maritime Terminal at Barranquilla .6 399 399 Docks at Buenaventura 250 250 Central Telephone Co. Bonds 2,778 2,788 TOTAL .... .... ..-. ....... 11,077 8,527 3. EXPORT-IMPORT BANK Outstanding .312 19593 22,302 29,759 Materials, machinery and services Undisbursed .42 17,431 5,687 R.F.C 28 - O.F.L.C . . . 23/s 1946 1951 273 137 TOTAL INTERGOVERNMEFNTAL DOLLAR DEBT . .. 40,034 35,583 4. I.B.R.D.-Disbursed .......... ................................ 3 V2 1949 1956 _ 3,833 Undisbursed 5,000 1,1674 5. Total Other Dollar Debt 56,111 49,110 6. Total Dollar Debt 139,991 129,671 Of which undisbursed 22,431 6,854 7. STERLING BONDS Republic of Colombia (i1,422)2 ................. ............. 3 1972 3,983 Agricultural Mortgage Bank (L795) ...................... 31 2,227 5,826 TOTAL STERLING BONDS 6,210 5,826 GRAND TOTAL-including undisbursed 146,210 135,497 excluding undisbursed . 123,779 128,643 3 Estimate based on the expiration dates of t e individual loan contracts.  THE INTERNATIONAL ECONOMIC POSITION OF COLOMBIA 323 securities offered in exchange for the old debts under the permanent debt adjustment plans of 1940, 1946 and 1949. The second major category of debt is intergovernmental loans from the U.S. Govern- ment, mainly in the form of funds received from the Export-Import Bank. As of December 31, 1949, U.S.$22 million were outstanding and U.S.$17 million authorized but undisbursed; it is expected that the undisbursed amount will be drawn by 1951. The remainder of the debt is accounted for mainly by U.S.$7.6 million Colombian Treasury 3-percent notes held by New York banks in settlement of older obligations, the International Bank loan of U.S.$5 million, and U.S.$10 million of miscellaneous loans of which about one-half are payable in sterling. The debts call for interest and amortization payments as shown in Table 120. This table exclucdes payments on certain issues with TABLE 120 CONTRACTUAL CHARGES ON COLOMBIA's EXTERNAL PUBLIC DEBT, 1950-70 (thousands of U. S. dollars) Year Outstanding Amortization Interest Total 1950 133,700 8,539 4,257 12,796 1951 . ... . 130,500 8,929 4,177 13,106 1952 . ..... ... 120,800 10.145 3,895 14,040 1953 ....... 108,500 7,769 3,473 11,242 1954. 98,400 7,391 3,121 10,512 1955 88,300 7,065 2,774 9,839 1960 44,600 3,567 1,366 4,933 1965.16,900 1,325 519 1,844 1970 200 127 8 135 principal of U.S.$3.4 million outstanding, on which details of service requirements are not known; however, based on the assumptioln that this debt will be paid off over a five-year period, the resulting charges would amount to nearly another U.S.$1 million, bringing the total external debt charges to U.S.$13.5 million in 1950. On the other hand, unquestionably some of the dollar bonds are held wvithin Colombia, which would reduce U.S. dollar requirements for servicing. In the case of the dollar bonds, it has been estimated that the bonds will be bought in the market considerably under par, so that each U.S.$1,000 spent on amortization will reduce the face amount of debt outstand- ing by more than that amount. In view of the fact that much of Colombia's foreign debt is refinanced at a low interest rate, the burden on Colombia to service debt is relatively light. 324 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA Little information is available on Colombian investments abroad. However, it is believed that Colombian private assets in the United States amount to a significant figure. Transfers of funds to the United States have in many cases been illegal so that the assets are held in ways not readily identifiable as Colombian. Foreign assets may be acquired through the outright purchase of funds in the black market or through the overvaluation of imports. In addition, contra- band exports may yield foreign exchange. We have no means of knowing how large such assets may be. In any case, they constitute a hidden offset to Colombia's foreign obligations. EXCHANGE RATES AND EXCHANGE CONTROLS In an effort to curb the rapid postwar decline in exchange resources, Colombia instituted a system of multiple exchange rates, depreciated the peso from 1.75 to 1.95 per U.S. dollar in 1948, and has made increasingly severe the exchange controls over imports and other transactions involving international payments. Of these three devices, exchange control has been much the most important in curbing the decline in exchange reserves. The depreciation of the Colombian peso in December 1948 may have had some effect in tending to restore balance to Colombia's international accounts, but that effect appears to have been very slight. There is no evidence that it had any appreciable influence on exports wlhich wrere, in U.S. dollars, at a smaller annual rate in the first half of 1949 than in 1948. Also the inflow of capital apparently fell off considerably. Imports have been reduced, but that reduction apparently resulted from the increasingly severe application of im- port controls rather than from falling off of demand. The deprecia- tion did little to correct the disparity between Colombian selling prices and the much lower costs of imported commodities. This dis- parity has been a most important source of the excess demand for dollars and is the justification of exchange control. In addition to the official rate of exchange, there are numerous other rates applicable to exchange payments. These rates arise from the practice of imposilng varying tax rates on imports of different types of goods and otn other payments. Further, in order to check the decline in gold production, a system of gold certificates was introduced at the beginning of 1948. These certificates were made usable for certain types of payments and could be bought and sold on the stock exchange at rates deterimined by market forces. In the middle of 1948, they were replaced by exchange certificates and were made applicable. in addition to part of the proceeds from gold produc-  THE INTERNATIONAL ECONOMIC POSITION OF COLOMBIA 325 tion, to proceeds from minor exports and from certain invisibles. They have always sold at substantially above the official rate-e.g., dollar exchange certificates averaged Ps.$3.20 per U.S. dollar in August 1949. In addition, exchange taxes apply to most payments through the use of certificates. Thus, in the middle of 1949, a system of considerable complexity had arisen. It was possible to distinguish at least twelve different mnajor rates on different types of transactions, which ranged from Ps.$1.95 to Ps.$3.86 per U.S. dollar. 4 In addition, there was the black market rate which varied daily. A more detailed account of this complicated rate structure is presented in Appendix I. The exchange certificate system was introduced primarily to assist the gold mines, many of which were closing or threatening to close in 1947. Some success was achieved in meeting this situation up to mid-1949. The decline in gold production was arrested and recorded output rose from 159,000 troy ounces in January-June 1948 to 176,000 troy ounces in July-December 1948, and to 191,000 troy ounces in January-June 1949. But this expansion was not maintained in the second half of 1949 when recorded output fell to 168,000 troy ounces.5 Even at its expanded levels, however, the amount of gold produced and sold through official channels under the certificate system has been considerably below prewar levels, being kept down by leakages into the black market and reluctance of operators to expand under exist- ing circumstances. Despite the premium given by the exchange certificate system, contraband exports of gold were rep.orted to have reached considerable proportions by mid-1949. Purchasers for illegal export can afford to pay higher prices since the legal price is based upon U.S.$35 an ounce and somewhat less than the certificate rate, whereas the black market price is based on more than U.S.$35 an ounce and the black market exchange rate, generally above the certificate rate. In the middle of 1949, according to competent observers, more than 40 percent of Antioquian production was going into the black market. Antioquia produces over half of the recorded national total. Also substantial smuggling is believed to take place from other regions. In addition to being unable to compete with the black market, legitimate operators appeared, in some cases at least, to be reluctant to expand their own operations. Operating costs were said to be very high. Further, some producers felt uncertain that they w7ould con- 4 Certificate rate, taken at 3.20, plus 34 percent (of 1.95) tax. 5 Recorded output in January 1950 rose to 39,800 troy ounces, as compared with 32,500 troy ounces in January 1949 and 32,100 troy ounces in January 1948. 326 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA tinue to have access to the certificate market in its present form. Thus it was felt by some that the legitimate gold mining industry was just holding its own under the certificate system. As regards the stimulation of minor exports, the introduction of the exchange certificate system does not appear, by mid-1949, to have had significant effects. In the first half of 1949, such exports returned exchange only to the value of U.S.$1.3 million. Regardless of the exclhange produced by similar exports in earlier periods, this cannot be regarded as significant. A possible reason for the failure of minor exports to expand in the face of such a substantial premium is to be found in the nature of Colombian export regulations. Small exporters may find it difficult to arrange for the 40 percent export guarantee. Also it has been charged that Government export licensing policy has been unnecessarily restrictive in keeping down such exports. A serious effect of the exchange certificate system has been a tendency to undermine faith in the official exchange rate structure. No matter how limited the scope of a so-called free market, there is generally a strong tendency to regard it as representing a closer approach to an equilibrium or "realistic" rate than does the restricted official market, no matter how small the restrictions. In Colombia's case, restrictions of the official market have not been small, and it is not surprising that the certificate rate has been taken as indicating a substantial overvaluation of the peso at the official rate. As long as the authorities seek to hold the present official peso rate, the existence of a substantial premium in the certificate market makes their task more difficult. On the import side, the high certificate rate has probably been a factor in curbing the demand for the importation of machinery and parts for which certificates have largely been used, at least during the first half of 1949. However, in the first half of 1949. imports involving the use of exchange certificates were only about 8 percent of total imports. With regard to the system of exchange taxes, it seems unlikely that they had much effect in curbing imports. The differential character of the taxes, in particular, apparently was of little significance. Almost all of the import licenses issued in the first half of 1949 fell into the "Group I" category which bore a 10 percent exchange tax. V;ery little exchange was allotted for imports in the other groups with higher import tax rates. Even apart from the differential nature of the exchange tax sys- tern, the existence of taxes which raised the selling rates of exchange above the buving rate apparently did not significantly curb the demand for imports. Colombian prices have been far above those at which  THE INTERNATIONAL ECONOMIC POSITION OF COLOMBIA 327 imports could be obtained with official exchange. Tremendous profits could be made from the importation of goods, even with the payment of exchange taxes. As an illustration of this, there is some traffic in import licenses for the purpose of buying luxury goods and the reported price in mid-1949 was almost invariably Ps.$1 per U. S. dollar. This rate is above any of the exchange taxes-and the importer would still have to bear the tax. Of course, the taxes may reduce the demand for certain commodities. But, in general, the tax applicable to most imports has been too small to act as a significant curb and main reliance has been placed on the system of direct controls to keep Colombia's imports in line with its ability to pay. In addition to the complexities arising from the system of multiple rates, much greater complexity has resulted from the system of con- trol over the granting of foreign exchange. The nature of the system as it had developed up to the autumn of 1949 is indicated below, with particular reference to how it affected imports. The use of foreign exchange for the importation of commodities into Colombia has been restricted at a number of points, and the acquisition of exchange involved at least six steps. In the first place, importers were classified as "industrial," "commercial" or "official," and each importer was granted an import quota covering a certain period. The second step was the assignment or allocation of import quotas. This was the establishment of a maximum percentage of an importer's total quota against which import licenses could be obtained in a particular part of the quota period. It was generally on a differ- ent basis for each of the three classes of importers and might place certain limits on the goods to be imported. Third came the granting of the import license for a particular importation of goods. The fourth step in the process was the registration of the debt by the importer with the Office of Exchange Control. This required the presentation of certain documents, such as the commercial invoice and the Customs House manifest. Debts registered were then tabu- lated by the Office. Fifth came the granting of an exchange authoriza- tion by the Office of Exchange Control. This authorization is a license to purchase foreign exchange and was granted in favor of a debt registered with the Office. The sixth step, which followed the author- ization after a one- to three-week lag during which the red tape was cut, was the actual remittance of foreign exchange by the importer. Quotas-considerably scaled down from applications-were granted for the twelve-month periods July 1947-June 1948 and July 1948-June 1949. The next quota period was for the six months July-December 1949, but no quotas were granted. Thus allocations during the period 328 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA were based on previous quotas. Quota allocations wvere for varying periods-generally for two months after August 1949. In some periods, however, general allocations were not made and in no case (at least since July 1948) were they sufficient to exhaust the quotas if continued at the same rate throughout the quota period. In April 1949, the fourth step, the registration of debts with the Office of Exchange Control, wvas introduced and it was further decided that exchange authorizations would be limited to exchange receipts by the Banco de la Repdblica in the previous week. This was followed by the building up of considerable arrears of debts for which exchange authorizations had not been granted. These arrears, on June 30, 1949, amounted to US.$45 million. Another April 1949 decree set up a priority system according to which exchange authorizations were to be granted. Developments reported in the month of November 1949 illustrate the complexity of the changes occurring within the system. Quota allocations were made for the following two months (actually 2'2 months); provision was made for imports of Group I raw materials by new industries without basic quotas;' a regulation covered the import of books; U.S.$5 million were made available for the importa- tion of trucks and buses; provision was made for further imports of drugs in excess of basic quotas: an extra-quota allotment was given to commercial importers to cover imports for the Christmas season; and U.S.$3.5 million were earmarked for commercial importers who had suffered damage during the disturbances of April 9 to 15, 1948. In the same montlh, there were also teported an increase in import quotas for a number of Group I and Group II commodities, the freeing of 69 commodities from quota restrictions, the broadening of the use of exchange certificates to include payments for certain luxury goods and certain non-merchandise remittances, and a resolution setting forth the conditions under which official exchange would be grantecl for medical treatment abroad. Appraisal of the Exchange Control System The vigor with which controls over imports and other payments were applied during 1949 seems largely to have achieved their imme- diate purposes of wiping out arrears of payments and preventing further declines in Colombia's gold and foreign exchange resources. According, to the Office of Exchange Control, the arrears of debts registered with that Office declined from U.S.$45 million on June 30, 1949, to zero on October 1. There is some question whether the actual improvemeent was as great as this statement would indicate,  THE INTERNATIONAL ECONOMIC POSITION OF COLOMBIA 329 but it seems certain that the bulk of arrears were wiped out. It is unfortunate that they were allowed to arise originally, since they have, damaged Colombian credit abroad. The improvement in Colombia's payments position and in her exchange reserves was at the expense of the maintenance of a highly restrictive system of control, which had certain damaging effects on the functioning of the economy and gave rise to numerous complaints. The complicated and detailed character of the system inevitably has imposed a heavy burden on the administrative agencies concerned. as well as on the businessmen who have had to operate under it. The successive steps required to obtain authorization for imports and remittances of exchange have been described above. The number of these steps, and the red tape required at each point, seem unduly onerous. Apparently, the Office of Exchange Control did not establish general rules which would permit applications to be handled auto- matically or as a matter of routine; each application was reviewed as an individual case and was subject at each step to discretionary action by the Office of Exchange Control. Importers complained that it was consequently necessary to send senior executives to the Ex- change Control to battle with the crowds and push their applications through personally, because they could not rely on the applications' being properly considered otherwise. This has been a particularly serious problem for firms located outside of BogotA. In the absence of clear general rules, which would permit delegation of adequate responsibility to branch offices of the Exchange Control in other cities, the latter have had to refer almost every substantial question to the head office. It is reported that senior officers of some Medellin firms have had to spend almost all their time for weeks at the BogotA office. In view of the complexity of exchange control regulations and procedures, their frequent changes, and the discretionary way in which they have been applied, orderly business planning has been very difficult. For example, the importer could not tell to what extent his import quota, or even the periodic quota allocation, would assure him access to imported goods. Moreover, in a system of this kind, differences are bound to arise in the treatment of different importers and different classes of importers. Although such differences may sometimes be justified, they inevitably produce complaints from many businessmen that they are treated arbitrarily and unfairly. Much of this dissatisfaction stems basically from the uncertainty and insecurity of importers, and the impossibility of their planning ahead when they must struggle along from allotment to allotment and from license to license. 330 TIIE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA Cases xvere cited of a commercial importer finding it impossible to get licenses for goods in which he dealt regularly, while other importers who did not normally handle those commodities were able to obtain such licenses. In some cases, it was then necessary for the firm wvhich had the license to sell the goods to the firm which had the sales outlets. Such transactions would clearly involve added effort and presumably higher markups to the final customer. Similar defects have been apparent in the granting of licenses for remission of earnings on foreign investments. This is undoubtedly an important deterrent to further investments. In theory, a rigid system of exchange control through individual licensing makes it possible to put a country's foreign exchange re- sources to the most effective use. This implies that the allocation of resources arrived at through conscious and discretionary control is better than that arrived at through the competitive pricing process. It is very doubtful whether in practice the operation of exchange control in Colombia has actually resulted in a better use of foreign exchange resources than would have occurred in its absence. Careful study of imports discloses that the percentage composition of imports in the postwar period, when individual licensing was in effect, variecd little from that prevailing in the prewar period. the main difference resulting from the increased self-sufficiency in finished textiles. For example, the categories "Metallic Manufactures" and "Machinery and Apparatus," representative of capital goods, comprised 29.9 percent of imports in 1937-40, and 30.6 percent in 1945-47. The decline in textile products from 16.3 to 8.3 percent of imports for the same vears was apparently largely offset by greatly increased importation of other consumer goods. Within the categories, the practice of assigning quotas and licenses to established importers has lessened the degree of competition, which in any case is not overstrong in Colombia, has facilitated higher mark- ups and has tended to increase the already considerable inequality in incomes. The allotment of quotas in small fractions has made it difficult to bring in commodities which come in very expensive units. It has been found in many countries that exchange control, origi- nally proposed to conserve foreign exchange resources, becomes in the course of time an instrument for the pursuit of policies not originally contemplated. This appears to have occurred in Colombia. For ex- ample, through the operation of exchange control, a competitive advantage wvas conferred on the Flota Mercante Gran Colombiana, a shipping company xvith capital subscribed by Colombia, Venezuela and Ecuador. This company began in 1947 to accept Colombian pesos  THE INTERNATIONAL ECONOMIC POSITION OF COLOMBIA 331 in payment for inward freight instead of U.S. dollars, as specified by Shipping Conference regulations. Since the Office of Exchange Control required that dollar freight payments be met out of the amount of the import license, the importer was under considerable pressure to ship by Gran Colombiana and pay in pesos. In certain cases, the amount of exchange granted was just sufficient to cover the f.o.b. cost of foreign mechandise, so that the importer was in effect forced to ship by the Colombiana line. Gran Colombiana was able to convert pesos into dollars to meet its dollar expenses. This discrimination gave a great stimulus to freight movements by Gran Colombiana and reduced the freight volume carried by foreign ships. Another example of the apparent use of exchange control machinery for purposes other than limiting international payments is afforded by the treatment of foreign publications. Before the Office of Ex- change Control permitted their importation, it determined the appro- priateness of the publication, thus exercising de facto censorship. The irregular allotment of quotas on import licenses upset the regular inflow of such publications and disrupted their distribution. When the privilege of importing foreign goods becomes a life and death matter for many businesses and spells the difference be- tween the possibility of making high profits or incurring heavy losses, the system of discretionary exchange control is likely to be exposed to great pressures. Despite, however, the innumerable stories and charges of favoritism and influence, there appeared to be a fairly general feeling in Colombian circles that the administration of the exchange control mechanism was, on the whole, honest. It has un- questionably, however, given rise to much discontent. Against the undoubted merit of having conserved Colombia's for- eign exchange resources, therefore, it is necessary to offset these ad- verse consequences. They center largely around the complex, discre- tionary character of the control system, and the uncertainty it has imposed on business operations. EXPORT CONTROL Exports from Colombia have been subjected to a licensing system and to a certain degree of control designed to insure that the exchange proceeds are surrendered to the authorities and that exportation does not denude the economy of necessary goods. This control is exercised by the Ministry of Commerce and Industry. In September 1949, specific approval of the Ministry was required before licenses were granted for exports of certain agricultural products, including cereals, beans, potatoes, oil seeds, cacao, cattle and other livestock, hides, meat, flour, sugar, lard, butter and cheese. Another type of export 332 THE BASIS OF Ak DEVELOPMENT PROGRAM FOR COLOMBIA control results from the minimum prices for exports established by the Office of Exchange Control. Export control appears to have held down the exportation of cer- tain commodities. It may explain the decline in recent years of ex- ports of most of the significant items other than coffee, petroleum, bananas and platinum. As noted above, it has been charged that export control explains at least partly why the application of the ex- change certificate system to minor exports has not resulted in any significant increase in the volume of such exports. On the other hand, control has tended to drive certain exports into illegal channels- augmenting the effect of the attractiveness of obtaining foreign ex- change to be sold at black market rates. As regards insuring that there will be adequate supplies of goods in the domestic economy through export control, it is to be noted that goods for Colombian purchasers can also be secured through facilitating a larger volume of imports. To the extent that export control has reduced exchange re- ceipts and, therefore, made necessary a greater restriction on the volume of imports, the gain to the domestic economy through restric- tion of exports has been offset. CONTRABAND AND THE BLACK MARKET The scarcity of U.S. dollars in Colombia has led to the develop- ment of an illegal or black market for such dollars. In the middle of 1949, the black market rate tended to be about 20 centavos per U.S. dollar above the certificate rate, although this spread has been by no means constant. Contraband exports and imports are important in giving rise to transactions in the black market. Colombia's long and relatively un- guarded borders facilitate these movements. Many people cross the borders of both Venezuela and Ecuador without difficulty and it is understood that considerable amounts of contraband are carried with them. Convoys of trucks are alleged to carry illegal shipments be- tween the Venezuelan border and the interior of Colombia. The con- traband export of gold, alleged to result in considerable receipts of U.S. dollars in the Colombian black market, was considered above. Other illegal exports also produce such receipts, while heavy illegal imports produce demand in the black market. Substantial illegal exports of such commodities as cattle, hides, etc., are understood to take place as a result of export restrictions and the premium obtainable from the sale of foreign exchange in the black market. Contraband exports, however, are not restricted to commodities where export control is severe. It is understood that even coffee is exported without the surrender of exchange proceeds. In  TIIE INTERNATIONAL ECONOMIC POSITION OF COLOMBIA 333 considerable measure, such exports are paid for in U.S. dollars, par- ticularly by Venezuela. In mid-1949, there was apparently a substantial volurne of illegal imports. Luxury commodities, such as American cigarettes and Scotch whiskey, bulked large in the traffic. The disparity between the internal selling price and the external cost of the commodities, made possible because the volume of legal imports was kept down by import restrictions, permitted contraband imports to be sold at considerable profit, apparently high enough to enable the importer to pay black market exchange rates. Tourists and Colombian travelers added to the inflow, and outflow of contraband merchandise. This gave rise to demands for closer regulation of issuance of tourist visas and appears to have postponed the introduction of a tourist card. It would be unfortunate if the po- tential development of tourism in Colombia were to be restricted because a few people have abused the privileges granted to them. In addition to illegal exports, there have been other sources of dollars for the black market (or for holding abroad). One which is believed to have had considerable importance in the past has been the practice of overvaluing imports, with the excess being placed to the importer's credit abroad. Commissions paid to Colombian merchants by foreigners may be deposited to their accounts abroad. To a sub- stantial extent, tourist and commercial traveler expenditures have found their way into the black market. Similarly, the demand for funds in the black market has arisen not only to pay for contraband imports but also from the demands of Colombian tourists going abroad, people wishing to make remittances, and others wishing to acquire assets in the United States. The volume of contraband trade, particularly imports, has given rise to considerable Government concern, numerous conferences, and demands that it be stamped out, but the efforts to do so did not appear to have been very effective by mid-1949. The contraband traffic is closely tied up with the black market in U.S. dollars, which is afforded a degree of toleration. BILATERAL AGREEMENTS In the postwar period, Colombia's exports of coffee and other com- modities to European countries have been below prewar levels in value as well as volume. In 1938, they were valued at U.S.$20 million, but in the first six months of 1948, they were running at an annual rate of only U.S.$13 million. For the latter period, trade with Euro- pean countries (including the United Kingdom but excluding depen- 334 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA dencies) resulted in a Colombian deficit at an annual rate of U.S.$42 million. In an effort to build up exports to Europe, Colombia in 1948 and 1949 entered into bilateral agreements with five European countries: Belgium, Sweden, The Netherlands, Finland and Western Germany. An agreement with France has also been considered, and there have been reports of negotiations with Italy and the United Kingdom. A further agreement was concluded with Ecuador, with the purpose of economizing in the use of U.S. dollars for trade between the two countries. In addition to these agreements covering trade for a given period, agreements covering specific shipments have been concluded by the Instituto Nacional de Abastecimientos, a semi- official trading organization. These cover, for example, exports of rice and imports of copra. The most ambitious of the bilateral agreements is that with Western Germany, negotiated in June 1949 and running until May 30, 1°50, with the possibility of extension. Colombian exports to, and imports from, Western Germany were at an annual rate of less than U.S.$1 million in the first half of 1948. The agreement contemplates raising these figures to U.S.$15 million. 6 Colombia's six bilateral agreements have been entered into by the Office of Exchange Control or the Banco de la Republica. To a considerable extent, the agreements have been aimed at expanding coffee sales. Indeed, the Coffee Growers' Federation acted as an inter- mediary in the negotiations with Finland, and the Netherlands agree- ment specified that it will administer the coffee exports. This role of the Coffee Growers' Federation in Colombia's bilateral agreements contains at least the danger that their object may be to facilitate an increase in coffee exports to Europe even at the expense of other elements in the economy. One agreement, that with Finland, has been the cause of considerable complaints within Colombia. These arose because the prices of Finnish paper were substantially above those at which purchases were possible in the United States and Canada (at least before the depreciation of the Finnish markka in September 1949). In addition, according to one source, a 10 percent commission to the Coffee Federation had to be added to Finnish prices. One Colombian firm publicly asked the Office of Exchange Control to free it from its obligation to buy paper from Finland. In general, however, in the middle of 1949, merchants felt favorably disposed toward the agreements, although they also felt that the system had not been long enough in effect to permit final judgment to be passed. 6 Reportedly increased to U.S.$22 million in November 1949.  THE INTERNATIONAL ECONOMIC POSITION OF COLOMBIA 335 GENERAL APPRAISAL OF COLOMBIA'S INTERNATIONAL ECONOMIC POSITION Colombia's present international economic position appears on the surface to be extraordinarily favorable. Exports in 1948 were 354 percent of those in 1938, while total exchange receipts, including the value of gold production, were 298 percent of the 1938 level, and in 1949 both figures were substantially higher. The terms of trade have moved markedly in Colombia's favor in comparison with the prewar period. Moreover, the overwhelming bulk of Colombia's exchange receipts are from hard currency areas. With the adjustment of its externial indebtedness, the burden of annual servicing charges appears to be light relative to the current and prospective volume of exchange receipts. Colombia's foreign exchange position is largely tied up with coffee. Coffee is one of those commodities that has, in the economist's par- lance, both inelastic demand and inelastic supply. In other words, a considerable variation of price has little effect upon consumption or, except over a long period, upon production. A coffee tree takes about five years to mature and has a life of some forty years. Conse- quently. relatively small variations in supply or demand may cause considerable variations in price. At the beginning of 1950, the statistical position of coffee was strong. While world production has been falling, consumption has showvn a steadily rising trend, increasing at the rate of about 10 per- cent every five years. The U. S. consumption has been expanding still faster. At the present level of 21 million bags, it has doubled in volume since the 1920's and comprised in 1949 almost one-eighth of all U. S. imports. World production of coffee has been steadily falling, mainly due to the decline in Brazil, whose output fell from over two- thirds to slightly under one-half of the world total. Bearing trees in Brazil fell from 3 to 2 billion over the last twenty years and almost two-thirds of these are old trees. World production in 1949 amounted to about 38 million bags, of which 9 million were used for consump- tion in the producing countries, while 29 million were exported. World imports amounted to 32 million bags, the difference being supplied from Brazilian stocks from previous years' production-which are now reported to be nearly exhausted. Undoubtedly current prices for coffee will lead to increased plantings in all producing areas, but these plantings cannot affect the near-term prospects significantly. Consequently, it woould appear that Colombia can look forward to a period of relatively high prices and substantial volume of coffee exports, resulting in exceptionally large foreign exchange receipts. 336 TIHE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA This prospect gives an exceptionally favorable opportunity to accelerate Colombia's economic development. On the other hand, it also creates certain dangers, unless wise, far-sighted and firm monetary and fiscal policies are adopted. Increased incomes from the export of coffee tend to mean increased spending and the possi- bility of a more or less automatic increase in the money supply, based on larger bank reserves. With restrictive import controls, this implies a grave risk of renewed inflation with its attendant injustices and harmful social consequences. With respect to petroleum, the other main source of dollar ex- change, Colombia's position has definitely worsened. No new impor- tant fields have been discovered in recent years, 7 and the heavy expenditures for exploration undertaken earlier by foreign oil con- panies are being sharply curtailed. Existing fields are approaching or past their peak production and, in the absence of new discoveries, an overall decline in production is to be expected. On the other hand. consumption of refined products in Colombia has been growing rapidly and it may be anticipated that this trend will continue and, if anything, be accelerated. While Colombia still has sufficient pro- duction and sufficient reserves to satisfy its own requirements for some years and to provide a margin for export, it is currently deficient in refinery capacity and is importing refined products. Provision of additional refinery capacity would involve considerable capital outlay. This matter is discussed at greater length in Chapter XIX. Under present conditions, it would appear that little expansion can be anticipated in the current relatively low volume of gold pro- duced and sold to the Banco de la Republica and that, if costs continue to rise relative to the selling price, a further reduction may occur. It appears, therefore, that unless rich new oil fields are discovered or new exports are developed, Colombia's foreign exchange receipts and its capacity to buy goods abroad will become almost entirely dependent upon one commodity. While this is not an alarming pros- pect over the near-term, it entails obvious longer-run dangers. The peculiar nature of the demand and supply conditions for coffee has given rise in the past to tremendous variations in price, and even as late as 1938, coffee stood at 11 cents a pound. The final weakness lies in a somewhat excessive drive toward national self-sufficiency. Although Colombia has benefited enormous- ly from foreign trade, there has been some tendency to adopt measures to cut down on imports and stimulate domestic production regardless 7 At the time of writing, it was impossible to assess the possible importance of the Texas Company's discovery well near Ortega.  THE INTERNATIONAL ECONOMIC POSITION OF COLOMBIA 337 of the economic costs involved. Another aspect of this same attitude is shown in the attempt to limit exports of various commodities. Further evidence is seen in the recent development of bilateral trade agreements-which, in view of Colombia's extraordinarily strong dollar position, appear to be unnecessary and, in certain cases, uneconomic. In summing up Colombia's international economic position, it is important to recognize the close interrelationship of donmestic fiscal and financial policies with exchange rates and exchange controls, and the impact of all these factors on the process of economic develop- ment. The subjects analyzed in this and the two preceding chapters lie at the heart of one of the most complicated areas of economics, in which partial appraisals may be very misleading. At the beginning of this chapter we cited the paradox that "On the one hand, Colombia is in the very fortunate position of possess- ing exports which command an active and growing market in hard currency areas [while] on the other hand, there has been constant complaint of the shortage of dollars, a continuous tendency to excess of demand for dollars over the supply." And as a result of this pressure of demand for dollars-which represents in the main a dernand for imported goods 8 -Colombia has been led to adopt and elaborate the whole apparatus of quotas, individual import and export licenses, multiple rates of exchange, special tariffs and subsidies, bilateral trade deals and the like, which have been developed since the 1930's by various countries to meet grave and chronic imbalances in their international payments. The root cause of the heavy demand for imports was the great expansion in money supply, which was analyzed in Chapter XIV. Domestic production was unable to keep up with the sharply rising demand for consumer goods. At the same time, the level of domestic prices rose by 172 percent from 1940 to 1949-a much greater increase than took place in the United States, which is the source of most Colombian imports. As a result, the internal buying power of the peso fell progressively below its external buying power-as determined by prices in foreign countries (especially the United States) and the official rate of exchange of the peso with other currencies-and foreign goods were made relatively cheap in the Colombian market. Hen-ce the detailed and complicated system of controls that has been described is required to keep the demand for such goods in check; and the control system in its turn has produced new diffculties and distortions in the Colombian economy. 8Any foreign exchange demand for purposes of capital flight is assumed to be non-recurrent and has been left out of account in this discussion. 338 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA Monetary experts have proposed, and in recent years have gained considerable experience with, various kinds and combinations of action to meet difficulties of this kind. There has been some public discussion of possible changes in Colombian exchange policy, in view of the obvious problems created by the present system. It is clear, however, that any alteration of exchange rate or control measures cannot be considered intelligently in isolation; their relationships xvith other aspects of the economy and with the entire development program must be taken fully into account and the advantages and disadvantages of various alternative courses of action weighed ac- cordingly. Where, for example, inflationary pressures have produced a dis- equilibrium in the exchange rate, a revision in the rate would give only temporary relief if these pressures remain unchecked. In addition, a change in the rate might xvell aggravate the pressures if it were not accompanied by firm and skilful application of appropriate anti- inflationary fiscal and monetary measures. The process of economic development itself has, in the recent past, been an important factor contributing to inflation and to exchange difficulties. The large peso investment made in development wvork generates increases in incomes and consumer demand, which have been only partially balanced by simultaneous expansion of the out- put of goods and of the volume of intended saving. At the same time the necessary purchases of machinery and equipment from abroad have been a major factor in depleting foreign exchange reserves. It is clear, therefore. that the scale and character of development activites have a direct influence upon the country's foreign exchange position. If the methods used to finance development are inflationarv -broadly speaking, if total investment undertaken exceeds intended or voluntary saving-exchange pressures are likely to continue. Even if this kind of monetary inflation is avoided, some exchange pressures may persist if the development program results in exceptionally heavy imports. A high and rising level of exchange receipts, such as Colombia now enjoys, wvill not, therefore, suffice to obviate exchange difficulties as long as the prices of all foreign goods appear low relative to a period when trade wvas in equilibrium and as long as internal prices and incomes continue to rise relative to foreign prices and incomes. These factors operate through the financial mechanisms of the bank- ing system and the Government budget; thus appropriate exchange policies cannot be devised apart from banking and fiscal policies, nor, in fact, from the entire development program.  THE INTERNATIONAL ECONOMIC POSITION OF COLOMBIA 339 Not only do the pace and financing of development affect the exchange position, but the reverse is also true. A period of high exchange receipts is, in general, a particularly favorable time for increasing investment for economic devolopment-if care is exercised to avoid the difficulties summarized just above. In this Report we make certain assumptions as to future exchange receipts. If it ap- pears later that these assumptions will have to be altered, then the development program as a whole must be adjusted accordingly. No less important, although perhaps less obvious, is the influence of a particular exchange rate or method of control on the size, and especially on the character, of the development program. A rate of exchange that overvalues the currency may act to restrict the expansion of certain types of domestic production in competition with imports, and to limit the prospects for developing more diversi- fied exports. While it may be possible to mitigate such consequences to some extent by import controls or subsidies, these mnay create additional distortions. On the other hand, a reduction in the external value of the currency has the effect, unless counteracted by other measures, of increasing exporters' money incomes and decreasing importers' profits, thus originating changes in incomes throughout the economy. Through revaluation of reserves, it may increase the ability of the banking system to extend credit. It has direct and indirect budgetary influ- ences. By changing the local cost of imports, it alters the price of an important proportion of consumer goods and of capital equip- ment, affecting in turn all investment plans previously contemplated. Either the maintenance or the alteration of the exchange rate, therefore, produces consequences throughout the economy, affecting the various interrelationships that have been mentioned before. The soundness and success of the development program will depend in substantial part upon whether those interrelationships move toward balance rather than further out of balance, and this will be deter- mined not alone by the exchange rate but by the whole complex of economic policies involved in the program. Apart from the exchange rate, the character of exchange controls can greatly affect development. On the investment side, unsatis- factory controls may aggravate the difficulties of obtaining imports of required capital equipment. Decisions to grant or to withhold import licenses are likely to become the day-to-day factor governing private development investment, distorting and weakening competi- tion and lessening the effectiveness of the market mechanism as a means of guiding resources into the most productive channels. 340 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA Such considerations as these make it clear that the function of sound exchange and import control policies is not merely to protect exchange reserves, but to do so in a ifanter which, so far as pos- sible, aids rather than obstructs economic development. Thus they must be determined in relation to other economic development policies to make a coherent whole; and, by the same token, the overall develop- ment program must take realistic account of the country's exchange position and prospects. It would clearly be inappropriate at this time to try to anticipate the timing or magnitude, or even the precise nature, of changes in the exchange rate or the control system that may prove desirable in the future. In the model quantitative projections worked out in Chapter XXX, therefore, we have used the present rate of exchange.  CHAPTER XVI Organization for Planning and Administration The Mission was not equipped in personnel, nor did it have the time, to make a comprehensive or detailed study of the problem of public administration. However, in the course of its study, it neces- sarily came into contact with those parts of the administrative ma- chinery of Colombia that relate more directly to economic matters. In this chapter, therefore, it is proposed to summarize briefly some impressions derived from these contacts. ADEQUACY OF BASIC DATA It is obvious that economic planning can be no better than the data on which it is based. An indispensable prerequisite for the formulation of sound policy, for the enactment of wise laws and for good administration of such laws is that correct information be com- piled, arranged and presented in a form significant for these purposes. Colombia possesses a wealth of statistical material, and in recent years important strides have been made toward improved statistical organi- zation and wider and more regular collection of data. Much of this statistical material, however, has not been sufficiently subjected to critical analysis, nor worked over and rearranged in a form best adapted for planning purposes. Much of the time of the Mission was spent in this type of work. Many of the most basic economic series were lacking and had to be worked up. Perhaps the most significant of these is that depicting the national income and its composition. Such a series compiled over a period of years affords knowledge of the progress of a community, the division of its total product into capital formation and consump- tion, the changes in relative importance of various industries and in the way the national income is shared by the different economic groups. Also such data are necessary for comparative studies with other countries, which in turn are of the utmost value in suggesting desirable changes in laws and practices. Series closely related to national income and also vital for planning purposes are those of saving and capital formation. It is obviously important to have some idea as to how much of the current national income is being saved, i.e., not being spent on consumer goods and services and therefore available for expenditures on producers' goods, or for maintaining and adding to the stock of real capital. This in 341 342 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA turn affords a measure of the magnitude of capital formation which may be safely undertaken without resorting to expansion of bank credit and the possibility of inflation. It is also of obvious importance to know how much income is being saved and by what classes, and the composition of capital formation. Only if this information is available is it possible to make soundly based decisions on the expansion or contraction of existing types of capital formation. Comments of the same general nature may be made about various fiscal and monetary series. It is desirable, for example, to rearrange budgetary items in order to depict a true cash surplus or deficit that may be reconciled with changes in the public debt. Series depicting clearly the sources of changes in the money supply and bank reserves are of obvious importance for the conduct of wise monetary policy. Unless such information is immediately available, it is difficult to adopt proper policies to bring about appropriate changes in the supply. In the same general field, we have noted earlier the usefulness of the international balance of payments series and the desirability of per- fecting it. WVe have also had occasion to point out the desirability of improv- ing basic statistical series in agricultural and industrial production. The importance of improving and expanding the agricultural produc- tion series, in particular, is obvious if efforts are to be made to bring about increased agricultural production and a better balanced diet for the nation as a xvhole. Similarly, a soundly conceived and well executed transport program for the nation calls for intensive work on traffic surveys. Again for intelligent planning in many fields, better statistics related to birth rates, death rates, health, dependents, age and geographic distribution are of paramount importance. In all these fields, statistical information in Colombia leaves much to be desired. We have had occasion to note a general absence of modern cost accounting techniques in the operation of both Government and pri- vate enterprises. There is, for example, almost no application of cost accounting in the most important field of transport. The lack of essential basic data is attributable not so much to the failure to compile statistics as to the lack of well-trained, analytical economists, statisticians and accountants to work on existing material. Few persons in Colombia have been adequately trained in the newer type of quantitative and analytical economics that has come to the fore in the past twenty years. The same general remarks are applicable to both statistics and cost accounting. Accountancy in Colombia, with the exception of one or two foreign firms, has not acquired high professional status and the great contribution that highly trained ac-  ORGANIZAT10N FOR PLANNING AND ADMINISTRATION 343 countants can render to the efficiency of an economic organization is not sufficiently appreciated. It is doubtless due at least in part to these factors that many Colom- bian projects and plans appear to be based on inadequate analysis and study. The absence of such analyses and studies, in turn, has made it easier for purely political considerations to acquire excessive weight in the determination of policy. Numerous cases came to light where projects involving substantial capital investments were undertaken without adequate study and statistical data. For example, diligent inquiries and search failed to uncover any basic economic studies sup- porting the proposed railroad linking Ibagu6 and Armenia, a project that might cost some Ps.$70,000,000 or more. ORGANIZATION FOR ECONOMIC PLANNING The political organization is not so well adapted to economic plan- ning purposes as might be desired. Wise planning and proper execu- tion ideally require not only correct information and studies, but a concentration of authority and responsibility and a considerable de- gree of continuity in personnel. In order to safeguard its political liberties, Colombia has gone even further in the direction of a system of political checks and balances than has the United States. Not only are authority and responsibility distributed among the executive, legislative and judicial arms of the Government, but in addition the President, the House of Representatives and the Senate are elected at different times for different terms, and the President cannot be immediately reelected following a term of office of four years. Inevitably this system produces obstacles in the way of consistent planning and continuing direction of the economy which do not exist, for example, in the parliamentary system as practiced in the British Commonwealth, where the government of the day has both the legislative power to enact laws and the administrative authority to carry them out. The system of checks and balances was instituted in the Americas at a time when the state played little role in the economic life of the country. Today exceptional skill is required to operate it efficiently. When the President's party lacks a majority in the National Congress, the consequences of the division of authority and responsibility are particularly serious in the field of economic policy. Even when the President's party has also a majority in Con- gress, the limitation of his term of office to one term at a time, while again probably desirable on other grounds, undoubtedly weakens his power to enforce discipline on his own party and impairs his leader- ship. 344 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA We are not for a moment implying that Colombia should modify its basic constitutional form of government. We are only concerned to point out here that that particular form raises certain problems in the modern economic state. That these problems are not insuperable is shown by the experience of other countries with similar govern- mental systems, which have successfully analysed and solved their most pressing economic problems. Even within the executive branch of the Government, the Presi- dent's ability to provide leadership is weakened in various ways. For one thing, the extremely small staff at his disposal makes it virtually impossible for him to follow closely the activities of all the various governmental agencies or to check independently on the bases of action. In view of the smallness of his personal staff and the general proliferation of government functions and agencies, it is physically impossible for him to provide a high degree of coordination in plan- ning or in execution. There is a noticeable tendency in all countries for government, left to its own devices, to become more complex. As a state is called upon to plan and carry out more and more activities, more and more agencies are created. In the course of time, this may result in con- fusion and in conflict of authority and responsibility within the execu- tive arm of the government itself. This trend has been going on in Colombia for many years and consequently the Government has be- come very diffused. Numerous agencies are involved in almost every field of activity, often with little coordination. In the field of agri- culture alone, there are twenty or more agencies, corporations or boards, in addition to the Ministry, whose activities affect agricul- ture in one way or another. Under such a setup, it is difficult to plan a coordinated program for agriculture as a whole, to determine the proper-degree of emphasis on different parts of the program, estab- lish priorities and provide for a rational allocation of available funds. The same is true in lesser degree in the fields of health, public utilities and transport. In the fields of health and education, the problem of working out well-coordinated programs is further complicated by the necessity of reconciling national action with departmental and municipal attitudes and requirements. A further factor militating against the effectiveness of economic planning is the impaired status of technicians. The inadequacy of the pay and the lack of security of tenure have weakened the attractiveness of the public service to outstanding technicians and have resulted in reduced prestige of technical positions in the Government. Conse-  ORGANIZATION FOR PLANNING AND ADMINISTRATION 345 quently, plans are not so effectively developed nor so vigorously and authoritatively presented as could be wished. As a consequence of the inadequacy of basic data, the lack of highly trained economic and other technicians, and the weakness of the governmental setup from the point of view of planning, economic planning in Colombia has not been outstandingly successful. The failure to plan properly has frequently made it necessary to resort to cumbersome controls. For example, the failure in the postwar period to avoid inflation and to maintain general stability in the price level has led to numerous price controls, which in turn have resulted in widespread evasion. Another illustration is afforded by experience in the field of foreign exchange. Failure to set an equilibrium rate of exchange and to maintain general price stability thereafter forced recourse to a rigid system of exchange control. ORGANIZATION FOR ADMINISTRATION Inadequate staffing in the Executive Office of the President not only weakens the leadership of the President in the formulation of policy, but it also naturally undermines efficient and coordinated ad- ministration of the laws. It is very difficult for the President to assert adequate control either over the budgets of all the various agencies of Government or of the legislative projects and plans of these agencies. The number of officials who have the right and privilege of direct access to the President is staggering. The demands on his time arising from relatively trivial matters are such as to leave him little time for the most important matters of state. The growth in the number of public and semi-public agencies has naturally given rise to overlapping and conflicting jurisdictions and has militated against efficiency of administration. If the Ministers attempt to secure desirable coordination by attending meetings of all the juntas and boards of which they are members, they have little time to administer their Ministries or to engage as a Cabinet in overall planning. In part, in the field of public administration, Colombia has been caught in a vicious circle. Weaknesses in governmental admin- istration have induced proponents of new state activities to attempt to secure better administration by providing for new and independent or semi-independent agencies to carry out the new activities. While in some cases this has solved one problem, the total result has been a tremendous proliferation of governmental agencies, without proper coordination or assignment of responsibility. Waste, as well as in- efficiency, inevitably results. 346 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA The relation of the National Government to departmental and municipal governments has been discussed in part in Chapters X and XIII. The weaknesses of aovernment at the municipal level have caused the National Government to assume more responsibility for services wvhich are essentially local in character. The line between setting policies and standards and providing grants-in-aid, on the one hand, and actual execution of policy at the departmental and munic- ipal level, on the other hand, has become blurred. Here again a vicious circle appears. Absence of local responsibility naturally re- sults in the central authorities' assuming more responsibility. This trend, however, in turn further weakens local responsibility, and at the same time increases the complexity and inflexibility of the already overburdened national administration. Some of the most urgent problems in Colombia today arise from the inability of governments at the municipal level to meet the problems of modern community life. A contributing factor to this situation has probably been the fact that frequently the Mayor is of one political party and the Council of the other. The weakness of administration in the fields of transport and public utilities has been commented on in earlier chapters. In both cases, it is apparent that the administration has been too exposed to purely political pressure. In addition, the quasi-judicial nature of the franchise-granting and rate-making povers has not been sufficiently appreciated. These powers do not give protection from political pressures, do not provide an opportunity for hearing the various interests in the community, and are not generally so organized that they can attract and hold the services of outstandingly competent and public-spirited men. The same general considerations apply to the administration of Government corporations, again with some noteworthy exceptions. The problem of attracting and holding the services of men of high integrity and competence in Governnment is a perennial one common to all countries. It must be admitted that, along with many other countries, Colombia has not been too successful in solving this prob- lem. The relatively low pay and lack of security of tenure for public servants, and a lower prestige generally than prevails in private in- dustry, have resulted in great difficulty in attracting and retaining the services of competent people. In recent years, this has been in- tensified by dismissals for political reasons. By general testimonv,  ORGANIZATION FOR PLANNING AND ADMINISTRATION 347 the quality of governmental service has thereby suffered despite the continued service of many very competent and very devoted public servants. The turnover has been exceptionally heavy in recent years at the ministerial, gubernatorial, mayoral and higher levels. The picture painted in this chapter is perhaps unduly pessimistic. Actually, many excellent laws have been drafted and well adminis- tered. Howvever, the fact remains that there is room for a great deal of improvement in the whole field of public administration and eco- nomic planning. It will be admitted by all objective observers that the Government at its various levels is not now well adapted either for comprehensive economic planning or for the efficient implementation of such planning. Here is an area in which a great increase in national efficiency can be attained at small additional cost. The situation xvith regard to both planning and administration doubtless accounts at least in part for the limited effectiveness of various foreign technical missions and technical personnel sent to Colombia in recent years. A continuance of this situation raises serious questions as to the extent to which Colombia might effectively take advantage of the international technical assistance program. PUBLIC PERSONNEL These general impressions about personnel problems in public employment are pointed up by an examination of the overall statistics on such employment. Table 121 shows the number of employees of the National Government by major functional groups. It would require a wider and more intensive exaniniation than the Mission was able to make to reach accurate conclusions as to the adequacy of these numbers to carry out the Government's functions. Unques- tionably, the salaries paid, however, averagin- Ps.$173 per month in 1948, are much too low to attract first-class, well-trained personnel in competition with private employmnent. The basic difficulty, of course, is that such personnel is sadly inadequate for all Colombian needs, and a real solution is to be found only through expansion of the facilities for their proper education and training. But in view of the importance of the Government's role in Colombian economic life, it seems essential that its ability to compete for the best qualified personnel should be improved by providing greater financial induce- ments and opportunities for advancement in Government service.  348 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA TABLE 121 PERMANENT NATIONAL GOVERNMENT PERSONNEL BY FUNCTIONAL GROUPS, 1948 Number of Employees Groups Men Women Total Monthly Cost Directionl of Public Administratioln 1.243 405 1,648 Ps.$ 421,261 Justice and Iinternal Order 11,100 524 11,624 1,891,375 International Relations 223 31 254 205,461 Collection of Taxes 1,830 570 2,400 401,385 National Services . 5,123 1.282 6,405 872,633 4 ,5 3 0 20 4 ,5 5 0 5 2 3 ,57 6 Natiolnal Defense. Culture . 2,296 1,400 3,696 446,830 Hygiene and Public Assistance 1,910 692 2,602 463,297 Labor and Social Security 147 37 184 65,030 Economic Development 2 1 ,6 31 10 9 1,7 4 0 5 9 6 ,9 5 7 Audit and Control . .1,304 266 1,570 413,447 Statistics 216 53 269 71,055 Various Services 525 117 642 150,505 Total .................. 32,078 5,506 37,584 Ps.$6,522,814 1 Civil personnel only. 2 In Economic Development are included the following sub-groups: Public Works, Agriculture and Animal Industry, MIines, Industry and Commerce and miscellaneous development activities. Source: Contraloria General. Table 122 gives a breakdowin of National Government personnel by salary classifications for 1948, Avhich indicates that only about 1,000 employees (less than 3 percent) are paid more than Ps.$500 per month. The salaries for about 60 percent of the total number are laelo\v Ps.$150 montlhly, averaging Ps.$92. TABLE 122 PERMANENT NATIONAL GOVERNMENT PERSONNEL BY SALARY SCALES, 1948 Number of Employees Month! Salary Scales Men Women Total Cost Up to Ps.$ 50 .2,809 811 3,620 Ps.$ 124,; From Ps.$ 51 to 100 .6,478 1,307 7,785 640,f 101 to 150 i9,178 ........ .. 4 1,881 11,059 1,312, 151 to 200 ... . 3,736 1,008 4,744 851. 201 to 300 . ......... 5,497 426 5,923 1,497, 301 to 400 .. _....... 2,233 56 2,289 822, 401 to 500. .......... 1,091 12 1,103 508, 501 to 600. ....... - 516 5 521 297, 601 to 800 ......... . 366 - 366 254, More than 800 ......... 174 - 174 212, TOTAL . 32,708 5,506 37,584 Ps.$6,522 Source: Contraloria General.  ORGANIZATION FOR PLANNING AND ADMINISTRATION 349 Insecurity of tenure is also commonly cited as a principal complaint of public personnel, especially those in professional or administrative positions, and in combination with low pay this is a major cause of the reluctance of many qualified persons to enter or remain in Gov- ernment employment. No comprehensive data are available with regard to turnover in public employment, but from spot indications the rate is very high. Some attempts have been made to remedy this situation by instituting an Administrative Career Service based on merit principles. It is difficult to determine the effectiveness of the system, but in nearly ten years since it was started only 1,518 em- ployees of the National Government have been certified into this service. The same considerations apply in even greater measure to de- partmental and municipal administration. Total employment in the departments is almost the same as that in the National Government, but the average salary is only Ps.$105 per month (Table 123). The monthly salary average for employees of 610 municipalities is Ps.$104, and for the poorer departments the average scales down to extremely low levels-to Ps.$50 per month for the Choc6, Ps.$48 for Boyaca. Ps.$45 for Cauca and only Ps.$27 for Narinio. The tenure of employees TABLE 123 PERSONNEL OF DEPARTMENTAL GOVERNMENTS BY FIJNCTIONAL GROUPS, 1948 Number of Employees Functional Groups Monthly Men Women Total Cost Direction of Departmental Administration .......... ................ 713 192 905 Ps.$ 201,262 Justice and Internal Order ............. 8,157 78 8,235 679,124 Collection of Taxes ........... ............ 3,752 126 3,878 469,889 Departmental Services ............... .... 244 107 351 38,460 Hygiene and Public Assistance ...... - . 578 410 988 117,380 Culture ............................. 5,505 12,375 17,880 1,752,752 Economic Development ...... _.. ... 634 33 667 92,086 Departmental Industries ... ..... ... .. 333 126 459 51,401 Audit and Control .............. ....... 580 94 674 150,473 Statistics ............... .............. 127 22 149 30,066 Municipal Services ............................ 2,037 1 2,038 214,947 Various Services ........................ .. 1,178 52 1,230 129,105 Total ...... 23,838 13,616 37,454 Ps.$3,926,945 Source: Contraloria General. at the departmental and municipal levels is at least as precarious as in the National Administration. Although the law establishing the Administrative Career Service for the National Government applies also to departmental governments, few departments have taken ad- vantage of it in substantial or sustained manner. In Cundinamarca there are about 150 classified employees, in Bolivar about 50 and in Cauca only 3.  PART II The Program  CHAPTER XVII The Nature of the Program -0 OBJECTIVES AND EMPHASIS As indicated in the Preface, the Mission's terms of reference were to work up a sound development program for Colombia, designed to raise the standard of living of its people. The description and diagnosis in Part I show that the standard of living of the mass of Colombian people is low in terms of such basic elements as health, education, housing, balanced diets, and the simple types of goods and services that go to make up the amenities of life. In seeking for the causes of this relatively low standard of living, stress was laid on low produc- tivity, which is fortunately not the result of any inherent deficiency of natural resources but rather of a variety of factors that can be changed or ameliorated. Our problem in Part II, therefore, is to determine what elements in the standard of living are most urgently in need of improvement and to suggest how this improvement may be brought about. As was pointed out in Chapter II, the correspondence between more consumption of goods and services on the one hand, and a state of well-being on the other, becomes somewhat problematic in an economically advanced country. In Colombia, however, the standard of living of the majority of people is so low that there can be little controversy as to what things are most urgently needed. Likewise, there can be considerable assurance that improvement in the standard of living will mean a corresponding increase in the well-being and happiness of the Colombian people. We are therefore placing primary emphasis on the provision of those things which have come to be con- sidered the basic essentials-good health, adequate and well balanced diets, education and training for a better and more productive life, and adequate housing and clothing. In addition, we would place high on the list of priorities the provision of electric power to supplement the limited strength of workers, thus increasing their productivity, and to furnish light and run other household appliances. The fact that we place these basic human needs first does not, how- ever, mean that we approve only products and activities which ad- minister directly and immediately to these needs. Economics is rarely as simple as that. In order to make available more of the essential goods and services which make up an improved standard of living 353 354 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA for the Colombian people, it may often be necessary to change pro- duction, transportation or marketing processes at two, three or even more stages removed from the ultimate consumer. The economies of making some manufactured goods in Colombia, rather than continuing to import them, may well be great enough to justify high priority for capital expenditures; the resultant saving of dollar exchange wvill allow available exchange eventually to be used for additional power and mechanical facilities; and these in turn will raise the productivity of Colombian labor. In other words, the basic oblective of our recommendations is to> raise the standard of living, but to achieve this our primary emiiphasis must be on those things that will most increase 'efficiency in produc-' tion. Even in the production of luxury goods, increased productivity permits the release of resources that can then be devoted to the pro- duction of more essential or useful objects. Hence, it is not a question of stressing either agriculture or industry, but rather one of stressing productivity per capita, or efficiency, in all fields. In the remainder of Part II, we shall discuss a wide variety of actions and policies that at first examination may appear to have little to do with the basic elements in the standard of living, or even with the productivity of the Colombian worker. Actually, however, all of them are relevant. The better utilization of natural resources, im- provement in the quality of workers and management, the provision of more capital, better organization of the factors of production-all have a fairly direct bearing on the output per capita and hence on the standard of living. There is a possible ambiguity in the word "program" that should be cleared up at the outset. We believe that the following series of recommendations constitute a true basis for a program inasmuch as they are comprehensive, interdependent and internally consistent. They do not, however, provide for a program in the sense of conscious allocation of all available public and private funds. The recommenda- tions also vary considerably in detail and precision. This arises partly from limitations of time and personnel and partly from deliberate design. We are not seeking to suggest that a radically new and different order be adopted by Colombia. On the contrary, we seek only to modify an existing situation, to shift the emphasis somewhat, and to suggest a multitude of improvements and reforms. Some of our pro-  THE NATURE OF THE PROGRAMI 355 jections of capital expenditures, particularly in industry and transport equipment, are magnitudes that we think are consistent with certain patterns of economic growth and are likely to occur without any par- ticular state action being called for, except to maintain a favorable economic climate. It is mainly in the public and semi-public spheres, where the allocation of capital does not proceed in response to pure cost and profit calculations, that we become most specific in our recommendations. NEED FOR A COMPREHENSIVE AND INTEGRATED PROGRAM The task of raising the standard of living of a whole people in a relatively short time, say five years, is an extraordinarily difficult one. It has been calculated that from 1884 to 1924 in the United States- a period when conditions favored exceptionally rapid development -real income increased at the rate of 1'2 percent per capita per annum.' Production itself increased more rapidly than this, but much of it went to support a rapidly increasing population. The dynamics of economic development are complex. Owing to the number of mutually interacting variables-or, to put it another way, the very wide range of constantly changing interrelationships- the process is a difficult one to grasp. A modern economy is one in which the division and specialization of labor have been carried to a high point. Specialization, however, while contributing to increased productivity, makes each producer dependent to an increasing degree on the efficiency of thousands of other producers in other parts of the economy. Again and again in this Report, we have encountered cases where an improvement in one sector of the economy is dependent upon improvement in another, which in turn is tied in wvith a number of factors including, perhaps, an improvement in Government ad- ministration, which depends on still other factors, and so on. Improve- ment in general health, for example, depends on improvement in water, diet, housing and sanitation, on comprehensive campaigns to eliminate or control sources of infection, on better education in hygiene, and other factors-and each of these improvements requires further com- plex and far-reaching changes. This may explain why attempts to bring about improvements restricted to particular sectors of the economy have met with only limited success. It also helps to explain \vhy technical advice or assistance in particular fields so frequently I Simon Kuznets, NVational Income antd Its Comiiposition, 1941, Vol. I, p. 147. For further comparative data, see American Economic Review, 1944, p. 826. 356 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA fails to yield the results obtainable in more advanced economies. This point we believe to be of great importance-in order to achieve results in a short time, it is necessary to bring about simultaneous improvements throughout the entire economy. By and large, the individual segments of the economy cannot progress rapidly apart from the whole-and in the exceptional cases where one segment de- velops at a rate very muclh faster than the rest, the result is likely to be a serious distortion of the nation's economic and social structure. It is obviously difficult to achieve and maintain a high degree of efficiency in a general atmosphere of inefficiency. On the other hand, improvements in one sector make improvements in other sectors easier. This, then, is the reason and justification for an overall program of development. Piecemeal and sporadic efforts are apt to make little impression on the general picture. Only by a generalized attack throughout the whole economy on education, health, housing, food and productivity can the vicious circle of poverty, ignorance, ill health and low productivity be decisively broken. But once the break is made, the process of economic development can become self-generat- ing. Each improvement leads to others and the wvhole level can thus be raised. Influenced by these considerations, the present series of recom- mendations cover a very wide field. We have preferred the risk of being superficial in some fields to the greater risk of conceiving the problem in too narrow terms. Practically every field that we touch upon requires further intensive and continuing study. It is more im- portant that those studies cover the broadest possible front than that the details of every recommendation and suggestion contained herein be fully thought out at this stage. Another implication of the interrelationships of phenomena in economic growth is the necessity of providing, in our overall thinking, for consistency and coordination. lnternal capital expansion can be no greater than savings; if greater than voluntary savings, then the difference must be made up through involuntary or forced saving. Provision must also be niade for a steady growth in consumption. Similarly, available manpower, transportation facilities and foreign exclhange are all obvious limitations. Expansion plans must be con- sistent with these changing variables, and hence must be subject to modification as progress in various directions exceeds or falls short of expectations. It is obvious, therefore, particularly in a free society, that no program of overall development can be static. It must be re- studied continuously and be subject to constant alteration in emphasis.  THE NATURE OF THE PROGRAM 357 FURTHER UNDERLYING CONSIDERATIONS In general, the broad pattern of development envisaged calls for a smaller proportion of the population in agricultural pursuits and a larger proportion in urban areas. The rapid increase in manpower available for non-agricultural pursuits would be absorbed in industry, housing and other building construction required by the expansion of facilities for community services (electric power, water, sewers, hos- pitals, schools, streets) and industrial and commercial establishments. We shall place primary emphasis throughout Part II on internal improvements-obtaining more efficient organization and utilization of Colombia's own natural and man-made resources. This follows from the conviction that, to raise the standard of living appreciably, main reliance must be placed on the utilization of domestic resources. In addition, it is difficult to estimate how much foreign capital may be available. In some countries the accumulated stock of real capital and the margin available for saving above essential consumption are so small that capital from abroad is almost indispensable to get the process of development started. In Colombia's case, however, sub- stantial capital has been invested in the past and the current annual volume of saving is much greater than could reasonably be expected yearly from abroad. Foreign capital, therefore, is less a necessity for economic growth than a desirable aid that will, if wisely directed, accelerate such growth. In any case, our general recommendations apply to the disposition and utilization of foreign and domestic capital alike. 'While stressing the relatively greater importance of securing in- ternal improvements, the great assistance that foreign investment can provide is not to be minimized. Colombia's annual capital formation is still small in absolute terms for a nation of eleven million people. In 1947, the figure was Ps.$600 million. An abnormally high propor- tion of this amount wenit for profits and transportation costs. More- over, a considerable portion of this gross capital formation went into the replacement of relatively short-lived transport equipment rather than into new facilities, and a further amount went into luxury-type buildings. In other words, truly productive real capital is much scarcer in Colombia than in economically advanced countries and is--) accumulated at much greater sacrifice to the population in general.,/ For both these reasons, its commitment should be made only after the most careful study and consideration of alternatives. We have, consequently, been most concerned throughout the Report that Colombia's scanty savings be wisely directed and properly utilized, and we have subjected all proposals involving large capital expendi- tures to as critical an analysis as time and personnel permitted. 358 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA It must be borne in mind that "scarce" and "abundant" are relative terms when applied to capital. In Colombia's case, the relatively abundant item in production is manpower, and the scarce elements are capital and good level arable land currently available for the grow- ing of crops. It is very difficult to determine the ideal size of popula- tion in relation to resources and techniques; and such a figure, if it could be determined, would be subject to constant modification as techniques and international conditions change, to say nothing of changes in the other factors of production. Nevertheless, the concepts of "optimum population size" and of balance among the factors of production are of the greatest importance in the discussion of the standard of living. At the present time, population is completely out of balance with other factors in Colombia. If it were merely a question of utilizing existing resources, including land, more efficiently and of increasing capital equipment, especially power-generating facilities, the problem would be relatively simple. The difficulty arises from the fact that while these other things are being done, population itself continues to increase. In fact, it is paradoxical that the implementation of our recommedations may well result in an accelerated increase in popula- tion, and this will unquestionably complicate the task of attaining a better economic balance and a higher standard of living. Any general improvement in environmental and health conditions will manifest itself immediately in a decline in the death rate, particularly of infants. The importance of this may be pointed up by a simple arithmetical example. If the population increases at the current rate of 2.15 per- cent per annum in the next ten years, it will reach 13,900,000 by 1960. If, however, as a result of improved economic and health conditions, the death rate should fall to the U.S. level of 10 per 1,000-an ad- mittedly unlikely possibility-the rate of increase in the population would become 3 percent per annum and the 1960 population would be 15,100,000, or over a million more. 2 A further projection of the same rate of increase would give a population of 20,000,000 in 1970, and if the projection is carried up to fifty years-a short period in the life of a nation-the figure becomes 50,000,000 by the year 2000. Clearly a population increase of anything like this magnitude would make impossible the task of achieving a more favorable ratio between the number of people and the amount of land and capital available to enable them to make a living-the necessary condition of that rise in living standards that is our objective. 2 Something like this has occurred in Puerto Rico where the birth rate has remained at about 40 per 1000 while the death rate has fallen from 25 to 12 per 1000.  THE NATURE OF THE PROGRA-M 359 If, confronted with these possibilities, one were tempted to aban- don or reduce the health aspects of the program, that would in no way solve the problem. Better health is an essential requisite to greater productivity, and it is both a necessary part and an almost inevitable consequence of a higher living standard. (This is another example of the complexity and interrelation of the various factors involved in economic development.) Thus an increase in the rate of population growth for a time must probably be assumed as one of the conditions of our problem. It is not an insuperable obstacle over the near term to a substantial improvement of living conditions, though it acts as a drag on the rate of improvement. On the basis of experience in some other countries, it is possible that the process of economic advance will itself bring about a reduction in the birth rate and a slowing of population growth. Failing such a development, however, the prospects for a continued rise in the standard of living would be gravely jeopardized indeed. Apart from this one factor, other basic economic conditions offer grounds for expecting gratifying results from the adoption of a soundly conceived and comprehensive program of development. For one thing, the fact that the economic base is very low to start with makes possible a high percentage rate of increase. Moreover, Colombia can take advantage of nearly two centuries of development of machines and techniques abroad. Consequently, increases in productivity re- sulting from the introduction of modern equipment and techniques can be spectacular. Colombia's highly favorable position with regard to the basic sources of power-coal, oil, gas and hydroelectric potential -and in relation to foreign markets is a further element of strength. Colombia is also fortunate in possessing a vigorous and well educated class that can provide leadership in government, the professions, in- dustry and agriculture. We set forth the recommendations which follow, therefore, with confidence that basic conditions favor an appreciable rise in the standard of living of the Colombian people in a relatively short time. A five-year period was chosen as the minimum in xhich it -would be possible to show results, and yet not so long as to make calculatiors too highly speculative. In any case, the im- portant thing is not the selection of any particular period, but rather the launching of a comprehensive and well-coordinated attack on the problems of economic development, and the prosecution of the attack over an extended period.  CHAPTER XVIII Agriculture Raising the standard of living in Colombia is largely a matter of increasing agricultural productivity-not only because it will result directly in a greater and more diversified output of food, fibre and export crops but also, and perhaps even more important, because it will release labor for the production of other things. This double gain has been the underlying cause of the rise in living standards in all economically advanced countries, and it should form the basis of economic progress in Colombia. AGRICULTURAL PLANNING AND PRODUCTION GOALS Colombia has engaged in certain agricultural planning activities for many years. Among its most notable achievements in this line was the five-year plan for the development of agriculture known as the "Plan Quinquenal de Fomento Agricola," which included recom- mendations with respect to agricultural education, engineering, devel- opment investigations and experiments, study and protection of the soil, sanitation, economic studies, as well as production goals for the years 1945-1949 for many crops. As shown in Table 124, however, actual performance had little in common with these goals. Since the figures reported for acreage and production cannot be deemed very accurate,' any detailed analysis might be misleading. HowNever, con- clusions can be formulated in general terms. Actual production in 1948 did not conform closely to production goals in terms of either acreage or tonnage. Responses to limited inquiries indicated that there was little real farmer participation in the planning of these goals. While this undertaking doubtless helped to give some direction to agricultural efforts during the period covered, it is not surprising that there was a substantial gap between the goals and actual accomplishment in the absence of "grass roots" participa- tion. Plans, to be meaningful, must be understood and accepted by the people affected by them, and this usually comes only from partici- pation in the planning process. 1 The figures for 1945 in particular seem unreliable. 360  AGRICULTURE 361 TABLE 124 PRODUCTION GOALS AND PERFORAIANCE, 1945 AND 1948, OF FIVE-YEAR PLAN FOR AGRICULTURAL DEVELOPMENT Average Hectares in Cultivation Production (Tons) Planned Planned 1945 1948 1948 1945 1948 1948 (000 omitted) Sugar Cane 162 149 163 - - - Sugar . .... 14 21 16 70 108 80 Panela. 1 4 8 ... 148 115 147 590 687 810 Wheat ..... ............... 118 177 128 109 118 138 Rice ........ ..... 82 149 109 74 182 118 Potatoes ........... - ... 102 64 450 486 590 Cotton (Lint) 52 ... 52 35 73 7.5 6.6 17 Sources: Produfcci6n Agropcciaria de Colombia, Bogota, September 1949, for actual 1948 figures; estimates for 1948, Plan Quinquenal de FomTentto Agricola, 1945; Ministerio de la Econonlia Nacional, for other data. Another factor that may have been partly responsible for failure to attain the goals set in 1945 is that the plans had to be based on the statistics available, which were probably not reliable enough for such a purpose. When data from the 1950 census become available, they will provide a much needed bench mark for truing up present estimates and a base for future estimating. Finally, credit and pricinU.!qoicies were apparently not coordinated with the goals. Thus a major incentive toward change in the agricultural pattern was inoperative. 1955 Production Goals Recognizing fully that production goals, in the preparation of which farmers have not participated, are of doubtful value, it nonethe- less seems desirable to attempt to estimate some practicable produc- tion goals for 1955. These estimates must be based largely on official data which, although not generally precise enough to serve as the basis for definite plans, can be used in a rough way to sho-w directions or trends. This section should be regarded, therefore, merely as demonstrating some of the types of material and some of the processes upon which serious planning of agricultural production might be based in the future, with full farmer participation and accompanied by financial, fiscal and other measures necessary to help farmers reach whatever goals may be set. Data from the 1950 census should be help- ful in such an effort. 362 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA The first step toward setting production goals for 1955 was to study the trends of production from 1938 to 1948, and to examine, on the basis of 1946-48 assumed performance, what would be likely to occur if they were maintained until 1955. In order to obtain a plaus- ible framework for this study, it was necessary to match several sources of information, and use those figures and trends which could best be substantiated. The results of comparing data for 1938-40 and 1946-48 are shown in Table 125. On this basis an attempt was made to calculate an average rate of groTrowth for the whole of Colombian agricul- ture. If recorded annual growth of production for each crop is weighted by the relative importance of that crop in the total value of Colombian production in 1947, a rate of increase of 3 percent annually is indicated. If the acreage importance of the crop is considered, this rate falls to 234 percent a year. This is also the rate if only absolute volumes of production are taken into consideration. TABLE 125 PRODUCTION TRENDS INDICATED FOR VARIOUS CRops, 1938-19481 Yearly Rate of Growth by Average Production Volume Production in 1955 if 1938/40- Volume these trends 1946/48 1946/48 are maintained (in percent) (1,000 tons) (1,000 tons) Cacao .... 0 10 10 Coffee . 3 T 347 448 Lint Cotton. 1 2 6 7 Sugar 84 89 162 Panela .2'4 691 826 Rice . 8 138 256 Corn. .2 625 704 Wheat .2 119 124 Barley . 17X2 27 98 Beans 7 58 100 Potatoes 1 469 508 Tobacco .7 19 33 Beef Cattle (1,000 heads) 3½ 1309 1724 Hogs .0 616 617 1 The yardsticks used in the study of the national income were adopted. WT9hen pro- duction performance matches closely the expansion in cultivated areas, the volume figures reported by Varea Martinez (V.M.) of the Ministry of Agriculture are accepted. In the case of cacao, the decrease in production indicated by V.M. in 1946-48 is not substantiated; it was assumed that production levels had not changed. In the case of paanela, from 1938 to 1948 the average of cane sugar (for panela) has only increased 29 percent per year. This contradicts the growth in volume indicated by V.M. (6V4 percent per year in the same period). Our hypothesis of a low rate of growth is sustained by statistics of the Ministry of Commerce and Industry and estimates of the Andaes de Econoinia y Estadistica. In the case of tobacco, the rate of production growth indicated by V.NM. (4' 2 percent 1938-48 and 3 percent 1939-47) does not com- pare with the increase in hectares planted (7 percent), or the growth in demand for domestic cigarcttes (9 percent), taking into account a decrease in demand for local cigars.  AGRICULTURE 363 Since the agricultural population has grown at a rate of less than 2 percent per year, one can conclude that increases in per capita output have taken place of about .34 to 1 percent per year. Farmers have worked more hours per day and dpened new lands and, though their productivity per hour may not have changed substantially, their annual output has climbed. It would appear, however, that the effectiveness of their work, in income terms, has increased. Spe- cialized crops (sugar, rice, barley, beans, tobacco) have expanded at the expense of staples (corn, wheat, potatoes, and perhaps platano and yucca). Output per capita per hour may also have climbed slightly. Although yields in Colombian agriculture are uniformly low, improve- ments have been recorded in certain lines as a result of better seed selection, agricultural mechanization, the introduction of better tech- niques in some instances, and irrigation. Primarily, however, the growth of agricultural production has resulted from the opening of new lands. Although this method has brought about some spectacular production increases in the past,2 and some further prospects exist of opening up unsettled areas, a limit may well have been reached in the densely populated districts. Culti- vated land acreage increased 48 percent from 1934 to 1948, an annual increase of 234 percent, slightly higher than the population increase. If further progress is made, we believe it will result more from intensi- fication than from extensification of agriculture. By 1946 Colombia was practically self-sufficient in many agri- cultural products. 3 The volume of domestic production compared with domestic consumption for a few major products follows: Percentage 4 Cacao . .. ... . . 60 Coffee .... .. .. ............... 650 Cotton ... ...... .. . 18 Sugar .... .. . . . .. ... 89 Rice ... ........................... . 105 Wheat .. ........ 82 Platano and bananas. - .. 104 Beef, hogs, fish, milk, beans, barley, 100 yucca-name, potatoes, fique, panela, cornj 2 It is a matter of record that between 1929-30 and 1933-34 the area of cultivated land in corn increased threefold, and that rice lands grew sixfold from 1929-30 to .7 1946-48. 3 The vear 1946 was chosen as it is the only one for which both foreign trade and local consumption have been analyzed in detail. 4 Techniques of computation are described in Appendix B. 364 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA The level of consumption only partially satisfied adequate nutritional requirements, however. The national diet was deficient in fats, animal proteins, calcium, ascorbic acid, phosphorus and niacin, as shown in Table 126. An increase of per capita consumption of meats, fats and oils, milk, fish, vegetables and fruits is clearly in order. From the standpoint of foreign trade, the balance of payments depended on two products for the major part of receipts, and the high rate of population increase indicated the need to find new exports. Sugar, rice, cacao, bananas and coffee in 1946 were obviously potential sources of greater exchange revenues. A gradual replacement of agricultural imports by local production wvas in prospect, but imports of cotton, wheat and cacao represented a heavy charge on foreign exchange receipts and the rate of reduction of such imports was slow. TABLE 126 LEVEL OF NUTRITION IN COLOMBIA COMPARED WITH REQUIREMENTS, 1946 Availabilities Colombian Theoretical in 1946 as Standard 1946 Requirements percentage of (per capita) I (per capita) I Requirements Food energy (calories) .. . 1801.3 1710.0 105 Proteins (grainis) 39.65(18)2 50.0(20)2 79(90)2 Fats (grams) 24.38 37.0 66 Calcium (mg). . 455.37 880.0 52 Iron (mg) . . 12.51 9.12 139 Ascorbic acid (mg) 47.63 55.2 87 Thiamine (mg) 1.07 0.93 115 Riboflavin (mg) 0.67 1.28 52 Niacin (mg) 5.50 9.3 59 Phosphorus (mg) 730.13 1320.0 55 1 Techniques of computation described in Appendix B. 2 Animal proteins in parenthesis. Also, the structure of agricultural production in 1946 was unbal- anced. Certain areas experienced deficits which were obviously re- flected in their standard of living and nutrition; other areas had pro- duction excesses of foodstuffs of low nutritional value which could not be moved far within the country owing to their low cost. Surpluses were available in some departments, and the average diet was danger- ously deficient in others. In 1946, there was little regional specializa- tion, except for sugar. Thus, the 1946 pattern of production was inadequate. If per capita production remains constant, the disequilib- rium will be accentuated. For example, analysis shows that Zone II (Atlantic Coast) and Zone III (Antioquia) are not keepingt up with  AGRICULTURE 365 the rest of the country and should increase considerably their rate of industrialization, in order to be able to consume food surpluses from Zones I and IV. We suggest modification of Colombian agricultural production toward a series of production targets in 1955 designed to achieve the minimum objectives of (a) maintenance of 1946 levels of per capita consumption where this consumption could be deemed adequate, (b) better nutritional standards in fish, milk, fats, fruits and meats, (c) an increase in export volumes, (d) greater agricultural self-sufficiency where feasible in order to decrease imports, and (e) a new level of consumption of goods for which industrial demand is increasing proportionately more than the population. The suggested targets and the pattern that would follow from the maintenance of recent trends are compared in Table 127. To attain these targets, production volumes in 1955 would have to be increased 28 percent above 1946 and 22 percent above 1948 levels; the total value of crops in 1955 (at 1948 unit prices) would be 29 percent above 1948 levels. The attainment of these _eneral le3els appears to be a wholly feasible task. In fact, it requires a rate of overall production growth only slightly larger than the present estimated trend. The:! major effects of the program of agricultural development that ve propose would be a change in emphasis among various crops, an improvement in their quality, a lessening of the amount of labor involved, and a consequent shift in population from agriculture to I other pursuits. The increased productivity would be reflected in higher farm inconmes and a greater demand for the products of indus- try, and in lower prices for some products. Perhaps the most important aim of our recommendations is to increase the production of agricultural workers in such a way as to enable a reduced labor force to meet these goals and thus permit the release of a considerabe number of workers for other occupations- to carry out the more ambitious objectives outlined in the fields of industry, construction, transport and public facilities, or for longer,0 schooling. At the same time, the life of those remaining on the farm would be made progressively easier and their standard of living raised. We are confident that adoption of these agricultural recom- meindations would result in a very substantial increase in productivity per farm worker, though it is impossible to say precisely by how much. We would not lay too much stress upon this particular set of targets. Their main purpose is to illustrate the magnitude and nature of the changes necessary in agriculture to raise the standard of living. Opinions may legitimately differ both as to the accuracy of the basic 366 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA TABLE 127 SUGGESTED PRODUCTION TARGETS FOR 1955, COMPARED WITHl PRODUCTION IF PRESENT TRENDS ARE MAINTAINED Rate of Actual Production Growth Trend-Rate in 1955 if Production per Year To of Growth Past Trend is Target in 1955 Attain Target per Year Maintained (1,000 tons) 1 (percent) (percent) (1,000 tons) 2 Cacao 3 34 13 0 10 Coffee 4 ...... 461 3.25 3.25 448 Lint Cotton 3 37 26.25 1.5 7 Sugar 4 156 8.25 8.25 162 Panela 5 801 2 2.25 826 Rice 4 224 8 8 256 Corn 5 . 741 2 1.5 704 Wheat 6. 175 4.25 .5 124 Barley 3 .... 40 5 17.5 98 Beans5 72 2 7 100 Potatoes 5. 550 2 1 508 Yucca-Name 5 872 2 n.a. n.a. Fique 3 16 S n.a. n.a. Tobacco 3 . 34 7 7 33 Beef Cattle7 17248 3.5 3.59 17248 Hogs 7 7258 1 0 6178 Milk7 1346 15 n.a. n.a. Fish7 86 n.a. n.a. n.a. I Production targets in 1955 based on 1946 volume because (a) 1946 agricultural statistics are more complete than 1948 and (b) 1946 statistics served as basis for study of nutritional standards on which targets were based. 2 Production in 1955 resulting from trend based on a 1946-48 average, considered more likely to be safe basis for computation of "normal growth". 3 Industrial demand led to the expectation of a 1955 demand greater than that required to maintain per capita consumption. Production targets were set in the light of such industrial demand. 4 These commodities had export significance. Inasmuch as their current rate of production growth is high and satisfactory, the production targets assume the main- tenance of this rate. 3 The 1946 production satisfied nutritional requirements. The production target for 1955 should insure the maintenance of per capita consumption and is calculated bv multiplying the 1946 production or consumption by the rate of anticipated population growtlh (19.6 percent in 9 years). 6 Consumption satisfied nutritionial requirements and industrial demand in 1946, but production was deficient. Therefore, 1955 target is the 1946 consumption multiplied by the rate of anticipated population growth. 7 These commodities did not satisfy nutritional requirements in 1946. New standards of per capita consznnption were set for milk and fish to serve as bases for calculation of 1955 targets. As regards meat production, maintenance in the rate of growth of cattle stock is adequate but increases in meat yields per head should be obtained, which would fulfill the need for animal proteins. 8 Thousand head. 9 Increase in weight of about 1 percent per year also desired.  AGRICULTURE 367 data and the reasonableness of the suggested goals, but we believe the overall figures are probably not too far off. In any event, they indicate what appears to be a realistically practical increase in agri- cultural productivity and living standards, and these targets may be helpful in guiding decisions on the allocation of credit resources, irrigation and transportation projects, efforts in the fields of research and education, and the like. Targets in Specific Crops In the refinement and implementation of production goals, full and continuous participation by farmers will, of course, be required to obtain satisfactory results. Planning committees of farmers at all levels would be increasingly useful in bringing to bear their combined judgment to guide public officials in setting proper goals, devising effective programs to attain them, and in explaining the goals and the reasons for setting them at certain levels to their fellow-farmers. In the following paragraphs, the major commodities are considered and production practices discussed as they affect the production targets outlined in Table 127. In some cases, suggestions are made as to measures that might help to overcome obstacles to meeting these targets. Table 128 compares the trends in production of major agricultural crops with both the desirable and the practically attainable 1955 pro- duction goals, together with the varying rates of growth involved. Coffee. In considering future production goals for coffee, it must be taken into account that it is a deferred maturity crop rather than an annual crop like corn. Coffee trees are nursery-reared for twelve to fourteen months before transplanting and do not begin to bear until three to four years after field setting. They reach mature bearing age at about six years and, once established, may bear for as long as forty to fifty years. Obviously a goal for coffee for 1955 must be predicated almost entirely upon crop increases from trees \vhich will be in full bearing by that date. This mzeans that any young trees that might be relied on for substantial additional yields in 1955 must already be out of the nursery and transplanted to permanent field settings. Taking both short- and long-term trends into consideration, a production growth of 3'4 percent per year seems possible. This indicates that the suggested 1955 target of 461,000 tons is quite feasible, given a slight acceleration in the rate of growth of the past few years.  TABLE 128 TRENDS IN AGRICULTURAL PRODUCTION, 1938-48, AND 'DESIRABLE" AND "PRACTICAL." TARGETS FOR 1955 (Volumes in thousands of tons) (A) (B) (C) (D) (El (F) (G) (H) (J) Rate of Appareat Rate "Desirable" Production Production of Increase Rate of in 1955 if Growth Average in Productui. Production Production Desirable Rate Required To 1946 1946 1946/1948 1938/40 to Growth in 1955 if of Production "Practical" Achieve Target Production Consumption Production 1946/48 1946/1955 Past Trend 2is Growth were 3 Target for for 1955 Volume Volume Volunme (percent)' (percent) Maintained Attained 1955 (percent) Cacao . ... 11.2 18.6 10 0 13 10 34 15 3.25 Coffee . . ... . 346.0 25.0 347 3.25 3.25 448 461 461 3.25 Cottoni lint . 4.6 25.4 6 1.5 26.25 7 37 18 16.33 Sugar . .. ... .. 76.4 85.7 89 8.25 8.25 162 156 156 8.25 Panela . . .. 670.0 670.0 691 2.25 2 826 801 801 2 Rice .. . . . ........ 118.2 112.0 138 8 8 256 224 224 8 Corn ... . . 620.0 620.0 625 1.5 2 704 741 741 2 Wheat . . . 119.7 146.8 119 .5 4.25 124 175 140 1.75 Barley. ..... ....... 26.0 26.0 27 17.5 5 98 40 40 5 Beans . .60.0 60.0 58 7 2 100 72 72 2 Potatoes . . 460.0 460.0 469 1 2 508 550 550 2 Yucca-Name .. 730.0 730.0 - n.a. 2 n .a. 872 872 2 Fique ...... 10.3 10.3 - n.a. 5 n.a. 16 16 5 Tobacco . .. . . 18.6 15.7 19 7 7 33 34 34 7 Beef Cattle- (000 Heads) . . 1260.0 1260.0 1309 3.5 3.5 1724 1724 1724 3.5 (Weight) .. .. 251.8 251.8 260.0 3.5 3.5 345.0 382 382 3.5 Hogs- (000 Hcads) . 664.9 664.9 616 0 1 617 725 725 1 (Weiglht) 39.9 39.9 37.0 0 1 37 43 43 1 Milk . . .. 376.6 376.6 n.a. n.a. 15 n.a. 1346 752 8 Fish .... . .. . n.a. n.a. n.a. n.a. n.a. n.a. 86 86 n.a. Average 3 3.5 3.25 1 Fique, fish and yucca omitted in coiuputing rates of increase. 2 (F) = (C) X (D) 1 (G) calculated for different crops as follows: Panela, Corn, Beans, Potatoes, Yuicca-Name: (G) = (A) X population growth (2 percent per year). Coffee, Sugar, Rice: (G) = (A) X (D). Wheat: (G) = (B) X population growth. Cacao: (G) = (B) X growth ill industrial demand (5 percent per year). Lint Cotton: (G) = 37 thousand tons (estinmated industrial demand). Barley: (G) = (B) X estimated growth in demand for beer (5 percent per year). Tobacco: (G) = (A) X estimated growth in denmand for cigarettes and cigars (7 percenit per year). ... s... e of .310 rrams/capita/day.  AGRICULTURE 369 Most of the factors that will be helpful in reaching this production over the next five years probably are already operative. The chief of the Technical Department of the National Federation of Coffee Growers has pointed out that the adoption of advanced cultural practices, including proper soil selection and preparation, nursery propagation of selected seed strains, improved methods of transplant- ing, weeding, shading and pruning, and better techniques for process- ing and drying, has almost doubled coffee production in the last eight years. These results have been obtained with a comparatively small staff of field workers and represent only a partial coverage of the coffee growers. Every effort should be made to increase educa- tional work on the part of the Extension Section of the Ministry and of the National Federation of Coffee Growers so that needed informa- tion may be readily available to all coffee growers. Spot checks indicate that new plantings in the last several years are probably large enough to offset deterioration of old plantings and provide additional acreage to help reach the 1955 production goal as well. While it is to be expected that application of the best cultural practices to these new plantings may show the most outstanding returns in yields per tree, it already has been demonstrated that great benefit is gained from introducing rational culture in the management of established coffee plantations, and it is these older plantings which will provide the bulk of the crop for the 1955 goal. Considering the vitally important part which coffee must play in the total economy of the country, no effort should be spared to conserve and improve this established productive resource. The additional labor and equipment costs of handling the larger crop volume can probably be financed easily through normal internal credit machinery. Most of the mechanical equipment used in process- ing coffee is relatively simple and inexpensive, and much of it is of local manufacture. On the farm, coffee production is so largely a malnual operation at all stages that wages for day labor are the major item of expenise. Short-term production credit is essential, especially for small growrers, but existing facilities can readily be expanded to meet this need. Becatise coffee is a slow-maturing, long-lived crop, long-range planning looking beyond the 1955 crop goal should be carefully con- sidered. If world market conditions are favorable, there are consider- able areas of ideally suitable coffee lands in the departments of Valle del Cauca, Tolima and Boyaca, in the Santa Marta area of Magdalena, and perhaps elsewhere in Colombia, which could be utilized to expand production beyond the 1955 target. 370 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA Sugar Cane. This is Colombia's second crop in terms of value. It is grown both on efficient, highly mechanized plantations on irri- gated land, mainly in Valle del Cauca, where the cane is used for the production of a semi-refined sugar, and on small farms all over Colom- bia in association with other crops; juice from cane grown in the latter fashion is extracted and processed by primitive methods to make panela (brown brick sugar), or miel (practically unrefined extract used to make alcohol and chicha). In the limited areas of industrialized sugar production, the cane is allowed to grow for a year and a half or more and can be cut throughout the year. Total sugar cane production has increased just about to the point of self-sufficiency in Colombia and some growers are looking forward to exports. Up to the years 1946-47, however, industrialized sugar production represented only about 10 percent of the total output. Panela was absorbing 83 percent of all cane. It was estimated that the total volume of production of cane was increasing approximately 214 per- cent per year. Aggregate cane production reached 8,922,000 tons in 1948, yielding 108,000 tons of sugar, 687,000 tons of panela, and 50,000 tons of miel in total (sub-products weighing 9.5 percent of the initial volume of cane). The desired expansion in sugar production (8Y4 percent per year) and in panela production (2 percent per year) does not require undue expansion in sugar cane. The prohibition of chicha has decreased the demand for miel to perhaps one-third of its former level. Forecast tonnage of cane sub-product output in 1955 would thus be about 1,000,000 tons, equivalent to about 10,520,000 tons of cane. This implies that the acreage of sugar cane need increase by only 17 percent from 1948 to 1955, or at about the past rate of 2% percent per year. There may arise, however, some problems of area distribution. The maintenance of a rate of increase in output of 2'4 percent per year in the temperate or cold areas may result in a surplus of cane, while its maintenance in Valle del Cauca would result in a deficit which could be only partially compensated by sugar imports from other regions. It is believed, however, that farmers are already aware of the first possibility, and are reducing their plantings in the temperate zones, while the Cauca Valley sugar producers are making great efforts to keep up with huge demands. If some investment is made in plant expansion, output of refined sugar could reach a level of about 160,000 tons by 1955. This would apparently make some sugar available for export. However, a part of the sugar manufacturing industry wvill be confronted with a serious problem if Colombia reaches a level of production that requires con-  AGRICULTURE 371 stant export outlets. The sugar now manufactured is not raw sugar, but at the same time it is not sufficiently refined to compete in world trade as refined white sugar except in cases of world-wide scarcity. While it is a granulated sugar, its color has a grayish cast that might limit its sale. Thus considerable changes in the manu- facturing process may be called for if Colombia wishes to expand exports. This might require almost complete replacement of some of the older plants, and would involve expenditures both in pesos and in foreign exchange. There seems to be no physical difficulty hampering a larger produc- tion of panela. Indeed, as noted abcve, the availability of cane for panela has considerably increased in the last two years because of a lower demand for miel (resulting from the prohibition of chicha). But panela sales may drop considerably if costs and prices cannot be substantially reduced. Current price spreads between panela and refined sugar are only 10 percent; as a result, people shift to the more expensive product, which seems better suited to their taste. This shift is unfortunate, however, from a nutritional standpoint, since panela contains mineral salts and other elements needed to provide a balanced diet and which are lacking in sugar. We recommend that experimentalv work be initiated promptly in an effort to lower production costs for panela and improve its competi- tive position. The primary need is to increase the cane-juice extraction from 50 to 60 percent for the panela mills as against 80 percent or more in the larger sugar factories. The whole process of handling cane, and boiling and handling the cane juice, should be considered with a view to eliminating present inefficient methods. The educational program of the Extension Section can also con- tribute by recommending improved practices in the raising of sugar cane. Better methods of irrigation in flat lands (irrigation should be avoided on mountain sides where it accelerates erosion), of weed con- trol (possibly by the use of airplanes), and of using soil improvement crops should be helpful. Additional investment in field machinery and new irrigatiorn developments is recommended-possibly as much as Ps.$4 million a year for machinery and Ps.$0.6 million a year for irrigation. The latter expenditures would be helpful in increasing production of cane for sugar after 1955, even though it might not influence production much before that time. Cereals, Roots and Similar Crops. The Colombian diet is fairly high in terms of calories. This is mostly due to the fact that Colom- bian agriculture is a good producer of cereals (averaging 350 calories per 100 grams) and roots and nutritious fruits (averaging 40-125 372 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA calories per 100 grams). Trends over the past fifteen years seem to indicate that per capita output in most of these crops has been main- tained, if not improved. For these reasons no great efforts are needed to increase their production except where, as in the case of wvheat, local supply must be supplemented by imports; or as in the case of rice and "export" bananas, an increase in exports is possible, or as with barley, there is a demand for other than direct human consump- tion. Thus, the growtlh in production of platano, yucca-name, arra- cacha, potatoes and perhaps corn should not exceed 2 percent per year. It could even be argued that no danger would be involved in a decrease in the per capita consumption of these foodstuffs, and that the resources released by this decrease could be used for production of 'protective" foods and export crops. This, however, would imply more confidence in the accuracy of Colombian agricultural statistics than appears justified, and would exclude the possibility of using some surplus crops of yucca and corn, for instance, in experimentation for industrial use or animal feeding. Corni. In setting the production target at 741,000 tons, no allow- ance has been made for use of corn for cattle and hog feed, but any such diversion from human consumption would be partly offset by the production of additional meat. In any case, large-scale use of corn for feed is unlikely in the next few years for reasons of habit. The construction of storage facilities to prevent spoilage of corn is desirable. The Extension Program should stress the use of im- proved varieties of corn and better seed selection methods. When the results of current research on "synthetic" corn varieties and on hybridization become available, they are likely to point the way to much greater yields, which would open the possibility that corn pro- duction could be expanded sufficiently after 1955 to support a corn- based livestock program. Each of the four zones should be able to reach self-sufficiency in corn production, with Zone III requiring the most help. Rice. Although statistics on rice production are not deemed reliable, the production level has apparently risen very rapidly in the past ten years. There is no reason to believe that this rate cannot be maintained, which would bring output to a level of 225,000 tons in 1955. However, there is evidence that the country has practicallv reached self-sufficiency in rice at present levels of consumption, and unless domestic consumption can be increased, additional production would have to seek export markets. Before Colombia can compete satisfactorily for a share of the world export market, the average quality of rice now produced will need to be considerably improved  AGRICULTURE 373 and production practices on most farms will have to be changed sub- stantially. Present cultivation covers a wide range of practices from the crudest hand methods on small farms to a high degree of mechaniza- tion on large irrigated plantations. Two crops are harvested yearly. Frequently land is kept in constant rice cultivation for a 5-year period. This infrequent crop rotation intensifies red rice contamination, weed infestation, and disease problems. The present widespread use of mixed varieties of seed results in varying degrees of maturity at harvest and high percentages of chalky and broken kernels. Pure varieties of the best types of seed will have to be used to produce export grades of rice, and rigorous steps will have to be taken to eliminate the serious contamination of red rice. Even with more uni- form maturity some of the crop harvested by combines probably will require artificial drying to insure acceptable market grades. It appears likely that most of the rice suitable for export will be grown in the interior surplus areas, and therefore will have to absorb heavy freight costs to ocean ports before it can enter export trade. These production and transportation problems, while not insurmount- able, will undoubtedly tend to deter over-rapid expansion of produc- tion Their existence also suggests that priority should be given to the development of rice cultivation by potential producers nearest the coast in the departments of Valle del Cauca and Bolivar. It is doubtful if any advantage would accrue from a substantial increase in rice production over domestic consumption needs, unless and until the work in improved cultural practices requisite for the production of export quality is well established. On the other hand, Colombia has the land and water resources to increase greatly its rice production, and further mechanization could accelerate the in- crease very rapidly. An investment of Ps.$4 to Ps.$5 million a year in irrigation facilities might contribute slightly, toward the end of the five-year period, to attaining the 1955 target, and would help materially in reaching higher goals in later years. Likewise, Ps.$1 million a year invested in drying and storage facilities should help to conserve rice and make the target more easily attainable. Around Ps.$4 million a year invested in farm machinery would also be useful in this regard. Wheat. The target of 175,000 tons for 1955 was set on the basis of consumption forecast at a level of about 46 percent above 1946, or at a rate of increase of about 5 percent a year. There seems to be little prospect that this target can be attained, and it is questionable whether it should be, or indeed whether any expansion of wheat pro- 374 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA duction should occur in Colombia. Wheat is not well suited to tropical or subtropical countries. Its appearance in Colombia results from the existence of high altitude zones with cold climates. Even those climates and the soil of the Colombian "wheat belt" are not conducive to efficient xvheat production. We have, however, pro- ceeded on the assumption that some increase should be planned, if only to improve the situation of depressed areas such as Boyaca and Narinlo, xvhere wheat is a major crop and where few, if any, alternative uses for the land are available. Wheat production is already highly subsidized through price sup- ports, but this incentive has not yet brought about inuch higller pro- duction levels than the 120,000-140,000 tons attained during the war. A fine program of research is under way, particularly to select varieties resistant to rusts, but it will probably take another two or three years before the results are definite enough to serve as a basis for recom- mendations. Further time may be required to build up significant supplies of the varieties of seeds that prove most satisfactory and the experiments will need application on different soil types and in different climates. So far the projected research to develop wheat varieties for the warmer climates has not been started and it appears doubtful whether this is desirable. No substantial increase in production is likely, therefore, before 1955. However, we believe it could be raised above current levels, perhaps to 140,000 tons by that year. This increase could be obtained through introduction of fertilizers, adequate rotation, educational pro- grams and some further mechanization of production on level areas such as the Bogota savanna. Quite substantial increases in wheat pro- duction may be possible after 1955 as the results of experimentation become available. Barley. Barley occupies a very small acreage. Its production increased considerably in recent years, because of the mounting de- mand for beer, and present output may well satisfy the wvhole of this demand. Further expansion of barley production should not, there- fore, beat the previous rate, and the target-40,000 tons in 1955- should be easily within reach. Aside from its industrial uses, barley serves as a food in the most depressed areas. Higher incomes may bring about its replacement by potatoes, rye and wheat. It might be desirable and fruitful to test its possibilities as a hog feed; if this is profitable, it would furnish an excellent source of additional income to the inhabitants of the cold areas.  AGRICULTURE 375 Pldtano, Yuicca aind Namne. The platano (the cooking banana), one of the most important food crops in Colombia, is the one about which statistics are most vague. Most farms, in practically all re-ions ex- cept the coldest, have at least one patch planted in plitano. Total production has been estimated to be about 1,000,000 tons per year. Much of it never enters into the money economy. The nutritional value of the several varieties of plitano is roughly equivalent to that of potatoes, while yields are higher and cultivation is less expensive. The success of this crop in Colombia is one of the major reasons why the average diet is adequate in calories. However, with mounting incomes, the shift is toward a costlier diet. Platanos and bananas are gradually replaced by potatoes and cereals. This process is slow, but its existence indicates that there is no need for growth in plitano production above the rate of growth in population, and perhaps production should re- main stationary. Statistics for yucca and name are only slightly better than for platano. These two crops, of a nutritional value similar to that of the platano, are also household economy staples. According to official estimates, their production has substantially increased in the last fifteen years. The existence of this trend is open to question; at any rate, it is unlikely that there would be any difficulty in maintaining present per capita production. "Export" Bananas. Only a small part of the banana crop is ex- ported. Production of the export banana is highly industrialized and concentrated in a specialized area. The fruit is of uniform type and carefully selected. The export banana is thus a distinct product from the banana cultivated in the interior. Colombian and U.S.-owned plantations near the Atlantic Coast have managed in recent years to combat successfully various plant diseases and are recovering some of their past importance. The possi- bilities of expansion of banana exports from the coast, however, are limited for relatively few people will embark on such a speculative enterprise; and it is doubtful that the banana of the interior will ever find its way into foreign markets. It is hoped, however, that some expansion of export banana plantations can be undertaken near Tumaco, an area which has been reported as favorable. At best this would lead to the expectation of a 10 percent increase by 1955. Potatoes. Potatoes are such an important food, and are so gen- erally liked by all classes of people in the areas where they are readily available, that it seems reasonable to assume an upward trend in pro- duction proportionate to the increase in population. It is believed that the proposed 1955 target of 550,000 tons can be realized and probably 376 THIE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA exceeded, without increasing the acreage now planted to this crop. The potato was being used as a food crop by the Indians when Europeans first came to South America. While there are exceptions, the generally prevailing pattern of potato culture is still crude and primitive. Typically, the crop is grown largely by hand labor in small patches, averaging perhaps one hectare per farm. Yields and quality are both low compared to other producing countries, and potatoes are a high-priced food even near areas of production. Practically all the crop is consumed within the country and because of the high cost of transporting such a heavy, bulky commodity, much of the consump- tion occurs in the highland regions in fairly close proximity to pro- ducing areas. It seems unlikely that there will be any significant changes in the consumption pattern, except for a gradual increase in volume, up to 1955, and it is probably safe, therefore, to assume that producing areas will largely continue within their present geographic limits. If increased production is to be realized without expanding acreage, better cultural practices must be generally adopted by the many small growers who produce most of the potato crop. During the centuries since its wide adoption in Europe and America, the potato has been greatly improved by rigorous selection of high-yielding strains for seed, better systems of tillage, propagation of disease-free "certified" seed, systematic control of insect pests and plant diseases, and by use of superior harvesting, packaging and storage techniques. Colom- bian potato growers can increase yields and improve the quality of their crops by the use of these proven practices, which would have similarly beneficial results in Colombia. The problem is largely one of education. It is strongly recommended that a special educational program in better potato-farming methods be undertaken by the Extension Section of the Ministry of Agriculture and that its field staff be increased to the extent necessary for this purpose. There are noteworthy exceptions to the generally poor methods of potato farming in Colombia. Some large farms on the Bogota savanna compare favorably with the best potato farms in other countries. Only the best producing varieties of disease-free seed are planted, and from the initial preparation of the land to the final grading of the harvested crop, the best modern technology is applied. Yields and quality are excellent. Large-scale mechanization of potato farming is not practicable for the small growers who produce the bulk of the crop, but much more general use of lighter animal-drawn machinery should be encouraged wherever field topography will permit. The use of fertilizers also should be introduced. An additional investment of  AGRICULTURE 377 at least Ps.$200 thousand per year in animal-drawn tilling and digging equipment for small potato growers is recommended for the next five years to assist in attaining the 1955 target. Cacao. While Colombia exported cacao in the early years of the century, since the early 1930's its production has not sufficed even to fill domestic requirements. A substantial increase would be desirable, from the current level of 10,000 to 11,000 tons a year to about 34,000 tons in 1955. However, there is little likelihood of achieving produc- tion of more than 12,500 to 15,000 tons by 1955. Little change in cacao acreage was reported from 1934-38 to 1946 or 1948. Production was quite stable, increasing only approximately one-half of one percent a year over the whole period and decreasing slightly from 1939 to 1947. It has been reported that in the last two years some young trees have been planted. This leads to the expecta- tion of some increase in production in 1955, but not before, because it takes approximately five to six years to get trees into substantial pro- duction. Other factors that might increase output somewhat during this period would be improved cultural practices, better handling of cacao beans harvested from existing trees, the expansion of old and the creation of new bean nurseries, and perhaps additional irriga- tion. Without new plantings, the maximtim increase that could be expected would be at the rate of perhaps 2 percent per year, which might raise 1955 output to 12,500 tons; the addition of some new trees that could come into production by 1955 might permit raising the practical target to 15,000 tons. But probably more important than the 1955 cacao production is that of five or ten years later. There is still plenty of time to influence 1960 or 1965 output. A goal as high as 20,000 tons would not seem unreasonable for 1960. An important factor in such possible future growth is the experimental work under way at the new Cacao Experi- ment Station near Puerta Tejada; individual trees have been tested for a year and a half on nearby cacao plantations with a view to eventual propagation by cuttings from the better trees. Since the Cauca Valley (Zone IV) is apparently free from the witches broonm disease, a considerable expansion there seems warranted. Looking ahead still further to the time when Colombia would not only be self-sufficient in cacao production, but also might enter world markets, raises a question about types and varieties. The criollo or wlhite bean cacao is reported to be of very high quality and to be able to compete in world trade on a basis of quality. But it does not yield as well as the pajarita cacao which has purplish colored beans. In the long run, if Colombia intends to raise cacao for export, it would 378 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA seem desirable to devote some of the experimental program to select- ing higher yielding strains of the white bean variety which have an advantage in world trade. An investment of approximately Ps.$0.2 million a year over the next five years in cacao bean nurseries and additional irrigation facili- ties for cacao seems to offer the best prospect of getting cacao pro- duction up to the 12,000- to 15,000-ton target tentatively set for 1955. Substantial investment in new plants, and types of credit adapted to these requirements, will be necessary to achieve the desired post-1955 expansion. Cotton. The Colombian Cotton Institute has estimated that an annual production of 30,000 tons of lint cotton is needed to supply current domestic requirements, and this figure is not far from the production target of 37,000 tons8 shown in Table 128. This target, however, is about nine times the 1934-1938 average production and about seven times the production reported for 1946. Notwithstanding the strong incentives offered by the Government to increase production rapidly, it is unlikely that such a tremendous growth in lint cotton production can be realized by 1955. The most important difficulty is in locating and developing sufficient suitable land. No proven produc- ing acreage well adapted to immediate exploitation for cotton grow- ing on such a large scale is available although the Sinu region looks promising. Therefore, a figure of 18,000 tons is suggested as a more practical goal for 1955. This would require increasing production to three times the 1946-48 average. While this would still be a very large expansion, there is great interest in cotton and there seems to be a reasonable chance that it could be attained if prices are adequately stipported. But it will require serious effort on the part of the Govern- ment and interested citizens alike. Both quality and average yields of cotton in Colombia are gen- erally low, but yields on the better farms in Tolima and the Sinu Valley in Bolivar compare favorably with those of good non-irrigated cotton lands in the United States. The Sinui Valley around Monteria is a new area considered to have great promise because of the high yields produced on limited acreages planted during the last year or two. The land is very fertile and growers believe there is adequate annual rainfall to grow a crop of cotton for one picking a year without irrigation, to be followed by a quick maturing crop like sesame or beans before the next cotton planting. There were 2,000 to 3,000 hec- tares of new land being planted to cotton in the Sinui Valley in 1949 and if they yield satisfactorily, this new area may prove to be an 8 The growth in the demand for cotton textiles should be taken into account.  AGRICU-LTURE 379 important source of increased cotton output in the years to come, but the lack of skilled picking labor there may well create difficulties even wvith the present limited acreage. Cotton farmers may need assistance in recruiting anid training labor. At least one mechanical cotton picker has been purchased in the hope of solving the aniticipated labor shortage, but it has not yet been te.eiS on the rank groWving Sindi cotton. The mechanical picker xvas not considered very pronmising in previous tests in the Armero section of Toliia. Perhaps more satisfactory results \vould have been obtained if a chemical defoliator had been used to reduce leaf trasl and speed the maturing of green bolis. Other newv areas are also being planted in cotton. In the Magdalena Valley south of ILa Dorada over 1,000 hectares are reportedly being planted for thie first time. In many respects this may be considered an extension of the type of cotton farming established farther south in the Armero section of Tolima. TIhe type of soil appears to be good, but it is likely that seasonal deficienicies in rainfall at the critical bloom- iug period nmay cause excessive bloom-drop and serious reduction in yieldls in certain years, as it does occasionally in the Armero area. It has also been reported that the San Jorge Valley is particularly suited to extensive cotton cultivation. In this case (as in the case of the Sil.), transportation facilities xvill have to be considerably improvedl if real progress is to be made. The Saldana Irrigation Project in Tolima, nov under construction. vill supply wvater to 15,000 hectares of land, some of it suitable for cotton growving. This project will not, however, be completedl in time to develop any substantial cotton acreage for 1955 production. Acceleration of this wvork as much as possible miight help in attaining the target. About Ps.$6 to Ps.$S million a year invested in irrigation xvould appear to be wvorth while in helping to meet the 1955 target and especially to increase cotton production in later y ears. Investment of around Ps.$3 million a year in farni machinery, about Ps.$1 million per year in better transportation for the Sindi and Sani Jorge VTalleys, and the creation of special credit facilities for new plantatiolns should also be helpful. Educational extension programs may be of consider- able valuc in teaching improved practices in cotton growing. Fiqiie. The target for fique for 1955, requiring increases at a rate estinated to represent the growth oi industrial demand, should be reached without major difficulty. Fique is used largely for packing other products, particularly coffee, and its production has been keeping in line with demand. Farmers xvill probably continue to grow needed amounts A-ithout any special programs to aid thelmi. 380 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA Tobacco. The 1955 target for tobacco wvas set at 34,000 tons, oni the basis of mainitailaing the past rate of increase-about 7 percent a year from 1934-38 to 1946. While continuance of this rapid expan- sion will place a heavy burden on tobacco growvers, and may not be feasible, nevertheless the proposed target seems about as reasonable as any other. Santander is likelv to remain the principal center of tobacco production for many years, but some areas suitable for tobacco growving exist in all four zones. At cost and return ratios prevailing in the United States, tobacco justifies rather heavy applications of commercial fertilizer on most soils, with substantial use of potassiulm along with phosphorus and nitrogen. Unfortunately, research results are not available to indicate whether such a practice should be recommended in Colombia. We recommend, therefore, that extensive fertilization experiments be conducted on tobacco in different soil types during the next three or four years. If tile results favor the use of fertilizer, intensive educa- tional efforts by the Extension Section of the Ministry of Agriculture and the Tobacco Cooperative to encourage such use might contribute to increasing productionl by 1953 and later. Educational w-ork on methods of sterilizing plant beds is needed. Experiments in topping growing tobacco plants should be carried on. wvith a view to determining whether this practice wrould result in a greater yield of productive leaves. If it proves useful, it should be wide- ly taught to farmers through demonstration programs, wrhich should be accompanied by educational work on seed plant selection since wvhole fields of seed would no longer be available. Finally, we suggest that legislation affecting the monopolistic position of tobacco buyers could substantially improve the position of the tobacco farmer and, by giving him a oreater incentive, would help to assure achievement of the target. Beans. Many types of beans are cultivated and consumed in Colombia. Statistics on past production levels seem unreliable, but this crop does not seem to require special attention. No difficulties are anticipated in maintaining per capita production levels until 1955. Beef Cattle anid Becf. The 1955 targets for beef cattle and beef involve not only increasing beef cattle production at the same rate as in past years, but also increasing the average weight of slaughtered cattle by about I percent per year. This -will require better livestock management practices, and particularly the improvement of pastures. Keeping in mind that other recommendations, particularly for accelera- tion of parcelization programs, are in the direction of reducing the acreage of good lalnd in pastures, the need for pasture improvement is eminphasized.  AGRiCULTERE 381 It has been reported that the cattle population in 1948 was 14,500,000-an increase of 80 percent over 1938 estimates-and that 1,315,000 head w-ere slaughtered. It is also reported that 43,000,000 hectares of land were in pasture in 1948. Allowving for the use of part of this land by other varieties of livestock, the pasture probably averaged more thani four acres (1.6 hectares) per head of cattle. The large amount usecd is due to failure to seed pastures with better grasses and pasture mixtures. Improvement of pastures by reseeding defi- nitely will be required to attain the 1955 target. Reseeding- of one million hectares a year does not appear to be an unreasonable objective. Guinea grass, para grass, India grass, and yaragua uribe grass should be considered. It is important also to provide adequate drinking wvater for cattle in Bolivar, Magdalena, parts of Tolima and Huila and the eastern llanos, and opportunities for low-cost supplemental irri- g-ation of pasture should be sought. Continuance of the breeding program, particularly development of cross-bred animals capable of being grown and fattened in 2X2 to 3 years, instead of four or five, would be very helpful. The bull pools, containing both beef and dairy bulls, maintained in many sections of the country by the Animal Industry Division of the Ministry to enable farmers to breed their cows free of charge, are rendering valuable service. Some farmers, howvever, show poor judgment in introducing dairy blood into beef herds. Since thousands of cattle lose 100 to 200 pounds or more while being driven to market on foot, the provision of better road trans- portation facilities from producing areas to central slaughterhouses or markets would help to conserve meat already produced. Hogs and Por.. The number of hogs slaughtered each year aver- ages slightly less than one for each two farms. Hogs are fed on waste products and are never fattened on corn or grain. Their production seems to have been fairly stable since 1938 and has not kept up wvith population increases. The target for 1955 is based on an increase in pork production at a rate somewvhat lower than the population inicrease. We suggest that farmers be urged to experiment with feeding some corn, barley or soybeans to hogs. If, in spite of the high cost of such feeds, farmers wvere to find their feeding profitable, it would help materially to reach the target. Expansion of hog production should be possible over rather widespread areas (especially in Bolivar and Nfagdalena) and it appears that each zone should be able to increase production up to its full qcuota of the target. 382 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLO-MBIA Alilk. Studies of Colombian nutritiontal standards indicate a per capita consnmption of about 100 grams of milk per clay in 1947. equivalent to a production of 376.6 thousand tons. (A substantially hiigher production has been reported, but the figures appear to be iuch inflate(l.) To obtain a supply of milk adequate for health, the level of output shotldl be lifted to 1.346,000 tons by 1955. vhich is obviounsly impossible. B'ut an increase of about 103 percent to 753,000 tons may be feasible. To achieve this result vigorous efforts vill be necessary. First, the imiport of milk cows of selected types, at the rate of about Ps.$2 millioi per year, is desirable to boost production and improve dairy herds. Second, the breeding- of dairy cattle should receive continued attentioni, particularly the development of breeds that do well in the hot portions of the country. Third, pasture lands should be improved throng-h adequate rotation; grass should be considered and cultivated as a valuable crop. Fourth. training should be given throng-h expanded Extension programs, particularlv in areas near the larger cities, in better milk produlctioln and sanitation practices. Special attention should be paid to Qettin-g dairy farmers to milk their coNvs twice a day instead of allowinilg the calves to nutrse part of the day. Strong encoturagemiienit should be given to the keeping of cowvs to produce milkl for home use on the farm. Slhee an1d Coats. The country needs the wrool, mohair, and meat that increased production of sheep and goats wvould provide. ThroughI the E.xtension program, special educational activities should be carried out to help farmers increase production of those types of livestock, especially in the higher altitudes of Zone I, in Cundinamarca, Boyaca. and the Santanjders. Imports of selected breeding stock may coIn- tribute substantially to increased production. I'oidztrv anzd Eggs. We recommend special attention to encouragin- all farmers to rai,e chickens and - - for honme use, and to demon- strating- improved poultry raising- and feeding practices. Breeding appears to be a special problem; there is great need for hens that ill lax- more eggs per year and also be better producers of meat. Breeding flocks. to be used as a source of hatching eggs or baby chicks at strategic points, should be developed by the Government if private enterprise does not fill this need. YVith sources of better stock easilv accessible, education on better feeding and management practices might be more productive. Honc I-egetable Gardens. The diet of a large proportion of Colom- bia's farm populationi is seriouslv lacking, in freslh fruits and vege-  AGRICULTURZE 383 tables, particularly green leafy and yellowv vegetables of hio-h vitamin content. Many farms have no home vegetable garden and completely neglect the possibilities of this supplementary source of foodl. Prob- ably this is largely the result of lack of knowledge of the dietary importance of protective foods. The only satisfactory goal for this phase of the agricultural program would be to have every farm pro- ducing a variety of vegetables and fruits for home use and as mtuch surplus of garden crops as markets will absorb. About three years ag-o an official project wvas set up under the Extension Section of the Ministry to encourage miuch xvider use of home gardens by furnishing selected garden seeds free to farmers. A manual of instructions for planting and cultivating the vegetable garden also was provided for free distribution. NVhile this programl has been very limited in scope compared to the great need for farm gardens, it has greatly benefited those families it has reached. The results already obtained warrant its being greatly expanded. Fishcries. An efficient and economical way to increase thc protein supply in the diet is to develop the fishing industry, the possibilities of which have been exploited to a very limited extent. It has been estimated that with an investment of Ps.$10 million to Ps.$20 million in boats, fishing equipment, and canneries, the supply of fish might be increased from around 10,000 tons per year at present to 8 or 10 times this amount. The target of 86,000 tons by 1955 xvould provide an average of 7 kilograms per capita per year (concentrated, of course, in the coastal departments). which might reduce the conI- sumption of meat and make available some exportable surplus. A prog-ram is under w-ay to increase fish production. M\ore positix e incenitives to private ventures in this field might well be provitled. GENERAL RECOMMENDATIONS Probably the most important single factor making for low pro- ductivity in agriculture in Colombia is the uneconomic and paradoxical use of land. As we have seen in Chapter V, the good, level, arable land situated near populous centers is strictly limited; yet, for the most part, it is devoted to the grazing of cattle, and is customarily ovned by, absentee city dwellers. On the other hand, the bulk of the foocl is grown on tiny farms which are generally on steep slopes and in poor soil. The average Colombian farm has only tw-o hectares of crop land, and many farms are considerably smaller. Many farm people owvn no land at al'. and Awork on the larger farms for a living. Even many of the coffee growvers have so little land of 384 THE BASIS OF A DEVELOPMlENT PROGRAMI FOR COLOMIBIA their Ovin that they have to work part time for larger coffee growers to eke ou1t a living. There are, therefore, two aspects to this problem: better and more economical uise of land, particularly of the rich valley and savanna lands; and opporttinity for wider lanid ownership for those who till the soil. In Switzerland, where the supply of level arable land is also very limited, absentee ow nership of farm land is severely restricted; those \vho own farn lanid must live on it. Colombia might study this precedent wvith profit since owlnership of sufficient farm land to pro- vide a good living throuah intensive farming wvill almost automatically lead to improved land use, besides providing obvious social benefits. Substantial amounts of good land, which could and should be used more efficiently, appear to be available, including (1) privately owned, presently underutilized land; (2) undeveloped land now under public oxvnership; (3) small uneconomic farms, which may be combined into more efficient units as some of the present operators are drawn off to new farming opportunities or industrial employment; and (4) nexv land which could be made available for farming through irriga- tion or drainage, such as areas in the Sinu Valley and -Northern Tolima. To get these lands into effective cultivation it will be neces- sary to provide financial and technical aid, improved health, educa- tional and transportation services. Colombia can ill afford underutilization of its limited arable land. This is, therefore, a matter of concern to the vhole communiiity and not to the private owner alone. If, for example, one person owined all the level land in the country and insisted on using it for cattle grazing, the nation would be impoverished. The same principle applies when a relatively few oxvners do virtually the same thing. Inefficiency, poor organization, or misuse of resources anywhere in the community affects adversely the -vell-being of the whole community. NWhat is urgently required, therefore, is some means of inducing the o-wners of arable land either to put it to its most economic use, or to dispose of it to others who will. Tax Inducements to Efficient Land Use We feel that the most effective method of achieving maximiium utilization of land is a system of taxation -which -vould penalize poor use of good land. The special tax on unimproved land imposed in various countries and the mild penalty tax on unimproved and unutilized urban land in Colombia itself are precedents in point. The system might wvork somewvhat as followvs: The first step is to revalue for tax purposes the best farm lands  AGRICUTLTURE 385 of Colombia to reflect the steady increase in land values. Most good land is grossly undervalued. Additional funds and facilities should be afforded the Instituto Geografico Militar y Catastral to enable it to accelerate its revaluation of farm lands. First attention should be paid to the highland valleys of Cundinamarca and Boyaca, and next the lowland valleys of XValle, Cauca, Bolivar, Tolima, Huila, Magdalena, Cundilnamarca, Santander and Santanider del Norte. W,Te do not suggest at this time that the existing basic tax rate of Ps.$4 per thousand be altered. 9 An increase in valuations wvould in itself provide a very substantial increase in yields for urgently needed local services. WVe suggest, however, that this basic rate be progres- sively increased as the net income fronm the land falls below- a certain percenltage return on the current market value of the land as deter- rnined by the Instituto Geografico. In general, the high valleys of Cundinamarca, Boyaca and certain sections of Narifio may be expected to yield less than the valley lands of V'alle, Tolima and so forth. It is probably desirable, therefore, to set as norms different rates of returni for these different types of land. The actual rates and the degree of progression should be determined after careful study. How ever, in view of the relatively high return to capital in general, it seems reason- able to assume that land in the savannas of Cundinamarca should, if properly farmed, yield a return of at least 10 percent on market value. If land use produces the normiial rate of return, the basic tax rate -would apply. If uneconomic use of land brought lower returns, the tax rate should be progressively raised as indicated in Table 129. TABLE 129 ILLUSTRATIvE TAX RATES PER THOUSAND BY INCOME CLASSIFICATION Equivalent Net Income Tax Rate Income Tax Returnl (2) as percent of (1) (1) (2) (3) (4) Ps.$100 Ps.$ 4 Ps.$ 96 4.0 90 5 85 5.6 80 6 74 7.5 70 8 62 11.4 60 10 50 16.7 50 13 37 26.0 40 16 24 40.0 30 20 10 66.7 20 25 - 5 125.0 10 32 -22 320.0 0 40 -40 - 9 Established by Decree No. 2473 of 1948. 386 TTIE BASIS OF A DEV'ELOPMIENT PROGRAMI FOR COLOMiBIA For lands in the lowland valleys. the standard rate of return might be tak]en as 14 percent of market value and the whole rate schedule stepped Up correTpondin(gR-l. It might also be desirable to raise the lower limit at vwhich the excess profits tax begins to apply in the case or property subject to this tax. The progressive rate should probably not apply to land undergoillg reforestation or planted in cacao or palm nut trees. Administrationi of the tax could be carried out by the National Governmilellt. but the receipts should go back to the country districts to improve healtlh andl education and to finance local services in accordance with established form-ulas and tinder standards laid do\vn by the National Governrmcnt. It must be reemphasized that we are here concernied not so much with the details as with the principle of this proposal. The importanit thing is that these v aluations be made and the rate of progression rletermlinied in such a way as to provide an imllmediate and positive incentive to correct the present iiistuse of the best lanlts of Colomnbia. wvhaich conistitute muach the largest part of the national patrimony. In addition to providing a direct stimulus to more intensive farming, the proposal -would also operate to depress inflated land values-i.e., those not justified by the productive capacity of the land in qduestion-and so put better land within the reach of poorer farmers. AMoreover, it xvould tend to increase employm-lent opportunities. since it has been the general experience that conversion of land from cattle grazing to intensive cultivation, even with machinery, creates an increased demand for agricultural labor and equipment operators. l3v expanding the productivity and incomes of agricultural wvorkers gen- erally, it should help to expand the market for manufactured prodlucts and thus lay the basis for more efticielnt and diversified industries in Colombia. While our tax proposal will tend to makie the acquisition of laud easier for small proprietors, the land affected will still usually be beyond the means of most rural people. To satisfy their desire for more land, andl to achieve the economic and social benefits of owner- ship of land by those wvho cultivate it, this proposal needs to be supp)lemented by other measures. The Governmelnt in recent y ears has inaugurated a farm purchase program through the Institute for Parcelization and Colonization of Land. This program is excellent in intenition, but the cost is heavy and the progress has been slo\v. The Institute should make arrangements to take full advantag-e of the services, personnel and experience of such agencies as the Extensioni Section of the M[inistry of A-ricuiture the Caja Agraria, the Housing Institute, and perhaps others. In adldition, ve feel that this programl  AGRICULTURE 387 should be enlarged ancd pushed forward more vigorously, but it must b3e suppleniented by other more direct and immllediately effective measures if tangible results are to be achieved within a five-year period. Agricultural Credit One of the primnary needs is credit on favorable and suitable terms for the purchase of land, for necessary improvements, for initial operat- ing capital. Intensive training and supervision will usually be needed to enable the farmer to repay the loans he receives and to enhance his general chances for success. The loans miglht be made conditional upon the borrower's agreeing to follow desirable farm and home man- agemeint plans. Continuing advice and supervision should be given to assist the family in making and carrying out such plans. A program combining- credit and technical supervision might well be initiated in carefully selected areas of good land now under public ownership. Limited amounts of public lands might be made available to small farmers free of charge, together with credit for buildings and equip- ment. Also, opportunities might be found to make a living- through1 a combinatioi- of farming and forestry as well as through farming alone. Although loans are presently beingi made for a great variety of purposes, the Caja de Credito Agrario, Industrial y Minero, the prin- cipal farm credit agency, does not have sufficient funds to permit it, along with banks and other credit agencies, to meet the full need for agricultural credit. Moreover, the long-term loan field is almost entirely neglected, again apparently for lack of funds. Even in 1948, the year of the Caja's largest volume, only 140,540 loans amounting to Ps.$119 million were made. Thus only about 12 percent of the farmers were served by the Caja, and observation in various parts of Colom- bia clearly indicates that private bankis have not been meeting the credit needs of the remainder. To make inadequate funds go as far as possible, only short and intermediate term loans were nmade in the main, most of them being for production purposes and runnino- for not more than one year. It is strong-ly recommended that adclditional funds be made available to the Caja to enable it to meet the credit needs of agriculture more ftully. It is also recommended that the Caja establish a program of long-term credit to finance the purchase of farms, and improvements such as farm buildings, farm storage facilities and irrigation and drainage works. Such loans might well run 30 or 40 years, at loW interest rates. One of the understandable reasons why the resources of the Caja 388 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA have tended to be loaned out in iedium and larger sized loans is the need to cover its operating expenses. Generally, interest rates even of 65 to 7 percent will not cover expenses on a very small loan, in- cluding necessary advice and supervision. Too often, as a result, small farmers have to resort to the town money lender and pay inter- est of 30 percent or more, wvith no advice or assistance. A special service charge to cover the heavy overhead costs of small short-term loans may be justified, if it would really serve to extend the Caja's facilities to small borrowers in adequate amounts. Or it may be de- sirable for the Government to subsidize a lowver interest rate for cer- tain types of loans, by covering part of the Caja's administrative costs from annual appropriations. Loans can be made to imluch better advantag-e, both to the lender and to the borrowver, if they are based on sound farm and home man- agement plans. This wvould require either a close and cooperative working relationship betwveen the Caia and the Extension Section of the Ministry, or the employment by the Caja of its owvn agricul- tural technicians. In either event, the Government shoultld bear tile cost of admiiniisterinig the educational part of such a program, since it should be a public responsibility. In this connectioln, we suggest that a careful study be made of the experience of the small loan and technical assistance program for lo\v-income farmers carried out by the Farm Secturity Administration in the United States before World WA\ar TI. Lending activities of the Caja Aoraria should be carefully coordi- nated wvith the programs of other agencies, particularly the Institute for Parcelization and Colonization and the Territorial Credit Institute. Greater coordination of the credit activites of such semi-public agen- cies as the National Coffee Growers Federation and the Antioquia Cattle Fund, which are financed -wholly or in part with public funds, with those of the Caja Agraria is also recommended. We suggest further that the Caja give greater emphasis to loans to cooperatives, ivork out suitable credit terms for this purpose. and aid cooperatives vith advice on their financial problems and adminis- tration. Loans for forestry and fisheries are also needed; special terms should be worked out to fit the requirements of these indus- tries. The Caja A-graria is currently engaged in many activities, such as merchandising machinery and supplies, besides credit. In order to give it greater freedom to handle properly a greatly expanded credit program. it should be relieved of these other responsibilities. Loans to private contractors for the purchase of such equipment as shovels, bulldozers. land levelers and subsoilers wvould permit them to handle,  AGRICULTURE 389 through custom work, projects for flood control, drainage, irrigation, catch basins, leveling and clearing land, terracing, and the like: this is a field in wvhich private enterprise should prove increasingly effec- tive. In general, it wvould appear desirable also to leave in private hands the functions of importing, selling and servicing agricultural equipment, fertilizers, and- insecticides. Rural Education Educational facilities and programs in rural areas appear to be grossly inadequate. Members of the Mission wvere impressed with the eagerness of the people to learn more about improved farming methods, and with the ability and earnestness of most staff members of the Extension Service. But the latter have been able only to a lim- ited extent to reach farm people and to convey scientific findings in agriculture. Primary education is, of course, fundamental. In the long run, good basic education for the futtuire farm men and wonmen of Colombia may be more important for the future of agriculture ancd of the \vhole nation than any change in agricultural techniques and institutions, howvever far-reaching. At the same time, the possibilities of working with adults should not be neglected. Much can be learned from the experience of folk schools in Denmark and farm adult train- ing programs in Nova Scotia and elsewhere. Thel-e is need for consolidation of the various educational pro- grams of the MT\.inistry of Agriculture, with particular attention to an integrated approach to agronomy and livestock educational xvork. A single Extension Division, staffed both in Bogota and in the departmental and local offices wvith persons especially competent in the fields of agrononmy, care and feeding of livestock, human nutri- tion, andl farm and home management, could make greater progress. The focal points of interest in such an expanded program should be the farm family and the wrhole farm, wvith wvhatever attention is necessary given to various fields to support a farm and home manage- ment plan. Special attention should be paid to gardening (includ- ing distribution of quality garden seeds) and to home-produced meat. milk and eggs, in order to improve farm diets. Such a program wouLld build upon and expand the v ery worthwhile programs already under way in the Agriculture and Animal Industry Divisions of the Ministry. A well balanced expansion should take place for the first fexv years at as rapid a rate as the adequate train- ing of personnel xvill permit, with a budgetary goal of perhaps Ps.$2,000,0001 annually by 1955. Salaries and xvorking conditions 10 Principally for salaries for educational personnel, but not including tlle develop- mental (Fomento) program. 390 THIE BASIS OF A DEVELOPMENT PROGRA-M FOR COLOMIBIA Ilust be suich as to obtain and hold well-qualified men and xvomeun. Continuous study of the programii by advisory committees. made up of both professional agrictulturists and practical farm men and wvollmell, would be useful in defining the eventual size and content of the pro- gram, and indicating the current changes required in movina toward the longer term goal. The Extension personnel wvill probably be able to reach the owners of large fincas and haciendas, but the real test of their effectiveness w\,ill be in developing methods to meet the needs of the large majority of farmers wvho fall w,vithin the lowver income groups of the population. To assure adequate attention to educational wvork, certain importalnt service activities that are nowv the responsibility of Extension field personnel-such as maiintainling pools of tractors ancl farm implements, and( providing plowing, cultivating and similar services on a custom basis-should be turned over to private enterprise or to a newv section within the Ministry. The important educational wvork in agricultural enigineering, hoAvever, should be continiued in the Extension program. The Extension personnel will have to cooperate with many other a-encies and groulps in the various communities 'where they work, particularly suclh agencies as the public schools, the Churclh, healtlh andCi welfare .-:OLnpS. and farm credit agencies. Careful coordination of its programn Avith the activities of the Caja Agraria and the Institute for Parcelization andl Colonization is especially needed, as previouslv notecl. A prerequisite for effective expansion of the Extension Service is an increase in facilities and personnel of the agricultural colleges. College' education is a matter of particular urgency since prog-ress in all other agricultural programs wNrill be limited by the rate at whlich trained personnel become available. Achievements \vith very limited facilities at Bogota. 'Medellin and Palmira indicate that much could be accomplished if adequate funds wvere made available for igll-er education in agriculture. The N-ormal Colleges at Buga and Duitama have trained some vocational agricultural teachers, majordomos, and Extension wvorkers, and one or twvo private colleges have offered some \vork in agriculture. But all these programs together are wholly in- sufficienit to meet the demand for well-trained agricultural personnel. Less thani five hunidred students in all are enrolled and probably not more thani fifty or sixty graduate each year. The programs of existing colleges should be broadened to include huniian nutrition, farm and home management, and miore wvork in statistics and agricultural economics. While evel-ituallv a fewv newv agricultural colleges may be needed, for the immediate ftuture enlar-e-  AGRICULTURE 391 iment and improvemiient of existing facilities Awotild be most feasible. Adequate funids sblould be made available, from public or private sources or both, to assist qualified students wvho are unable conmpletely to finance their own education. Education in local colleges should continue to be supplemented by training of individutal students in foreign maethods, particularly through participation in the program for training of Latin American students in the United States. M\ore vocational schools are needed to supplement agricultural colleges for the training of agricultural Extension personnel and inde- pendent farmers. Considerationi might be given to the establishment of farm schools, 'which wvould carry further the ideas exemplified in the vocational schools conducted by the National Federation of Coffee Gro-wers. Such schools could be built around a leased finca and might be sponsored by the Mlinistries of Agriculture and Education and per- haps the Caja de Credito Agrario. Produce growvn on the farm wvould provide food and help pay expenses, and its processing and cooking by the female students -would provide practical experience in homue- making. After, say, a twvo-year course, personal credit might be ex- tended to students of demonstrated capacity to enable them to establish themselves as farmers. Irrigation, Drainage and Water Utilization Aniother step wvould be a comprebensive, long-range plan for irri- gation, predicated on the basic land policy of the nation. Colombia has considerable reserves of land suitable for irrigation development. some areas which may offer possibility of reclamation througll drainage, and still others wvhich badly need a larger \vater supply for liian and livestock use. Extension engineerilng studies, supplemented by geo- logic and soils data, are necessary for these purposes. Water is a basic natural resource. Present Colombian \vater regu- lations, howvever, do not appear to be fully adequate for its protection and use in the public interest. Water rights laAvs designe(d to con- serve supplies of irrigation water, to prorate allocations fairlv among users, to establish equitable use-rates, and to assure adequate main- tenance of facilities are needed. All irrigation projects financed through amortizable loans should be so organized that annual revenues are definitely providecl to meet recurring fixed charges. 'Ne recommend that wvhere projects are Finalced wlith public funds, wvater should not be supplied to any one landowner- for irrigation of more than perhaps 50 to 100 hectares. This limit is, in fact, quite high-25 to 50 times the area of crop land on1 the average farm in Colombia-but some such limit seems neces- 392 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMtBIA sary to prevent the benefits of these public expenditures from accruing to a fexv large landowvners. The Saldana Irrigation Project, now tinder construction in Tolima and designed to supply water for about 15,000 hectares, should be expanded to include some 17,000 additional hectares if further studies confirm that a suitable storage site is available and cost factors are favorable. Proposed projects such as the 10,000-15,000 hectare tract in the lower Magdalena Valley, some 25 kilometers south of Barran- quilla, and others of comparable merit, deserve careful consideration. Attention should be given to the possibilities of developing supple- mental irrigation for certain areas in the Cauca Valley, in North Tolima, farther south in the upper Magdalena Valley, and in many smaller tracts in other areas. The cost of facilities must be low enough to be economically justified for intermittent use, and the feasibility of individual deep-well pumping units as a source of water for supple- menital irrigation in a number of these areas merits fuller exploration. Catch-basin type reservoirs should be constructed for stock ponds and to supply water for domestic use, if drilled wvells prove impracti- cable, to relieve the desperate water shortage in periodically dry sections like the Sincelejo area in Bolivar. Stock ponds of the catch- basin type can be cheaply excavated with bulldozers, the purchase of xvhich could be financed by Caja Agraria. Drainage is often a complementary problem. In established irriga- tion systems, drainage may be required to relieve wvater-logging tendencies in the irrigated area or seepage or run-off to adjacent areas. In newv projects, any needed drainage should be planned as an inte- grated part of the system. AVhere subsurface deposits of salts exist, adequate drainage may be necessary for successful irrigation, in order to prevent the rise of such salts into the root-zone of growing crops. In swvampy lands, or where special flood conditions exist, a system of drainage canals, alone or in conjunctionl xvith protecting dikes, may be the means of reclaiming large tracts of fertile agricultural land. Some of the w-et, uncultivated lands in Colombia's river valleys may offer sound opportunities for drainage reclamationi and agricultural development. but the Mission has no definite information on this sutbject. Drainage projects should, of course, be undertaken onlv if they are fully supported and justified by engineering and economic data. In considerinig priorities in the further development of land and water resources for increasing agricultural production, great care must be used in deciding between the opening up of nexv areas, intensi- fication of the use of pasture lands, or development of land through  AGRICULTURE 393 irrigation or drainage. It seems obvious that the first emphasis should be on using to the best advalntage the good land already available before creating new agricultural land at great expense. For example, it would not be considered sensible for a farner to borrow large sums to irrigate a part of his farm when he might increase his production and profits as much or more merely by farming more intensively and( scientifically on another part of his land. In the same wvay, it would appear wvise for the Colombian Government to be sure that existing- land is put to the best practicable use before embarking on new irrigation projects, even though the latter might appear profitable on paper. This principle may be subject to some modification in the case of crops like rice that can be grown only wvith irrigatiom. Soil Conservation Our basic recommendatioln for soil conservation in Colombia is that the growving of cultivated annual crops be removed from steep slopes to the fertile plains to the fullest extent practicable. Earlier recommiiendations in this chapter are designed to promote this develop- ment. Farming practices that include crop rotation, fertility programs, use of cover crops, contouring, terracing, etc., are helpful. Contour plowving, planting and tillage of crops, which unavoidably must be groDvn on slopes, will minimize erosion and should prove an effective control on gentle slopes if supplemented with well (lesigined diversion ditches and proper terracing. The most modern practices in coffee growing- planting the rows on the natural contour with a small terraced basin around each individual tree, preserving the natu- ral forest cover, controlling wveeds by cutting them without disturbing the surface soil, and using leguminous cover crops like creeping indigo to smother weed growth - constitute practically ideal soil conserva- tion procedures. Lack of a complete systematic soils survey is a major obstacle to an adequate soil conservation program. The good wvork in soils classifi- cation, already begun by the Soils Section of the Instituto Geografico Militar y Catastral, should be expanded and accelerated. Research in soil conservation and control methods for particular soil classifi- cations and types of crops should also be expanded. A program of reforestation wvith long-term loans is recommended for the steeper slopes and hillsides which can be removed from agri- cultural use. Other types of soil-retaining vegetation should be studied for use in less acute situations wvhere grazing might be substituted for cropping. An effective soil conservation program must also take account of 394 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA the human problems involved in some types of soil conservation measures. Population pressures bear heaviest in some of the areas where erosion is most intense. To the extent that such lands are taken out of cultivation, a source of livelihood must be provided for the people now living on them. The recommendations in other sections of this Report are designed in part to meet the problem of providing the incentives and the alternative employment necessary if workers are to be moved successfully out of uneconomic or destructive types of agriculture to more productive locations and occupations. Thus broad social and economic considerations, as well as those of sound agri- cultural policy, are involved in a full-scale attack on the problems of soil conservation. Mechanization The gradual substitution of animal-drawn and tractor-powered machinery and tools for hand tools should be encouraged as a means of improving productivity on farms. It should be recognized, however, that large numbers of farms, probably half or more of them, are not now adapted to the use of tractor-drawn or mounted equipment, ancl many farms are so rough that even animal-drawn machinery is im- practicable. Nevertheless, mechanization will be an important means of raising productivity in many cases. While one farmer alone would frequently be unable to afford a farm implement, either tractor- or animal-drawn, several farmers together might well own and use certain implements cooperatively. Encouragement to small groups of farmers -perhaps 3 or 4 in some cases, 8 or 10 or 15 in others - to buy and use farm equipment jointly should help to give small farmers access to the modern implements they need. We believe greater emphasis should be given in public programs to financing or importing farm machinery for small- and medium-sized family farms, provided they are large enough to be economic units, and to cooperatives serving such farms. It is important that adequate provision be made for spare parts, maintenance and repairs. Farmers should be taught- through farm machinery schools, demonstrations, and the like - to use machinery properly, to keep it Ilbricated and greased, to make minor repairs, and to provide adequately for storage of tractor fuel on the farm. A more satisEactory system of storage and distribution of tractor fuel and oils is greatly needed. Perhaps even more important than mechanization in terms of tractors and tractor equipment is to effect a shift from hand labor aild the almost excltusive use of pack animals on small farms to practicable  AGRICULTURE 395 types of animal-drawnv machinery and wheeled vehicles, possibly two- wvheeled carts or even four-wheeled wagons. Such changes would add greatly to productivity and are urgently needed. Through research and pooling the ideas of farmers, Extension workers, interested machinery and cart or wagon manufacturers, and others. appropriatz methods and devices can perhaps be developed and demonstrated widely to farmers. There are several establishments in Colombia that could undertake the manufacture of farm wagons, scrapers, hillside walking plowvs, stone boats, harrows and simple agricultural imple- ments. Fertilizers, Insecticides and Fungicides The principal problem with respect to fertilizers is the lack in Colombia of the raw materials essential for their 1nanufacture. Ex- cept for small amnounts of organic wastes from a few slaughterhouses, the nit;-ogen, potassium and phosphorus compounds necessary to make fertilizer mixtures all have to be imported. High transportation costs make the use of mixed fertilizers very expensive. It is suggested therefore: that the possibilities of importing and selling concenitrates to farmers be explored. This could be done through an extension of facilities and credit by the Instituto Nacional de Abastacimientos'1 to private dealers to permit sales at controlled prices. Even at high cost, it is believed that use of concentrates can be amply justified. A recent development in the United States, the direct application of anhydrous ammonia (82 percent nitrogen content) to the soil, may have important possibilities in the future since, if eventually adaptable to Colombia, it would permit both the use of a domestic source of supply and great savings in transport costs. A ton of Chilean nitrate, for example, contains 85 percent waste material that must be trans- ported to get 15 percent of nitrogen. The possible manufacture of cheap ammonia in Colombia is discussed in Chapter XIX. In any case, it appears feasible to produce ammonium nitrate (33 percent nitrogen) and ammonium sulphate (20 percent nitrogen) from gas in Colombia. A cheap domestic source of nitrogenous fertilizers would give a great impetus to agricultural production. In the United States, through the direct application of anhydrous ammonia, it has proved feasible to fertilize an acre of ground for U.S.$2.58. Experimental research with regard to fertilizer formulas, use tech- niques, soil deficiencies and responses, benefits to specific crops, and related subjects already begun at the Experiment Stations should be continued and expanded. Commercial fertilizers should be plainly 11 National Food Supply Institute. 396 THE BASIS OF A DEVELOPMENT PROGRA-M FOR COLOMBIA labeled as to their guaranteed plant food content, and the provisiolns of the December 1948 Fertilizer Decree to this effect should be fully implemented. Lime could be supplied in abundance by cement plants at relatively lowv cost. In addition, credit could be made available to finance the development of small local quarries. Correct timing of the application is a most critical factor in the effective use of insecticides and fungicides. There is widespread com- plaint among farmers and growvers that supplies of these products are generally inadequate and often wholly unavailable. We recommilend. therefore, that their domestic manufacture be increased, that a better distribution system using strategically located depots or warehouses and an extensive network of private or public local sales agencies be developed, and that import requirements be purchased and delivered far enough in advance to be available on farms when needed. Millimumn retail prices to farmers and educational work by the Extension Service 'ill be incentives toward greater and more effective use of pesticides. The resulting increases in productivity and in financial returns to farmers will help to improve standards of living. Marketing, Storage, Processing and Transportation We recommend that a better system of grades and standards for farm products be established to facilitate the marketing process. \We also suggest that the Division of Rural Economics of the Ministry of Agriculture develop a market news reporting system wvhereby current prices of farm products will be available to buyers and sellers. Ain improved system of food distribution and marketing would reduce the waste of farmers' time in selling their products directly to the public, avoid the inconvenielnce, waste and unsanitary conditions wvhiclh char- acterize most existing public markets, and would increase the overall productivity of agriculture and the cjuality of food. Some changes are gradually taking place. In Bogota, for example, it is planned to build a central wholesale market and to abandon the traditional retail market places about the city; the latter wvould presumnably be re- placed by neighborhood shops. Howvever, wvidespread changes in the present typical pattern are obstructed by the strength of tradition, by the distrust felt by argricultural producers towvard middlemen, and by a lack of oroaniization, experience and capital for large-scale food xvholesaling. The gro\vth of a more efficient distributioll system might be en- couraged bv (1) Government assistance in the formation and financing of farmersimarketing cooperatives and (2) a progressive reduction in the role of the larger municipal markets in retail food distributionl. Urban public markets, Nvhere overcrowvding is general and increasing.  AGRICULTURE 397 should not be replaced or expanded. Lack of space and its increasing cost in these markets wvould tend to give an advantage to the more efficient retailers Avith a large turnover, and thus encourage decentrali- zation of retail meat and produce shops into residential areas. The National Food Supply Institute has attempted for some years to introduce a more efficient system of marketing through \Nholesale purchases from the farmers, or farmers' cooperatives, but it seems to have lacked both funds and the precise goals and policies which could have contributed to decisive improvements. The Institute has also initiated a grain storage program, intended to reduce substantially losses of products between the farmer and the market and to aid in stabilizing agricultural prices. Such a program is imperative because approximately Ps.$20 million worth of grains are lost annually for lack of proper storage and prices of principal crops fluctuate widely accord- ing to the quantities available to the market. When the harvest is good, prices are likely to drop considerably; later when commodities are not available in large quantities, extremely high prices may occur. In 1946, for example, wheat prices in Bogota fell from Ps.$5.50 per arroba in April to Ps.$4.80 in June. Simultaneously, prices in Bovacti remained unchanged at Ps.$4.80, while prices in certain communities in Antioquia had fallen from Ps.$6 to Ps.$4.60. The steel grain storage elevator nearing completion in Bogoti, with a capacity of over 4,000 tons of corn, rice, wheat and other grains, is expected to be the first of a number of similar facilities in all the larger cities in or near major grain-producing areas. These should be completed in the five years before 1955, and supplemented with a clozen or more smaller storage wvarehouses equipped with drving facilities, particularly for rice, in lesser producing areas. Improvecl storage facilities would undoubtedly pay for themselves quickly, but it should be remembered that it takes a long time to train specialists in storage construction and administration. Also, priorities in the storage program should be based on economic necessities. Finally, a storage program is not the only method of obtaining food conservation and price stabilization; wider education is needed in methods of con- trolling insect pests. rodents and other causes of grain losses on farms and in smaller local wvarehouses. Thousanids of "trapiches," or panela mills, scattered all over Colombia are a special problem. While these plants are well located, most of them are quite inefficent in extraction of juice. We recoim- menid that possible improvements in the efficiency of these little mills, particularly wvith more efficient types of rollers, be studied and if iml)rovement is found practicable, special credit and other assistance 398 TIlE BASIS OF A DEVELOPMENT PROGRAM FOR COLO-MBIA should be macle available to mills which can be improved. So mluclh labor is devoted to the production of sugar cane and the processing of panela that improvements in this field should afford a considerable increase in productivity. Processing of agricultural products close to the areas of production would often help to reduce transportation charges. The development of processing plants, as \vell as other industries, in rural areas will have the additionial advantage of providing more non-farm jobs for farm people now employed very inefficiently. Flour mills, dairy processing plants. and slaughterhouses with refrigerated storag-e are examples. Reconiiiiendationis concerilinig transportationi are made in Chapters XX and XXI. However, it is appropriate to emphasize here the crucial importance for agricultural progress of improving transportation sys- tems. Colonization in Colombia generally follovs roads. It is there- fore important that highways be extended into promising areas for settlement, such as the Sinu and St. Jorge valleys and the Magdalena belowv La Dorada. Also, farm-to-market roads suitable for wrheeled vehicles and highwvays suitable for trucks wvould be especially helpful in some rural areas. Research and Statistics Colombia is to be commended for the careful preparations for its 1950 Census of Agriculture. In subsequent census years, as Nvell as in 1950, the importance of obtaining accurate comprehensive statistics pertaining to agriculture, including animal industry, and rural life should be recognized and adequate resources devoted to this purpose. Mlore adequate procedures should also be set up for continuous col- lection of the more important data, which should be made public periodically-monothly, quarterly, or annually, depending upon the type of data and their significance-to make possible more accurate estimates and the mainltenance of needed statistical series pertaining to various problems of production. marketing, land use and rural liv- inlg. Such data are essential to informiied planning by Government agencies, individual farmers, agricultural processors and middlemen, and other elements of the economy affected by agriculture. It is suggested that the best way to develop an adequate statistical program is to build upon that already started in the Division of Rural Economics of the Ministry of Agriculture. After completion of the 1950 Census, it might be well to consider transfer of certain agricul- tural statistical personnel from the census organization to this Divi- sion. A special section of this Division should be made responsible for collection, tabulation, and publication of statistics on crops,  AGRICULTURE 399 livestock and rural life. In establishing this expanded program, the services of a well trained statistician, especially skilled in sampling techniquzes and with considerable experience in crop and livestock estimating, should be sought. Research in both the physical and social science fields as appliedl to technical, economic and social problems in agriculture, rural home- making. and rural community life should be expanded as rapidly as competent personlnel can be trained. Every effort should be made to assure continuity in carrying out the program, which will require well-paid personnel and security of tenure. The economic and socio- logical research program, already under way in the Division of Rural Economics of the Ministry, should be expanided and lodged in a section closely associated with the statistical section mentioned above. Wllile expansion of the statistical and research programs should be gradual, since there may be a serious problem of personnel training, it is sug- gested that an annual rate of expenditure of at least Ps.$1,000,000 for this purpose should be aimed at within five years. Research in the physical sciences and on technical agricultural and farm home-making problems is greatly needed, particularly as a guide to Extension wvorkers in their aid to farm people. Fortunatelv, a start on such work has already been made by various agricultural experiment stations and substations under the supervision of the recently organized section on Agricultural Investigations and Experi- mentation of the AMinistry of Agriculture. Its program needs enlarge- ment and broadening as rapidly as wvell-trained personnel can be obtained. One of the most serious problems in present research pro- grams seems to be lack of media for carrying their findings to farm people and getting them into practical use, but the recommended expansion of the Extension program should supply a more adequate outlet for these findings. The follo\ving fields, among others, might well receive careful consideratios as new technical research projects are undertaken: (1) soils and soil conservation; (2) plant breeding and selection; (3) plant diseases and pests; (4) cultural practices appropriate for differ- ent climatic and soil conditions; (5) crop rotation; (6) agricultural engineerilng, including animal- and tractor-drawvn machinery, irriga- tion, drainage and storage; (7) breeding of beef and dairy cattle: (8) livestock pests, parasites and diseases; (9) animal nutrition; (10) human nutrition; (11) clothing, holmie furnishings, home equipment, and rural housi'n- design; and (12) rural healtlh and sanitation problems. In planning its researclh programn, Colombia shlould consi(ler the 400 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA possibilities of interchange with other countries. International coopera- tion, particularly with respect to basic research, might avoid needless duplication and assure broader coverage. Cooperation with the Inter- American Institute of Agricultural Sciences at Turrialba in Costa Rica would seem to be especially appropriate. Rationalization of Agricultural Programs We feel that a thoroughgoing rationalization of the numerous separate agricultural programs being carried out by public, semi- public and private groups is necessary, and that they should be re- oriented and integrated into a unified program built around the whole farm and family as the primary focus, with all groups having a clear- cut relationship with the Ministry of Agriculture and Animal Industry, as well as with each other. A wholesale consolidation of separate agencies, or transfer of functions among agencies, should clearly not be launched without careful study, but we believe that some economies and increases in effectiveness can undoubtedly be achieved by this means. Short of actual transfers or consolidations, however, much might be accomplished through cooperative agreements among agen- cies carrying on related programs. In general, we recommend that the programs of the approximately twenty public and semipublic groups now in existence be tied more closely into the Ministry of Agriculture. This will require substantial strengthening of the Ministry, in terms both of finances and of num- bers of competent officials. Specific recommendations for administra- tive improvements in particular phases of the agricultural program have been made in several preceding sections of this chapter. This whole field, however, should be a subject of study by the proposed Public Administration Mission. In general, we believe that improved farming practices will flow from good agricultural organization. When the latter has been secured-and only then-full benefits will be reaped from the advice of foreign crop and livestock specialists and from research carried on in Colombia. Consequently, we have not attempted to make many specific recommendations for improving farm practices. The growing cooperative movement offers hope of eventually relieving somewhat the load on public agencies. We recommend that this movement be encouraged through technical aid, credit and other assistance. However, in an industry consisting of a million widely scattered competing units a large measure of Government initiative and guidance is inevitable; and the agency of Government responsible in this broad field should be equipped to carry out its functions with maximum efficiency.  AGRICULTURE 401 ESTIMATED COST OF PROGRAM The capital requirements in agriculture over the next five years can be calculated roughly on the basis of the various assumptions contained in the preceding pages. While the very nature of our production program implies the expansion of irrigated areas, we have repeatedly advised great caution in the selection and initiation of irrigation projects. A list can be made of a dozen or more existilng irrigation projects, concentrated mainly in the Cauca Valley and the Upper Ma-dalena, between Dorada and Girardot, totaling more than 200,000 hectares. None of these projects is recommended specifically. However, it has been estimated that in order to meet the production targets set forth tentatively in this chapter, about 130,000 hectares of land will have to be brought under cultivation and irrigated. Also, 30,C00 hectares of old land may have to be irrigated or drained, or provided with a new water supply system, if production is not to lag in "old" sugar, rice, cacao, and cotton lands. At an average of Ps. $500 per hectare, expenses involved would amount to Ps.$S0 million in five years for irrigation alone. In addition to the new irrigated land, it can be estimated that 490,000 hectares of land suitable for panela, corn, wheat, beans, pota- toes, yucca, coffee and other crops will have to be opened. 'While the expense involved in its purchase will not be included in our investment program, there is little doubt that machines and labor will be needed, not only to clear the land, but also in order to improve its character- istics. As this applies to new irrigated land as well, total expenses involved in opening and preparing new lands would amount to Ps. $62 million, at Ps.$100 per hectare. Old lands, whether or not irrigated, also should be improved. While owners cannot be expected to launch a wholesale remodeling of their properties, it is hoped that about 2 percent of old lands would be improved by contour plowing, reseeding of pastures, drainage canals, erosion control, etc., each year in the years to come. Expenses involved, if costs of such work amount to Ps.$65 to Ps.$70 per hectare, will be about Ps.$16.5 million, or a five- year total of Ps.$78 .5 million for laud improvement. No attempt has been made to set in exact quantitative terms the investment require- ments in production facilities and equipment. However, on the basis of 1947 performance, it is assumed a total of Ps.$38 million worth ot tractors, implements, insecticides, fungicides, seeds, fertilizers, etc., will have to be imported each year, while Ps.$7 million in annual pur- chases of locally produced fertilizers and chemicals will be needed. To these two must be added about Ps.$19.7 million in trade, transport -and installation costs each year. The five-year total for machinery, 402 TIHE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA implements, fertilizers, etc., would thus be about Ps.$325 millioll. In the field of grain storage and drying facilities, almost unlimited possibilities for investment exist since the techniques of the construc- tion and use of grain storage facilities are almost unknown in Colombia. The efficient operation of granaries would involve major reforms in marketing methods and the training of their buiLders and managers will also take time. Therefore, we recomnmend investment of the rela- tively snmall sum of Ps.$17.5 million over the next five years in various storage experiments. The organization of a full-scale program of in- vestment in this field will have to be postponed until the country has outgrown its current marketing system. Since the development of a fishing industry will follow only after investment in boats, equipment and canneries, it is recommended that an investment of Ps.$17.5 million be made in the next five years to start an industry of great potentialities. In summary, then, the recoin- miendations in this chapter would call for the followving investments to be made by 1955: Irrigation and drainage projects ....... .......................... Ps.$ 80.0 million Development and reforestation of land (including re- seeding of pastures) ............................. ...... 78.5 Production facilities and equipment (machinery, fer- tilizers, breeding stock, pesticides, etc.) .. ..... .... .. 323.5 " Grain storage and drying facilities ...................... .. 17.5 1..... Fisheries development ................................... 17.5 Total ................................... Ps.$517.0 Investment of this amount-an average of Ps.$103.4 million a year-would represent an increase of about 52 percent over the esti- mated level of investment in agriculture in 1947. This is largely off- set, however, by price increases in the succeeding three years. .The real increase is about 14 percent, and considerably less on a per capita basis, but substantial changes in emphasis are contemplated. Obviously not all the investments proposed should be made either by the Government or subject to its control. To a large extent they would be made by individual farmers, by cooperatives, or through other private channels, assisted perhaps by Government credit and technical aid. Substantial possibilities exist, in rural areas particularly, to raise the level of capital formation without any corresponding de- crease in consumption, by more effective use of labor now employed only part time or in relatively unproductive occupations to improve rural roads, land and buildings. Such investment of labor might be either on a -wage basis or in the form of voluntary cooperative efforts to provide facilities for the common benefit.  AG, 403 The estimated capital requiremen.. n above include only those which represent an increase in the re2 apital resources of the nation and exclude requirements for credit to finance transfers of property from one element of the population to another (as, for example, loans for the purchase of land) or to repay other debt already existing (e.g., revolving production loans). On the other hand, expenditures for opening and developing neAw land, for improving pastures and increas- ing the fertility of the soil, and for similar purposes, are included in the above estimates. Capital requirements in related fields, Awhich affect agricultural productivity and rural welfare substantially, are showv,n in the chapters dealing with health. education, transportation and community facilities.  .PTER XIX Industry and Fuels Two maini problemiis confront industry in Colombia. The first is the problem of reducing, costs and selling- prices in order to broaden the market for industrially produced goods. The other is the problem of expansion, both in existing industries and in new fields. These problems are dealt w-ith in this chapter. MEASURES TO INCREASE EFFICIENCY AND REDUCE PRICES Transportation One of the greatest contributions to the development of industry in Colombia would be improvement in the efficiency of transportatioln. Industry has perhaps more of a stake in improved efficiency and economy in transportation than any other segment of the Colombian economly, as it is so dependent on expansion of its market for its further groxvthl. Specific recommelndations on transportation are presented in Chapters XX and XXI. Raw Materials As noted in Chapter VI, the high cost of manufactured goods in Colombia is in large part due to the high cost of raw materials, includ- ing building materials, fuel and power. While industry itself can do little to reduce these costs, it is important that everything possible be done as these various elements make up a substantial proportion of the cost of the completed article. For example, industry should direct its efforts toward securing those types of financial setup and rate structure in local municipal power plants which wvill permit re- clied power rates for all industry. The interdependence of the various segmenits of the economy is apparent; industry as a wvhole has a tremendous stake in increased efficiency in every part of the economy. I ncreased productivity and decreased costs, unless purchased at the expense of the \vorker's earnings, benefit industry as a whole regard- less of where they occur. It is hoped, therefore, that industry will use its great infltuence, both actual and potential, to secure the adoption of ineasures that would tend to reduce its costs and hence widen its markets. Worker Productivity Chapter VT I shows that wvhile the Colombian worker can be made quite efficient, he suffers from the initial handicaps of poor health and 404  INDUSTRY AND FUELS 405 faulty education. WVe are elsewhere making recommendationis affect- ing primary education, vocational training and health and sanitation.1 Much, howvever, can be done by managemenit to improve the produc- tivity of workers within their plant. The introduction of ini-plant training courses and the adoption of merit promotion villi help to provide both the skills and the incentives necessary to improve efficienicy. These measures lvill also make it possible for tlle coming- generation of supervisors and foremen to be drawvn more largely from the ranks of labor. Likewise, efforts might be made through joint action by industry and institutions of higher learning to orienlt promis- ing students to supervisory and junior executive positions. The ad-\ verse social attitude toward learning a job by actual experience must in some manner be overcome. Perhaps, initially, intensive in-planti training in industrially advanced foreign countries may be the best way of overcoming this attitude. Generally speaking, Colombian workers do not appear to have the strengtlh or the staminia of workers in most industrially advanced countries with a higher stanidard of living. It is possible, therefore, that the maximum productivity may be achieved in a shorter vvork-day than the customary eight hours. Some industries have tried two six- hour shifts with gratifying results. Similarly, the provision of care- fully planned lunches may remedy dietary deficiencies and imlprove the strength and stamina of xvorkers. These are subjects on wvhich it is difficult to make any positive recommendations as each industry should study them in the light of its particular Avork force and Ivork- ing conditions. While the various social security benefits provide the Colombiani ivorker with a certain degree of security, they may at the same time have the effect of decreasing incentives. It may be found desirable to couple them with carefully worked out piece-rate methods of pay- ment or Ivith bonuses for performance over and above acceptable ulmnima. Management As noted in Chapter VI, the quality of managemiient in private enterprise in general in Colombia is quite high. The problems of han- dling complicated machinery Ivith relatively unskilled labor, instilling discipline and securing a relatively high degree of efficiency have been mastered by many Colombian industrialists in a surprisingly short period o time. Holvever, much remains to be done, particularly in securing reorientation in attitudes toward profit marginis, costs, and I See Chapters XXII and XXV. 406 THE BASIS OF A DEVELOPMENT PROGRAMt FOR COLOMBIA volumes of output but it is difficult to make specific recommendations in this field. Colombian manufacturers are in agreement, howvever, that they have been stimulated and have learned a great deal in visits to more industrially advanced countries. This would point to the importance of securing a greater interchange of personnel and publi- cations and also reemphasizes the importan-ce of developing more joint Colombian-foreign enterprises. This is particularly true in new fields, such as mining, fishing and lumber, and in fields requiring large amounts of equipment and specialized skills, such as petroleum re- fining. The growth in markets and in the number of competing units in each field would tend to stimulate efficiency, lead to price reductions and willingness to operate on lower profit margins. The abolition or reduction of quantitative restrictions on imports, the avoidance of excessive tariff protection and a reduction in internal transport costs, particularlv on imported goods, wvould all help to establish healthier C cis. Inventory Policy Manufacturers in Colombia are handicapped by the excessively high inventories it is necessary to carry, not only because of the dis- tance from the nearest large industrial country, but also because of the delays and uncertainties caused by the operation of the import- licensing system and the internal transport system. In somne cases, inventories are fully ten times greater than those in comparable plants in more industrialized countries. A possible solution may be the provision of central warehouses in a free port or free zone. It wvould, of course, be even better if the central varehouses could be set up within the country itself and financed and supplied by foreign capital. However, in the present cir- cumstances, it is doubtful that foreign private capital would care to assume the risks involved in such an undertaking, but in many fields these risks would be considerably miiiinimized if invelntories were Avare- housed in a free zone. Colombian industrialists could then operate on low^er inventories and thus release capital for other and more productive purposes. Research and Standards While it woould not be practical for Colombia to duplicate the enormous volume of industrial research that goes on in many highly industrialized countries, especially since Colombia can normally count oin gaining access to the fruits of such research in the course of time,  INDUSTRY AND FUELS 407 nevertlheless there are certain fields where research wvould be justified. These relate mainly to the locatioln and adaptation of local raw materials. For example, it has been stated that Colombia has no clays suitable for the imanufacture of bathroom fixtures or for the making, of high temperatture refractories. Properly organized and directed re-\ searclh mighlt solve this probleml and permit the use of local materials in place of the present very costly imported material. Research wvotuld also promote quality control and reduce the proportion of rejects. Again, foreigrn enterprises are usually characterized by the greater stress placed on cost accounting and the development of cost and production clata for management control purposes. There appears to be a need in purely Colombian enterprises for more of this type of analysis. IMPORTANCE OF INDUSTRY Study of past trends indicates the contribtution Colomblian industry A-ill probably make to future national income. From our study, the most relevant elements in indtistrial expansion seem to be: Growvt]h oer V -2 r Index of Growth 1939-1948 1939-1948 (perceunt) (1939 = 100) Volume of output . 10/2 / 243 MIlanpow er 5 . 155 Productivity. 5V4 ,, 157 An acceleration in the shift of manpowAer from rural tc urbaln activi- ties could easily increase employment in industry at a rapid rate, and the introduction of more efficient production methods could boost pro- ductivity considerably. It is, therefore, not unlikely that oUtpult may increase at more than 12 percent per year in the comingc yvears. If this occurs, it has been estimated that the contribution of industry to national income may rise from 15 percent in 1947 to more than 20 percent by 1955. The anticipated growth in output of about 12 per- cenl per year seeims to exceedl tIme rates of conisumiption growth that can be forecast for most major products: ANNUAL GROWVTH IN CONSUNIPTION 1950-1955 Percentage Gasoline ............ 7 to 9 Electric power ....... .... ........... 8 8. Cotton textiles ........ .................. 5 W oolen textiles .......................... 6X2 Cigarettes ... ....................... 9 Soft drinks ................. ......... 17 Sugar refining .. . .... 8 to 10 Rubber tires .. 7 to 9 Cemenlt ...................... .... ... .. 10 408 THE BASIS OF A DEVELOPMIENT PROGRAMI FOR COLOM\BIA This variation, however, is logical because industrial production. in order to displace imports, -will by necessity have to grow faster than local consumption. Also, entirely newv industries will be born and the volume of their output will boost the aggregate rate of growth in industrial volumes. VOLUME OF CONSUMPTION The statistics on Colombian consumption in the followinig pages differ widely in accuracy and reliability. The best data were obtained for goods imported in major part,2 and for goods produced in large quantities in Colombia, such as cement, beverages, textiles. petroleumli. tobacco and liquors. 8 The reports to stockholders of some major firms also gaye clear ideas on the consumption or production of important commodities. It wvas, however, extremely difficult to estimate con- sumiiption of goods wvhich were produced locally in small plants in small quantities, or imported in small lots. While the Induistrial Census of 1944-45 provided some production data, in most cases none existed for other years or were in incomplete form, as in the Anuario General de Estadistica, 1938-43, for example. In general, when no better indications were available, it was assumed that rates in consumption growth prevailing between 1937-39 and 1945-47 were roughly representative of normal growth. These two groups of years seem to occupy similar positions in the Colombian cycle. lt is recognized, however, that pent-up demands of the wvar years expressed themselves in 1947, and that consumption of all im- ported capital and durable goods in that year may have exceeded normal trends. In the case of consumption goods, on the other hand, 1947 may understate normal trends as capital formation attained exceptional levels. Our interpretations of trends take these influences into account. Also, Awhen possible, trends in the prewvar-postwar periods were examined critically in the light of information on 1947-50 trends, when such wvere available. Forecast of consumnption in 1955, in order to be significant, must be matched wNith information on plant production capacity, existing or planned. In this field we had to rely on sketchy data provided by indtistrialists, who qcuite naturally are often reluctant to reveal this type of trade secret. In general, it was assumed that no expansion wvould be needed, if forecast consumption could be met by existing plant capacity. 2 From Anutoario de Coinicrcio Exter-ior. 3 AHnuario General de Estadistica, Bulletinz of the Banzco de la Rcpdlica, and unpub- lished data by Controlaria General.  INDUSTRY AND FUELS 409 DESIRABLE EXPANSION OF INDUSTRY It would be highly satisfyin,- and desirable if we could predict with any degree of certainty the demanids for industrial products in, say, 1955. Estimates of such dermands would, in turn, form the basis for estimates of the capital requirements of industry both in peso and in dollar terms. A study of past, current and prospective demands may indicate potential markets for manufactured products in a future year, and thus the nature of the industrial developments which should take place to meet demand through expansion of local industries or replacement of imports by local output. In more highly industrialized countries the demand for industrial products and the volume of plant and equipment expenditures can be related to the growth in incomes. They can also be more or less precisely defined in terms of average consumption of specific products per capita over a period of years. In Colombia, however, demands for industrial products and capital expenditures necessary for industrial expansion cannot be forecast without great difficulty. Even wheni the bulk of products consumed is manufactured locally, the determina- tion of "normal" rates of consumption is at best hazardous. Statistics on local industrial production are sketchy, covering a few products and a few years only, and cannot be related with any amo tint of pre- cision to imports of similar industrial goods. When manufacturecl goods consumed are in major part imported, the volume of imports depends to an extraordinary degree upon the price and volume of coffee exported and upon other extraneous factors. This is particularly true of capital goods, the demand for which fluctuates widely. The attempt, therefore, wvas not made to forecast for 1955 precise consumption and production targets in industrial products as in the case of agricultural commodities. Alternatively, efforts were made to show what consumption levels might be in 1955 if past trends and volumes of consumption, estimated roughly, are maintained. Textiles The cotton textile industry has shown a rapid rate of development, reflecting in part a real growth in demand and in part a displacement of imports. Henceforth, as Colombia has become almost self-sufficient in cotton textile manufactures, the rate of growth of internal produc- tion will be almost wholly dependent upon the growtth of domestic demand unless export markets are developed in Venezuela and other neighboring countries. Apparently, in the period from 1938-1940 to 1946-1948, demand increased at the rate of 5 percent per annumii. If this rate should hold for the period 1946-1948 to 1955, consumption 410 TIIE BASIS OF A DEVELOPMENT PROGRAMT FOR COLOMBIA would amoutnt to over 39,000 toiis, or 3.1 kilograms per capita, as contrasted with 2.5 kilogramns per capita in 1947. The capacity of the industry at the beginning of 1949 wvas in the neighborhood of 30.000-32,000 tons per year. Most plants \vere producing yarn antd thread on a three-shift basis. Although this rate of operations wvas resulting in a mountint inventory of finished goods, Coltejer, in 1949, installed equipmllen-t desig-ned to increase its yarn capacity by 30 percent. Therefore, there is apparently no need for further expansion of yarn production to cover expected near-term requiremiients for domestic textiles. There appears, howvever, to be some possibility of replacing wvith domestic production some of the specialized types of fabrics which are still imported. The firm LDish- ington" states that it requires U.S.S750,000 to complete a shirting plant. This material will replace imported materials or purchases from other Colombian mills. The consumption of woolen textiles is still lowv in Colombia, amountintg to about 2,000 tons in 1944-45, or 0.21 kilograms per capita. Demand, nevertheless, has been increasing- at the rate of 6'2 percent per annumliil in the period 1938-1947. A continuation of this rate of increase w-ouldl indicate a demand in 1955 of 4,350 tons, or 0.34 kilo- grams per capita. SlhouldI Colombian mills be able to meet 85 percent of this demanld, production of 3,700 tons \vould be called for. or an increase of approximately 50 percent over current levels. The major mill in the country operating in Bogota may provide some of the increase. It is operating now xvith obsolete equipment and its French owvners have indicated that expansioni and modernization \vill have to occur within five Years, involving investments of U.S.$2 million and( Ps$1 millionl. Thlis mioht take care of the 1955 requirements described above but furtlher expansion of the woolen industry is desirable. According to the last industrial census, the consumption of rayon in 1944-1945 Avas approximately 1,500 tons or 0.15 kilograms per capita. WVe estimate that the constimptioni may have increased to 3,600 toins by 1947, of which local production furlished 3,200 tons, based on bo0th locally produced and imported viscose yarn. Since present domestic varn capacity amounits to about 2,000 tons a year and a Barranquilla firm will soon be able to produce 4.500 tons per year, it appears that no further capital investments for production of this type of yarn are necessary in the near-term period. Demand for acetate type yarn sceis to exist, however, and a joint Colombian- American group is stuidying- the feasibility of erecting a plant costing U.S.$1 million to produce that type of rayon. Eventually it may even be feasible to supply rayon pulp from local production.  INDUSTRY AND FUELS 411 Shoes In 1946, consumption of leather and rubber shoes was estimated at 2,800,000 pairs. In addition, there was probably consumption of some 3,000,000 pairs of fiber sandals. Leather shoes, owing to their high cost, are purchased largely by the urban groups. It is possible that the demand for leather shoes alone in 1955 may amount to 2,800,000 pairs. However, a plant turning out 30 percent of the total production of the country hopes to increase capacity 20 percent and reduce prices substantially after investing U.S.$500,000 and Ps.$2 million in expan- sion and modernization in the next few years. As a transitional stage between fique sandals and leather shoes, rubber-soled shoes with canvas tops appear desirable. A full mechanization of the rubber shoe industry will permit a very substantial reduction in prices and would make these shoes competitive with fique sandals. Such mechanization would require capital investment of U.S.$600,000. The potential mar- ket for rubber shoes is believed to be above 2,000,000 pairs per annum. Alcoholic Beverages In 1948, estimated consumption of alcoholic beverages amounted to 353 million liters, of which beer comprised 234 million liters. The value of production in 1948 was estimated at slightly over Ps.$200 million. Per capita consumption of alcoholic beverages in Colombia has apparently increased by 50 percent above prewar levels, reaching some 33 liters annually by 1948. Although this figure appears mod- erate in comparison with that of certain other countries, it should be remembered that some 40 percent of Colombians are under fourteen years of age and that the per capita income of the bulk of the popula- tion is very low. It appears that consumption of beer has been growing rapidly at the expense of the locally manufactured and now illegal chicha. This process may be expected to continue for some time and may result in consumption in 1955 approaching 400 million liters of beer and more than 45 million liters of liquor. Present capacity appears adequate to meet this demand. :igarettes The consumnption of cigarettes in 1948 amounted to some 530 mil- lion packs, or about 50 packs per capita. Of this total, all but 30 million packages were locally produced. Demand for some time has been increasing at the rate of about 9 percent per year. Projecting this rate of increase to 1955 gives a figure of some 825 million packs, Df which 55 million packages may be imported. Current productive -apacity of the Cia. Colombiana de Tabaco, which enjoys a virtual nonopoly, appears to be adequate to cover the possible requirements 412 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA in this period. About 500 million packages were produced by this firm in 1949 and most of its plants operated on a one-shift basis. The value of production in 1948 was Ps.$94,000,000. Mineral Water and Soft Drinks Consumption of mineral wvater and soft drinks has been increasing at a particularlv rapid rate in recent years, amounting to 130 million liters at a total value of Ps.$24 million in 1948. It is estimated that the rate of increase from 1938 to 1948 was 17 percent per annum. If the same rate of increase prevails in the future, the demand would amount to more than 400 million liters by 1955. Such an increase in consumption would reflect an increase in the real income of the workers and farmers and in view of the alternative drinks-beer, or water that is not always safe-may represent a desirable trend. To meet this increased demand, it is estimated that capital requirements for plants, inventories and trucks would amount to U.S.$800,000. Sugar Refining The demand for sugar is increasing at a rapid rate, as a combined result of increased income, a shift from panela to sugar and the crea- tion of an export market. In recent years, production has increased from an estimated 76,000 tons in 1946 to 133,000 tons in 1949. For further growvth, it is believed that an investment of at least U.S.$3,500,000 and Ps.$1.5 million is required to place producers in a competitive position in the international market. Salt The Salt Adimiinistrationi is currently studying a project to replace the present highly inefficient refining of natural salt at Zipaquira by a modern plant, and this appears to be economically justified. By using modern refining methods the iodizing of the salt will be facili- tated. The Salt Administration has created additional capacity to obtain crucle salt from sea water at Galera Zamba. Further study may suggest the desirability of extracting various by-product chemicals normally found in obtaining salt from sea wvater. Fats and Oils As noted previously, the Colombian diet is unbalanced and appears to be deficient in fats and oils as well as in vitamins and other protec- tive elements. It is importanit that wvays and means to increase the consumption of fats and oils be devised. Such a program should lead to an intensification of local production of oil-bearing seeds and the industrialization of oil extraction, which will provide cheaper and  INDUSTRY AND FUELS 413 better raw materials for vegetable shortening plants. Such a program might require some Ps.$1 million investment, of which 60 percent would require foreign exchange. Further investment will be necessary to increase the production of soap. Consumption is increasing at a rapid rate but the per capita level is still low-3.5 kilograms per capita in 1948. Forecast 1955 demand is about 7,800 tons above the present capacity estimated at 40,000 tons. A plant to cost U.S.$125,000 is projected. Leather Statistics on leather production and consumption are sketchy and misleading. Some categories of leather, such as calves' leather and upper sole, etc. are imported, with the balance produced in Colombia. There are no immediate prospects of replacing imports by local pro- duction. Twenty percent of domestic production of leather is ex- ported. Existing tanning capacity seems adequate to nmeet forecast demand for hides in 1955. However, the major tanner has a project to invest about Ps.$4 million and U.S.$1 million in moving his plant out of its crowded city quarters and modernizing it. It is expected that such investment would enable the firm to tan annually 6 million feet of cowhide and 1.8 million feet of sheepskin with a lower cost of production than prevailed in 1949. glass Products Demand for glass products has increased considerably in the last ten years as a result of the ever-increasing demand for bottled goods. Local production of glass, particularly of glass bottles, has been in- :reased rapidly so that Colombia should shortly be in a position to satisfy all its current bottle requirements. If demand for glass >roducts continues to increase at the prevailing rate of 10 to 13 per- -ent, consumption in 1955 may reach two to two and one-half times he current level and amount to around 70,000 tons a year. Of this lemand, some 50,000 tons would be for bottles alone. While local ,apacity seems adequate to meet demand in colored bottles at this ime, investment of about U.S.$1,500,000 (including U.S.$700,000 in oreign exchange) may be needed to expand capacity for the produc- ion of wlhite containers. The production of window glass must wait ipon the discovery of suitable sand. ?ubber Tire Manufacture The rapid increase in road transport has resulted in a rapid in- rease in demand for tires and tubes. Though the calculated increase n consumption amounted to about 5 percent per year from 1940 to 414 THE BASIS OF A DEVELOPMENT PROGRAMf FOR COLOMBIA 1947, this represents an understatement of real requirements since many tires were recapped, and shortages were plaguing the Colombian car, truck, and bus owners through the war years and in the immediate postwar period. More representative of real trends in consumption would be the annual rate of growth in use of gasoline-about 7 to 9 percent per year. Until 1945, most tires and tubes had to be imported. Since Janu- ary 1946, the production of the recently established Icollantas dis- placed much of these purchases as follows Local Output of Tires Total Year Icollantas Others Imports Consumption (in thousands of tires) 1946 ............... 62 104 130 202 1947.............. 79 20 103 202 1948 ............... 98 25 41 164 1949 ........ ....... 107 25 435 1755 The statistics reflect the abnormal demand induced in 1946-1947 by the satisfying of wvartime shortages, and seem to indicate the resump- tion of a normal trend of grovwth starting in 1948. However, no year can be expected to reflect "'normal" consumption, and the average consumption of the years 1946-1948 is arbitrarily chosen as a basis for forecasting 1955 consumption. If the rate of growth in demand for tires averages 8 percent per year from 1946-1948, as can be expected from the rate in demand for fuels, consumption may attain 350,000 tires in 1955. The market for local tire production, howvever, is unlikely to exceed 250,000 units, if \ve assume that 15,000 vehicles will be imported equipped with tires and tubes, and that about 25,000 odd- sized tires may also have to be imported. WThile this figure wvotuld exceed the full capacity, of Icollantas (170,000 units) and of a smaller Goodyear plant in Cali (25,000 units), it is doubtful that they will operate at such levels if government policy toward tire producers is not modified. The cost of production of tires in Colombia is abnormally high, because of the existence of taxes and duties of more than 60 percent on the c.i.f. price of Malavan raw rubber, and of the requirement to purchase domestically produced rubber. Under these circumstances, displacement of foreign tires can only occur under a stringent system of exchange and import quotas. Were these obstacles removed, and the Colombian producer put in position to lower cost, it is likely that the plant capacity should be increased by 1955 to take care of total requirements. The management 4 Mainly a small Goodyear tire and tube plant in Cali. Output estimated. 5 Estimated.  INDUSTRY AND FUELS 415 of Icollantas has perceived this necessity, but the investment required in increasing plant capacity by about one-third has not been calculated. Chemicals With the expansion of sulphuric acid capacity in recent years and the near completion of a new plant for soda ash and caustic soda, it is not anticipated that capital requirements for this industry wvill be very heavy in the next five years, although some small growth will continue in pharmaceuticals and probably in paints and resins. The existence of large amounts of cheap blackstrap molasses would facili- tate the establishment of a chemical industry which would use this material as its base. To satisfy the capital requirements in these and a number of other small chemical mixing plants, an investment of Ps.$2,000,000 may be assumed, of which 60 percent would require foreign exchange. Building Materials Cemiienit. The demand for cement increased at the rate of about 10 percent per annum from 1937-1940 to 1945-1947. Capacity at one mil- lion tons has grown more rapidly than demand, hoxvever, which probably amounted to 440,000 tons in 1948. Should the yearly demand for the period 1945-1947 to 1955 increase at the same rate as in the earlier period, it xvould attain 950,000 tons. Capacity, therefore, appears adequate to meet near-term prospects. However, about seven to ten modern concrete batching plants which would reduce costs and improve quality are needed at a cost of U.S.$1 million. Brick avid Tile. In almost every locality in Colombia, brick and tile for building purposes are being made chiefly by hand, althoug,-h recently in some of the more heavily populated areas, very modern facilities have been put into operation for making high grade materials. Current requirements for brick may amount to about 500,000 tons and are expected to reach nearly 600,000 tons by 1955. Requirements for tiles for flooring were about 100,000 tons in 1946. F.xpected con- sumption in 1955 is 118,000 tons. It is apparent that little capital is required by this industry. Roofinig AMaterial. Roofing material in years past consisted essen- tially of tile and metal. "Eternit," an asbestos cement material, is rapidly replacing both. Requirements are expected to climb very rapidly if a loxv-cost housing program is successfully carried out. There is plenty of "Eternit" capacity. Also, Johns-Manville is look- ing into the possibilities of exploiting local asbestos which will elimin- ate the need of importing asbestos. 416 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA Lumsber. It is hoped that the major development in building materials will be in the direction of utilizing wood products instead of earth products. Colombia has tremendous forest reserves wvhich should be a source of good dry kiln lumber. L-ike most of the industries cited previously, this is a field for private enterprise and, in this specific case, it is impossible to make any estimates as to possible capital expenditures until it is known whether or not private enter- prise finds this field a profitable one to enter. As a bench mark, it may be noted that the capital investment needed to produce 10 million board feet of lumber per year might be in the neighborhood of U.S. $250,000. Assuming that the simplest type of t-wo-room house could be constructed with 5,000 board feet, sufficient lumber to build 20,000 such houses per annum w^Tould necessitate a capital investmelnt of U.S.$2,500.000, of w,hich 80 percent wvould be in foreign exchange. Forestry Products Lumber as a building material was considered in the preceding paragraph. However, wood products in Colombia can meet a great variety of purposes. For several understandable reasons, the tremen- dous forest reserves of Colombia have in the past been left untouched. For one thing, the best reserves are in the lower Magdalena Valley and the Western Pacific slopes of the Andes, both areas until recently of most unhealthy climates. With progress in health, sanitation and methods to combat malaria, this situation may be expected to change. Tropical forests have also been left largely untouched because tech- niques of forestry have been developed largely in northern countries where lumbermen have worked on great stands of unliformii trees. Tropical forests are typically variegated, with as many as 85 varieties in one square kilometer. These range from the valuable hard wvoods. consisting of mahogany, walnut and cedar, to the very soft woods, consisting of the cativo and similar types. In between is the abarco, strong, tough, easily fabricated, making it ideal for construction lum- ber. In the past, suclh an assortmenit of trees has been a barrier to selective logging. Today, however, it is believed that the entire forest can be used and every tree can be cut and sent to the mill and used for specific purposes. The hardwoods can be sawed for furniture, for plywood, flooring, panels and doors; the medium hards can be cut into lumber suitable for all types of construction, including girders. columns, siding and floors; the soft woods can be processed into soft- board, hardboard, and various types of pulp. This type of integrated logging and processing operation is ideally suited to Colombian forests. For the first time, substantial industrialists are becoming- interested in starting a modern logging and timber processing industry in Colom-  INDUSTRY AND FUELS 417 bia. Their plans are modest and well conceived and should result in a very successful industry leading to continuous growth and exploita- tion of Colombia's vast timber reserves. In the most modern sawmill in Colombia in 1949, construction lumber sold for 35 centavos per board foot, or Ps.$350 a thousand board feet. This price necessarily increasedl considerably before it reached the consumer. Efficient log- ging, sawing, curing and marketing should reduce this price to not more thani Ps.$100 per thousand board feet and still leave a handsome margin of profit to the operator. While the climate and soil of Colombia combine to produce untold quantities of cellulose in its tropical forests every year, Colombia is a large importer of paper products, both paper and pulp. In 1947, such products amounted to 42,000 tons. The demand for paper products increased by more than 6 percent per annum in the period 1937-1940 to 1944-1947. The level of consumption in 1944-1947 xvas 3.26 kilo- grams per capita. If the same rate of increase in the demand for paper products should continue until 1955, in that year it would amount to 65,000 tons. Regardless of the exact rate of increase in demand, it is obvious that the market and raw rmaterials for a thriving paper in- dustry exist in Colombia. Capital and ability and skill to surmount the problems facing a newv industry are needed. In the development of forest resources every effort should be made to enforce the con- servation laws nowv on the statute books and to check the wasteful practice of burning forests to clear land. The softwvoods in Colombia. because of the constant climate, ample rainfall and fertile soil, grow very fast. This permits cellulose to be produced more abundantly than elsew-here and will in time permit high grade rayon pulp to be produced in very large quantities. The eventual export of rayon pulp or filament and staple, as well as other forestry products, appears to be a real possibility. For the production of lumber, Kraft paper, and other forestry products, we shall arbi- trarily assume an investment of U.S.$5 million (70 percent in foreign exchange) for the period under discussion, in full recognition of the fact that while it would be desirable to have a much larger investment, it is possible that the investmenit will be smaller than this figure. Iron and Steel Production of steel in Colombia is quite small. In recent. years it has aggregated approximately 3,400 tons of reinforcing rod and ingots a year from scrap in Medellin, and approximately 500 tons of pig iron in Pacho. Most Colombian requirements are currently covered by imports. 418 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA Arriving at possible future demands for steel products in Colombia is rendered particularly difficult by the erratic nature of imports, which are affected particularly by scarcities abroad and variations in Colombia's foreign purchasing power. In an attempt to delineate a trend, we have studied the growth of imports in the period 1937-1939 to 1945-1947. The average in the latter two years was 130,000 tons, as contrasted with an average of 90,000 tons in the earlier period. This growth has been in large part accounted for by an extraordinary in- crease in the imports of reinforcing rod, steel building structurals and steel rails. Increases in demand in the first two categories reflect an abnormal increase in office and commercial building and in factory construction. Steel rail imports in 1945-1947, on the other hand, were going largely into stocks of the railroads. Assuming that demand for (1) reinforcing rod will increase at a somewhat lower rate in the current decade, (2) steel building structurals and rails will increase at a rate proportionate to the increase in population, and (3) demand for other steel products will increase at the same rate as in the period 1937-1939 to 1945-1947, the total demand for steel products in Colombia by 1955 wvould amount to 150,000 tons, or 33 percent above 1945-1947 levels. Of this total, some 44,000 tons would consist of large pipe, heavy structurals and other products which could not be economically produced in Colombia for many years to come. We are left, there- fore, with a potential demand for steel products by 1955 of slightly over 100,000 tons of types whose production in Colombia might be feasible. However, requirements for many odd shapes and sizes will be included and it would hardly be economical to produce them in the small quantities desired. Colombia's main steel requirements for the next decade will consist for the most part of wire products, concrete reinforcing rod, pipe and light structurals. The above estimates of probable markets for domestically pro- duced steel products in 1955 are considerably lower than those used in the official studies of possible markets in 1953. The market survey on which official estimates were based is open to criticism. It is apparent, for example, that in many cases obvious double counting was involved, since the requirements both of the consumer and of the manufacturer for a given article sold to the consumer were included. The survey was conducted in the postwar period when steel was extremely difficult to get and much of it was being distributed through other than normal channels. Under such conditions, it is natural that manufacturers should overemphasize their requirements. Large ton- nages in certain items were arrived at through estimates submitted by other Government departments. For example, the Ministry of Hygiene estimated annual cast iron and steel pipe requirements at  INDUSTRY AND FUELS 419 30,437 tons per annum. This is equal to 1,450 kilometers of pipe and appears to be in excess of the amount that can be financed by this particular Ministry in the next few years. Similarly, the National IRailroads estimated an annual need of 15,000 tons of rail, although their average requirements for the past ten years have been less than 3,900 tons. Requirements for various other fields appear to be equally overestimated. There is quite naturally an active desire on the part of the Gov- ernment to produce these articles in Colombia and thus save dollar exchange. The Mission is very sympathetic toward this desire, pro- vided it can be demonstrated that the production of steel products in Colombia is economic, that is, that it can be carried out so that steel can be sold at a price comparable to the price of imported material ex duty. If this essential condition cannot be met and a Colombian steel industry can exist only through the continuance of high protection, then it would appear more economic for Colombia to export those products which it can produce at a comparative ad- vantage and import those which it can produce only at a comparative disadvantage. Two approaches to the problem of building up a steel industry to replace imports were brought to the attention of the Mission and were subjected to considerable study. One approach actively advo- cated by the Government looks to the creation of a completely inte- grated steel industry utilizing domestic iron ore, coal and limestone. The other approach advocated by some private business groups is of more modest nature. It proposes that the next step for developing a steel industry in Colombia should take the form of providing more fabricating facilities for the processing of local and imported scrap, and eventually work into the use of pig iron and the reduction of iron ore. We shall consider these two proposals in order. Integrated Steel Planzt The possibility of establishing an integrated steel industry in Colombia has fired the imagination of Colombians for years. This possibility has been studied by a number of foreign companies and individual experts with varying results. Some reports and recom- mendations have been favorable and some unfavorable. A report by the American Rolling Mill Company in 1944 advised against the project. The most recent study has been made by the Koppers Com- pany of the United States, which submitted a report on January 20, 1949, calling for an integrated plant to produce 193,530 tons of finisbed steel products per annum. Again, in October 1949, this same company submitted a second report outlining an alternative plant capable of 420 THE BASIS OF A DEVELOPMENT PROGRAMI FOR COLOMBIA producing 104,600 tons of steel products per annum. It was estimated that the larger project would cost U.S.$94,870,000 and the smaller project U.S.$41,000,000. The proposed plant is to be located in the wvestern part of the dlepartment of Boyaci at a village called Belencito near Sogamnoso. It will draw its materials from the nieighborhood of Paz de Rio, some 37 kilometers distant, where in relatively close proximity are located deposits of coal, iron ore and limestone. The meter-gauge railroad from Bogota to Sogamoso has been extended to Belencito. Various buildings have been erected anid extensive exploration wvork and tests of the raw materials have been carried out. The general recommendations of the Koppers Company are as follows: SIZE OF PLANT Recommendation Recommendation Items January 1949 October 1949 Coke Oven ..... ....... 51 ovens 27 ovens By-Products Plant ............ Fertilizer and light oil Fertilizer Blast Furnace ......... .......... 850 tons 500 tons Foundry ... ...... Cast iron pipe Eliminated Steel Production Facilities 2 converters 1 converter 3 electric furnaces 1 electric furnace Blooming Mill ........ 32" two high reversing Eliminated Billet and Rail Mill ........ 3-26" three high stands Eliminated Merchant and Rod Mill . 1-18" three high stands 8-16" i two high 5-14" two high stands 5-12" stands 2-12" two high stands 6 rod finishing stands Plate and Sheet Mill 1-22" three high stands Eliminated 1-20" three high stands 3-30" three high stands Wire and Wire Products 11 wire-drawing machines 8 wire-drawing machines Pipe Mill ......... ........ Welded pipe Eliminated Steam and Power Plant .. boilers 5..... S 3 boilers 3-11500kw. turbines 1-11500kw. turbine Sulphuric Acid Plant. Acid for sulphate Eliminated VOLtUAIE AND TYPES OF PRODUCTION Recommendation Recommendation Product January 1949 October 1949 (toils) Pig Iron ...... 13,400 13,400 Cast Iron Pipe 32,200 None Steel Pipe .. .. 4,700 None Wire, all types 32,600 32,600 Sheet and Tin Plate 28,500 None Plate Mill . . . 6,700 None Light Shapes ......... ...... 14,500 14,500 Rails 15.000 N'one Billet Mill Products 14.930 13,100 Reinforcing Bars 31,000 31,000 TOTAL . 193,530 104,600  INDUSTRY AND FUELS 421 It wvill be noted that the plant envisaged in the second recommenda- tion provides for the fabrication of only four types of finished product, exclusive of pig iron. Estimated Costs of Construiction. The estimate of U.S.$95,000,000 does not appear to be sufficient for the completion of the larger inte- grated steel plant and certainly does not measure the total cost to the Colombian economy. For one thing, certain major items that will have to be provided have been omitted from the estimate. These in- clude such things as housing and community facilities; the establish- ment of central warehousing and branch warehouses for the efficient distribution of the final product; starting-up materials; personnel training and miscellaneous smaller items. Of greater importance is the apparent underestimate of man-days and material required. We have not felt it part of our task to make an independent estimate. However, it may be pointed out that experi- ence on a similar mill in Chile provides some indication of the possible magnitude of these items. It is estimated that the completion of the plant at Belencito would require two million man-days of labor and approximately 87,000 metric tons of material. In the comparable Chilean plant, it is estimated that the completion of the mill wvill require 4/2 million man-days of labor and 150,000 metric tons of material, and this despite the fact that the Chilean labor is probably more efficient. In addition, no provision is made for interest charges during what wvill probably be a somewhat lengthy period of construction. The general plant facilities appear to be estimated considerably below the actuial cost incurred in the comparable Chilean project and the cost of the necessary power plant appears to be grossly underestimated. The cost of construction of this type of project has been almost consistently underestimated in Latin America. For instance, the original estimates on the comparable Chilean steel plant were for U.S.$53,000,000. Toward the end of 1949, this was raised to U.S.$90,000.000, even though some of the finishing plants provided for in the original estimates had been omitted. It is quite possible that the addition of these plants pltis the power plant, the ore boats, and comnmunity facilities-indeed, the total investment necessitated by the Chilean steel industry-will amount to some U.S.$140,000,000 before the w hole project is completed. For various understandable reasons, the ultimate cost of the Brazilian steel plant far exceeded original estimates. 422 THE BASIS OF A DEVELOP-MENT PROGRAM FOR COLOMBIA Similarly, the estimate for the smaller plant provided for in the second recommendation appears to be too low a figure. Moreover, inspection of some of the major differences in cost between the two plants shown in the following table xvill indicate the probable degree of underestimation. 850 Ton per 500 Ton per Description Day Plant Day Plant Raw MXIaterial Development . . . U.S.$6,830,000 U.S.$3,521,000 Spares for Plant. . . 2,300,000 None Spare Rolls .. . ... 850,000 None Connecting Pipe . . . 1,260,000 303,000 Yard Tracks .. . 1,150,000 420,000 Roadways .. 450,000 None Construction Contingency . . . 6,751,500 None Wire Mills 6 . . .... ... 2,596,000 1,785,000 Domiiestic Financing. Very large amounts of peso financing would be required for either project. Provision for such financing has already been made through Executive Decree in a most ingenious fashion. As of 1949 a tax of 5 percent on corporate and individual incomes above a certain amount was earmarked for the purchase of bonds of the Cr6dito Territorial to finance a housing program. Under the new Decree, 7 the taxpayers are required to pay 2,I percent to the Credito Territorial and are given the "alternative" of paying the remaining 2'2 percent as a tax or to purchase shares in the Empresa Sidertirgica de Paz de Rio. In addition, savings banks must purchase bonds of the mortgage bank to a certain percentage of their deposits, and have the choice of either purchasing additional bonds of the mortgage bank or bonds of the steel company guaranteed by the Government. Through this ingeniouisly contrived financing, it is maintained the steel enterprise wvill be owned by private stockholders and managed by the representatives of such private owners. How "private" an institution can be that is financed in this way is open to question. Both the domestic and external borrowings must obviously be guaran- teed by the Government. In addition, if heavy deficits arise, additional support may have to be forthcoming from the Government in the form of tariff protection. It appears inevitable, therefore, that the Government must in such circumstances have a strong and continuing interest in both the management and the policies of the company. There are obvious dangers in the proposed method of financing. The 'investors" have no real choice and a project finalnced in this man- ner cannot be said to be attracting capital on its owAn merits. More- over, the precedent offered is a dangerous one. The same device could be used to finance any number of other projects. 6 Both wire mills are to produce the same finished product in kind and quantity. 7 No. 4051, issued December 20, 1949.  INDUSTRY AND FUELS 423 Aid to Depressed Areas. Another argument stresses a more intan- gible, but important, point. Boyaca and Santander are poor depart- ments, subject to social unrest, and the proposed steel mill would help to raise the standard of living in those departments. We are most sympathetic with this objective but at the same time cannot avoid the conclusion that the costs would be disproportionate to the resultsi obtained. The bulk of the capital expenditures would be in U.S. dollars and for freight rather than being disbursed locally. The volume of continuing employment provided under either proposal would be small and the remoteness of the plant and high transport costs would militate against the growth of steel fabricating industries in this area. A substantial portion of the increased costs to Colombian indus- try would go to service the loan rather than to provide employment in Bovaca. Other things could be done to improve the conditions of people in Boyaca at much less cost to the community. Estinated Profitability of Operations. On the basis of pricing mill products at American mill prices plus internal and external transporta- tion costs, exchange costs and duties, less an estimate for the cost of shipping domestically produced steel products throughout Colombia, a composite price of U.S.$154.19 a ton was arrived at for the larger plant. A figure of U.S.$141.16 was arrived at on the same basis for the smaller plant. At these composite prices and at full capacity oper- ation, it is estimated that the larger plant would earn U.S.$11,000,000 net for interest, depreciation, arid profit, or 13 percent on total invest- ment, and the smaller plant would earn U.S.$6,300,000, or 15X2 per- cent on a capital investment of U.S.$41,000,000. Unless the proposed plant can operate at or near full capacity, the unit cost of production would be very high and profitable operations would be impossible unless unit selling prices are set very, very high. It would be expected that the smaller plant would have a higher unit cost of production. although this is not indicated in the two studies at hand, probably because of the low degree of utilization of some of the finishing facili- ties in the larger plant. In arriving at estinmates of returns, a mill price of U.S.$154.19 a ton wvas posited for the larger plant. Careful checking of the assumptions made in arriving at this figure lead us to the conclusion that an ex duty mill price truly competitive with imported American steel would be nearer U.S.$116.00 per ton. Recent developments indicate that European mills are prepared to deliver all steel products at prices considerably below those prevailing at the time of the study, in some cases by as much as 35 percent. 424 THE BASIS OF A DEVELOPMENT PROGRAMI FOR COLOMBIA From a technical point of view, the reduction of iron ore at Paz de Rio appears feasible. There are, however, many factors adversely affecting the cost of such an operation. The more important of such factors are as follows: 1. (a) The iron ore is extremely high in silica, necessitating care- ful selection as only the upper two-thirds of the iron ore deposits are suitable. By such selective mining, it is estimated that the silica content of the ore can be kept within 10 percent. (b) The relatively small pockets of ore and coal 1500 feet above the valley floor w'ill result in progressively more expensive extraction. 2. The phosphorus content of the ore is high. This would re- quire the basic converters to have their lining renewed after approxi- mately 30 blows, each blowv being about 30 minutes. The basic lining for the converters is not available in Colombia and must be imported. The high phosphorus content also necessitates the use of scrap as a phosphorus dilutant in order that an acceptable grade of foundry pig iron can be produced. 3. The ore is of a lemonite type with an average iron content of 47 percent. Some of the deposits are friable and require a sinter- ing plant. 4. The plant is at a very high elevation, the barometric pressure being about twvo-thirds that at sea level. This will require the consumption of more coke, and larger equipment per unit of product, in order to handle the greater volume of gas. 5. The coal is high in sulphur and ash and must be washed to reduce these two factors to acceptable limits. 6. The study provides for 2,400 tons of coke per ton of pig. Some furnaces in the United States have been able to operate as low as 1,350-1,400 tons of coke per ton of pig. 7. Steel mills re4uire large amounts of cooling and washing water. Unfortunately, Belencito is not near a large source of suitable water. It is necessary, therefore, to resort to the utilization of cooling towers. S. The plant site is so remote as to require construction of new communities and community facilities. 9. Boyaca is not an industrial area, which means that the entire labor force would have to be trained. This will be difficult in view of the low standards of health and education prevailing in this eco- nonmically backward department.  INDUSTRY AND FUELS 425 10. The plant at Belencito does not have a market for its excess gas. This \vill be consumed as far as possible as plant fuel. Even under these conditions, some gas will be wvasted. 11. Large quantities of supplies, especially converter linings, must be imported at great cost, amounting to approximately U.S.$2,700,000 per annum. All these factors wvill make for relatively higlh production costs. In addition, capital costs and servicing charges will probably be high. Still another factor making for high cost will be the distribution problem. The plant at Belencito is comparatively remote from some of the important industrial areas. It is connected by a meter-gauge railroad to Bogoti, some 250 kilometers distant, where products would be transferred to the yard-gauge railway for shipment to other parts of Colombia. To reach the Cauca Valley and MIedellin area, transshipment to trucks would be required for passage over the Cordillera Central. Therefore, the cost of distribution of the product to many areas in Colombia would far exceed the freight charges on imported materials to those areas in Colombia. Finally, because of the relatively low demand for many different types of sizes and shapes, it would be necessary to erect warehouses at strategic points in the country, since a year's requirements for certain sizes of steel shapes, for example, can be rolled in a few hours. Therefore, the combination of high operating and distribution costs and limited markets would result in substantial deficits for some time to come, unless, of course, the industry \vere protected by very high tariffs which would permit high unit prices to cover costs. This, however,- would constitute in turn a grave handicap to development of other industries in Colombia which are forced to use high-cost steel. For those wvho feel that any reduction in U.S. dollar payments, regardless of domestic costs, justifies a project, it may be pointed out that there would be substantial offsetting and continuing pay- ments to be made. In addition to amortization and interest payments on the loan, there woould be payments for material and supplies and for operating fees and foreign personnel. In the case of the larger plant, these charges would approximate U.S.$10,000,000 by the tenth year and in the smaller plant over U.S.$6,000,000 in the seventh year. The estimated value of steel imports replaced in each case would be U.S.$20,000,000 and U.S.$12,500,000. It seems apparent that the location of the proposed plant, on the one hand, and the smallness of the market, on the other, make it premature and inadvisable at this time to consider the erec:ion of either the larger or the smaller integrated steel projects at Belencito. 426 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA The high prices that would have to be charged would operate to retard the industrial development of the country. The tremendous amount of capital involved, particularly U.S. dollars, would return much greater yields to Colombia invested in other sectors of the economy. Additional Steel Fabricating Facilities The reduction of iron ore requires great amounts of capital. The fabrication of a few finished steel products from melted steel scrap. however, involves comparatively little. Generally, under free com- petitive conditions and in the absence of special governmental measures, this step precedes ore reduction and "integrated" plant operations. Japan built up a large steel industry on the basis of imported scrap. It was not until World War II that the wealthy and populous West Coast of the United States, with a steel market many times the size of the Colombian market, supplemented its scrap melting facilities (open hearth furnaces) by ore reduction facilities (blast furnaces). The same process wvas apparent in Chile and, to a limited extent, in Colombia itself. The market in Colombia, while too small for some time yet to justify ore reduction and many lines of finishing facilities, would justify, in our opinion, a considerable expansion of facilities for the fabrication of wire products, reinforcing rod and light structurals. The first project calls for the creation of a steel industry at Barranquilla. This wxould consist of an open hearth furnace for the melting of imported scrap, a blooming, merchant and rod mill, and a wire plant, together with necessary facilities. It need not include a power plant, since the local electric powver plant has ample capacity, and fuel oil is in ample supply. No additional housing or community facilities are required. We estimate that a plant to melt 65,000 tons of scrap and pig per annum and process this into 30,000 tons of reinforcing rod, 5,000 tons of light structurals, and 25,000 tons of wvire products would cost about U.S.$9,000,000, of which the U.S. dollar cost would approximate $5,000,000. For this relatively modest capital investmenit, the bulk of Colombia's finished steel requiremelnts wvould be looked after for some time to come. Such a plant is simple to construct and operate and very similar to the successful one already in operation in AMedellin. Its capital cost is low because it eliminates very costly items, such as coke ovens, blast furnaces, mine development and power plant. Due to the simplicity of operation, a large group of foreign technicians and operators is unnecessary. Assuming that scrap can be purchased  INDUSTRY AND FUELS 427 on the average at U.S.$35.00 a ton, and pig iron at U.S.$55.00, we estimate that it would be possible to price the mill product at the imported price less duty and still make an excellent return on the capital investment, Total annual dollar requirements at prices pre- vailing at the end of 1949, including the purchase of scrap and pig, and the servicing of the loan, would amount to approximately U.S. $3,900,000, whereas the imported price of products displaced amount to U.S.$8,200,000, so that the annual dollar savings would be U.S.$4,300,000, or almost equal to the total dollar capital require- ments. The open hearth furnace would be suitable for handling either imported scrap or pig iron, so that it would be possible to use some of the excess pig iron capacity of the new Chilean steel mill. A rise in scrap or pig iron prices would not affect the validity of our calcula- tions as their rise is generally accompanied by an increase in imported steel prices. We have suggested Barranquilla as the best site for such a plant for various reasons. For one thing, capital costs would be less there than in any other site in Colombia, as housing and power facilities are already available and imported machinery would not have to bear any heavy internal freight charges. Moreover, both the internal market and the Pacific Coast can be supplied from Barranquilla. Finally, location on the coast would permit easy export of the product to neighboring Caribbean markets, if found desirable. In addition to the possibilities of initiating a low cost steel industry at Barranquilla, we are favorably impressed with the possibilities of developing an ore reduction program at Medellin. Generally, ore reduction projects involve heavy capital expenditures. It so happens, however, that most of the necessary facilities are already available at Medellin. The very successful Empresa Siderfirgica in that city has rolling capacity for 15,000 to 20,000 tons of reinforcing rod a year. Although there are three electric furnaces for melting scrap, the shortage of local scrap has limited the yearly production to 3,500 tons. Even at this production rate, however, operations have been profitable and the profits have gone into the construction of a nearby cement plant, and a 4,000 kw. hydroelectric plant. Coal miines and limestone deposits have been developed in connection with the cement plant and iron ore deposits have been acquired. Since, therefore, this company already has power facilities, developed mines and rolling facilities, all that is needed to double its capacity of finished products would be a relatively small investment of U.S.$550,000 for a larger electric furnace to make 4,000 tons of steel ingots a year from iron ore. 428 THE BASIS OF A DEVELOPMENT PROGRA-M FOR COLOMBIA With this favorable combination of circumstances, it is estimated that it would be possible to produce steel ingots at U.S.$55.00 a ton, which compares with a price of $67.00 a ton in the United States. This would obviously permit finished steel to be sold competitively with the imported article and thus permit a further saving of dollar exchange of nearly a half a million a year, or savings in one year almost equal to the total dollar capital requirements. In our judgment, there is no comparison between the merits of the two proposed ways of meeting Colombia's finished steel require- ments. 'I'he second alternative, the development of projects at Barranquilla and Medellin, will cost relatively little, can be quickly completed, will result in substantial annual savings in dollars, can be privately financed and easily operated, and can lead by natural evolution eventually to completely integrated operations. Petroleum Products Statistics on the production and consumption of refined petroleum products are numerous and conflicting. The computation of past trends and forecast of future performance may therefore be unreliable, though many inaccuracies mav be corrected by the interpretation of complementary information on trends in automotive vehicle regis- tration, and other uses of power. Some data on past trends are found in Table 130. TABLE 130 RATE OF GROWTH PER YEAR IN PRODUCTION AND CONSUMIPTION OF REFINED PRODUCTS, 1937-47 2 Productionl Consumption- From 1939 From 1937 Average 1938-40 to To 1947 To 1945 Average 1945-47 Percentage) Average 11Y3 7 V3 10 Gasoline .. . ................. 8 4'/3 8 Ethyl. 13 8 27 "Tractorina" 5 8 n.a. Kerosene 7V4 7/3 6'2 Gas Oil 12 7X2 5 Lubricants . .5 5 7 Y2 l Anuario General de Estadistica, 1947. 2 Ibid., 1938-1947, anid An,ario dc Coimer-cio Exterior. According to the Anuario General dc Estadistica, which may some- what overstate fuel oil production by adding to it an item called "crude refined," the amount of crude oil refined did not increase sizably from  INDUSTRY AND FUELS 429 1938-40, when it reached about 3.3 million barrels per year, to 1945-1946, when it averaged 5 million barrels per year. However, production jumped in 1947 to 7,852,000 barrels of crude oil refined and this explains why rates of growth based on 1947 figures indicate, in gen- eral, performance much above the level of previous years. Whether or not the trends that brought about the high level of gasoline consumption in 1947 will be maintained in the years 1950-55, gasoline consumption is likely to be at least 60 percent above the 1947 fi-ures (if it is assumed that gasoline consumption per vehicle in 1949 was equal to 1947 consumption), since Table 131 shows that vehicle registrations increased by 60 percent betwveen 1947 and 1949. TABLE 131 REGISTRATIONS AND IMPORTS OF AUTOMOTIVE VEHIC[.ES, 1938-1949 1938 1939 1946 1947 1948 1949 (thousands of vehicles) Registrations: Motor Cars . 12.5 13.7 15.3 19.0 22.6 31.9 Buses .2.6 2.7 3.7 4.3 5.5 6.7 Trucks .6.2 7.0 10.0 13.8 17.2 20.4 Total .21.3 23.4 29.0 37.1 45.3 59.0 Imports Motor Cars ....... 2.3 3.9 3.4 5.4 6.02 6.32 Busesl 0.6 1.0 0.9 1.3 1.42 1.62 Trucksl ........... 1.8 2.9 5.2 6.9 8.02 9.32 Total 4.7 7.8 9.5 13.6 15.4 17.7 1 Ilncluding chassis. 2Estimated on basis of registration and depreciation. An increase of 60 percent would be equivalent to an annual increase in consumption lof almost 6 percent per year from 1949 to 1955. If automobile registration increases (and this will occur if yearly im- ports of cars, trucks and buses do not go below approximately 10,000 units a year), the growth in gasoline consumption from 1947 to 1955 could easily reach 8 percent per year or more. Other factors contrib- uting to the likelihood of this increase are the opening of new roads, the improvement of old ones, and additional production (together with truck transport needed to carry the manufactures) which is likely to increase at better than 8 percent pcr year. 430 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMtBIA Table 132 shows the demand for refined products in 1955 and 1960 as predicted by McGraw-Hill on the basis of estimated demand in 1950 and rates of growth in demand. The information utilized as a basis for this computation differs in some respects from official Colombian figures utilized by the Mission. However, as will be shown belowv, demnand reported for 1950 and the rate of consumption growth are closely consistent both with our estimates of consump- tion in 1945-1947 and the rates of consumption growth in the war years. It is felt, therefore, that McGraw-Hill's figures are a reliable basis for forecasting the possible 1955 demand of refined products. In order to meet Colombia's demand for petroleum products, it is necessary to supplement the present topping units, which yield from 6 percent to 10 percent gasoline, and to add modern cracking facilities giving a yield of approximately 40 percent. The capacity of new refining facilities should be ample not only to meet present require- TABLE 132 ESTIMATED DEMAND FOR PETROLEUM PRODUCTS, 1955 AND 1960 Yearly rate Yearly of growth rate of in demand growth in 1950 (Based on consump- Consump- Demand McGraw-Hill's tion tion in (Estimated Demand in Estimate) 1938-40 to 1945-47 by 1955 - 1960 1945-47 (Estimated McGraw- (Estimated by 1950- 1955- (Mission by IBRD) Hill) MicGraw-Hill) 55 60 Estimate) (Barrels; 000 omitted) (Percentage) Gasoline (motor) 5 6,450 8,232 11,735 17,923 7'4 9 8 Kerosene 660 679 1,076 1,513 10 7 6X2 Diesel 1,250 1,689 2,035 2,812 4 7 5 Fuel Oil 7,600 7,853 10,268 13,457 6 5X2 n.a. Crude Oil (Approx.) 15,000 19,500 26,600 37,800 6 7 9 1 Including ethyl, but excluding aviation gasolinie above 90 octane. ments of 2,500,000 barrels of regular gasoline per year, but to take care of future gasoline needs and also permit an increase in capacity through the installation of additional equipment at some future date. From studies of present requlirements and estimated growth, it appears that total facilities for the refining of some 38,000 barrels a day, or additional capacity to treat 16,000 to 17,000 barrels of crude a day, are justified and adequate to meet 1960 demand. Such an installation woould be of economic size.  INDUSTRY AND FUELS 431 Cirltde Oil Situation. According to a recent study by the Western Geophysical Company, the crude oil picture is as foilows: Reserves August 1951 to Source End of 1980 Percent Quality (Barrels) De Mares . 72,200,100 25.8 Heavy Casabe . . 106,891,000 38.2 Heavy Barco ...... ...... 93,248,900 33.4 Excellent All Others . . . 7,270,600 2.6 Total . . 279,610,600 100.0 Of the three main sources of crude, Barco apparently is the only one which is entirely suitable for refining lor the. proper distribution of products without going to extraordinary expense in refining equip- ment. This does not mean that the De Mares and Casabe crudes should not be refined, since we believe they should be processed to the fullest extent possible without producing an undesirable surplus of black oil. It simply means that Barco crude will be the keystone of a national refining industry, and that the relative proportions of Barco to heavy crudes used will increase as the demand for light products increases. In January 1949, total oil production in Colombia was 79,000 barrels per day. Continued production at this rate would result in depletion of proven reserves in 9.7 years. At the present refining rate, 21,000 barrels per day, and assuming no export of oil, proven reserves would be depleted in 36.4 years. At projected internal consumption rate for the year 1960, 37,800 barrels per day, proven reserves would be depleted in 20.2 years. If Barco crude alone were used for an internal refining industry, without export, it would be depleted in 12.2 years at present refining rate. If Barco crude alone were used for an internal refining industry, without export, it would be depleted in 6.75 years at projected internal consumption rate for the year 1960. The depletion rates described above should not be taken too liter- ally, since many factors determine rates of production from oilfields, but they may be considered as fair indications of reserves. In com- parison, the U.S. petroleum industry has, for a long period of time, maintained a proven reserve equivalent to approximately twenty years based upon total current production. We may consider this as being a measure of sound practice in a stable and healthy industry. 432 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA The following conclusions appear wvarranted: 1. Proven reserves are dangerously short if present production and export rates are maintained. Every encouragement should be given to further exploration. 2. Ideally, B3arco crude should be earmarked for internal use, and exports should be limited to the heavier crudes, which are in greater supply and less suitable for local refining. 3. No large capital expenditures for refining equipment can be justified until the crude oil situation is more favorable. Dollars will be better spent in a vigorous exploration program. 4. A modest capital expenditure for refining equipment is justi- fied, provided that it will bring distribution of products into balance. This is a conservational step because it means that the nation will not be forced to export surplus black oil, which, in the final analysis. is almost equlivalent to crlde. Refining Requiiremiients. In view of the situation confronting Colombia with reference to crude reserves, present refinery capacity and growth of consumption, what course of action should be taken in order to bring production of refinery products into balance wvith probable market demands? The matter has been exhaustively studied by the Foster Wheeler Corporation in conjunction with the Consejo Nacional de Petr6leos and their recommendatiotns are as folloxvs: 1. Immediate construction of cracking facilities at Barrancaber- meja, at an estimated cost of U.S.$9,000,000. 2. Immediate construction at Mamonal of a new refinery to process 12,000 barrels per day of Barco crude, at a cost of U.S.$13,500,000. 3. Extension of the Mamonal refinery in 1955, by addition of cracking equipment, at an additional cost of U.S.$12,200,000. For various reasons we question the wisdom of embarking on a program of this character and magnitude at the present time. Some of the considerations that influence our attitude are: (a) Total capital expenditure proposed is U.S.$34,700,000. This outlay is excessive, especially when one considers the uncertainty re- garding the source and types of crude xvhich may be available foi processing a fewv years hence. (b) Geographical dispersion of refining facilities will postpone the time when it will be economical for Colombia to produce its ow: high-priced specialty products such as quality lubricants and 100/13  INDUSTRY AND FUELS 433 aviation -asoline. All cracking facilities should be at one location until a complete refinery of 40,000 to 50,000 barrels per day capacity has been developed. (c) Up to 1955 the operation of the proposed distillation unit at Miamonal would be wasteful of Barco crude. Followilng is an estimate of Mamonal's operation in 1955: Barco Crude Charge .. 1,800 BPD Produicts Motor Gasoline . 5,100 BPD Tractorina ................................ 190 Kerosene .................................. 640 Diesel Fuel ... ... 1,180 Fuel Oil ..... ....... .......... ,690 5....... 12,800 \Ve call attention to the "ifuel oil" production of 5,690 barrels per day, or 45 percent of Barco crude. This material is 7lot fuel oil but good cracking stock, potentially convertible largely to white products. While it might conceivably be sold as fuel oil, if it were not too waxy and if it met flash point specifications, it would represent a waste af Colombia's most valuable reserve. (d) The refinery at Mamonal is uneconomic and cannot show a reasonable returnl on the heavy investment involved without being Lllowed an additional 1 or 2 cents a gallon in the spread between re- Fined products and crude oil, an unjustified subsidy. As an alternative, we recommend that advantage be taken of the -entral location of existing facilities at Barrancabermeja, and of the ;ystem of connecting pipelines. To meet 1960 consumption require- nenits, we recommend the immediate construction of a two-coil thermal racking unit. This unit would increase combination crude distillation vnd present crude capacity by approximately 17,000 barrels a day, ind would efficiently crack all heavy oil produced from existing acilities. Such equipment wvould keep products in balance during the iext ten-year period and permit as much heavy crude as practicable to e run at all times in order to minimize the consumption of Barco :rude. The combination cracking unit would be economic to operate Lnd should not cost in excess of U.S.$10 million. In addition, some urther moderate expenditures will be required to replace present vorn-out equipment. The transportation problem does not appear to be too complicated. )ne loop of the Andean line could be modified to bring Barco crude ip from La Gloria. Exported crude and cracked fuel oil could be 434 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA alternated in the other loop of the Andean line for transport to Cartagena. The viscosity of the residual fuel, being lower when the crude has been processed through a cracking unit than through a dis- tillation unit, could be readily pumped through the pipeline to the coast. In the event that the country might some day be required to import crude, it could be brought up one loop of the Andean line. A pipeline from Puerto Berrio to Medellin would serve as the first major step in the distribution of gasoline from the new Barranca re- finery. From Medellin, tank cars and trucks could be used to distribute the refined products throughout the western part of Colombia, while gasoline barges could be economically used in taking the product to Barranquilla and Cartagena. This wotuld eliminate the necessity of carrying gasoline through the Panama Canal to Buenaventura and of constructing a pipeline from Buenaventura to Cali. Another pipeline to La Dorada. and eventually to Bogota, may be justified. 8 Our recommendation for immediate new facilities at Barranca- bermeja is posited on the assumption that the proposed modern com- bination thermal cracking unit will be operated by experienced private managemiient. Successful, efficient and low cost Government opera- tion of moderni refinery facilities cannot be expected in Colombia at the present time. Nitrogen Fertilizer The urgent need for low cost fertilizers was mentioned in Chapter XVIII. The difficulty centers around high transport costs as well as lack of domestic sources of supply. The desirability of using more concentrated forms of fertilizer was stressed. In the case of Chilean nitrate, for example, the nitrogen content may be taken at around 15 percent. In order for the farmer to take advantage of this 15 percent, however, it is necessary to transport the 85 percent residue at great cost. A new development in the direct application of anhydrous ammonia to the soil has occurred in recent years in the United States and may be of great potential significance for Colombia some time in the future. The significance of this process, of course, lies in the fact that anhydrous ammonia is mostly nitrogen and can be made verv cheaply from gas, a by-product of the proposed oil refinery, or from natural gas. While the process appears to be completely feasible factors militating against its early use center around the type o- equipment and method of handling required. The anhydrous ammonic is liquefied under pressure at the plant and is transported in pressur 8 For further discussion, see Chapter XX.  INDUSTRY AND FUELS 435 tank cars. It requires special storage equipment, and special equip- ment for its application to the soil. The savings, however, would be so spectacular that close study of adaptability of this type of fertilizer to Colombia appears merited. In any case, serious consideration should be given to the manufacture of ammonium nitrate or ammonium sulphate for fertilizer, as their shipment and application require no special equipment. Coal It was pointed out in Chapter VI that Colombia undoubtedly pos- sesses great coal reserves which should prove of enormous value in the future. At the present time, however, they are being mined' most inefficiently and primitively, so that the price is high and the' consumption very low. Consequently, charcoal is still extensively used even though it is very expensive. The use of efficient coal mining methods, which are well known today, would result in a substantial reduction in the cost of coal and a displacement of char- coal by coal for many cooking purposes. It also is possible that coal may be one of Colombia's new exports.) There are two possibilities: one is the coal on the Pacific side of the country near Cali, and the other is at Cerrejon on the Caribbean. The Cali coal, except for fairly high ash and sulphur content, is a good coal and a washing plant could bring the quality up to exportable grade. However, before exports could be considered, the industry would have to be made proficient by the investment of considerable capital, securing of good management, and a cheap export rate on the railway to Buenaventura. The possibilities at Cerrejon are good. There appear to be very large coal deposits of high quality only 100 kilometers from the ocean over level, dry terrain. The Mission arranged for analysis of the coal's physical and chemical properties by the United States Bureau of Mines. Preliminary results indicate that the coal has excellent fuel properties with over 12,000 B.T.U.'s per pound and with a very low ash content. 9 It does not appear, however, to possess good coking qualities though this possible deficiency may be cor- rected by blending with other coals. This preliminary analysis, 9 Actual analysis of one sample on "as received" basis: Moisture ...........- 10.5 percent Carbon .... 48.6 percent Volatile ............ 38.7 Ash .... 2.2 Ultimate analysis: Hydrogen ... ...... 6.0 percent Oxygen . ... 19.3 percent Carbon ...... ... 70.4 " Sulphur .... 0.5 Nitrogen ..... .. 1.6 " Ash .... 2.2" B.T.U. 12,430 Ash fusion temperature 2570°F. 436 THE BASIS OF A DEVELOPMNENT PROGRAMI FOR COLOMBIBA therefore, appears to justify further exploratory work in proving reserves. In view of the high fuel value and low ash content this coal may prove to be of great value to the Colombiani economy. As an indicationi of possible capital requirements, the development of the Cerrejon to a point where 500,000 tons of coal a year coulcl be produced would necessitate a capital expenditure of approximately U.S.$8,000,000, of which 60 percent would be in foreign exchange. For the developmenit of coal in other localities for consumption within Colombia, a rough figure of IU.S.$10.00 per ton per annumii may be taken as representing capital costs of providing completely modern mining methods. Electric Power Colombia is particularly fortunate in having a large hydroelectric potential due to the very rugged terrain and relatively good rainfall in many sections of the country. This potential was estimated at 5.4 million horsepower in 1947 by the U. S. Geological Survev. For various reasons, little of this potential has as yet been realized. In addition, the abundant supply of coal and modest reserves of oil per- mit the use of thermal plants where use of water power is impractical. As a means of raising the standard of living, both directly and in- directly through the provision of power to industry, we would place high on the list of priorities a considerable expansion of electric power capacity in the next decade. Specific recommendations for the expansion of power facilities wvill be found in Chapter XXIII, "Electric Power and Community Facilities." WVhile electric powver is of prime importance in industrial development, its overall use by municipalities for street lighting. commnercial enterprises, households, and farms makes it logical to consider it along with other community facilities. ESTIMATE OF CAPITAL NEEDS It is extraordinarily difficult and hazardous to estimzate industrial capital expenditures in an industrially new and rapidly developing country like Colombia. Characteristically, capital investment tends to go in cycles and, in Colombia, has been affected greatly by such factors as foreign wars and the volume of fore'gn exchange receipts. All we can attempt, therefore, is to assume certain rates of growth in the demand for various industrial products and to calculate the additional capital investments necessary for expansion or moderniza- tion of plant to meet such growth. In certain cases, we have reliec upon actual projects currently under discussion. In other cases, sucl-  INDUSTRY AND FUELS 437 1s iron and steel, forestry products and coal, we have assumed certain irbitrary figures as representing possible capital requirements in the 'iext five years. Table 133 shows the cost of the specific industrial projects which iave been singled out for discussion in this chapter-a total of about U.S.$36 million in foreign exchange and Ps.$34.3 million. This total, -iowever, is not all-inclusive since the cost of foreign equipm-1ent and miaterial has been estimated on a c.i.f. basis, and it is necessary to add payments required in addition for markups and transport costs on such imports. As shown in our chapter on capital formation, those expendi- tures amounted on the average to approximately 50 percent of the -.i.f. costs from 1939 to 1947. It is hoped, however, that the load >f those expenditures will diminish as a result of the structural reforms brought about by the implementation of the Mission's recom- mendations. By 1951-55 the average may be reduced to one-third or less of the cost of equipment delivered at ports. Thus, if the recom- L-mended foreign exchange investment shown in Table 133 is converted into pesos, the c.i.f. cost would be Ps.$72 million, to which must be added an estimated Ps.$24 million to cover trade markups and trans- port costs-or a total of Ps.$130.3 million, including of course Ps. $34.3 million in local material and labor, to be expended in the five-year period for investmenit in specific industry projects. TABLE 133 RECOMIMIENDED INVESTMENT IN SPECIFIC INDUSTRIES,' 1951-1955 Foreign Exchange Domestic Investment Investment (illilliolls) Zotton Textiles . ................. U.S.$ 0.75 Ps.$ - WVool Textiles .... ..... ............... 2.00 1.00 Rayon Textiles ................ ..... 1.00 Shoes . ........ 0.70 2.80 M\Iineral Water 0.80 Sugar .. .. ..... ........... ... ...... 3.50 1.50 Fats 0.42 0.40 Leather 1.00 4.00 3lass 0.70 1.60 Shemicals 0.60 0.80 Scncrete Batching 1.00 Lumber . .3.50 3.00 Scrap and Pig Iron .. ........ . 00 5.... 8 00 _lectric Smelter 0.55 Petroleum 9.60 4.80 -oal . .4.80 6.40 Total ............... ...... ........... U .S.$35.92 Ps.$34.30 lYBased on recommendations in this chapter Avhich do not include cost of markups md internal transport for imported equipment and material. 438 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLONIBIA These projects do not represent, however, the total recommended by the Mission for industrial investment. Rather they should be con- sidered as a favored or "priority" segment within a larger schedule of investment. The projects recommended in Table 133 represent specific targets to be reached by various industries, while the other programmed outlays are those necessary to maintain a high level of economic -rowth in industry as a whole. The total outlay recommended is shown in Table 134. It has been calculated for the year 1953, the midway point in the program period, and represents an average investment for the five years 1951 to 1955. Those entrusted with the implementation of the investment program 'viIi of course study the extent to which the figures for individual years will deviate from our projected average year. The estimates w,,ere made on the basis of the 1947 figures on capital formation. While it is recognized that the level of capital formation in 1947 was exceptionally high, the very conditions which made it possible- TABLE 134 MODEL PROJECTION OF INDUSTRIAL CAPITAL FORMIATION, 1953 Other Total Specific Projected Investment Investment Industrial Recommended (Table 133) Investment (millions) EQUIP0IENT Imported Equipment Ps.$ 75.0 Ps.$ 14.3 Ps.$ 60.7 Domestic " . 13.3 3.4 9.9 Trade and Transport Costs Imported ... 25.0 4.8 20.2 Domestic .. 3.3 0.9 2.4 Total .. . .. 116.6 23.4 93.2 BUILDINGS Imported Materials 1.7 1.7 Domestic " .. 5.6 5.6 Trade and Transport Costs Imported 0.6 0.6 Domestic 1.4 1.4 Subtotal MIaterial . 9.3 9.3 Labor .10.7 10.7 Total.20.0 20.0 OTHERS Installation Costs 11.7 2.7 9.0 Total in 1953 ... 148.3 26.1 122.2 GRAND TOTAL 1951-55. Ps.$741.5 Ps.$130.5 Ps.$611.0  INDUSTRY AND FUELS 439 high levels of imports and economic activity-could readily prevail in the future. The indices and ratios used in the projection are dis- cussed in Appendix J. Recommended gross industrial capital formation in the projected period totals about Ps.$740 million, or almost six times the cost of priority outlays of Ps.$130 million. This difference of Ps.$610 million consists of roughly Ps.$200 million for depreciation of exist- ing industrial equipment, factory buildings account for about Ps.$100 million, and maintenance of equipment for another Ps.$50 million. The balance of Ps.$260 million seems a minimum required for expan- sion in the great number of industries not covered in our discussion of priority outlays, such as wheat and cereal mills, food-canning plants, quick-freezing plants, chocolate and sweets factories, brick- kilns, furniture and appliances, ready-made clothes, miscellaneous chemicals and pharmaceuticals, paints and varnishes. It also covers additional expansion which may result from the play of conmpetitive forces in those industries we have discussed, and which mav cause expansion beyond what is strictly necessary. Capital requirements for the expansion of power are presented in the chapter on electric power and community facilities.  CHAPTER XX Surface Transport The analysis in Chapter VII of the characteristics and problems of surface transportation led to the general conclusion that the various transport systems in Colombia are not now capable, either singly or in combination, of serving the country's growing needs adequately and at reasonable cost. The purpose of this chapter is to make recommaendations for corrective action of twvo general kinds: (1) for improvement of conditiolns and practices \vhich interfere with efficient use of existing transport facilities; and (2) extension or improvement of the existing facilities at certain points. One problem of overall importance is the regulation of all types of transportation in the interests of the users of transport facilities and the public generally, notablv the re-ulation of rates, safetv con- ditions, and standards of service. It was to fulfill this important function that Lawv 90 of 1948 established the National Council of Transportation, made up of representatives of the various govern- mental agencies concernied with transportation. The Council is not, however, a satisfactory agency for this purpose. In the first place, it is composed of top officials wvho have other cxtensive and pressing responsibilities; it meets on an informal basis and does not have adequate staff or facilities to carry out the functions envisioned. The official budget for 1950 calls for only Ps.$30,000 for the Council's work. Second, and even more important, the Council as it is presently constituted could not in any event be expected to evolve and enforce a consistent policy for the regulation of all transport media, based on objective analysis and consideration of all the varied interests concerned. Most of its members represent particular economic and, more particularly, bureaucratic interests. Some of them are directly responsible for the operation and promotion of particular transpor- tation media, wvhich are inevitably (and should be) in competition one with the other. They cannot be expected to decide objectively on rate and other questions which vitally affect their owvn com- petitive positions. e recommend, therefore, that the proposed Public Administra- AWN tion Mission -ive particular attention to the problems involved in regulating transport in all its forms, as xvell as to the proper organi- zation for operational purposes. Regulation includes jurilsdiction 440  SURFACE TRANSPORT 441 over franchises, rates. safety regulations and related matters for all forms of surface ancd air transport, except for purely local transport services. In defining re-uilatory powers and policies, it is almost as important to avoid too much regulation as too little. Some forms of transportation require more extensive and detailed public super- vision than others. For exaample, the licensing restrictions now imposed on trucking operations seem to be unduly severe. In a business such as this where capital requirements are relatively small and where investments can be liquidated quite easily if necessary, the forces of competition should be given rather wide leeway to bring about an increase in average efficiency and a reduction in costs and rates. The emphasis in this field should be placed on regulation of rates and on requirements for safety and financial responsibility, rather than on route franchises. In the aviation indus- try, on the other hand, regulation of competition is more necessary, as is pointed out in thie followiing chapter, because of the magniitude of needed investments, the costs of operation, the more limited number of routes, and the smaller volume of traffic to be shared among competing lines. RAILROADS Administrative Reorganization The National Railway System as now organized is a branch of the National Government, under an Administrative Council (Consejo) of which the Minister of Public Works is Chairman. The original concept of the Consejo as an autonomous board of directors was a sound one, but it has not been carried out in practice. The Chairman is a political appointee, subject to change with each shift in the national administration, and burdened with many other responsibili- ties. The members appointed to represent industry and agriculture are also changed frequently. Only two members of the Consejo- the Administrator General and the transportation expert-have any substantial continuity of tenure. At the same time the Consejo, especially its two relatively permanent members, has tended to become itself the active general manager of the railroads, leaving no room for an independent, continuing check on management. As a remedy ve recommenid that: 1. The direction and administration of the National Railways should be vested in a Public Railways Corporation with a Board of Directors wvho wvould be given full responsibility for efficienit opera- tion of the railroads. 442 THE BASIS OF A DEVELOPMENT PROGRANI FOR COLOMBIA 2. The Board of Directors should appoint as general manager an administrator of demonstrated competence who wvould be given broad executive powers and responsibility for day-to-day operations, within the scope of general policies determined by the Board. He should also be a member of the Board ex officio. 3. The directorships, except for the general manager, should be part-time positions with specified terms. The appointees should be outstanding executives from business, finance and government. 4. The Board of Directors should periodically review operations and at stated intervals submit full operational and financial reports. In addition, Congress would review their operations further when- ever requests for funds for capital outlays or to cover deficits were necessary. 5. The problem of the proper organization for the regulation of all forms of transport should be accorded special study by the pro- posed Public Administration Commission. It should be emphasized that all recommendations relating to organization are tentative and subject to review by the proposed Commission. This proposed administrative reorganization would have several advantages. First, it would help to remove railroad operations from excessive political control and permit greater continuity of operating policies. Second, it would clearly fix responsibility-for policy forma- tion and supervision on the Board of Directors and for day-to-day operations on the general manager-and at the same time it would give them, particularly the general manager, the necessary authority. Third, a part-time Board of Directors would be less tempted to inter- fere in details of management, and it would be easier to secure the services of outstandingly public-spirited, competent, and experienced directors on a part-time basis. Fourth, the regulatory function xvould be subject to thorough review and reorganization. Administrative reorganization along the lines proposed wvould be a desirable starting point for improvements in operating practices. This has been amply demonstrated in the experience of other countries. Operating Practices and Equipment The major reasons for low productivity in the Colombian railroad system have been discussed in Chapter VII. Productivity could be considerably increased through improved operating practices and the use of more efficient equipment. Many specific recommendations along these lines have been made as a result of previous studies of Colom- bian railroads. Some of the important ones are reiterated here, with certain additions and modifications, for little or nothing has yet been done to effect the improvements recommended over the past several  SURFACE TRANSPORT 443 years. Until effective action is taken to increase productivity and cut costs by these means, little further capital investment to expand the present railway system should be made. We recommend that double-heading and helper service be in- augurated on those traffic segments most suitable from the stand- point of operating conditions and economics-for example, from Buenaventura to Cali, and on the steep slopes up from the Cauca and Magdalena valleys. This wvould not only make possible increased payloads per train, but also reduce problems of traffic congestion on the more densely traveled segments. At the same time adequate load- ing and maintenance facilities should be provided and, in some cases, the use of diesel-electric equipment would be desirable. Many operational delays are directly attributable to the inefficient "manual block system" of traffic control and dispatch and to the way in which it is operated. It is recommended, therefore, that the present methods of traffic control be completely reexamined, especially on those segments where bottlenecks exist as a result of the great postwar increase in traffic. Such a study should explore the possi- bilities of using centralized timetable dispatching, meet orders, im- proved communication systems, and mechanical signal systems. Twenty-four hour operations would be of great value in taking care of traffic demands over certain runs, and should be emploved wherever traffic and operating conditions warrant. Many operations could be made less costly and more efficient through greater mechanization. Examples are the use of such devices as spring-switches rather than swvitch-tenders; direct coalers to sub- stitute for hand-coaling of locomotives; and mechanical loading and unloading devices for handling cargo. The merits of cargo-handling devices must be weighed on the basis of specific facts in each case, but in many situations one or more of these mechanical devices woould speed up the handling of freight and, in all probability, lower costs. The report of the U.S. Railway Mission in 1946 reviewved in great detail the safety problems of railroad operations in Colombia. Little has been done to carry out their recommendations; operating safety standards should be promulgated without delay and aggressively enforced. The very elaborate reequipnient program proposed by the Na- tional Railways, involving approximately Ps.$13 million for loco- motives and cars, does not contemplate the use of diesel-electric locomotives or lighter weight rolling stock. Before any such procure- ment program is embarked upon, it is recommended that both these matters be fully considered. 444 THE BASIS OF A DEVELOPMENT PROGRAAT FOR COLOMBIA Narrow-gauge, diesel-electric locomotives suitable for the most difficult types of tropical, hig-h altitude, mountain operations are now available. These locomotives (twvo integrated units) provide a trac- tive effort of 144,000 pounds compared with 32,000 pounds for the new mountain steam types the railroads now have on order. Thus the diesel-electric provides a tractive elTort 4.5 times greater than that of steam. At an estimated price of U.S.$380,000 for a diesel-electric locomotive (2 units at $190,000) and U.S.$110,000 for a steam loco- motive, the former costs approximately U.S.$2.65 per pound of trac- tive effort as against US.3.50 for the latter, or about 25 percent less. The possible increased costs of maintenance and of training of per- sonnel are not sufficient to offset the better performance of the diesel- electric locomotives in terms of ton-mile costs. In addition, boxcars are available which are built with high tensile steel and are 15 percent lighter than present types and cost only 10 percent more. A combination of diesel-electric locomotives and lightweight cars would, for example, permit the operation of 30-car trains over the bottleneck segment between Buenaventura and Cali at an average of 10 miles per hour, making- the run in less than 10 hours. Such a train could haul on an average 650 to 700 tons of payload, equivalent to 10 or 12 of the present type trains. Such modern equipment woould provide the capacity required to bring petroleumn products into the country from Bueniaventuira and to export coal from Cali. Two trains of this type should be able to keep the port of Buenaventura clear, wTith a minimum of steam train support to handle traffic peaks. This conclusion is based on the port tonna-e figures in Table 30 of Chap- ter VII. This level of performance wvouldl probably not be immilediately obtainable, but it \vould be a practical goal, and provides a definite economic justification for using diesel-electric locomotives and lighter weight cars. Because of smaller train crews required, lower overall maintenance costs, and increased capacity, ton-miiile costs would be decreased perhaps as much as 50 percent, depending on the efficiency of railroad operation. The amounts of diesel fuel required would be small and ample sources of supply are available. Although uinit main- tenance costs might be higher than for steam locomotives, their greater capacity should result in lower overall maintenance costs per ton-mile. Since the development work on narrow gauge diesel types has already been done, their construction should not be too difficult or time-consuming. In view of special operating problems in Colombia, however, it is recommended that an initial fleet of five such locomo- tives be secured, wvith a manufacturer's representative in Colombia at least during the test period. The recommended five locomotives could  SURFACE TRANSPORT 445 be used in the be.inning for double-heading twvo trains on a complete schedule sequence, with the odd engine as a reserve. AWhen the initial difficulties of personnel training, maintenance and operation have been overcome-assuming that the locomotives prove satisfactory over a reasonable test period-a gradual plan of expansion should be de- veloped. Maintenance Practices and Shop Facilities With regard to the maintenance of way and structures, we can only reiterate and reemphasize the recommendations made by the *'. S. Railway Mission in 1946. Greater use of smaller power-crushed track ballast is recommended. Outside and inside guard rails for crossing bridge structures should be adopted universally throughout the railwvay system. Most ties used on Colombian railways are of non-treated wvood. There are some steel ties on the meter-gauge lines and these should be replaced with wood as soon as possible as part of the changeover from meter- to yard-gauge, which is (lisctissed be- lowv. It is recommended that the comparative cost of treated ties over the long run be thoroughly investigated to determine whether their use wvould be justified and whether the tie-treating plant at Bogota should perhaps be relocated. As was noted in Chapter VII, rail replacements and maintenance of roadway appear to be reason- ably satisfactory, but the entire m1aintenance of wNay programii requires constant and systematic attention. Equipment maintenance is a more serious problem. The Mission found that the percentage of unserviceable locomotives was generally as high as, and in some cases eveni higher than, the excessive figure noted by the U. S. Railwvay MvIission in 1946. It should be possible to reduce the percentage of unserviceable locomotives from the present level to 10 or 15 percent at most. The followving recommenidations are made to this end. The first, and one of the most important, step is to centralize shop facilities, wvhich are loxv scattered in several units throughout the railway system. WVith the possible exception of the Pacifico shops at Cali, none is adequate in machinery, plant layout, capacity or trained personnel. Nowv that integration has been at least partially achieved, duplication and the resultant inefficiencies should be reme- died. Two central shops should be enough to perform all general repair work required on the WAestern and Eastern systems-the Pacifico shops at Cali and an adequate central shop facility in Bogota. The centralization at Bogota will require movement of the Girardot shop equipment to Bogota and standardization of the gauge on the Norte and Nordeste lines coming into Bogota. Determination of the 446 THE BASIS OF A DEVELOPMIENT PROGRAMI FOR COLOMBIA precise cost of the necessary shop construction will require more de- tailed analysis, but the estimate of Ps.$18,339,000 submitted by the Consejo appears somewhat high. The industrial construction contem- plated for the new shop facilities should not cost more than about Ps.$100 per square meter, rather than the estimated Ps.$250. The lower figure would reduce capital requirements, including machinery, to about Ps.$10 million. The operating economies which such a cen- tralization would make possible, together wvith greater standardiza- tion of equipment and gauge, should amply justify such an investment. It is therefore recommended that the centralization of shop facilities in Bogota for the Eastern system be undertaken as a matter of top priority. Other shop facilities wNill, of course, be necessary for running repair wNork. This xvork should be adequately handled by the round- house facilities in Cali, Medellin, Girardot, Facatativa and BogotA. It will, of course, be necessary also to have maintenance facilities for each of the isolated liries continued In operation.' Another essen- tial for efficient, low cost mainteniance of equipment is adequate machine tools. The 1946 Railway Mission recommended the pur- chase of certain specific tools to increase the efficiency of the Cali shops. Most of this equipment, howvever, has not been purchased, although the need for it is even greater nowv than in 1946. These machine tools wvill still be required wvhen the recommended centrali- zation of shop facilities has taken place. It is therefore recommended that requirements for machine tools be reestimated on the basis of the voluime of maintenance to be performed when the centralized shops are established at Bogota and Cali. A.nother factor contributing to high maintenance costs is the lack of standardization in rolling stock, especially locomotives. This makes for inefficient operations in practically every aspect of mainte- nance, by complicating the training of personnel and the establish- ment of uniform maintenance practices, and requiring an excessively large inventory, of spare parts and many specialized shop tools and equipment for special machining of practically every part that fails. Moreover, it reduces operational flexibility. It is recommended, therefore, that every effort be made to achieve greater standardiza- tion of equipment on the National Railways. Despite the detailed recommendations in the U. S. Railway Mission Report, much still remains to be done in the area of produc- tion controls and scheduling. It is recommended that the personnel selected to supervise the central maintenance facilities at Cali and Bogota be well versed in such organization and controls to achieve See discussion below of the isolated lines.  SURFACE TRANSPORT 447 full utilization of available equipment, and more efficient assign- ment of personnel. Other shop practices which wvould tend to im- prove maintenance efficiency are greater use of electric welding, and better servicing of both machines and tools. Productivity of Labor Achievement of higher labor productivity is to a considerable extent the result of more efficient or-anization and supervision of work on the part of management, as well as greater efforts by labor. Adoption of the preceding recommendations on operating and main- tenance practices should therefore be of considerable value in raising productivity. Other specific recommendations on this general problenm follow. In some cases, payment of wvages on the basis of work performed rather than time may help to raise productivity. An example is the time basis of payment of train crewvs, cited in Chapter VII. This is not inten-ded as a blanket recommendation of piecework wages. Any changes in the system of wage payment should take account of the special circumstances of the job in question, the potential benefit to the workers in the form of higher earnings, as Avell as the efficiency of the railway system. We recommend that the practice of individual assignment of engine crews, which prevents the full utilization of both manpower and equipment, be abandoned. The arguments usually advanced in favor of this practice, such as the contention that more maintenance wvork is performed by the engineer, are outweighed by the result- ing inefficiency of use of men and equipment. Greater standardiza- tion of locomotive types should also help to simplify problems of crew and locomotive assignment. The pension system as it is presently operated contributes heavily to the high cost of rail transport. It dilutes the efficiency of the labor force by depriving the railroads of the services of employees wvhose experience should make them exceptionally useful and pro- ductive. At the same time, the payment of benefits ranging up to 80 percent of the employee's last salary rate, imposes a heavy burden of overhead, wvhich will continue to increase for many years to come. It is recommended that the railway pension system be revised along the following lines: t. Establishment of a minimum retirement age of perhaps 55 or 60 years. This would permit the railroads to retain the services of experienced, still productive older employees. 2. Compensatory increases in wages and benefits for retirement Dn account of injury or age should be made. 448 TIIE B-ASIS OF A DEVELOPMENT PROGRAMT FOR COLOMBIA In this way, provisioln for the employees' security wvoild be strength- ened, their productivity and their current incomes would be increased, and the transport system1 and the nation as a w-hole wvould benefit from better use of manpower resources. Proposed Extensions and Changes of the Railroad System For several years the -National Railxvays of Colomlbia have spon- sored an ambitious programi for expansion and developmelnt xvhich has been embodied in legislation. In general, these plans have in- volved construction of two trunk railways inland from the Carribbean ports, one connecting with the W\}estern system near iMledellin and the other with the Eastern systenm near Barbosa; linking of the Eastern) and Westerni systems by the constrtuctioni of a railroad between Armenia and lbague; and extension of both the Eastern and Westerni systems farther south-in the case of the A;Vestern system, as far as the Ecuadorian border. AVork is movin,g forwxard on several of these projects at a slow pace. As of November 1949, the Administra- tive Council of Railroads listed the following projects as having first priority: ( I) connection between the two sections of the Norte Railroad to eliminate the Magdalena River route disability: (2) the Ibagu6-Armilenia link; (3) the Bolivar section of the Western trunk railroad; and (4) the proposed cut-off in the Pacifico Railroad from 13uenaventura to Buga. Several other projects of substantial size have been proposed, but are assigned a lower priority. The twAo chief flaws in the present expansion program of the rail- roads, as described herein, are: first, that it contemplates establish- mient of several conmpetitive routes for the same traffic and increases the traffic-handling capacity of the railroacls well beyond any reason- able estimate of future traffic demand: and second, that it contemplates the simultaneous prosecution of so many projects that many years would necessarily elapse before any wvould become really productive. Our recommendations are designled to focus oii the more practical and urgent projects, in order to get thelmi finished as soon as possible and to avoid furtlher dissipation of resources on undertaking-s of low economic value. El7inination of lhe Hllagdalcia River Route Disability. V-arious pro- posals have been considered in recent years for the conistruction of railroads to supplement the MXlagdalena River south of Puerto WVilches. The cost of keeping the river in a conclitioni to handle traffic above Puerto Wilches (lurinig the dry season wvould be prohibitive if there were assurance that it could be done successfully. Thus the various railroad proposals for supplemelnting the upper river in dry seasons merit serious consideration.  SURIFACE TRANSPORT 449 The Administrative Council favors connecting the t\wo sections of the nieter-g;auge Nlorte Railroad to make th-e Magdalena River route a dependable transportation artery at all seasons. The first section of the Norte Railway runs between Puerto Wilches and Bucaramanga Station, located about ten kilometers northwest and 600 feet below the city of Bucaramanga and connected with the city by highway. The second section of the railroad is some 117 kilometers long, between Bogoti and Barbosa. The Government lhas considered two proposals for uniting these two sections. The first wvould extend Section II along the valley of the Suarez River, connecting with the first section at a point 33 kilo- meters east of Puerto MVilches and by-passing Bucaramanga. The nmaximum grade for this route is estitiiated at 1.5 percent for 80 percent of its length and 2.5 percent for the balance. Under the second pro- posal, Section II would follow the Suarez River as far as Los Frios, thence climbing to Chocoa (600 meters) and going down to connect with Section I at Bucaramanga Station (300 meters). The grade from Los Frios to Bucaramanga is estimated at 2.5 percent. The following table shows the distances for both alternatives between Bogota and Puerto Wilches: Proposal # 1 Proposal #2 (kilometers) Bogota ........... .............. 0 0 Barbosa ................... ...... 223 223 La Falua ......................... 260 260 Los Frios .... ..................... 364 364 Bucaramanga Stationi ...... .... - 427 Kilometer 33 . 44. 511 Puerto Wilclhes ..... .... 487 544 Both follow a comm11on1 routing betNveen Barbosa and Los Frios. hlie first involves new construction of 231 kilometers, and the second only 204 kilometers. Nevertheless, the Government estimates that the second proposal would be inore expensive, primarily because of the more rugged country en route to Bucaramanga Station. Construction is already in progress on the comtimon section and has been practicallv completed betveen Barbosa and La Falua, a distance of some 37 kilometers. As of August 31, 1949, the cost per kilometer on this portion had reached as higih as Ps.$197 thousand. However, the Government estimates that the cost from La Falua to Kilometer 33 under the first proposal, a distance of 194 kilometers, would be Ps.$30 million at the nmaximum, or approximately Ps.$155 thousand per kilo- meter. The total cost of the second proposal is estimated between Ps.$32 million and Ps.$35 million, or in the neighborhood of Ps.$200 thousand per kilometer for the 167 kilometers still to be constructed on this route. 450 TIIE BASIS OF A DEVELOPMIENT PROGRAM FOR COLOMIBIA In support of the first alternative route between the two sections of the Norte line, the Government points out that: 1. It would provide a year-round system of transportation to the eastern part of the country, including Bogota, by utilizing the part of the Magdaiena River permanently navigable by day and night, and a railroad which would have good hauling capacity. 2. Utilizing the river (the cheapest means of inland transport in Colombia) for 597 kilometers and the railroad for 487, it wvould bring transportation rates for through traffic down to about Ps.$70 per ton from Barranquilla to Bogota, and would reduce transit time to approximately five days. 3. It would eliminate the annual operating deficit of approximately Ps.$1.5 million on the two sections of the Norte Railroad. Both sec- tions now lack traffic density and the first section needs a higher quality of freight, which would bear higher rates than the coal, lumber and agricultural products that now constitute its main traffic volume. The proposed project wvould help to solve these problems. 4. It wvould alleviate the congestion at Buenaventura and on the Pacifico Railroad by providing a dependable alternative route for export and import traffic. The Mission concurs in the view that a railroad with good hauling capacity is needed to provide year-round transportation to the eastern part of the country by supplementing the Magdalena River above Puerto V1ilches. W\ke believe, however, that the proposed Magdalena River Railroad, from Puerto Wilches south to La Dorada and Puerto Salgar, connecting with the Antioquia Railroad at Puerto Berrio, would be preferable. Figure 8 shows the possible location of this railroad. No engineering field survey has been made, so that the route shown is only tentative. In the absence of more detailed engineering data, it is difficult to make an accurate comparison of probable construction costs for the Magdalena River Railroad as against the Norte project. The former xvould involve a longer distance of new line-from 50 to 60 kilometers more-assuming the Barbosa extension is complete to La Falua. However, the Magdalena River Railroad would traverse country in which construction should be generally easier and less expensive per kilometer. It is, therefore, estimated that the cost of bluilding the Magdalena River road would not exceed by more than 20 percent that of completing the Norte project. Actually, it is believed that more detailed engineering surveys xvill show that the construction cost of the Magdalena River project would be reasonably comparable to that of the unfinished portion of the lNorte connection. The survev for this road shouLld also consider the possibility of a grade reduction  COLOM BOA RIO ACHA SANTA MARTA PRESENT BARRANQUILLA CIENAGA ,ND RECOMMENDED RAILROADS AND PIPELINES CARTAGENA t CALAMAR COVENAS s{C6N M HONDO SINCELEJO AGANGUE MONTERIA | l > - ~~~~~~~~~~~~PE TRO1LE A TURBO PLANETARICA GAMARRA! OOAA ,VILLA.IZAR ~BOCAS I,1 UCT CU CUTA \ TARAZi * ~~~~~~~~ ~~~~~ROSARIO*CCHIRA PAMIPLONA 5 DASE)SA ~PUETO ~BERMEJ PUERTO BUGARAMANGA ANTIOQUCA BERRIO SAN JER6NIMO ORRO OUIBO SONSON UERTO SOAM /; LA DORADA SALGAR \{UJ ,ALJANDRO, HON}+ CARTAGO PEREIRA z ,ARMENIA ,6SLNGT EZ ERBEL xILVCNI BUENAVENTURA E EGIRARZOT CALi tPRADERA OLOMBIA ~ PPPAW SATR . - i+111111111 RAILWAYS ATNORJzIVA \ - PIPELINES P O PAYA N i r RECOMMENDED Z trHI RAILWAYS 1I-HI- PIPELINES FLORENCIA EL 0150 _PAS5TO- IPIALES FIG-URE 8 452 'THE' BHASIS OF A 1)EVELOINIEXN'T PROGRAM FOR (CLOSLMBIA route which has beeln surveyed to some extent by the Alitioqtlia Rail- road between the Nare and MNIonos rivers. From the standpoint of operating cost the 1Iagdalelna River route probably xvould be more advanta-eous. For example, it is believed that the maximum compensated grade along the river Would be less than 1 percent in a southbound direction, as against 1.5 to 2.5 percent for the other route. Its operating costs wvonld, therefore, be much loxver and hence would permit loAver rates. Perhaps the most importalnt factor in comparing the desirability of the Norte extension vis-a-vis the Mlagdalena RIiver route is the traffic potential involved in each-case. Here again the Mtagcdalena River road seems more promising. In the first place, it wvould provide an inport-export route from the Caribbean ports to the industrial center of Medellin through its connection ivith the Antioquia Railroad, while the Norte route would not tap this area. The additional traffic poten- tial of the latter xvould be relatively small since export and import traffic of the Bucaramanga area is already adequately served and the regioni between Kilometer 33 and Barbosa is not likely to generate niuch additional traffic. The Magdaleuia River proposal would also provide the much-needed connection between the Eastern and West- ern railxway systems, and make possible the through routing of equip- inent that is so important for securing traffic and operating economies. Finally, the Magdalena River Railroad wvould provide for the first time a through railroad connection between Colombia's two largest and most important cities, Bogota and M/ledellin, and between Bucara- mann-a and MIedellin. The utility of this road will increase progres- sively wvith greater industrial and agricultural specialization and the further development of these important centers of prodtiction and distribtution. Since traffic potential is not nowv sufficient to justify tw%o parallel north-south railroads connecting the Caribbean ports and the inland cities, and wvill not be for the foreseeable future, it is recommended that the construction of the meter-gauge line to connect the two sec- tions of the Norte Railroad be abandoned in favor of a yard-gauge line down the MAlagdalena Vallev from Puerto A\Vilches to La Dorada and Puerto Salgar. Law No. 356 of March 3, 1949 (Article 3) gives the Government authority to grant an operating concession up to 50 years to obtain the construction of this railroad, and sets forth certain general con- ditions of such a concession, As a nmatter of general principle, the Consejo has been opposed to the construction and operation of rail- roads unlder concessions. Assuniino that the necessary administrative  StlRFACE TRAkNSI'OR'I' 453 reorganiizationi and operational reforms are put into effect, construc- tion and operation of a new railway line under concession would be most undesirable since it would hamper the integration of facilities and services which would be one of the more important results of this railway. On the other hanid, if these administrative anid operational changes are not made, it woould appear to be unwise in any case to undertake any large new construction projects. Ibagud-.4rmcnia Railroad. A second project to which the Govern- ment assigns high prioritv is the railroad link between the Eastern and Western systems between Ibague and Armenia. Extension work has already been started at the two ends of this link and 32 kilometers of the line are practically finished. According to figures submitted by the Consejo, the cost has averaged Ps.$260 thousand per kilometer. However, these 32 kilometers are the approaches and represent the simplest construction from the standpoint of both engineering and cost. The 104 kilometers still to be built include over 14 kilometers of tunnels, the largest almost 5 kilometers long. The Government pres- ently estimates that this tunnel alone will cost Ps.$14.4 million and that the other 99 kilometers will average about Ps.$330 thousand per kilometer, or Ps.$32.6 million in all. This would bring the final cost, including that for the portion already constructed, to approximately Ps.$55,320,000. This total figure is more than Ps.$10 million less than an estimate prepared for the Government by Winston Brothers Company, inde- pendent contractors, in June 1947. The latter estimated a total cost of Ps.$37 million plus U.S.$17 million, or a total of approximately Ps.$66,800,000 (dollars converted at the then prevailing rate of 1.75). The subsequent change in the exchange rate and the continued internal inflation would in all probability make the figure closer to Ps.$75 million at present. The AVinston Brothers' estimate also assumed a high degree of mechanization and a construction period of a minimum of four years. Present construction is proceeding much more slowly and without the proposed mechanization. It is felt, therefore, that the official estimate of the cost of this project is much too low. In support of the Ibague-Armenia project, the Government cites the great increase in passenger and freight traffic over the connecting highway. In 1939, 253,000 passengers used this highway, but by 1948 the number had risen to 339,000, an increase of 34 percent. Freight tonnage increased from 154,000 in 1939 to 324,000 in 1948, or 110 percent. Much of this increase, of course, represents traffic diverted from Cartagena and Barranquilla to Buenaventura because of the disability of the Magdalena River, which the project previously 454 'IIFE BASIS OF A D)VEEL0o'P1.N'r PROGRAM FOR COLOnMBIA. discussed would largely solve. With that route operating, it is doubt- ful that the present volume of traffic between Ibagu6 and Armenia would be sustained, even assuming lower transportation costs and rates as well as continued high economic activity in the country. The general objectives of the Ibague-Armenia Railroad link are sound. It provides a much needed connection between the Eastern and Western divisions of the National Railways System, a through rail route from Buenaventura to the eastern part of the country, and an interior rail link between -Medellin, Cali and the Cauca Valley and Bogota. Its economic validity is questioned not because it would not be useful, but rather because of its high cost and the more satisfactory alternative means of accomplishing the desired objectives. The Magdalena River Railroad recommended above will achieve at least tvo of these purposes more cheaply and efficiently- namely, linking the eastern and western divisions and handling a certain amount of the export-import tonnage nowv moving over this route. As for the traffic that will continue to move over the Ibague- Armenia route, we believe it could be handled over the highway at rates only half those now prevailing if the highway is improved to make it usable by semi-trailer truck units and if terminal methods and handling are made more efficient. 2 In comparing potential high- way transport cost fig-tires with those for rail transportation it must be remembered that both the capital investment and the operating expenses on this railroad wvould be extraordinarily high; construc- tion costs would average about Ps.$550 thousand per kilometer at the minimum. The route as presently located would encounter 3 percent maximum grades, and it wxould be very costly to maintaini. Both these factors would make for very high operating costs. Table 135 estimates the costs per ton and per ton-kilometer for handling traffic over the proposed railway, under conditions of mini- mutm and maximutmzi traffic. For this purpose it is estimated that the minimum traffic over the railroad in 1955 would be about 200,000 tons. or 27 million ton-kilomiieters, assuming the restoration of the Magda- lena River route as an export and import artery, continued use of the highl'vay under improved service conditions, and more efficient railroad operations, permitting an average operating cost of five centavos per ton-kilometer. Capital charges are computed on a construction cost of approximately Ps.$75 million, based on the Winston Brothers sur- vey, amortized over a thirty-year period at 4'2 percent interest. Witlh a minimum traffic volume of 200,000 tons, these capital and operating 2 See discussion below.  SURFACE TRANSPORT 455 charges would amount to Ps.$25.41 per ton and Ps.$0.1882 per ton-kilometer-over 40 percent more than the existing average rate of Ps.$18 per ton for movement of general merchandise over the TABLE 135 1955 ESTiMATED COST PER TON AND PER TON-KILOMETER FOR TRAFFIC VIA PROPOSED lEAGUE-ARMENIA RAILWN'AY Maximum Traffic Mlinimum Traffic Total Tons ... ...... ...... 400,000 200.000 Total Ton-Kilometers ... ....... ... .. 54,000,000 27,000,000 Estimated Operating Costs] ... ... Ps.$2,700,000 Ps.$1,350,000 Estimated Capital Charges 2 ..... ...... . 4,3 3 2 ,5 0 0 4 ,3 3 2 ,5 0 0 Total .... Ps.$7,032.500 Ps.$5,682,500 Less Passenger Revenue .. 400,000 600,000 Ps.$6,632,500 Ps.$5,082,500 Estimated Total Costs: Per Toln ..._ .Ps.$16.58 Ps.$25.41 Per Ton-Kilometer ... Ps.$ .1228 Ps.$ .1882 I Operating costs are assumed to be 5 centavos per ton-kilometer. 2 Capital charges are based on amortizationl of Ps.$75,000O,OO over a 30-year period at 4X2 percent interest. hig-hway. Even in the case of the maxiiiiuln traffic estimate of 400,000 tons, which there seems little prospect of attainiing, the cost xvould be Ps.$16.58 per ton, or only slightly less than present rates. Under neither condition wvould there be a marked saving in transportationi cost, and it is quite likely that the cost wvould be substantially in creased. It is therefore recomiimenided that the Ibague-Armenia Railroad construction project be abandoned for the present because its con- E struction and operating costs would be excessive for the potential traffic, the timie required for construction would be too long, and a highway suitably improved would serve the purpose at lower cost and wvith greater flexibility. TVestern¢ Trunk Railroad-BolivarSection. The third project beingr pushed by the Governmelat is the Bolivar Section of the Western Trunk Railroad, whicll Awould extend about 250 kilolmleters from Cartagena south to the San Jorgoe River. To integrate this line witlh the Western systeim at Anzii, as is eventually proposed, would re- q(uire ultimate constrUctioni of some 486 kilometers of lisle. Over 40 kilometers have been colipleted to date south from Cartag-ena, and some 210 kilometers remain to be built in the Bolivar section. 45o THIE BASIS OF A DEVELOP'MENT PROGRAM FOR, COLOMBIA Thlis railroad is designed to tap the excellent landl southl of Cartagena, to transport the cattle, rice, corn and cotton produced in thiis area, and in conjunctioni wvith the highway \vlhich wNould continue south to Medellin to provide an artery for foreign trade moving through Cartagena. It is estimated that this railroad wvould cost approximately Ps.$40 million, including the construction of new shops in Cartagena. The ultimate integration of this line with the Western Division, involving 486 kilometers of newv railroad, could not be completed for many years. As has already been stated, there is not now, nor will there be in the foreseeable future, a sufficient volumiie of traffic to justify more than one railroad to the Caribbean ports. We believe the local traffic which wvould be handled by the nortlhern section of the projected Western Trunk Railroad can be adequately handled for the present by highwvay; and this highway should be given top priority for immediate completioll.3 In view, of the -reater importance and urgency of other railway projects, therefore, wve recommencl that furtlher wvork on this Bolivar project be postponed indefinitely. The 40 kilomleters of constructioni comlpleted on this project to (late illustrate the wastefulness of tying up capital in ventures of Nvhich it is inmpossible to foresee the future return. At the current rate of progress, 10 kilometers per year, it wvould take nearly 50 years to complete this railroad; meanwhile, its economic value would be very limited. If at some future date it is found desirable to extend a railroad from1 the interior to the Caribbean ports, an extension of the proposed Magdalena River Railroad seems more appropriate, and the route and othler details sliould be considered at that time. Bi2ya-Bitenav'entatra Cott-Off. The fourth major railwvay construction project is a cut-off on the Pacifico Railroad from a point 43 kilometers east of Buenaventura to Buga on the Cauca Valley portion of the railroad north of Cali. The chief purpose of this cut-off would be to recliuce the maximum grades of 3 percent and 4.5 percent on the l3uenaventura-Cali route to 2 percent. It wvould also shorten the presenit route by 70 kilometers for through traffic moving to and from Buenaventura via Buga, about 70 percent of the total traffic hanidled bv the Bueniaveintura port. Approxiniatelv 120 kilometers of newk roa(l are require(l, at an estimated cost of not less tlhain Ps.$22 millionl, or Ps.$183,000 per kilometer. Conistructioni of this railroadl would hlelp to relieve the persistent postwvar bottleneck betwveen Buenaventura and Cali. However, if the iSce discussioii belovw.  SURFACE TRANSPORT 457 Mlagdalena River route and the western trunk highway between Carta- gena and Medellin are both going to be improved, this traffic is likely to be substantially reduced. The new Buga-Buenaventura highway presumably will also be able to carry a considerably increased volume. Vll these factors make it doubtful that the traffic potential is sufficient to justify a new Buga-Buenaventura railway line. More efficient utilization of present equipment, as recommended earlier, would easily permit the tonnage handled over the Cali- Buenaventura section of the Pacifico Railroad to be doubled. For example, the use of diesel-electric equipment and lighter weight rolling stock would permit a large increase in capacity. Given this increased productivity, together with the other improvements mentioned above, we feel that no economic need for this cut-off railway exists. We therefore recommend that wvork on it be discontinued. Standardization of Gattge. Two of the four railroads serving l3ogota are meter-gauge; there are also two isolated meter-gauge lines-the Norte Section 1 from Puerto Wilches to Bucaramanga Station and the Cucuta Railroad from Cucuta to Villamizar. It is recommended that plans be made to change to yard-gauge on the two roads serving Bogota as soon as possible. This step is important to accomplish several of the previous recommendations, such as the cen- tralization of shop and maintenance facilities in Bogota and the stan- dardization and better use of rolling stock and equipment. Although the interchange of traffic between these lines serving Bogota is not great, the operational advantages appear to justify the change, regard- less of traffic considerations. Moreover, with the expected increases in agricultural and industrial specialization in Colombia, the traffic potential should increase, and faster through service as a result of this integration of the railroads at Bogota would enable them to participate largely in this increased traffic. The case for standardization of the lNorte Section 1 between Puerto \Vilches and Bucaramanga Station is less clear. The previously pro- posed Magdalena River Railroad would directly link this line to the rest of the National Railway System. For export-import traffic moving tup and dowi-n the 'Magdalena River, howvever, transfer of cargo at Puerto Wilches would still be necessary. If the proposed Mfagdalena River Railroad is built on the west side of the river, internal traffic would also have to be transferred by ferry, since it is doubtful that the volume of internal traffic moving to and froni the Norte Sectioni 1 would warrant the construction of a bridge in the immediate future. If, on the other hand, the new iMagdalena River Railroad is located along the east side of the river, it would automatically tie in with the 458 THE BASIS OF A DEVELOP-MENT P'ROGRA-II FOR COLTOMBIA Norte Section 1. and standardization of gauge would have the same mzaintenance and equipmlent advantages as were discussed in connec- tion wvith the meter-gauge roads serving Bogota, although to a lesser extent. It is therefore recommended that standardizationi of the Norte Section 1 be contemplated as part of the future railroad coIn- struction program, but that specific plans for its accomplishment be deferred until the MIagdalena River road is located and built and the suggested economies are possible of achievement. Since there is no plan for the integration of the Cucuta Railroad into the National Railxvay System in the foreseeable future, we recomi- mend that this road continue to be operated as a meter-gauge line. Railroad .Abandonmoen-ts. In any decision wvith respect to abandon- ing railroad operations, two factors are usually wveighed-first. the service rendered by the road and possible alternative means of trans- portation, and second, the losses currently being incurred by the railroad. In the case of two railroads, the balance of these two factors appears to favor abandonment. Both of them are isolated lines-the N\arifio operating from Ttumaco to El Diviso, and the Cartagena Rail- road, whose main line operates between Cartagena and Calamar on the Magdalena River. Table 25 in Chapter VII showed that these two roads incurred greater operating losses per unit of service per- formed than any of the other National Railways in 1948, a year of high traffic deemand. Expenses of the Cartagena Railroad were 371.5 percent of its revenues, an operating ratio over 200 percent higher than any of the other National Railways: and the operating ratio of the Narifno Railway wvas 297.8 percent, or more than 150 percent higher than any of the other National Railways: and the operating ratio of the Narifno Ps.$1,278.000, 35 percent of the total loss of the National Railw-ays as a whllole. Historically, these two roads, especially the Nariflo, have carried extremely lig,ht traffic volumes both in freight and passengers For example, in 1947, the last year for which comparable statistics are available, the Narifio Railroad accounted for only 2/10 of 1 percent. and the Cartagena Railroad for only 1.4 percent, of the total cargo ton-kilolimetrage of the National Railways, including the Cundinamarca line. The Nariflo Railroad is 109 kilometers long, from the Pacific port of Tuiiiaco to El Diviso. It joins at the latter point -with the westerni trunlik highway. wliclh goes nortlh up the Cauca Valley. Since there is no present or foreseeable traffic requirement that xvould make it pos- sible to integrate this isolated line with the National Railway System, wve recommiiend that it be abandoned and the highway extended from EL Diviso to Tumaco, as is recommended later in this chapter. The net  SURFACE TRANSPORT 459 cost of such a higlivay would be less thanl continued operation, maini- tenance and necessary improvement of the present railway and better service would be afforded. The chief purpose of the Cartagena Railroad is to provide a con- nectioni betwveen the Magdalena River port of Calamar and Cartagena for the routing of export and import traffic moving through Cartagena. As we suggest beloxv, this traffic could be better served by the Canal del Dique, provided that the latter is improved. For river traffic one transfer operation would be eliminated. The Canal should then be sufficient to serve the traffic which continues to use the river route, considering that both highway and air transportation will presumably be available. We recommend that the Cartagena and Narifno railroads be abandoned as soon as more efficient alternative means of transporta- tion are available. In effect, this should result in a net saving of at least Ps.$l million yearly without any serious reduction in service. PIPELINES Economic Utility and Cost of New Pipelines WYe conclude elsewvhere in this Report 4 that one complete refinery at Barrancabermeja should be sufficient to supply the greater part of the domestic demand for petroleum products. The followving recom- mendations are based on this conclusion and are designed to pro- vide for the distribution of products from such a refinery, plus wlvatever imports would still be necessary. The largest internal markets are Cundinamarca, Antio(quia and Valle del Cauca. To supply the Cundiniamarca area, we recom- mend that the existing pipeline to Puerto Olaya be extended south to Puerto Salgar. 5 We believe that railroad and highway facilities xvill be adequate, at least for the present, to distribute "white prod- ucts" (principally gasoline) from there. It may later prove econom- ically feasible to extend this line up the hill and over the savanna to Bogoti, but this is not of top priority at present. To supply the other major markets--Antioquia and Valle del Cauca-it is reconmmended that a pipeline be constructed fromi Puerto Olaya to Medellin. Froml the latter city distribution would be handled by rail and truck transport. The present line from the refinery at Barrancabermeja to Puerto Olaya will have to be replaced, since it was built during the war with inferior materials, the only 4 See Clhapter XIX. 5 See Figure S. 40t 1 IL, l:A\SIsoFA OFVF:lO'l nx'I'TROGRl,=AiM FOIR COLOM-IBIA onies then available. The Caribbean coast (notably Barranq(uilla ani Cartagena) can be supplied from the refinery at Barranca by means of river barges. The products that will still have to be imported, such as aviation ,gasoline, can be supplied directly to Barranquilla and Cartagena. M\any interior markets, however, will have to be supplied via Buenaventura. The increased capacity of the Pacifico Railroad between Buenavetura and Cali, wvhich will be available if the other recommendations in this chapter are followved, should suffice to handle this traffic. This is especially true since many of the petroleum requiremenits nowv being supplied throughl Buenaventura would be taken care of by the Ba- rranca refinery over the previously described transport routes. The establishment of a single adequate refinery at lBarranca should al-SO obviate the need for a proposed refinery at Cartagena. from wvhich petroleum product-, would be shipped through the L'anama Canal t(o B3uenaventtira. A single refinery at Barranca wvould thus serve not only to redcucc the traffic burden on the Buenaventura-Cali rail gi-ment, but also to eliminate the need to purchase tankier capacity for shipping petroleum nproducts from an Atlantic coast refinery to 13uenaventura. 'lThe capital requirements for the proposed two new\ pil)elinles anLid for replacement of the present Barranca-Puerto Olava line wvill have to be determined. Foster-Whecler estimates the latter at approxi- mately U.S.$1,200,000 for a line 6" in diameter, and Olaya-Salgar andl Pluerto Berrio-Medellin lines at U.S.$2 millionj each, for a 6" and a 4" line respectively. Another company, Acosta Mladero anid Paris, Ltd., imakes the following estimates: Olaya-La Dorada, 1's.$5,500,000, in- cluding U.S.$1.300,000, and Puerto Berrio-AXledellin, Ps.$415 00,000, incltudilng U.S.$950,000. The Mission tentatively recommnenids a total of Ps.$10.4 miillioil foi the replacement of the pipeline from Barrancabermeja to Olaya, the extension of the pipeline from Olaya to Salgar, and the constructioI of a line from Puerto Olaya to Mfedellin. However, time didl not permit a close study of the economics of proposed pipeline construc- tion. It is urged that a newv study be made before substantial sumils arc committed, in view of the possibilities of reducinlg the cost of railroad transport for petrolettm products and of newv constructionl. HIGHWAYS 1Vrom an econlomic standpoint, highwvays have two major- advan- tages over other means of surface transportation in the clevelopment of a countrv like Colombia. First, they are flexible; they can be  SURFACE TRANSPORT 461 used by all types of velhicles from private automobiles to heavy trailers for long- distance hauling, and can serve all kinds of trans- port needs from local farm-to-market traffic to long-haul cross-country traffic. In addition, it is possible for highways to reach important places in Colombia which are inaccessible for a railroad. Second, the capital investment in highxvays can be adjusted to a considerable extent to the economic utility of the particular road, wvhereas wvith a railroad a v ery high minimum investment is alwvays required. Al- though highlways have not yet taken their logical part in the trans- port system of Colombia because of excessively high operating- costs and the incompleteniess of the highway system, they offer the best means of supplementing the present railroad network. Measures To Increase Operating Efficiency There are twvo major areas in which the operating efficiency of the Colombian highway system can be improved and the excessively high cost of highvway transport reduced. The first is improvement of the quality and maintenance of the existing highway system in accordance with traffic demands, and the second is lower truck operating costs through reduced maintenance costs and the operation of higih capacity, more efficient equipment. The second objective is closely dependent upon the first, so that prompt and efficient execu- tion of a highw,ay improvement program is of first importance. Highlwav Maintenance, Pavring and Jliprovemente. The chief defi- ciency of the existilng highway netwvork has been inadequate mainte- nanice. Nutmerous examples of unsatisfactory highway mainitenance exist at present; they are due not so much to inadequate appropria- tions as to unleconomic administ_ratioi-of-the--f-unds aaiLable. The presenit highwvay bet\veen Buenaventura and Cali is one of the most vital traffic arteries in the country, and although its location and construction are far from ideal from the standpoint of ease of upkeep and use, its importance is such that it should have top priority for maintenance. In fact, howvever, frequent interruptions of service occur for lack of adequate maintenance and the paving of this road has had to be financed by a special tax on1imports rather than by the more appropriate allocation of national funds. As a result, the tonnage that the highw,vay can handle is reduced and the costs of truck opera- tions over this route are excessively high, with a consequent toll on the whole national economy. Current outlays for highways are one of the largest items of public expenditure. The 1950 budget, for example, includes about Ps.$37 million for maintenance, paving and construction of highways. This 462 THE B.ASIS OF A DEVELOPMENT PROGRAMI FOR COLOMIBIA represents 53 percent of the budget of the MIinistry of Public Works and almost 10 percent of the whole national budget. Article IV of Law No. 356 of 1949, the latest general law governing national expen- ditures for highways, provides that of the total amount appropriated for highway construction and maintenance "the sum will be taken that is necessary to take care of imiaintenance, additions and improve- ments, which is considered to be about Ps.$1,000 for each kilometer in service." The 1950 budget calls for appropriation of Ps.$19,222,000 for this purpose, and since there are approximately 20,000 kilometers of national and departmental highways this is close to the estimated Ps.$1,000 per kilometer. The 1950 total represents an increase of about Ps.$4,000,000 over the 1949 appropriation. We believe an annual appropriation of this size should be sufficient for adequate maintenance and improvements if it is properly administered, especially since the various departments also nmake substantial supplementary investments for highwvay maintenance. It is recommended that some formal provision be made for regular allocation of these funds based on objective assessment of current and anticipated traffic requirements, in order to minimize political pres- sures and the danger of arbitrary allotments. The establishment of sound and economic criteria for allocating highway funds is of the utmost importance. not only because of the large sums of money in- volved, but also because, it is only by this means that the highways can be developed effectively to play their full part in Colombia's trans- portation system and in the national economy. The increased utiliza- tion of highways, \vhich \vould result from a more rational construc- tion and maintenance program, would be self-financing in large part through greater returns from license taxes and a broader tax base generally. In estimating future traffic such factors as the effect of completing missing highwvay links, the growvth of interzonal trade, prospective changes in the routing of exports and imports, and so on, should be taken into account. The traffic surveys and estimates should also consider the xveight of individual vehicles, to provide systeniati- cally for strengthening bridge structures wvhere necessary. Surveys should be repeated or spot checked from time to time to keep tip to date and reflect changing traffic trends. High volume highways should be maintainied in conforlmlity Avith their importance and traffic volume, even thoughl the cost of suclh mzaintenance in specific cases may exceed by mzany times the average allowance of Ps.$1,000 per kilometer. W0Te recommiiend, therefore, that funds for maintenance as xvell as construction be allocated by the Division of Highw7ays in the M\inistry of Public WR orks in accord- ance wvith the results of traffic surveys.  SURFAC' TRANSPORT 463 The magnitttde of the investmwent already made in Colombia's high- way network, and of the additional sums required for its extension, emphasize the importance of proper maintenance, in order to protect this investment and get full value from it. Some experimentation to find the most effective and economical method of assuring such main- tenance is certainly justified. One suggestion is that a proposed new highway connection be built and maintained by private interests and financed by tolls. Another is that the maintenanice of one important stretch of road be contracted out to a foreign firm experielnced in such work and in the tise of modern road equipment. Both suggestions might well be given a trial for comparative and demonstration pur- poses. Efficient highway maintenance requires use of mechanized equip- melnt despite the relatively low cost of manual labor in Colombia. The road maintenance equipment now available, however, is so spread out that the isolated pieces cannot be operated efficiently; in view of the shortage of inspecting and supervisory personnel these widespread operations cannot be properly supervised; and much of the equipment is tied up for lack of spare parts and operating know-how. Reserve equipment is generally lacking. For example, a single grader is often assigned to the maintenance of a certain highway or group of high- ways, and if this piece of machinery is temporarily out of service all mainteniance ceases. We therefore recommelnd that highway construction and main- tenance be perforned insofar as possible with mechanized equipment operating out of larger equipment pools, which can be transferred from project to project as necessary to assure efficient utilization. In 1949 only Ps.$400 thousand, or less thaln 10 percent of the natiolnal highway appropriations, were earmarked for the purchase of road building and maintenance equipment. The 1950 budget figure of Ps.$1 million is more adequate, and we believe annual allotments for such equipment should be maintained at this level at least for some years to come. In order to speed up the acquisition of equipment needed for urgent highway construction and maintenance projects, it would probably be desirable to commit part of the annual appropri- ations to service a loan for immediate procuirement of the necessary machinery. Tru-ck Operations. Truck operations in Colombia are very expen- sive, often averaging 15 centavos per ton-kilometer. Two factors have )een mainly responsible-first, the use of low-capacity, high-cost Lquipment, and second, the high cost of equipment maintenance. The iighway conditions previously described influence both these costs. 4(4 '111F IS OF A I 1K.1.O1' NI1 I'ROGRANIT FOR (OLOMNI.B1I1A Given reasoniable improvement of these conditions, so that more effi- cient trucks can be tsed, it is safe to say that truck operating costs could at least be cut in half. One illustrationn may point up the possibilities of reducing costs throtgh-l the use of larger capacity and more efficient highway equip- menit if the most important highways or highwvay segments are madle capable of carrying such equipment. The Armenia-Ibag-ue high+7way now carries approximately 325,000 tons yearly. The averag-e charge is about Ps.$18 per ton for general freight. If this rate could be halved, therefore, the annual saving to the economy would be approxi- inately Ps.$3 millioln. This savinlg could be acconmplished by the opera- tionI of 20-ton capacity semi-trailer equipment, assuming depreciation over five years and allowing for a 20 percent profit margin. This esti- mate is based on present road conditions, without paving or other alterations. AMaintenalnce costs on the highway woould unidoubtedly be increased by use of thi,s heavier equipment, and its effect on bridge structures would also have to be considered. But an annual savinig of Ps.$3 million should outweiglh those increased expenditures. Thlis highwray has an exceptionally high traffic volume, but similar, thong-ll more limited, savings could be realized on other important highway segments such as Cali-Buenaventura, MIedellin-Bogoti, and Atedeltin-Cartagena. It should not be hard to obtain private financing for truck operations over such routes if operating conditions are im- proved as recommended; and again, expanded operations \vill result in a wvider tax base and thus offset the necessary highwvay expendituires. Truck maintenanice is undulv complicated and expensive also be- cause of the unavailability of spare parts, which has been accentuatecd by the diversity of types of trucks operated and the absence of large operators of uiniforun fleets xvho could afford to stock adequate spare parts inventories. In the postwar years exchange restrictions have also contributed to this problem: it is clearly desirable to give favorable considerationi to the allocation of exchang-e for the purchase of current requirements and reasonable inventories of spare parts. Major Extensions of the Highway Network The construction appropriations for highways for 1949 involved 101 separate projects. Clearly, however, the allocation of available funds over so many projects is inefficient and makes it impossible to complete many of these highwvays for effective use for years to come. We strongly recommend, therefore, that construction appropriations be focused on a fexv top priority projects, in order to make them pro (llctive as rapidly as possible.  SURFACE 'I'RANSPOR'I' 4(65 Table 136 lists the projects which appear to imerit first attention, considering both national traffic carried and their export-import ship- ments. These six projects involve a total estimated cost of approxi- maitelv Ps.$36,500,000. In addition, there are two other projects to whlliclh favorable colnsideration might be given-namely, the Iighliway between Bogoti and Neiva and that between Barranquilla and Santa Marta. It appears advisable that the routing from Arbeliez to Neiva via the Magdalena River Valley be explored before the link throughl the mountains south of Arbeliez along the Rio Riachon to the -illage of Colombia is completed. All these projects and their relation to tlle rest of the national highw,vay system are shown in Figure 9. ff atten- tion is adequately concentrated on these high priority undertakings, we believe they catn all be completed within two years or less. P'resent constrtiction schedules contemplate mucch longer periods. It is difficult at this time to recommend specific allocation of funds for second priority projects, after those listed above. The traffic stir- vey recommended earlier will provide the required information dn present traffic and better data for forecasting future traffic volumes upon which more informed decisions can be based. In general, however, it is strongly recommended that the number of projects simutltaneotusly under wvay be kept at a minimum, in order to employ larger forces and more funds and thus complete the projects more qutickly and effi- ciently. If present appropriations for highway constructionl and development are allocated on a sound objective basis, their present total size appears to be sufficient. The advantages anticipated from completion of the six projects listed in Table 136 are stlmmarizecl below. TABLE 136 ETI MATED CAP1TAI RFQuIREIMENTs FOR MAJOR Hs(HwxAy PROJECTS, 1951-55 Highways Links Estimated Cost Cartagena-Medellin Taraza-Planeta Rica Ps.$ 5,535,000 Bogota-Medellit . . La Dorada-Sons6n 5,500,000 Bucaramaiiga-Saista Cachira-Abrego Marta-Barranquilla . Rinc6is Hondo-Caracoli 7,700,000 B3uga-Buenavenitura . . Buga-Buenaventura 5,140,000 Tumaco-Pasto Tumaco-EI Diviso 7,550,000 Medellin-Turbo . . arious Sectors 5,075,000 TOTAL Ps.$36,500,0001 I Includes U.S.$1.5 million (or Ps.$3 millioni) primarily foir reinforcing steel for concrete bridge structures.  CO LOM B A RIO HACH& P SANTA MARTA PRESENT BARRANQUILLA- CIENAGA AND RECOMMENDED HIGHWAYS CARTAGENA UNDAC,6 CAAAAL-CNAV LAIA SI.CE-A A STAAGATGIO UA M MONTERIA TURBO PLANETA RICA GA.AR CFA ; V LLAMI2IAR CANASGORDASL BNCO UIBDO L SONSONCA S JCUTj PA)SPUERTOTO iPAMPLPET IIALE S UGARAMANGA C<AEE' ARNAA tUAAAG CANASGORD^\ ~ ~~~~~PUERTO r,I ANTI0C,I- " BERRTO_ JERNM SAN L RROCOH EDELLI ANZA4 s X OLAYA L CATG TEEARA rHSRO@aHR BUENAVENTURA~~~~~~~AR CI5D0Bc) "O"S PUIERTO 5GAMOSO SO~ A .t AtsLGAR SOA \ K U J i LEAND.4o ON. _ LES A L 'LAAAIn CARTAGO ERIA _. 7 RMENIA L B OGOTA s~~~~~~~~~~~RE Z LL;I ECI BUENAVENTURA jj GIADTPUERTO LOPEZ CAL PRADERA /CLMl PSv NT NDER 2-IA .HIGHWAYS POPAY4N /- -{ ~~~~~~~~~~~~HIGHWAYS TUMACO > | QFL~~~~~~~~~~ORENCIA ,DVISO -< P~~ASTO IPAES  SURFACE TRANSPORT 467 Cartagena-Medelffi. Completion of this highway would not only facilitate the movement of export-import traffic from Cartagena to Medellin and other cities in Antioquia, but also provide an essential means of tapping the agricultural resources of the Bolivar country. The latter region could provide important food supplies for the metro- politan areas of Medellin, Cartagena and Barranquilla, but until the highwvay is completed its agricultural surpluses cannot be used effectively. The highway should also provide a valuable means of distributing the industrial products of Medellin to the coastal area around Cartagena and Barranquilla. AMedeZlin-Bogotd. The La Dorada-Sons6n link of the Medellin- BogotA highwvay will provide a short route between Colombia's two principal cities, wvhich should help greatly to expedite the industrial growth of both and to make available manufactured goods to the intervening country. In addition, some agricultural commodities xvould move over this route. Bucaraniianiga-SanitaMarta. This higlhwvay will greatly improve the food supply of the Atlantic coastal cities, primarily Barranquilla and Santa Marta, and Avill facilitate movement to the Bucaramanga-Cucuta area of products originating in or imported througlh Barranquilla. Bitga-Bitenaventiura. Completion of the Buga-Buenaventura high- way wvill serve principally to relieve the present bottleneck for export and import traffic through Buenaventura. It will provide a shorter, lower grade routing for commodities moving through Buenaventura to and from Medellin and other cities in the northern part of the Cauca Valley. Tu7ziaco-Pasto. The Tumaco-El Diviso segment of the Tumaco- Pasto highway is important to the abandonment of the Narifno Rail- road, as recommended in a previous section of this chapter. This road would also alloxv distribution of agricultural and manufactured products tlhroughout the southwestern section of the country and wvould complete this portion of the wvestern North-South trunk highway. MWedellin-To-rbo. The Mledellin-Turbo highway should not be regarded as a prospectively important artery for foreign commerce to and from Medellin through the proposed port at Turbo. Improvements in the Medellin-Cartagena highway, the Magdalena River and the rail and highway service between Medellin and Buenaventura should be fully adequate for Medellin's foreign commerce in the foreseeable future. The function of this road will be primarily to open up for settlemelnt and agricultural development an important and potentially 468 THE BASIS OF A DEVELOPMENT PROGRAtM FOR COLOMBIA productive part of Autioquia, which xviil be a valuable source of food for Medellin. It is expected also that part of this route wvill serve as a section of the Pan-Amiierican Highwvay. In addition, we believe consideration should be given to completinlg the links which would close the gaps in the Bogoti-Neiva-Popayin route and to buildlina a direct highwa ay betwveen Barranquilla and Santa Marta. M\lost of these highlway connections 'will provide alternative routings to supplement the precarious routes now available to several important inland cities. Their early completion xvill yield immediate public benefits which it is coitfidently predicted wvill far exceed their cost. These projects should be considered as the first phase of a miore tightly focused highway program, emphasizing rapid and efficient completion and early productivity of projects in order of priority (leterminied by objective criteria. Only on this basis is it possible to jutstify an(d obtain full benefit from the present large expenditures for highAvav construction. Departmental Roads in Cundinamarca Apart from nationally financed road building programs, the depart- ment of Cundinamarca has tinder consideration a large road building and paving program of Ps.$44 million. This program was proposed too late to be studied by the Miission, but it does not appear to have been based on traffic surveys or carefully prepared estimates of traffic volumes. Pending such studies, its econonmic justification must remain openi to question. 'Moreover, the totals appear large in relation to other necessary expenditures. being twice the department's total expenditure for all purposes in 1947-48, and more than the national budget in 1950 for high\vav maintenance, paving and construction. It is to be hoped that the expansion of essential departmental services, stuch as those for healtlh and educatioln, wvill not be set back by this prograni. WATER TRANSPORTATION AND PORT FACILITIES Colombia's inlandlwaterw,vay system has historically been the most important artery of transportation for imports and exports, since the Magdalena River provides the only link between the Caribbean ports and the populous interior cities. During the last fexv years, however, the Milagdalena RIiver has ceased to be an economic and dependable means of communication. This has resulted not only from the natural dlifficulties in maintaining year-round navigation in the upper reaches of the river south of Puerto Wilches, but also from the decreasing  SURFACE TRANSPORT 469 efficiency of the service rendered by the river navigation companies, mainly because of low labor productivity and the continued use of inefficient equipment and operating practices. These factors, together with certain problems common to all types of surface transportation- such as pilferage, breakage and excessive handling charges-have made inland wvaterwvay transportation very inefficient aiid expensive. Measures for Increasing Operating Efficiency Operatinig anid Lab)or Practices ont the lllagdalenza River. As Chapter VII shows, some of the major factors in the high cost of river transport are (1) the high fixed charge imposed for stevedoring services in transferring cargo from warehouse to boats and vice versa, (2) the so-called "turn" system of assigning cargoes according to the order of arrival of the vessels, (3) "crew featherbedding" on diesel-tvpe propellor equipment, and (4) lack of differentiation in rates between higher value general merchandise and bulk commodities for which wvater transport is normally most suitable. These various operational defects lhave resulted in a sharp decline in the importance of the river as a primary nmeans of transportation. The higher value shiplmlents have been diverted to other transport media because of excessive delays, breakage and pilferage, while the cost per ton for river trans- portation is too high to attract bulk commodities. Unless these defects are remedied, river traffic will inevitably continue to decline no matter how much capital is invested in better facilities. Any such investments will be largely wvasted and the national economy will have to bear the burden of excessive transportation costs by other, inherently less economic, means. We recommend therefore that (1) greater use be made of mech- anized loading and unloading- equipment xvith the resulting labor savings reflected in lower transfer charges, and that provision be made for differentials based on the type and value of the commodities handled, in order to attract a greater volume of traffic; (2) present rates for MIlagdalena River shipments be differentiated for various types of commodities and different qualities of service, so as to com- pete more effectively with the charges of other surface transport media: (3) the "turn" system of operating ships be changed; and (4) crew labor practices be revised to permit efficient utilization of modern equipmenit and thus reduce costs to a level which will enable river transport to maintaitn its place in the national economy. Several of these changes will require renegotiationi of labor agreements, which may be strongly resisted unless the workers and their leaders under- stand how dangerous to their economzic interests, and to the strength of their organizatiolns, is the progressive decline of traffic and the 470 THE BASIS OF A DEVELOPNMENT PROGRAMI FOR COLOMNBIA resulting loss of employment on the river. It is essential also, if increasing labor difficulties are to be avoided, that the higher produc- tivity resulting from the recommended changes be adequately re- flected in higher wage scales or other benefits. Port Facilities. The analysis in Chapter VII indicated that present port facilities are adequate. or capable of being made so, to handle all Colombia's commercial requirements. This conclusion depends in large part, of course, upon better transportation into the interior, which in turn depends largely upon effective implementation of the general recommendations contained herein with regard to railroads, highways and waterways. But certain improvements in port operat- ing practices are also of considerable importance. Emphasis should be placed on speeding up the loading and unloading process, especially at Buenaventura. This should include xvork on a 24-hour basis while ships are in port, greater and more efficient use of mechanized load- ing and unloading equipment such as fork lifts and freight handling pallets, the payment of wvages on an incentive basis to expedite the handling of cargo, and use of lighters. These improvements have all been discussed in detail over a periocl of years, but fewv have been effected. Much of the difficulty has apparently been due to faulty adminis- tration. The Atlantic ports of Cartagena and Barranquilla are pres- ently administered by the Department of Navigation and Ports of the Ministry of Public W;Vorks; administration of the Pacific ports of Buena- ventura and Tumaco is vested in the National Council for Railwvays; and the Customs Department controls the valuation, taxation and release of shipments to the interior. This divided authority has con- tributed in many cases to inefficient use of transportation and wvare- house and other storage facilities. The railroads' control of the Pacific ports has also militated against improvement of highwvay transpor- tation to and from the interior. To reduce the administrative difficulties deriving from divided authority and responsibility, it is recommended that a National Port Authority be established to administer and operate all ocean and river port facilities. It would take over from private stevedoring companies the responsibility for cargo handling and wvould be in a better position to install and operate modern mechanical facilities, to negotiate fair agreements with the stevedores' organizations and to  SURFACE TRANSPORT 471 adjust handling charges to fit economic and competitive conditions. It should ultimately be possible for such an Authority to be finan- cially self-supporting; meanwhile, it would provide a sounder basis than now exists for financing needed port improvements. It should be assured a large measure of administrative and financial autonomy, although it might appropriately be placed under the Ministry of Public Works for general policy guidance. The important problems of insurance costs for breakage and pilferage in transit, wvhich affect all types of surface transportation in greater or less degree, woould be alleviated in considerable measure by greater centralization of authority and responsibility for port oper- ations. The proposed National Port Authority would directly super- vise the labor handling cargo at all ports and control all warehouse and transfer facilities. It would be proper for this Authority to have under its direction a corps of river and harbor police, as -was suggested by the British Police Mission in its report in the spring of 1949. This report concluded that if the numerous remedies suggested were en- forced, they would immediately reduce very considerably the enor- mous amount of pilfering, smuggling, theft and substitution that is going on at present. 6 Meanwhile, the use of containers for shipment in bond direct to the consignee should be adopted to help curb pilfer- age. The Cia. Colombiana de Seguros indicated that use of such con- tainers would reduce insurance rates by as much as 80 percent. We also recommend that transport companies be made responsible for loss and breakage of goods wvhile in transit to encourage more adequate safeguards on their part. Major River and Port Improvement Projects We believe that three principal projects should be assigned high priority in order to increase the economic utility of port facilities and inland waterways: (1) stabilization of an adequate channel through the 20-mile section of the Magdalena River opposite and below Puerto Wilches; (2) dredging of the jettied entrance channel to Barranquilla harbor (Bocas de Ceniza) ; and (3) improvement of the Canal del Dique. It should be reemphasized, however, that these recommendations are contingent upon making necessary operational 6 See British Police Mission Report on Establishment of Ports and River Police ni Colombia, dated May 23, 1949. 472 'I'IIE 1BASIS OF A DEIlO\'lPM ET PROGRAN[ FOR COLOMI BIA improvenmenits. In the absence of operating changes, further invest- ment in improving the river would be largely wasted. The design and the methods presently adopted for the improve- ment of the river channel appear to be in accord Avith sound open- channlel practice and wvith experience on this section of the river. Although it is difficult at this sta-e to predict whether permanent stability of the channel can be obtained as far south as Puerto Wilches, wve believe that the effort now being made should be continued as there is a reasonable prospect of success. WVe believe the Government should be prepared to spend a mininium of Ps.$3 million and U.S.$1.5 million on this project and to undertake annual expenditures of approximately Ps.$250,000 for maintenance. Because of the relativelv high cost of continuing the proposed Magdalena River Railroad north of Puerto Wilches and of constructing ade(quate warehouses and traffic-handling facilities in this area, this v olume of expenditure appears justified despite the risk that the project may not be successful. The second project also involves the expenditure of considerable sUIms wvithout a guarantee of success. At present it is necessary for most ships to load or unload partially at Cartagena since they can- not pass into or out of Barranquilla harbor fully loaded. This of course is highly uneconiomaic. WVe recommenid therefore that the present Aork in the Bocas de Ceniza be continued. Im1provement of the port of Barranqluilla is justified by the city's importance not only as a port of entry but also as an industrial and commercial center. The estimated cost of this work is some Ps.$] 0 million, with a further annual requiremeent of perhaps Ps.$2 nillion, at least until stabiliza- tion is finallv assured. At the same time, the excellent natural port of Cartagena should be utilized more fully and efficiently, which is the purpose of the project for improvement of the Canal del Dique connecting Cartagena with the Magdalena River. Comipletion of this undertaking wvill permit abandonmiiient of the Cartagena Railroad, as recommended earlier in this chapter. Improvemiient of the Canal, and use of nmodern diesel-powered towboats wvhiclh wvill then be possible, wvill permit a reduction of ton-kilometer operating, costs by about twvo-thirds. Abandonment of the railroad, moreover, will eliminate one transfer point and the resultant handling costs. It is estimated that the cost of improving the Canal wvill approximate Ps.$4 million, and that  SURFACE TRANSPORT 473 about Ps.$285,000 will be needed annually for maintenance. The anticipated savings and improvements in service should more than offset these expenses. Ocean Shipping The ocean cargo shipping line Gran Colombiana, owvned by the Colombian, Venezuelan and Ecuadorian Governments, was briefly mentioned in Chapter VII. We believe it is questionable Avhether further capital outlays for the acquisition of more ships and the open- ing of newv routes can yield as large returns as the same amount of investment in Colombia itself, especially under the conditions of increasingly severe competitioni nowv developing in the field of maritime transport. For example, Commodore Vanderbilt is reported to have explained the disappearance of the American Merchant Marine from the high seas in the 1870's by saying that it was simply a case of 3 percent beating 6 percent. In other wvords, British ship- ping interests were satisfied wvith a relatively low return, whereas the Americans could make more from investments within their own country. In general, the same situation appears to apply to Colombia today. Coastwise Shipping Promotion of the interchange of goods among the seaports of Colombia, especially the smaller ports, is desirable because of the lack of adequate and economical inland transportation routes between mainy of those points. In particular, the need of maintaining adequate vessel service to the islands of San Andres and Providencia in the Caribbean Sea is recognized. There appear to be sound reasons for the acquisition of a serviceable vessel by the Colombian Government for coast%vise shipping. The Government has planned to purchase a 1000-ton seagoing freight vessel of moderate draft to serve both coasts throuigh the Panamia Canal, collecting freight concentrated at the intermediate ports, and also navigating the Orinoco and Amazon Rivers as far as the channels are navigable to such a vessel. This would release the smaller vessels now in use for coastwise shipping for transfer to the Arauca, Meta, Caqueta and Putumayo river fleet. Although the contemplated service does not promise to be a directly profitable venture, the plan is probably justified for social and political objectives. 474 TIIE BASIS OF A DEVELOPAIENT PROGRAMt FOR COILOMBIA ESTIMATED CAPITAL INVESTMENT The followving estimates of dollar and peso costs to carry out the recommendations in this chapter are not based on detailed cost survevs, but rather on rough data and informed judgment. They are sutmmnarized here for purposes of general comparison xvith capital requiremenits in other sectors of the Colombian economy. In general, wve have sought in these recommendations to achieve the maximunm increase in efficiency for the various transportation systems wvith the least capital investment. The total estimated capital reqtiirements for surface transport pro- jects in the immediate future, based on our recommendations (exclud- ing Magdalena River Railroad), are approximately Ps.$65.4 million and U.S.$11.9 million, or a peso total (at Ps.$1.95=U.S.$1) of approxi- mately Ps.$88.6 million. The Magdalena River Railroad would cost about U.S.$12 million and Ps.$36 million, or a grand total of Ps.$101.4 million and lT.S.$23.9 million, as shown in Table 137. The peso equiva- lent of the needed foreign exchange is Ps.$47.8 million, to which must be added Ps.$15.9 million to cover trade markups and internal trans- port costs on these imports, or a grand total, \vhen local material and labor costing Ps.$101.4 million are included, of Ps.$16 5 .1 million. While this total covers construction work and equipment purchases. it does not cover all investmenit needed in transport, nor does it include purchases of rolling stock and equipment, depreciation and maintenance allowances, etc. The total recommended yearly out- lays in transport, therefore, include these various outlavs and have been calculated by the same techniques used to estimate overall investment recommended in industries. Table 138 showvs the annual projected investment recommended in transport. Of a total of almost Ps.$1,440 million in five years, investment in specified projects represents only Ps.$165 million, or 11.4 percent. MIajor items covered by the balance are: (1) purchase and delivery of rolling stock (cars, trucks, buses, wagons, locomotives) for a total of about Ps.$790 million, including roughly Ps.$160 mil- lion of equipment Used in maintenance and Ps.$225 million of equip- ment for depreciation; (2) payments to labor engaged in maintenance of rolling stock and equipment, Ps.$165 million; and (3) construction of highways, farm-to-market roads, port improvements, etc., Ps.$320 millioll. Of an annual total of Ps.$287.7 million required for invest- ment in surface transport, foreign exchange requirements xvould amount to approximately U.S.$60 million.  SURFACE TRANSPORT 475 TABLE 137 CAPlTAL INVESTMIENT IN SPECIFIED SURFACE TRANSPORT PROJECTS, 1951-55k RAILROADS (11illionls) Central shop facilities at Bogota ..... Ps.$ 6.0 U.S.$ 2.0 Diesel locomotives ....... .... - 1.0 Standardization of gauge ................... 2.2 .1 Relocation of Nordeste and Sur Railroads in Bogota 1.0 .2 Subtotal ... 9.2 3.3 -Magdalena Railroad . . 36.0 12.0 Total .. . . ..... 45.2 15.3 PIPELINES Barranca-Olaya replacement ..... ............ ........ 1.2 .6 Olaya-Salgar ... .... 2..0 1.0 Olaya-Medellin . ..... 2 .0 1.0 Total .2... 2..6 HIGHMWAYS Trunk Line Construction . . . ... 33.5 1.5 Road Building Equipment .... - 3.0 Total .33.5 4.5 PORT FACILITIES AND INLAND WATERWAYS Bocas de Ceniza ....... .... .. ..... 10.0 - Magdalena Channel 3.0 1.5 Canal del Dique 4.5 - Total ... . 17.5 1.5 Grand Total ... .. Ps.$101.4 U.S.$23.9 I Based on recommelndatiolns in Chapter XX, but does not include payments for trade and transport of imported equipment ani(l materials, Excludes investment in land murchases and working capital. TABLE 138 ANNUAL PROJECTED INVESTM.ENT IN SURFACE TRANSPORT, 1951-55 Specified Proj ects Others Total _quipment (millions) Imported .............. .Ps.$ ........... 9.5 Ps.$ 110.1 Ps.$ 119.6 Domestic .. . 7.6 18.4 26.0 ?ayment for Trade and Transport Imported 3.2 36.6 39.8 Domestic .... 1.9 4.5 6.4 [otal Delivered Cost of Equipment 22.2 169.7 191.9 nstallation Costs .. . ..... .. 10.8 52.0 62.8 Jaintenance - 33.0 33.0 'otal Annual Investment 33.0 254.7 287.7 Eotal Investment, 1951 to 1955 Ps.$165.1 Ps.$1,273.4 Ps.$1,438.5  CHAPTER XXI Air Transport ADMINISTRATIVE ORGANIZATION FOR AIR TRANSPORTATION In Chapter VIlI are diagnosed the major problems currently faced by the Colombian air transport industry. Before recommendations with regard to the technical requirements for commlunications, air traffic conitrol, air navig ation and airport systems can be effectively carried out, the all-imlportanit problems of administration and finance must be solved. The communications, air traffic control and air navi- gation systems are noxv o\vned and operated by AVIANCA, but the airpcrts present a complex pattern of ownership by individual air- lines, the National Governimlent, municipal governments, the Air Force and private individuals or corporations. This heterogeneous system has produced the many disadvantages cliscussed in Chapter VIII, including suppression of competition, inadequate and unsafe traffic control procedures and duplication of many airport facilities. Cornmercial air operations in Colombia have no\v reached a poilnt -vhere this system of owvnership has become quite inadequate and hampers the future developmenit of the industry. For example, it has often been impossible to obtain the capital necessary for the con- struction and maintenan1ce of commercial airports adequate to handle present and proposed equipment. The airlines have recognized for some time that operations into Buenaventura would be advantageous. but the cost of an adequate airport has so far been considered pro- hibitive. The onlyr airport in Colombia wvith adequate paving is that at Barranquilla (Soledadc) and this field was built during the wvar with U. S. Airport Development Corporation funds. None of the individual owlners has been able to do an aclequate job of airport con- struction or improvement, an(l this has obstructed the achievement of lowver costs and better service. The same difficulties have arisen in the case of communications, air nav,igation and air traffic control systems owined and operated by AVTIANCA. since that company is now finan- cially unable to maintain and improve these systems in such a wvay as to provide operational reliability and safety and keep pace with the growvth of air transport operations and traffic. T o meet these difficulties, it is recommended that an Airport and Communications Corporation be established to take over and operate all the principal commercial airports and the communications, air traffic control and air navigation systems in Colombia. It would ac- quire the existing private facilities and assume responsibility for inte 476  AIR TRANSPORT 477 grating and improving them and establishing such new facilities as are necessary. Airport facilities would be purchased outright or leased, as appropriate in each case. Other facilities would presumably be owned outright by the Corporation. It is recommended that the proposed corporation be owned jointly bv the Government and the airlines-perhaps with some other private capital participation-the airlines' share of the capital being paid, in part at least, in the form of facilities Avhich they now own. Where duplicate airport facilities exist, the Corporation would take over the one better suited from the standpoint of technical equipment and future commercial expansion as the airfield for the locality in ques- tion. These airports would, of course, be open to commercial use by all licensed carriers and to other flyers, on an appropriate fee basis. Preliminary analysis indicates that the economics of such a Cor- poration would be sound. Table 139 sets forth reasonable estimates of its capital requirements and its potential annual revenues and expenses. An original capital of Ps.$30 million is considered adequate. Approximately Ps.$12,500,000 would be required to purchase fields noiw privately ownied, of which part would be paid in cash and part in shares of the Corporation. Some Ps.$10 million would be required for improvements to present airports, new airport construction, and lighting of airports; and Ps.$3,500,000 for communications, air traf- fic control and air navigation facilities. The assets of the Corporation wvould then be composed of about 75 percent land, buildings and im- provements; 12 percent communications, air traffic control equipment; and 13 percent working capital. The estimated revenues and expenses for the proposed Corporation reveal that after taking account of the present income from the gaso- line tax, from communications, air traffic control and air navigation services (based on the current rate of Ps.$7.5 per hour flown), from the landing fees of iaternational companies, and from miscellaneous revenues, approximately Ps.$2.5 million would have to be derived from the landing fees of domestic airlinies and other sources. Probably h1alf of this sulml could reasonablv be charged to the airlinies in the Worni of landing fees, without placing an undue burden on them; based In approximately 90,000 potential landings per year, this woould re- m-Lire an average fee of Ps.$30, which is considerably less than the wresent average, 1 and the companies could count on improved facili- les and resulting larger revenues and lower costs. l It should be emphasized here that these estimates are based on average communi- ations charges per hour flown and average landing fees. This is not meant to suggest hat these or similar rates should be charged across the board as is now the case with ommunications charges. Actual rates should reflect the value and cost of the various ervices renidered, and also such factors as traffic development. 47S THE BASIS OF A DEVELOPMIENT PROGRANI FOR COLOMIBIA There would remain an annual deficit of approximately Ps.$2,500,- 000. If the carriage of air mail is placed on a compensatory rate basis and the present subsidy, estimated to be in excess of Ps.$1,500,000, is applied against the Corporation's anticipated deficit, an additional TABLE 139 ESTIM;ATED CAPITAL REQUIREMENTS, ANNUAL REVENUES AND EXPENSES OF TIHE PROPOSED AIRPORT AND COlIXIUNICATIONS CORPORATION CAPITAL REQuIREMENTS: Purchase of Private Airports . Ps.$12,500,000 New Airports and Improvements 10,000,000 Communications, Air Traffic Control and Air Navi- gation Equipmenit .3,500,0001 Working Capital .4,000,000 Ps.$30,000,000 ESTIMIATED ANNUAL REVENUES: Gasoline Tax .. ..... ... Ps.$ 1,000,000 Communications Services 600,000 Landing Fees: Domestic Companies 2,500,000 International Companies ....... . .. . .. 200,000 Rent, Franchises and Other Revenues 600,000 Total Revenues Ps.$ 4,900,000 ESTIMIATED ANNUAL EXPENSES: Airport Operations .. Ps.$ 1,500,000 Airport Maintenance .700,000 Radio Operation aind Maintenance 1.500,000 Amortization . 2,000,000 Interest ... . . . .. 1,700,000 Total Expenses . Ps.$ 7,400,000 Loss . . . .. Ps.$ 2,500,000 1 For a more detailed breakdown, see Table 140. ainlilal subsidy of onily about Ps.$l m-illion wvould be required. Such a subsidy to the air transportation industry appears more than justi- fied wlhen its economic, defense and air mail utility is considered. We believe, moreover, that with the additional airport revenues and in- creased traffic that may be expected in the future this subsidy could be abandoned in a few years. A corporate agency of this kind was proposed to the Colombian Congress in 1947, but was not approved. 2 If, however, the Corpora- tion proposed here is operated wholly apart from Government regu latory agencies, if it is staffed -with personnel selected for their execu 2 See proposed Laws presented by the -National Government for the consideratio of Congress in its ordinary sessions, 1947, Volume I, pp. 260-340.  AIR TRANSPORT 479 tive ability and technical qualifications, and if they are assured adequate authority and secure tenure so long as the Corporation operates successfully, many of the earlier objections to such an ar- rangement wotuld disappear. Voting rights in the Corporation should be set up so that no one airline or the Government would find it pos- sible to control the policies of the Corporation. The industry would benefit by the release of capital that has been tied up in the facilities to be taken over by the nexv Corporation, and this capital wvould then become available for reequipment and other necessary expenditures for improving the quality and efficiency of operations. The Govern- ment and the iNation wouild benefit from better service, lowver costs and more safety in the air transport system. Regulatory and Other Functions Organization of the proposed Airport and Comrmunications Cor- poration will divorce operating from regulatory functions. At present, for example, Aeronautica Civil is in the anomalous position of both operating airports and setting and enforcing operating specifications and standards for them. Similar considerations make it desirable for the Government, specifically the Air Force, to abandon its present commercial operations. Where remnote areas of the country, which do not offer sufficient traffic potential to attract a commercial airline operation, require regular service, it is recommended that the Govern- ment subsidize a commercial airline to the extenat necessary for such operations. The Air Force would then confine itself to those transport functions required by the armed services. This method of affording service to marginal and developmental areas would permit more eco- nomic operation of the commercial airlines, and when traffic develops to a point wvhere a subsidy is no longer required, the operation would already be a part of the commercial network. Franchise Regullation. The first requirement for implementing a policy of controlled competition is a system of franchises giving desig- nated companies the right to operate over routes and to perform types of services required by public convenience and necessity. We reconi- mend that such a franchise system be establised and that routes be franchised to those companies which have operated consistently throughout the year 1949, since the industry attained a certain stability during that year and it affords a reasonably sound basis for both company and route franchises. Changes in these original franchises, especially any that involve additional competition, should be subject to proof that the public convenience and necessity would be served thereby. Similar regulatory poowers should be exercised over the 480 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA formation of new airlines, taking into account the fitness and financial ability of the concern involved to render safely the required service. A system of franchises wvould serve not only to assure an adequate pattern of service to the public, but also to protect the companies from the adverse consequences of unbridled competition. Both these objec- tives are becoming increasingly important as the capital requirements in aviation for replacement of wvar surplus with more costly modern equipment, for construction of more expensive and elaborate main- tenance plants, and for the many other needs of a rapidly growving industry are expanding. The stability of a satisfactory system of franchises is particularly important in attracting the new capital necessary to achieve a satisfactory level of efficiency. Techlnlical RegulTationt. With regard to the very important functions of technical and economic regulation, the first and most important recommendation is that all civil air regulation be removed from the Ministry of War. The defects of the existing relationship are pointed out in detail in Chapter VIII. Military and civil aviation are essen- tiallv different in their purposes and needs and, although they have solme comlllllonl interests, these can best be served by coordinating the wvork of separate agencies rather than through a single administration necessarily dominated by concern for one or the other. Therefore, technical regulation should also be handled by the regulatory agency or division. It wvould be vested with authority to license all fliglht and maintenance personnel and would set the standards for such licensin-. It would also establish aviation maintenance standards and administer the civil air regulations. During the postwlar years Aero- nautica Civil, the agency presently responsible for regulation of air transportation, has made important strides in inaugurating a program for technical regulation including classification and licensing of pilots and other aviation persomnel, establishment of civil air regulations, air traffic rules and mainteniance standards, etc. But constant revision, aimplification, interpretation and enforcement of these regulations are necessary, and Aeronautica Civil has not so far been adequately staffed or financed to perform these functions wvith full effectiveness. Its pro- gram should be carried forwvard by transferring personnel who are already trained in various aspects to the new regulatory agency or division. Rate Regulation. The present machinery for rate regulation pre- sents a conflict of authority between three Government agencies- namely, Aeronautica Civil, the Division of Transportation and Tariffs in the Ministry of Public Works, and the newvly created National Council of Transportation. These agencies, as presently constituted,  AIR TP.ANSPORT 481 are not capable singly or collectively of carrying out effectively the necessary functions in approving rates. Effective rate regulation, however, is essential for the protection both of the public and of the operators. We recommend that, as soon as definite route franchises have been awarded, the Government and the industry collaborate in wvorkin g out a satisfactory system of rate regulation and enforce- ment. Air transport rates should be set after public hearings in accordance wvith commonaly accepted principles, which take into account such factors as the development of new routes and areas, competition wvith other forms of transportation, costs of rendering service, and the value of the service to the traveler or shipper. These hearing,s \vould help to reduce the influence of political and economic pressure groups and vested interests which are likely to carry undue weight in private administrative decisions. In general, the proposed concentration of independent responsibility in regulatory matters should be of great value in clearing up the legal and practical confusioen which now prevails in this field. Effective regulation, especially in the field of rates. depends on effective enforcement. Many of the present difficulties in rate regu- lation encountered by the National Council of Transportation stem from its inability to bring about rate agreements and to enforce ade- quately those made. In this connection, industry agreements wvith respect to rates an-d other practices \vould be desirable, provided that they are filed \vith the proper authority and are subject to its approval. As for enforcement, wve recommend that the designated agency author- ize a semi-annual or annual audit of the books of each of the companies by an independent auditor, the results of which w,ould be made avail- able to all companies. Such an andit, if properly carried out by a reliable, independent auditing firm, should provide a sound basis for rate decisions and an effective aid to enforcement. Suitable fines could be assessed for anv violations. The interests of shippers and travelers xvould he protected through the hearing process. Air Mail It is also recommended that the air mail should be carried under contracts open to all franchised airlines at compensatory rates, rather than under a monopoly arrangement that conceals a substantial sub- sidv as at present. Mloreover, the present arrangements for ground handling, including the sale of stamps and door-to-door deliveries by a privately-owned AVIANCA subsidiary (ADELCA), separate from the national postal administration, are obviously anomalous and a duplication of facilities and efforts. The logical remedy is to turn over responsibility for the administration of air mail contracts and 482 THE BASIS OF A DEVELOPMIENT PROGRAMI FOR COLOMIBIA the handling of all ground services connected therevith to the postal service, but this change should be accompanied by a thorough over- haulilng and improvement of the present postal administration, other- wvise air mail service wvould certainly deteriorate seriously. The rates for carriage of air mail should be set by a designated agency after consultation with the postal administration and the various contract- ing carriers. It is believed that the above recommendations constitute a sound plan for the reorganization of Government functions relating to air transport along lines which will promote orderly development of the industry and afford adequate protection of the public interest. IMPROVEMENT OF AVIATION FACILITIES AND EQUIPMENT Communications and Control Systems After extensive study of more than a year of the technical problems involved, a Mission of the United States Civil Aeronautics Authority,3 wvorking with Aeronautica Civil and the Colombian companies, has defined the basic technical requirements for safe handling of the grow- ing volume of air traffic at present and in the future. We have re- viewed these requirements and the capital needed to implement them and developed the following tentative program. The total estimated capital requirement for equipment adequate to handle present and foreseeable needs for communications, air traffic control and naviga- tion systems approximates U.S.$1,750.000. These are allocated in Table 140 to the four years required to install the equipment and bring it into operation. This assumes that the equipment wvould be installed during the first year, approach control established during the second year. and route controls activated during the third.4 The operation of six approach control towvers, two air traffic control centers, forty-three air-ground coninunincations stations and/or air navigation facilities is envisaged, together with the equipment necessary to sup- ply adequate meteorological informationl; present equipment and facilities will be used \vherever possible. Operating and maintenance costs for these systems would depend upon whether or not operations on a 24-hour basis are inaugurated, as is recomniended in another section of this chapter, especially for carriage of air cargo. Night operations, howvever, would necessarily 3 This Mission consists of :\r. Royce Kunlze, Chief and Adviser on Air Safety; Mr. Clarence Tolpo, Adviser on Airw-ays Operations; and Mr. Farrar Simon, Adviser on Communicationis. 4 There are essenitially 3 areas of control of an aircraft for a given flight: approach control, within a designated area adjacent to an airport; tower control of an aircraft landing or taking off from anl airport; and route control at those times when neithei approach control nor tower control is active.  AIR TRANSPORT 483 TABLE 140 ESTIMATED CAPITAL REQUIREMENTS FOR AIR NAVIGATION EQUIPMENT PROGRAMlxI Air Navigation, Approach Meteorological and Route Equipment Communications Control Control Equipment Equipment Total Ist Year .... S... l.S.$205,000 U.S.$ 535,000 U.S.$ - U.S $ 740,000 2nd Year - 490,000 - 490,000 3rd Year ....... 297,000 43,000 340.000 4th Year - 180,000 - 180,000 TOTAL . UlS.$205,000 U. S.$1,502,000 U.S.$43,000 U.S.$1,750,000 I Based on: 6 Approach Control Towers 43 Communications and/or Navigation installations 2 Air Traffic Centers have to be confined at first to a few airports, together with necessary alternate fields and facilities. Therefore, Table 141 summarizes the estimated operating costs for both 24- and 16-hour operations. These figures include amortization and interest charges on the equipment, based on a 5-year amortization period. It is assumed that during and after the third year all phases of the communications, air traffic con- trol and air navigation systems will have been inaugurated, and that each companly will maintain a communications system for its own purposes. TABLE 141 AIR NAVIGATION EQUIPMENT PROGRAM: ESTIMHATED ANNUAL OPERATING AND MAINTENANCE COSTS 2nd Year 3rd Year APPROACH CONTROL 16-Hour Operation . ..... ... Ps.$ 375,000 Ps.$ 375,000 24-Hour Operation .. .... 490,000 490,000 ROUTE CONTROL 16-Hour Operation .. .. ......... .. ....... . .........- 205,000 24-Hour Operation - 2.70,000 CONTROL TOWERS AND COMMUNICATIONS STATIONS- COMlBINED SERVICES 16-Hour Operation .... .................................... 455,000 455,000 24-Hour Operation .................................... ... 565,000 565,000 TOTAL 16-Hour Operation ....... ............ . ........... ...... Ps.$ 830,000 Ps.$1,035,000 24-Hour Operation ............. Ps.$1,055,000 Ps.$1,335,000 484 THE BASIS OF A DEVELOPMENT PROGRAMI FOR COLOMBIA This air navigation program is based on a tentative layout involv- ing the installation of approach control towers at six locations- Bogota, Barranquilla, Bucaramanga, Cali, Cartagena and Medellin- and the installationi of two air traffic control centers at Bogota and Barranquilla. It also contemplates the purchase of air navigation and communications facilities nowv owned by AVIANCA, and replacement of this equipment wherever necessary. We recommend that plans be made immediately in line xvith administrative arrangements proposed above to acquire the necessary equipment and facilities. The safety of all air operations in Colombia is directly involved in this program; thus it should be given top priority in aviation planning. Any plan for communications, air traffic control and navigation systems must be based on the layout of a definite national airway system. The one on which the above estimates are based is tentative and is subject to flight check and approval by the various companies. We recommend, therefore, that such a national airway plan be laid out, flight checked, and approved as soon as possible so that these recommendations can be put into effect. Airports Four types of capital expenditures are required to insure the ade- quacy of the airport system from both operational and economic points of view. These are (1) construction of new fields, (2) enlargement and improvement of present fields, (3) elimination of airport duplica- tion, and (4) lighting of major airports and auxiliary fields to permit the inauguration of night flying. As regards ne-w construction, Table 142 sets forth a tentative plan submaiitted by Aeronautica Civil for the construction, completion and improvement of national airports. This plan contemplates the con- struction of six new airports at Araracuara, Bogota, Buenaventura, Medellin, Quibdo and Tunja. Twvo of them, at Bogota and Medellin, wvould duplicate present facilities. It is generally agreed that newv fields at Bogota and Medellin will ultimately be necessary. In the case of BogotA, Techo field is located too close both to the city and to the mzountains to justify a very large investment in its improvement and enlargement. The possibility of expanding the municipal airport at Medellin is very limited due to its position in the valley and the steady encroachment of the city. In the latter case, a new airport location wvill involve large capital expenditures and a difficult probleni of providing access to the city. In both these cases, however, the present facilities can be improved to handle the demands of traffic and equipment for the immediate  AIR TRANSPORT 485 TABLE 142 PROPOSED GOVERNMENT PLAN FOR CONSTRUCTION AND IMPROVEMENT OF NATIONAL AIRPORTS Estimated Peso Cost Runways, Construction of Buildings and Estimated New Airports Land Improvements Total Dollar Cost Araracuara .. ...... .... Ps.$ - Ps.$ 600,000 Ps.$ 600,000 U.S.$ 100,000 Bogota ... . ... 3,000,000 3,800,000 6,800,000 500,000 Buenaventura .... 100,000 1,500,000 1,600,000 100,000 Medellin ................ . 500,000 3,000,000 3,500,000 500,000 Quibdo 300,000 300,000 - Tunja .................. 400,000 400,000 Subtotal Ps.$3,600C.0 Ps.$ 9,600,000 Ps.$13,200,000 U.S.$1,200,000 Improvement of Existing Airports 32 Fields ...............- Ps.$ 4,712,000 Ps.$ 4,712,000 U.S.$ 50,000 4 Grand Total Ps.$3,600,000 Ps.$1 ,312,000 Ps.$17,912,000 U.S.$1,250,000 Source: Aeronautica Civil future, and it is recommended that such improvements be undertaken as a first step. This will provide immediate improvement in the safety and adequacy of facilities in both cities for handling current traffic. At the same time, the lower cost of these improvements, in comparison with new airports, will make funds available for early development of other important airports in locations now lacking such facilities. The unit cost of the latter would bc much less than the capital expenditures required for new fields at Bogota and Medellin; as Table 142 shoxvs, the proposed Bogota and Medellin fields would take an estimated Ps. $12.3 million, or 60 percent of the total program. Improvements for the present fields wvould cost considerably less, and should be made immediately; meanwhile, the new fields can be more carefully planned and adequate financing arranged. Of the remaining airports planned, that at Buenaventura is the most important economically and merits a high priority. It will not only help to relieve the present bottleneck at this port but also pro- vide a much needed air service, especially for freight. There has not yet been sufficient investigation for a firm decision as to the location of the Buenaventura airport. The two sites considered involve, in one instance, an enormous problem of earth movement and, in the other, an excessive distance from the city to the site. It is recommended that before a site is finally selected the possibility of locating it on the 486 THE BASIS OF A DEVELOPMIENT PROGRA1\ FOR COLOMBIA peninlsula across from the docks be fully explored, since the primary utility of air transportation to Buenaventura wvill be in the carriage of cargo, and lighters and other types of vessels could be employed in brin,-ing cargo as wvell as passengers to and from such an airport. It is recommended that the survey be made as soon as possible so that construction call proceed rapidly on whatever site is selected. Improveinents to present fields constitute a most inmportant part of the recommeilded airport prograilm. These include lengthenting and \videning of rulnways to accommodate heavier equipnment, and paving of certain of the heavier traffic fields. The airport at Barranquilla (Soledad) is the only airport in Colombia that is really teclhnically adequate. Sound further development of air transportation, therefore, necessitates improvement of several other airports. The most impor- tant of these are the txvo previously mnentioned-Bogota (Techo) and MIedellin-followed by Cartagena (Lopez), Cali (AVIANCA), and Bucaramanga. It is reconlmended that the run-ways of all of these fields be adequately paved as soon as possible, and that they be en- larged to handle safely aircraft of the DC-4, DC-6 and Constellation types so that internatioinal flights can be accommodated. This -would appear to be feasible in eacll case, wvith the possible exception of Bucararnanga. AWTithout more detailed engineering surveys an accurate estimate of cost is not possible. Since these cities are the primary traffic-generating poinits, wve recommend that such surveys be under- taken at once so that work may be inaugurated as soon as possible. ,MIany other airports, of course, ineed improvenments; those specifi- cally cited are nmerelv the iiost acutely and urgently needed. One of the first functions of the Airport and Communications Corporation should be to wvork out a comprehensive program and necessary priori- ties for the general anlelioration of airports. Priorities should be established on the basis of presently developed and estimated poten- tial traffic, both cargo and passen-er, and investments in the improve- inent of various fields should be allocated accordingly. For airports, as for highway construction, it is possible to allocate investmenit in considerable measulre oil the basis of economic utility. The sanme principles that wvere recommended for high\vay expenditures (Cllapter XIX) should also govern those for airports. AVe do not feel that the proposed improvements of the airports now owvned by the National Governml1lent and aduiniistered by Aeronautica Civil, showvn in Table 142, accord with these principles. WNe recommend, therefore, that the plans be reworked by the new Airport and Communications Corpora- tion on the basis of technical adequacy and economic utility. One of the most iimportant factors limiting the use of air trans- portation in Colombia is the absence of night flying. This severely  AIR TRANSPORT 487 limits the service wvhich the airlines can render and the efficient utiliza- tion of the entire aviation plant, personnel and equipment. We believe that a technically sound plan can he developed for night flying. It should start with lighting the airports at Bogota and Medellin and the required auxiliary fields between these cities and Barranquilla. As soon as experience is gained on this limited operation, night flying should be extended to include the other major airports at Cartagena, Cali, Buenavenitura and Bucaramanga. As has previously been pointed out, because of the short hauls involved, nig,ht flying will have its greatest utility in the carriage of air freight. It will, however, add important hours to the passenger operating day and will permit inter- national flights serving Colombia to be routed directly to interior destinations, such as Bogota and -Medellin. The final recommendation for airport improvement is to eliminate unnecessary duplication of facilities. The dissipation of airport con- struction funds resulting from such duplication has had important adverse effects on the financial condition of the industry. The neces- sity for extra airplane servicing facilities, additional roads from air- ports to the city, and other duplicate investments accentuate the wvaste of capital involved. The duplication has also contributed to the technical inefficiency of the airport system; for example, in BogotA the traffic patterns of the two fields are so closely interrelated that continual problems of aircraft clearance and communications arise. It is recommended that airline operations be terminated as soon as prac- ticable. and any further investments excluded, at the LANSA fields at BogotA and Barranquilla and at the AVIANCA airport at Cartagena. Time did not permit a detailed study of conditions in the other dupli- cate airports shown in Table 46 of Chapter VIII; this should be undertaken as soonI as possible. The three airports named account for the largest investment to date and the largest prospective demand for investment. From the standpoint of both technical operations and future expansioni, the fields recommended for abandonment are defi- nitely inferior to those recommended for continued use. In the case of Bogota, Techo field should be abandoned when a new field is constructed but, as previously recomended, it should be improved for use during the interim period. Flight Equipment The type of flight equipment used in Colombia is becoming obsolete in more highly developed countries. Successful operation of this equipment has been possible because of unusually propitious circumstances, particularly the inadequacy of surface transportation, and the availability of \var surplus equipment and spare parts. In 488 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA view of their low original cost and the unavailability of more suit- able aircraft in the near future, however, we feel that present types, in increased numbers, should suffice to meet most of the equipment requirements of the industry in Colombia for the next three to five years. The carrying out of malny of the other recommendations in this Report will make possible more efficient utilization of this equipment. For example, the recommended improvements in the airport system should make greater payloads possible and increase the number of airports suitable for operations wvith more efficient four-engine equip- ment, such as the DC-4. The recommended program for night flying should also do much to improve the utilization of flight equipment, especially in cargo service. If these recommendations are followed, and the companies establish and operate more efficient maintenance plants, presently available equipment should be able, for the immediate future at least, to offer competitively attractive service. This assumes, of course, that a rate regulation program is carried out on a basis that reflects the operating costs of present equipment. These arrangements will not, however, meet the long-term equip- ment problem. Most of the newer aircraft being developed in the principal manufacturing countries do not meet Colombia's operating requirements, nor are they as easily adaptable to these requirements as previous aircraft have been. There will come a point in the next few years when it will no longer be economic to improve Colombia's airport system to accommodate larger and faster equipment, since the advantages of such equipment to the Colombian airlines are limited. It is important, therefore, that some provision be made for the development of aircraft specifically suited to the domestic operating conditions in countries like Colombia. Because of the short distances and the relative lack of surface competition, high speed is not a primary requirement. On the other hand, because many areas must depend heaviLy on air transportation, at least for their initial develop- ment, and because airport facilities cannot be elaborate, high perform- ance characteristics for landing and takeoff on short unpaved runways xvill be essential. Similarly, the great variation in altitude at the various Colombian airports makes necessary good altitude perform- ance. Since spare parts will have to be imported for some time, and there will be a scarcity of trained technicians, it would be highly desir- able to make maintenance as simple as possible. From an economic standpoint, the highest payloads possible in the light of the above operating requirements should be obtained. Last, but not least, the  AIR TRANSPORT 489 cost must be relatively low if the induistry is to be able to maintain its admirable record of financial self-sufficiency. We believe that these requirements, exacting as they are, are not beyond the technical capacity of aircraft engineering. Three fac- tors have militated against development of this type of aircraft in the past-the Colombian airlines' lack of capital resources, the diffi- culty of securing foreign exclhange to purchase new equipment or to finance its development, and the prohibitively high cost of developing specially designed aircraft by an individual manufacturer who can expect only a limited market. Nevertheless the development of such aircraft would do much for the economy of Colombia and other countries with similar condi- tions by providing more efficient, low cost, faster commercial trans- portation and a uniquely advantageous means of opening up remote areas and making them economically productive. With a view to pro- moting the development of the desired new aircraft it is recommended, first, that operating specifications for such aircraft be carefully drawn up by the airlines in cooperation with the Government agencies concerned, with such outside technical help as may be needed; second, that the potential market, based on replacement of present equipment and allowance for future growth, be carefully determined; third, that estimates be made of the development costs of such aircraft, and the purchase price in the light of the anticipated market; and fourth, that possibilities of financing these development costs be carefully investigated. Pending development of a new aircraft Awith the characteristics described above, there is a present need for a certain number of small single-engine, one-pilot planes, especially cargo types, to serve as feeder aircraft in reaching the larger airports served by DC-3, DC-4 and C-4f6 equipment. The success of AVIANCA's subsidiary company, AEROTAXI, whlich is operating a fleet of single-engine Cessna aircraft primarily for the carriage of passengers, indicates the poten- tial of this type of service. Such aircraft could be used in the same wvay to carry car go, and once effective rate-making machinery is e5tablished, they could be very valuable in developing areas such as the llanos, wvhere few of the airports for some years to come will be adequate to handle larger planes. In addition, they xvould allow many more localities to be served than is now possible with the larger multiple-engine aircraft. In other countries faced with similarly diffi- cult problems of surface transportation, notably Alaska, this type of aircraft has been used to great advantage in the development of 4''1, THE BASIS OF A DEVELOPM1ENT PROGRAMI FOR COLOMBIA resources. It is recommilended, therefore, that the acquisition and use of such aircraft be favorably considered and that planninig of the airports and other facilities required for this purpose be undertaken as sooIn as possible. ESTIMATED CAPITAL REQUIREMENTS A summary of the total estimated capital requirements for air transportation over the next five years is presented in Table 143. These requirements are based primarily on the recommendations in this chapter. The proposed Airport and Communications Corporation will require approximately Ps.$30 million in capital in order to take over the major airport and communications facilities, construct new fields, improve existing facilities, and purchase and install adequate com- munications, air traffic control and air navigation equipment. Of this sum, however, only about Ps.$13.5 million would be new capital, the remainder representing lancd and facilities already in existence and requirements for working capital. The foreign exchange portion of this latter amount is estimated at U.S.$2 million for materials and supplies needed in the construction of new airports, runways and buildings and the machinery necessary for their construction and adequate maintenance; and U.S.$1,750,000 for communications, air traffic control, and air navigation equipment. The estimated require- ment for the purchase of transitional aircraft of the types presently employed in Colombia, plus new smaller single-engine cargo and pas- senger aircraft over the next five years, is U.S.$5 million. This does not, however, include requirements for the purchase of new type flight equipmenit nor any of the development costs of such aircraft. TABLE 143 CAPITAL INVESTIMENT IN SPECIFIED AIR TRANSPORT PROJECTS, 1951-551 (millions) Buildings alid Runways Ps.$6.0 U.S.$2.0 Control and Air \Navigation Equipment - 1.75 Flight Equipment Transitional Aircraft and Spare Parts (5 years) - 5.00 Total Air Transport . ... ..... Ps.$6.0 U.S.$8.75 I Does not iniclude an estimated Ps.$7.5 million already invested in land, and Ps.$' million in buildings and other facilities, which are already in existence and represen: 11o new charge on the economy of Colombia. Nor does it include Ps.$4 million foi working capital requiremenits.  AIR TRANSPORT 491 When this total of U.S.$8.75 million is converted into pesos, and the amounts necessary to cover trade markups and internal trans- port on imported material and equipment are included \vith the domestic investment required, -ve find that Ps.$29.5 million wVill be needed for investment in air transport in the next five years. Hoxv- ever, this total does not cover all investment needed because it does not include purchase of maintenance and replacement equipment, purchase of military and tourist aircraft, and only provides for essential building of airports and essential purchase of commercial airplanes. Total recommended outlays for air transport have been calculated by the same techniques used to estimate total investment recommended in industries and surface transport. Table 144 shows a total recom- mended investment of Ps_$85 million in five years. Of this amount, investment in specified projects represents only Ps.$30 million, or 31 percent. Major items of the balance are estimated as: (1) purchase of newv aircraft and replacement parts, Ps.$20 million; (2) purchase of navigation and other equipment, Ps.$10 million; (3) construction of air fields and buildings, Ps.$10 million. Annual requirements in foreign exchange \vould amount to about U.S.$5 million. TABLE 144 ANNUAL PROJECTED INVESTMENT IN AIR TRANSPORT, 1951-55 Specified Projects Others Total (millions) Equipment Imported .... ... .. . Ps.$ 3.5 Ps.$ 6.0 Ps.$ 9.5 Domestic . . . 0.4 0.8 1.2 Payment for Trade and Transport Imported. . . . .. 1.2 2.0 3.2 Domestic . .. . 0.1 0.2 0.3 Total Delivered Cost of Equipment . . Ps.$ 5.2 Ps.$ 9.0 Ps.$14.2 Installation Costs ... . .0.7 2.1 2.8 Total Antnual Investmenit. Ps.$ 5.9 Ps.$11.1 Ps.$17.0 Total Investment, 1951 to 1955 ... Ps.$29.5 Ps.$55.5 Ps.$85.0  CHAPTER XXII Health and Welfare Colombia's health problems loom large. Disease and ill-health rob the country of productive manpower and resources, and retard the progress of the national economy. 'I'he life span of the majority of the people of Colombia is much shorter than that attained in countries where effective health measures are being applied. Moreover, those who are able to wvork must support many people whose productive capacity is destroyed or greatly reduced because of constant ill-health. In Chapter IX it was seen that the people of Colombia suffer not only from a high incidence of communicable diseases common to temperate zones, but are also subject to all the disease conditions found in tropical climates. Malaria, intestinal infections, tuberculosis, and venereal diseases take a heavy toll of lives and account for muclh of the nation's disability. Nutritional disorders are sufficiently wide- spread to make them a serious health problem; in addition, a signifi- cant percentage of the people face potential or actual malnutrition. Ordinary sanitation precautions are at a minimum, and adequate sys- tems of wvater purification, milk pasteurization, and sewage and waste disposal are practically non-existent. Against this picture of poor health and disease, the resources avail- able for coping with the problems are woefully inadequate. The public health organization lacks administrative direction and is failing to meet many basic health needs. Health workers are few, generally poorly trained, and inadequately paid. The shortage of medical prac- titioners and specialists of all kinds is acute. Hospital facilities and institutions are generally inadequate in quanitity and quality; many are not meeting acceptable standards of performance and coverage. The systems of institutional and medical care and of social wvelfare require overhauling to meet more realistically the needs of the majority of the people. Colombia has made a start, however, in attacking its major disease problems, in building hospitals and providing institutional care for various groups in the population, and in attempting a comprehensive system of social security and public welfare. For instance, the MXin- istry of Hygiene has begun some vigorous and, in some cases, effec- tive anti-malaria measures: health ageencies have also begun campaigns to eliminate or control some of the country's other major diseases. It may generally be said, in fact, that Colombia's health status com- 492  HEALT H AND WELFARE 493 pares favorably with the levels attained by most of her South Ameri- can neighbors. But there is still a long way to go to reach even minimum health standards and to effect the improvements in pro- ductivity and national wealth that come with good health. Moreover, because most of Colombia's poor health is preventable, it is one part of the vicious circle of disease, low standard of living, ignorance, and general insecurity that can be broken through. The present health program is predominantly medical, wvith the first emphasis placed on treatment. This is perhaps only natural in view of the tremendous backlog of disease and of people who des- perately need medical care. While treatment facilities are necessary and while improvements must be made, both qualitatively and quanti- tatively, the overwhelmilng need is for an adequate program for the prevention of disease. First things must come first-effective disease control techniques, adequate sanitary measures, sound health educa- tion and the improvement of personal hygiene. Only by focusing first on the prevention of illnesses will it be possible to reduce the present burden of disease and eventually raise the general level of health. In order to launch a comprehensive health program in Colombia. at least three steps must be taken: (1) the public health structure should be strengthened and its functions reshaped so that it concen- trates more directly on the promotion of positive good health and the. prevention of disease; (2) factors in the environment affecting health should be controlled, with first emphasis on the construction and maintenance of sanitation facilities, such as water purification and sewage and waste disposal systems; and (3) more professional per- sonnel of all kinds, but especially physicians, dentists, public health nurses, and sanitarians, must be recruited, trained, and brought into public health work. In addition, hospitals and related institutions shotuld be strengthened and the systems of medical care, public wel- fare, and social security should be improved. THE PUBLIC HEALTH STRUCTURE The success of any preventive health program depends primarily on the organization and effectiveness of the public health structure. Public health particularly affords an excellent field for long-range planning. Problems can be defined with considerable accuracy and priorities can be established where the needs are greatest. Moreover, since many of the remedial measures are quite specific, thev can be scaled to local needs and resources. Colombia's public health structure demands considerable review and revision in order to meet health needs adequately throughout the 494 THE BASIS OF A DEVELOPMENT PROGRA-M FOR COLOMIBIA entire nation. There are weaknesses in the health agencies at all gov- ernmental levels. In some departments and municipalities, a fairly good job is being done; in the vast majority, however, the organiza- tion is rudimentary and fails to meet many basic needs. In general, health agencies are devoting more effort to purely institutional and medical care than to the more fundamental preventive health needs. The health organization is relatively strongest at the national level and wveakest at the local or municipal level. The various departments fall somewhere between these twvo extremes. Many purely local services are performed by the Ministry of Hygiene, simply because it is the best organized of the nation's health agencies and has the most financial resources. There are no specific and fixed areas of re- sponsibility delegated to the health organizations at the various levels, either by law or by administrative regulation. One of the first steps to be taken in overhauling the public health system should be the establishment of some regular relationship to cover the whole range of health administration. Some general prin- ciples should be provided by lawv to serve as a guide in dividing func- tions and responsibilities among the Ministry, the departments, and the municipalities. Health services, like education and other direct services for the people, should be primarily of concern to the munici- pality because it has the largest and most direct stake in promoting the well-being and safeguarding the health of its citizens. Moreover, the majority of direct health services can be provided most econom- ically and efficiently at the lower governmental and administrative levels. Because governmental jurisdictions often have widely varying populations and unequal resources, however, most localities need financial as wvell as other assistance from central units of government. But the actual performance of direct services should be assigned by the departments to the municipalities in accordance with local con- ditions and needs, always following the general principle of achieving the greatest possible measure of local administration and financial responsibility. It would seem advisable, in general, to limit the Ministry of Hy- giene to broad areas of responsibility, such as the issuance of rules and regulations, the distribution of funds, the setting of standards, the provision of consultative services, and the gathering of facts and research, both basic and applied. In addition, of course, the Ministrv would continue to operate the national institutions and support and supervise the public welfare system and the necessary construction for hospitals, health centers and the public health utilities. Somewhat the same situations should apply to the departments, except that, in addition to financial support and consultative services, these health  HEALTII AND WAELFARE 495 agencies could be expected to provide certain direct services on a department-wXide basis, such as the operation of diagnostic clinics and the distribution of drugs and biologicals. SANITATION AND OTHER PROTECTIVE MEASURES Much of the explanation for the hi-h incidence of preventable disease in Colombia lies in the extremely inadequate provisions for controlling the physical factors in the environment which contribute to the spread of disease. Countries wvhich have attained higth levels of health have begun by building and maintaining, adequate com- niunity sanitation. In Colombia, w-here ordinary sanitary precautions are barely being met, the public health program might wvell begin with buildin- and extending an adequate sanitation systemii for the entire country. In- testinal infections cannot be effectively reduced when sewvage and garbage is inadequately disposed of and when the food and wvater supplies are contaminated and polluted. Tuberculosis cannot be con- quered when the majority of the people live in crowded and unhealth- ful housing. Many other infectious diseases cannot be fully controlled until effective insect and rodent control measures are instituted. Estimated costs for additional community sanitation facilities are found in Chapter XXlII. But, in general, the first health reqtuire- ments in the cities are a good and safe water supply and a sewverage system available to all the inhabitants. Sanitation needs for rural dwvellings can best be provided by individual installations, such as sanitary privies or septic tanks, and a wvell, spring, stream or cistern protected against pollution. The construction of sanitation facilities alone, howvever, will not automatically insure adequate protection from infection and disease. The physical plants must be mainitained in a state of good repair if effective results are to be obtained. One of the major failings of Colombia's present sanitation system has been the poor condition and inadequate upkeep of existing facilities. A major responsibility of the healtb organization should be to inspect and supervise all sanitary and environmental facilities so that deterioration and breakdown are kept at a miinimum and the facilities perform their job of protecting the health of the people. Unprotected food and milk are also responsible for the transimission of considerable disease in Colombia. It is important that protective measures be taken to safeguard everything edible from the time of production until the food is consumecl. Mleasures to prevent the spread of disease by milk and food are now mandatory in manv 496 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA nations. Some of these are pasteurization of milk, government inspec- tion of meats, and other examinations which certify to the purity of food and beverages. Other precautionary aids, such as refrigeration, are highly desirable for the preservation of dairy products, meat, and fish. Although pasteurization of milk has been attempted for some time in Colombia, it has met with little success. Many of the existing pasteurization plants are run-down and poorly operated. Under present circumstances, it appears premature to recommend large capital out- lays for pasteurizing equipment. A more practical immediate course might be to encourage the development of evaporating plants. When refrigeration becomes more common on farms, in restaurants, and homes, measures might be taken to develop centralized milk pasteuri- zation plants and distribution services. PERSONNEL REQUIREMENTS Improvements in the public health organization, in the techniques of disease control, and in hospital and medical care facilities are neces- sary in raising the level of health, but none of these can be effective unless there is an adequate reservoir of well-trained professional talent to provide the services, apply the techniques and man the facilities. Perhaps in no other field of community activity does success depend so much upon specialized and professional personnel. The need for more physicians. nurses, dentists, and other specialists is by no means limited to the field of public health. AMore general practitioners and specialists of all types are needed to care for the sick and disabled throughout the country. Hoxvever, the recommendations here will be limited to the personnel required to staff a modern public health service. The professional and technical personnel must be, in fact, the back- bone of the public health organization. They must be actively re- cruited, well treated, adequately trained, and well paid. They must be protected in tenure of office through a genuine merit system and must be employed in a program which puts to full use their profes- sional and scientific skills and knowledge. In recent years, about a dozen or fifteen employees of health agencies throughout the country have gone abroad annually for ad- -anced study and observation. Fellowships have been financed through several sources: the local employing agency, the Institute of Inter-American Affairs, the Rockefeller and Kellogg Foundations, the Pan-American Sanitary Bureau, the United States Public Health Service and others. This is a desirable trend and should be encouraged  HEALTH AND WELFARE 497 and perhaps put on a systematic basis. Moreover, it might be put on a two-way basis, with leaders and educators in other countries in- vited regularly to Colombia to give courses in pertinent fields, such as health administration, malaria control, tuberculosis control, etc. Training of public health workers should be an important consid- eration in Colombia; only through organized and adequate training can the public health agencies hope to obtain the high caliber of em- ployees needed to carry out effective health programs. It should be standardized and systematized and should be extended to cover all types of public health specialties. All the methods of training which have been mentioned, plus other techniques-such as supervised field training, apprenticeship, and residency-should be formally planned, budgeted, and utilized to enlarge the scope of professional education in public health and to procure additional personnel when the flow of trained health workers from educational institutions is inadequate to meet staffing requirements. It was shown in Chapter IX that the health program of the entire country is seriously retarded by inadequate salary scales for public health workers and by inefficient personnel procedures. Because a very large share of the total funds in the public health field is paid out for wages andl salaries, serious thought must be given to revision and standardization of these scales. Salaries must begin to meet more nearly the costs of living in Colombia and the salaries in comparable private enterprise in the area. Very fewv young physicians, for ex- ample, can afford to accept public health positions other than on a part- time basis witlh some supplementation of income through additional employment. Salary increases constitute an important reform in the pu-blic health structure, but the increases alone will not be sufficient to insure a competent career service in public health. The lack of adequate job standards, insecurity of tenure, and the capricious and arbitrary per- sonnel practices all serve as detractive elements to a public health career. The recruitment, placement, and promotion of employees on a systematic nmerit basis are essential to effective operations. Some attempts have been made to institute civil service or merit systems on a national basis, notably through the Administrative Career Law of 1940. However, little has been done to implement the career service, especially on the departmental level, and fexv people have been certified under the law. Under an earlier law, a merit sys- tem designed specifically for health service employees, tlhe Hygienist Career, was set up by decree. However, only three persons were certified under this laxv before it was invalidated by the courts 498 THE BASIS OF A DEVELOPMENT PROGRAMI FOR COLONMBIA Accordilng to the code which set up the present Ministry of Hygiene (Lawv 27, 1946, Article 6), the Minister is authorized and directed to establish a hygienist career service. If properly administered, this measure could provide the basis for greatly needed improvements in personnel administration for public health xvorkers. It might be ad- visable at first to have the system cover physicians, dentists, and other professional groups for wvhom some educational standards are already established and accepted. Other public health employees could be brought into the system as experience indicates. CONTROLLING DISEASE All the health facilities, resources, and personnel have one major purpose-the promotion of positive good health and the prevention and control of disease. The most direct method of improving health is to launch and carry on control programs to curb disease, with first emphasis on the infectious and parasitic diseases because of their preventability. Many of the remedies for preventing and overcoming specific diseases have already been mentioned in a general xvay in connection wvith the sanitation and environmental health needs. It may be desirable, however, to examine briefly some of the methods wvhich can be used in combating the more important diseases. Malaria Malaria is frequently described by Colombia's health officials as one of their most serious health problems. Although much additional wvork needs to be done in defining the true infection rate, the efficiency of different mosquito vectors, and the suitability of various control measures, many studies on malaria have already been completed andl others are in progress. These studies shoxv, among other things, that malaria is probablly over-diagnosed, especially in areas whliere its prevalelnce eems to be decreasing. The chief obstacles which stand in the way of further progress in malaria control are insufficient funds, shortages of trained personnel, and inability to import insecticides and drugs in sufficient quantities. Althougth the national as xvell as many of the departmental control programs includle most commonly accepted control measures, these are not sufficiently broad, geograplhically speaking, to effect a reduc- tion in the natiolnal malaria incidence. Some attempts have been made to eliminate mosquito breeding places but many students of the problem do not consider this a prac- ticable method of control, except in the cities. Although it may not be practical to institute such wvidespread measures as drainage and  HEALTH AND WELFARE 499 land-filling projects, nationwide distribution of drugs and other prepa- rations would bring tangible results. In experimental areas encourag- ing results have been obtained with the newer drugs that display remarkable suppressive and curative properties. The most effective control method is house spraying with DDT and similar preparations. The great advantage of household spraying is that it kills not only nmosquitoes but other insects -which are a nuisance and transmit disease. Consideration should be given to the possibility of manufacturing at least some of these items, particularly DDT, within the countrv. Infectious Diseases Intestinal disorders of various kinds rank as major health problems. They owe their prevalence to improper disposal of human waste and pollution of the food and water supplies and, because sanitation needs are not being adequately met, they continue to flourish. The basic remedies for intestinal and parasitic infections have already been indi- cated in the section on sanitation needs. Other diseases such as smallpox, diphtheria, and whooping cough, which are now important causes of death, are readily controllable through immunization. Full advantage should be taken of this pre- ventive measure. Attention should be devoted to the possibilities for the manufacture of additional vaccines and serums at home rather than importing them from abroad. Tuberculosis Although some measures for the control of tuberculosis have been undertaken, these have been directed largely toward hospitalization and isolation rather than toward prevention and case-finding. By using the reported figures on tuberculosis deaths during 1946 (4,480) and allowing 2.5 beds per death, the Colombian Congress in 1947 authorized approximately 11,000 beds for the country. This is to be contrasted Avith the approximately 1,600 beds nowv available for tuberculous patients in special and general hospitals. The construction and maintenance of hospitals wvith sufficient bed capacity to accommodate all or even a large portion of the tuberculous who might profit from hospital care wvould entail a very large annial expenditure of funds. In the long run such a huge hospitalizationi programii for a single disease would be difficult to justify. A better course might be to allow the construction of one bed per estimated tuberculosis death in 1955, resulting in a total requirement by that year of approximately 5,400 tuberculosis beds.' Long-range tubercu- 1 This is based on the assumption that proportionately there would be about as many deaths from tuberculosis in 1955 as there were in 1946. 500 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA losis control measures should probably concentrate on indirect mea- sures which have broad implications for the disease, such as improve- meents in housing, nutrition and health education. It is generally believed that reduction in the prevalence of malaria, parasitic infesta- tions, and the common infectious diseases will effect a decline in botlh the incidence and the severity of tuberculosis. The tuberculosis control program in Colombia should also make use of mass-screening and case-finding techniques, through the use of chest X-rays. Another procedure of great promise is active immunization against the disease, with the use of BCG vaccine. Although a BCG vaccination program has been initiated by the Ministry of Hygiene, only some 18,000 per- sons had been treated at the time this survey was made. Venereal Diseases NVhile veneral diseases are prevalent throughout the country, very few effective control measures have been employed. Practically the entire venereal disease control program is directed towvard the super- vision and medical certification of prostitutes, which has not had much apparent success. A vigorous anti-venereal disease program could achieve marked results. With the newer antibiotic remedies it should be possible, in theory at least, to eradicate syphilis and to make substantial reduc- tions in the incidence of the other venereal diseases. This requires an active case-finding and treatment program and complete avail- ability of appropriate remedies. Nutr_:o0 A poor nutritional status, which is characteristic of many people throughout Colombia, is attributed largely to the low standard of living and the lack of popular knowledge of correct dietary habits. Some of the measures for improving nutrition, such as raising the general living standards of the country and producing an abundance of nutritious foods, are outside the realm of public health responsi- bilitr. Howvever, public health agencies bear the first responsibility for educating the general public regarding food requirements, caloric intake, etc. Recognizing the gravity of simple goiter, a widespread nutritional deficiency disease in Colombia, the Congress passed legislation in 1947 which directs that iodine be added to salt and authorizes an increase in the price of salt by one centavo per libre. The income from this tax, which wvas expected to gross about Ps.$2,000,000 per year. was to be used in part to defray the costs of iodization and in part to sup- port the work of the National Institute of Nutrition. At the time of  HEALTH AND WELFARE 501 the Mission's survey, however, the iodization program had not yet been started. Many factors contributed to the delay but it was re- ported that these had been resolved and that the program was to start not later than November 1949. Because this simple measure could be expected substantially to eliminate goiter, this program should be pursued vigorously. Moreover, the proceeds from the addi- tional tax on iodized salt should furnish needed funds for the National Institute of Nutrition to continue its research programs and expand its field services. Leprosy I.eprosy is important in Colombia not so much for its public health consequences but for the tremendous drain which it places on the health budget and the national economy. The present program is centered around segregation of infected individuals and separation of presumably well children from leprous parents; this procedure, how- ever, is only partially effective. Individuals with leprosy are granted a subsistence allowance of Ps.$1.10 per day. The Ministry operates three leprosaria which accommodate 6,555 patients and provide facili- ties for 1,570 well children of leprous parents. An attempt is now being made to redirect the program in order to give patients intensive treatment in their own communities rather than in institutions. This is a desirable trend and should be fostered both to improve care and to lessen costs. The w.hole leprosy program requires further study and reorien- tation. It is impossible to justify devoting approximately one-fourth of the national health budget to a single disease which constitutes but a small fraction of the total burden of illness. It is recommended there- fore that the funds appropriated for the leprosy control program be reduced to about half of their present total, or to about Ps.$2,400,000 by 1955. Health Education AWithout the cooperation and active support of the people, health programs can meet with only partial success. Public health agencies must use health education to increase public awareness, promote good habits of personal hygiene, and gain active public support of and pa.-- ticipation in the community's health programs. It is essential to break through the general apathy and ignorance which serve to retard all health programs. Health education is not only the best method of bringing people to seek diagnosis and treatment and of teaching preventive medicine, 502 TIIE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMIBIA it is also indispensable for gaining the support and cooperation of the people in developing, expanding, and financing health programs and facilities. For example, no programs of vaccination and immuniza- tion can be applied on a wide scale until the people are ready and wvill- ing to accept these programs. Improved nutritional status can come about only through public understanding of basic dietary needs and willingness to make important changes in diet habits. Public health agencies at all levels of government should therefore consider health education as one of their primary responsibilities. In the field of public health education, the aid of the Church and of the schools should be invoked. In many rural areas the priest is frequently the only person of influence with a good educational back- ground. Now that the Church is awakening to the possibilities in this field, it is to be hoped that more attention can be devoted in the curricula of seminaries and in special extension courses to a basic understanding of matters of personal hygiene, nutrition and the bear- ing of environmental factors on health. Such subjects should also, of course, be included in the training of school teachers. PUBLIC WELFARE AND BENEFICENCIA Because of the generally low economic level of the country, public wvelfare affects a large proportion of the people. In general, more measures are available for public wvelfare services, particularly medical and institutional care for the lowest income groups, than for preven- tive puiblic health services. The Beneficencias, which derive most of their funds from public lotteries and earmarked taxes, provide the framew-ork for most social service and public welfare programs. Wkhile most of the institutions for children and for the aged need improvemlent and expansion, the trend should be away from strictly institutional care. A constru-ctive, dynamic approach to the problem of social \velfare would envisage a field wvork program to complement the institutional program. Social welfare services should plan for an adequate program of home care and utilization of community re- sources. The advantages for children of a suitable family, rather than an institutional, environmenit are well knowvn to physicians and social workers. Althouih many Beneficencia workers are axvare of the desirability of placing children in a family environment, they are hampered by two serious obstacles: (1) the lack of social workers throughout the country to supervise such a program. and (2) difficulties in finding suitable homes for either adoption or boarding. One of the basic needs, therefore, is to recruit and train more social workers. This wvill  HEALTH AND WELFARE 503 require the establishment and expansion of training centers, the setting up of adequate standards for social workers, and increased employ- ment of social workers on Beneficencia and health center staffs. l.ike other health department personnel, social workers must receive ade- quate salaries and must be protected by tenure and merit systems. Pending the development of suitable home care programs, effort should be concentrated on more individualized attention and greater freedom for the development of personality. In working with children especially, much more should be done to increase the educational opportunities, particularly in vocational education. Besides insuring a decent minimum education for each child, such devices as scholar- ships, special stipends, etc., should be utilized to provide opportunities for higher education for promising youngsters. Various medical care schemes have been proposed in Colombia, including comprehensive health and welfare insurance systems. Since the majority of the people fall in the low income groups, it will con- tinue to be necessary for some time for Beneficencia to provide the bulk of individual and family medical care in Colombia. Because of the essentially rural character of the population and the generallv lowv economic level of the country, Beneficencia can more effectively reach the medical care needs of the majority of the people. This is especially true at the local level, where most Beneficencia programs are fairly wvell administered. The construction and staffing of an ade- quate number of health centers, such as has been proposed by the Ministry of Hygiene, should provide the physical facilities for the extension of preventive and medical care programs throughouit the country. SOCIAL SECURITY The new developments introduced by the social security legis- lation of 1946 raise important and difficult problems. What relative emphasis should be placed at this stage in the country's development upon a broad program of social insurance as against the extension and improvement of welfare services along the older lines? To what extent should the resources available for social services be directed ilnto hlealth measures, or to what extent should emphasis he placed upon a broad scheme of old age benefits? How desirable is it to finance these social services on a contributory basis rather than out of the general budget? How appropriate is the accumulation of an old age reserve fund in Colombia? The first issue that must be decided relates to the relative priority to be given to the various social services. In general, the lower a 504 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA country's standard of living, the greater the need for such services. Yet the size and comprehensiveness of the welfare program a country can afford to maintain is limited fundamentally by its income and living standards. Within the limits of the national economy, expendi- tures for social services must compete with requirements for con- sumer goods and for capital investment. The most effective wvay to improve the people's welfare is to raise their productivity and standards of living; but at the same time, social services are often badly needed both for the people's immediate welfare and as a means of increasing their productivity. The proper determination of priorities is therefore quite conipli- cated. But in our recommendations we have taken the general view that primary emphasis in the welfare program should be placed upon improvement of public health, especially through preventive medicine. We have laid less stress on social security measures because wve feel that this is the major field of social welfare in which Colombia has already gone the farthest. In fact, we have criticized some aspects of the social security program because it seemed to go too far. The emphasis placed in this Report on measures of preventive medicine is important in organizing and financing the entire program of social services, since preventive measures do not lend themselves to the insurance approach. These services accrue to the population in general in the form of impro-ved health rather than to an individual recipient of medical or custodial care. Thus it is evident that a vital and substantial part of the welfare program will have to remain out- side the insurance framework. In order to strengthen and expand the program of preventive medicine, the administrative machinery now provided through the Ministry of Hygiene must be relied upon, and financing clearly will have to be on a budgetary basis. There are serious questions, moreover, regarding the extent to which the contributory principle should be relied upon for the re- mainder of the program. While this principle was generally accepted in the earlier stages of social security development in Europe and the United States, there has been an increasing tendency to favor financ- ing out of the general budget. The argument in favor of the contribu- tory approach is that, by basing benefit payments on contributions, such benefits are made a matter of contract rather than charity. Thus some protection is given against political instability and social insur-  HEALTH AND WELFARE 505 ance is rendered more compatible with the philosophy of inidividu- alism. AWhile much may be said in favor of these considerations, one must not overlook the weaknesses of the contributory principle, espe- ciallv for an underdeveloped country like Colombia. As mentioned before, the primary need is for preventive health measures and these will necessarily remain outside the insurance system. Moreover, the need for wvelfare measures is greatest where poverty is most pro- nounced, and this frequenltly is in an area or among groups where benefits earned on a contributory basis wvould be small or non- existent. Even in the United States payments under the various aid programs conducted under the Social Security Act are more than twice the amount of contractual insurance payments. In an undeveloped countrv like Colombia, where poverty and regional inequalities are greater, this ratio is bound to be much higher. 'Whatever the merits of social insurance as an approach to welfare policy, the primary task of wvelfare policy in Colombia for some time to come will be in pro- viding relief to the most needy. This is a task wvhich by its very nature cannot be conducted on a contributory basis because it involves some degree of income redistribution. To accomplish this redistribu- tion a general budget must be drawn upon. Also, the contributory principle may at times conflict xith considerations of sound fiscal policy. If the program is to be financed to a large extent out of payroll taxes-taxes, that is, whiclh wvill fall largely upon the vvage earner and consumer-the reliance upon regressive taxation, and hence the tax burden upon consumption, is increased further. Also the administration of a contributory pro- grarn. especiallv an old age insurance scheme, involves complicated administrative requirements. The maintenance of records throughout the wvorking life of the covered population requires an elaborate ad- ministrative machinery. In view of the general shortage of competent accountanits and statisticians in the public service, it is very doubtful wlvether these requirements can be met for some time to come. Finally, there are serious doubts whether the accumulation of a large reserve fund, itself a direct consequence of the contributory principle, is desirable at this point. The theory underlying reserve accumulation is that such accumulation will permit financing of the program at a fairly constant rate of contributory taxation. Since premium payments xvill exceed benefit payments during the earlier decades of the scheme, a reserve will be accumulated, the income from 506 THE BASIS OF A DEVELOPMIENT PROGRAMI FOR OOLOMBIA Nvhich at a later date wvill add to the theln current tax receipts. This, of course, requires that the reserve fund be invested in assets which will yield income in the later years. These assets may be in the form of public debt purchased from other investors, or they may be in indus- trial securities. but unless assets are thus accumulated no later bene- fits wvill be derived from the reserve accumulation. Over the years the administration of the reserve fund will not be an easy matter, quite apart from the extreme difficulties involved in obtaining ade- quate actuarial forecasts because of the insufficient population data available. Finally, the very idea of a long-range social security pro- gram based upon the contributory principle and reserve accumulation requires that the purchasing poxver of the monetary unit be held stable, and this is by no means certain in Colombia. While time did not permit the Mission to study this difficult prob- lem in sufficient detail to arrive at specific conclusions, we feel that more thought should be given to the ways in which the future xvel- fare program may best be administered and financed. On the one hand, it is highly desirable that the xvelfare program be placed on as efficient and non-political a basis as possible; and from this point of viewr the establishmenit of the Social Security Board is all to the good. On the other hand, it is evident that a considerable part of the welfare program xvill have to be administered for some time through the Beneficencia. Not only will the Ministry of Hygiene have to administer the preventive health measures that we consider of primary importance in the -welfare program of the country, but beyond this it wvill undoubt- edly continue to have a large share in other programs. The insurance system itself will be expanded only slowly, and certain programs such as relief to low incomiie families and unemployment assistance are not to be included in the insurance scheme. It is important, therefore, that the development of the nexv program should not detract attention from improving the administrative efficiency and adequacy of the older channiels of administration. Beyond this it xvould seem desirable that within the insurance systenm greater reliance be placed upon the principle of budgetary, as against contributory, financin,-. HOSPITALS AND RELATED INSTITUTIONS The Ministry of Hygiene has put forward comprehensive estimates of requiremzents for general and allied hospitals, based on a proposed ratio of 5.3 becls per thousand population (see Table 56, Chapter IX). This would call for the construction of 37,654 additional beds, at an estimated total cost of Ps.$188,270,000. This ambitious hospital  HEALTH AND WELFARE 507 construction program, desirable as it may be in principle, raises certain practical problems and should be examined critically. The projected new hospitals wvill involve not only heavy construction costs, but also large continuing expenditures for maintenance, esti- mated at Ps.$888 per bed per year. The present budgets of the Ministry of Hygiene and the departmental health agencies are quite insufficient for adequate maintenance of even the existing facilities. Part of the funds proposed for the newv beds might more effectively be applied to extending disease prevention activities rather than to the construction of elaborate new facilities for treatment. A more desirable course might be to plan new general hospital construction at a ratio of 3 beds per thousand population for the entire country, with no individual department having less than 2 beds per thousand population. A suggested scheme of seven hospital service areas for the country, plus the bed requirements and construction costs in each, is shown in Table 145. In this system, seven cities-Bogota, Medellin, Cartagena, Cali. Barranquilla, Bucaramanga, and Pasto- would serve as hospital centers both for the departmelnts in wbich they are located and for adjacent departments which do not contain a hospital center. Each department should either be brought up to a level of two general hospital beds per thousand population by 1955 or retain the existing total, whichever is higher. The city designated as the center of a hospital service area would be allowed all the additional beds required to bring that area up to a level of 3 beds per thousand. This plan would result in a total requirement of 17,267 new general hospital beds by 1955, at a cost of Ps.$86,335,000. The construction costs of the 4,539 recommended additional tuber- culosis beds, referred to above, wvould amount to Ps.$13,617,000, as shown in Table 146. The recommendations for general hospital con- struction xvould allow the nation an 85 percent increase in such beds; a proportionate increase for the number of mental hospital beds is proposed. This wvould provide 3,213 new beds in this category, at an estimated cost of Ps.$9,639,000. Thus, the total capital requirement for the construction of general and specialized hospitals is estimated at Ps.$109,591,000. The estimated future annual maintenance cost for existing hospi- :als is Ps.$20,901,984. (See Table 146.) The newv construction recom- inueded would iiecesitate an additional annual outlay for maintenance ef about Ps.$21,073,370. Thus, the total annual maintenance costs of teneral and specialized hospitals are estimated at Ps.$41,975,354 by :955. TABLE 145. NUMBER OF BEDS AVAILABL.F IN 1948 AND NEEDED BY 1955 IN GENERAL ANND SPECIAL HOSPITALS Existiug genieral and Estimated genierial and special Estimnated t special hospital beds hospital hed requirenie2ts by 1955 Estimated Areas to le served population construction 5 by 1955 Per 1,000 Additional 4 costs hospital center (in thousands) Total population Total' beds needed (thousands) Colombia total . ... ... ........... ... 12,493 20,212 1.87 37,479 17,267 Ps.$8 6 ,3 3 5 Hospital service areas: I-Total .............. ....... .......................... ................... 5,608 2 ,432 7,296 1,688 8,440 Bogota ... . ............................................................... 1,003 5,015 Cundinamarca . ..... .. ............................. 1,615 4,659 3.28 4,659 0 0 Boyaca ... 817 949 1.21 1,634 685 3,425 II-Total . . . . . ......... 1,188 656 3,564 2,908 14,540 Cartagena 1,188 5,940 Bolivar ..... .... .................................. 1,188 656 .65 2,376 1,720 8,600 111-Total 1,000 957 3,000 2,043 10,215 Barranquilla .... .. . .......... ............. , 1.. I,000 5,000 Atlantico 481 461 1.21 962 501 2,505 M agdalena ........... ............ ............ ............. 519 496 1.13 1,038 542 2,710 IV-Total 2,331 2,815 6,993 4,178 20,890 C ali .. ............................ . ............ .......... 2,331 11,655 Valle del Cauca 1,236 1,436 1.54 2,472 1,036 5,180 Tolima ...... ................ 846 906 1.27 1,692 786 3,930 Huila ... ................................................................. 249 473 2.00 498 25 125 V-Total ............................ ..... ..... .. ......... 2,906 6,033 8,718 2,685 13,425 M edellin .... .. ....... ...........- 2,524 12,620 Antioquia ..... . 1,633 3,648 2.54 3,648 0 0 Caldas ..... ..... ........ .. ,. . . ] 1.,273 2.385 2.30 2,546 161 805 VI-Total 1,109 809 3,327 2,518 12,590 P a sto ..... ........... .. .......... .......... 1 1,1009 5,545 4............ 5................ Narifio 609 551 1.00 1,218 667 3,335 Cauca . ........................................ 500 258 .59 1,000 742 3,710 VII-Total 1,298 2,924 3,894 970 4,850 B ucaram anga ............... . ................. .. .................... 756 3,780 Santander 821 2,184 2.98 2,184 0 0 Norte de Santander 477 740 1.77 954 214 1,070 Total . .... ..................................... 299 410 598 188 940 Intendencies and Coisarias.. 273 1.47 Department del Choco .. _ 137 1.22 1 Estimates are adjusted totals based on data in Anuario Gcneral de Estadistica. Sum of estimates for departments, intendencias, and comisarias do not equal total for Colombia because of rounding of numbers. 2 See Table 56, Chapter IX. 3 Requiremenits were estinmated as follows: Hospital service areas were allowed 3 beds per 1,000 population. Each department, intenidelncia, andl 1 WIn -1re,latinn, or existinig total bed count, if that is higlher than estimate. .t-J.. t.l e,,e, 1 for the area and estimated require-  TABLE 146 NUMTBER OF BEI)S IN 1948 AND ESTIAIArb:D NUMBER NEEDED IN 1955 PY DESIGNATED TYPES (OF HOSPITALS Hospital beds Estimated costs for Available Estimated Additional Maintenance additional heds needed bedsl requirements 2 beds needed costs for Type of hospital 1948 1955 1955 existing beds3 Construction 4 Maintenance 3 Total ................... . 24,833 49,852 25,019 Ps.$20,901,984 Ps.$109,591,000 Ps.$21, 0 7 3 ,3 7 0 General ...... .................................. .... 20,212 37,479 17,267 17,984,256 86,335,000 15,333,096 Tuberculosis ....... .. . ...................... 860 5,399 4,539 727,216 13,617,000 3,838,178 Mental . .. . .......... 3,761 6,974 3.213 2,226,512 9,639,000 1,902,096 l See Table 56 for general hlospital bed total in 1948. See Table 57 for mental and tuberculosis hospital bed totals in 1948. 2 Hospital bed requirements were estimated as follows: Overall, Colombia was allowed 3 general hospital beds per 1,000 population in 1955. Tuberculosis bed requirements were obtained by allowing 1 bed per estimated tuberculosis death in 1955. Mental bed requirements were obtained by allowing same percentage increase (85 percent) in menital beds as was estimated for general beds. 3 Estimated future maintenance costs per bed are as follows: General beds-Ps.$888. Tuberculosis beds-Ps.$845.6. Mental beds-Ps.$592. 4 Estimated construction costs per bed are as follows: General beds-Ps.$5,000. Tuberculosis beds-Ps.$3,000. Mental beds-Ps.$3,000. 510 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA It has already been noted that some increase in Colombia's custodial institutions would be desirable. It was not possible to ascertain the number of individuals in custodial institutions other than mental, or Beneficencia expenditures for the support of individuals in these estab- lishments. Such data, however, are available for the department of Cundinamarca. (See Table 62, Chapter IX.) In Cundinamarca, there were approximately 300 persons per 100,000 population in the various custodial institutions, and about Ps.$500 were spent for maintenance per person per year. For lack of other data, estimates for the entire country in 1955 were based on these figures. For the various custodial institutions, other than insane asylums, the Beneficencia may have to provide for some 37,500 individuals at a cost per year of Ps.$18,750,000. Since most of the custodial institutions xvere overcrowded. replacement of some facilities and expansion of others may require as much as Ps.$14,377,000 for new construction by 1955. HEALTH CENTERS The health center movement in Colombia has had periods of growth and decline, but the Ministry of Hygiene is nowv proposing the estab- lishment of a comprehensive health center svstem as a framework for all public health programs. The Ministry is sponsoring a program for the extensive construction of health centers throughout the coun- try, which would combinc both public health and Beneficencia activi- ties. The capitals of departments and other municipalities of more than 50,000 population would be responsible for providing and main- taining health services, including satisfactory health centers, out of their own financial resources. There are 12 municipalities with popu- lations over 50,000. Construction of a large health center for each of these at a cost of Ps.$50,000 per center would entail an expenditure of Ps.$600,000 in all. -National assistance wvould be given, as funds become available, to provide municipalities with populations of 20,000 to 50,000 wvith "primary health centers" (Centros de Salud). Eventual construction of 146 of these primary centers is contemplated at an average cost of Ps.$40,000 each, and an overall total of Ps.S5,840,000. For munici- palities with less than 20,000 population, 648 "secondary health cen- ters" (Puestos de Salud) are proposed at an average construction cost of Ps.$23,600 each, or Ps.$15,292,800 in the aggregate. Thus, the capital requirements for all health centers would amount to Ps. $21,132,000. There are several problems which must be carefully considerec before such a program, however laudable its purposes, can b.  HEALTII AND WELFARE 511 launched. The first is the necessity for maintaining a distinction be- tween the primarily preventive public health activities and the essen- tially curative and custodial services. This does not prohibit both types of services from being administered by the same agency. In fact, at the local level particularly, it might be desirable to continue the existing organizational pattern for the near future. Fssential pre- ventive work should receive first priority wherever possible, but medical care and treatment might well be integrated into the program of the local health units. An even more serious question relates to the availability of an adequate number of competent professional personnel to staff the new hospitals and health centers, especially in outlying areas. The problem of staffing is already serious and a great expansion of existing facilities would greatly aggravate it. Recognizing the difficulty of obtaining sufficient professional personnel, especially physicians, to staff these facilities, the Ministry of Hygiene has proposed that medi- cal students, upon completion of their formal education, spend at least six months in areas determined by the Minister. This service, if performed satisfactorily, xvould be accepted in lieu of the presently required hospital internship. However, this type of indentured service has had a long history of failure in many places and it is unlikely that Colombia's experience xvill prove an exception. The methods of good personnel procedures already indicated will in time do far more to attract competent and qualified personnel than arbitrary assignments. In undertaking the construction of a great number of health centers, the Ministry of Hygiene must bear this in mind as wvell as other limitations. Moreover, the Colombian people must be awvare of the fact that immediate attention to the improvement of sanitary con- ditions and the training of qualified professional personnel can do | much to improve health, eveln ivithinl existing facilities and administra- tive framework. However, since the proposed health centers would provide the physical facilities for the operation of preventive public health and medical care programs, it is recomlmienided that these centers be constructed substantially as planned by the Ministry of Hygiene. The suggested staffing requirements and salary expendi- tures for such personnel are indicated in Table 147. It is recognized Lhat the application of the ratios suggested in this table would mean :he public employment, at least on a part-time basis, of the great -najority of Colombia's medical and allied personnel, particularly Thysicians. However, since most of the physicians in Colombia de- vote at least part of their time to public medical care at the present hime, this kind of arrangement wvould not disrupt existing patterns. 512 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA TABLE 147 ESTIMATED NUMBER OF REQUIRED PUBLIC HEALTH AND BENEFICENCIA PERSONNEL AND ESTIMATED ANNUAL EXPENDITURES FOR SALARIES BY 1955 Estimated Estimated number total of personnel expenditures required, 19551 for salaries 2 TOTAL. . . 20,410 Ps.$6 7 ,455,00 0 Physicians . . . 2,750 18,000,000 Physicians (full-time). . .... 250 3,000,000 Clinic physicians (part-time). 2,500 15,000,000 Dentists .... .... .................... 870 8... 3,732,000 Dentists (part-time) .... 250 1,500,000 Dental assistants . ..... .. ... 620 2,232,000 Nurses .... 6,250 22,575,000 Supervisors ........ ..... 500 2,700,000 Health visitors 2,000 6,000,000 General nurses for clinics 625 2,625,000 Assistant nurses for clinics 625 2,250,000 Nurse mid-wives 2,500 9,000,000 Sanitarians .... 840 3,276,000 Engineers and biologists . . ... 140 1,176,000 Inspectors . . . 700 2,100,000 Laborers and custodial workers 7,000 8,400,000 Laboratory technicians . 620 2,232,000 Clerks . . . 830 2,490,000 Social workers . 1,250 6,750,000 I The estimated n.umber of designated personnel needed were based on the following ratios (estimates were rounded for this table): 1 public health physician per 50,000 persons I part-time clinic physician per 5,000 persons I part-time dentist per 50,000 persons I dental assistant per 20,000 persons I public health nurse per 5,000 persons 1 supervisory nurse for 4 health visitors I general clinic nurse per 20,000 persons I auxiliary clinic nurse per 20,000 personis I social worker per 10,000 persons I nurse mid-wife per 5,000 persons 1 sanitarian per 15.000 persons I engineer for 5 inspectors I inspector for 10 laborers and custodial \vorkers 1 laboratory technician per 20,000 persons 1 clerk per 15,000 persons 2 Salaries for public health personnel were based on existing salary levels (see Tables 60 and 61, Chapter IX). Based on the salaries for public health and Beneficencia personnel shown in Tables 60 and 61 of Chapter IX, this would require an annual expenditure, including both health and Beneficencia functions at all levels, totaling about Ps.$85 million, of xvhich some Ps.$67.5  HEALTH AND WELFARE 513 million wvould be for salaries. Present expenditures are at least Ps.$50 million, so the net increase would be Ps.$35 million or less. Obviously the full burden of providing funds for health work cannot rest on the municipalities; many have neither the population nor the financial resources to support even minimum healtlh services. Nevertheless, most of the services must be provided at the source nearest to the people who will use and benefit from them. Thus, while the direct services should be provided by the municipalities, all levels of government must share in their support. The proportions furnished by the national and departmental governments will, of course, vary with the resources and needs of the localities involved. ESTIMATED COST OF PROGRAM The estimated cost for provision of the various Beneficencia and public health services (less construction costs) will amount to Ps.$164,307,854 per year distributed as follows: Health centers .Ps.$101,182,500 Custodial institutions 18,750,000 All hospitals .. 41,975,354 Leprosy program .. .. 2,400,000 7 TOTAL .Ps.$164,30 ,854 Expenditures for recommended construction will total Ps.$145 ,- 100,000 in the next five years. The amounts needed for the various types of structures are as follows: Health centers .. .... Ps.$ 21,132,000 Custodial institutions . . . .. 14,377,000 All hospitals 109,591,000 TOTAL . ..... Ps.$145,100,000 Of this total about Ps.$116.1 million cover domestic labor and material costs and Ps.$29 million represent needed foreign exchange expendi- tures. To this latter figure should be added about Ps.$9.7 million to cover payments for trade and transport of imported equipment and other contingencies. Capital expenditures for construction of hospitals and related institutions would thus total about Ps.$154.8 million for the five-year period, or about Ps.$30.96 million per year.  CHAPTER XXIII Electric Power and Community Facilities The difference in living standards between the most and the least developed countries can be measured largely in terms of their com- munity facilities-electric power, sanitary services, health and educa- tional facilities, and the like. The availability of these facilities has a major bearing not only on the comfort and convenience of personal life, but also on the possibilities for industrial development, the efficiency of labor, and the general rate of scientific, technical and social advance. By and large, the more economic progress a country *or community has made, the more recognition is given to the need to develop these services as the basis for further progress. The need for large investments in these fields in Colombia has been indicated by the description of their present state of development in Chapters VI and X. An attempt is made in this chapter to suggest the overall order of magnitude of capital requirements for various types of community facilities, and general areas of priority for in- vestment. ELECTRIC POWER Electric powver is perhaps the most important single element in modern economic development. It provides the principal motive force for industry, lighting for homes and factories, energy for cooking and refrigeration, irrigation pumps and urban water systems, and oppor- tunities for mass education and recreation through moving pictures and radio. Power development is thus the essential foundation and stimulus for development in a wide variety of other fields. Its benefits are by no means confined to large urban concentrations. Because electricity is so flexible and easy to transmit over considerable dis- tances it can serve small decentralized plants equally wvell as big industries, farms as xwell as factories. It can greatly increase the efficiency and diversity of rural and small-town economies and the attractiveness of rural life. Thus it is a major factor in accelerating the development of what are normally the least advanced sectors of the national economy. In estimating requirements and developing plans for expansion of poxver facilities, it is necessary to take account of the demand for a wide variety of uses-industry, handicrafts, street lighting, transpor- 514  ELECTRIC POWER AND COMMNIUNITY FACILITIES 515 tation (streetcars and trolley buses), commercial lighting and ad- vertising, houselhold lighting, cooking and refrigeration, and so on. The maximum requirement for generating capacity is determined mainly by the size of the residential and commercial demand at the evening peak, with industrial requirements at the peak period consti- tuting a relatively small increment. For efficient and economical power operations, however, it is important to build up off-peak con- sumptioni for industrial and transport purposes and for household uses other than lighting and cooking. We have estimated previously 1 that the nationwide consumption of power in Colombia has increased at an average rate of about 9 per- cent annually over the past decade, but that during the five years since the end of the war the rate of growvth was 12 percent. The ex- pansion in overall demand will probably revert to a more n-ormal rate in the next few years but, in view of existinig shortages in generating capacity and the key role played by electric power in development, we believe it is advisable to plan for expansion of power facilities at roughly the rate of consum11ptioni growth in the last five years-i.e., 12 percent per year. This wvould call for an increase in installed capacity over the five- year period from about 270,000 kw. to 475,000 kwv. 3Most of the new facilities wvould probably be hydroelectric. In view of the long time required for design and construction of powver facilities, particularly hydlroelectric units, it is important that this aspect of the program be pushed forward as rapidly as possible. We estimate the cost of such a program, including all necessary transmission and distribution facilities, as follows: Imported equipment Ps.$106.4 million Trade and transport .. 36.1 Local material . 30.4 Trade and transport 7.6 7 TOTAL EQUIPM\rENT AND MIATERIAL . 180.5 Labor 74.1 GRAND TOTAL .Ps.$254.6 Of the total, perhaps the equivalent of U.S.$50.5 million, or Ps.$101 million, ivould be foreign exchange. Substantial investnmenits have already been made in the partially completed projects listed in Chapter X. Hoivever, some of the outworn or uneconomic plants nowv in use badly need replacement. Thus, Wve believe the estimated requirement Df Ps.$255 million is not excessive. I See Clhapters VI and X. 516 THE BASIS OF A DEVELOPMIENT PROGRAM FOR COLOMBIA Expansion of this magnitude would make available generating capacity about 75 percent greater than at present, and perhaps 140 percent greater than that available in 1944-45. If the off-peak con- sumption can be built up sufficientlv to maintain an overall load factor of 50 percent, this capacity would permit the production of over 2 billion kwh. per year, or 3.4 times the 1944-45 total, and nearly twice the present estimated consumption (Table 148). TABLE 148 PROJECTION OF ELECTRIC POWER CONSUMIPTION, 1950-55 1944/45 1950 1955 (million kwh.) Industrial (Census).134 Otlher 1 . 26 3053 Household and Commercial .376 700 1275 TOTAL PUBLIC SERVICE . . . 536 1000 1812 Factory-produced .. 68 126 268 GRAND TOTAL . 604 1126 2080 I Consumption by small industrial establishments was not covered by the census. As has been indicated previously, it is impossible to drawv a clear line between the requiremenits of generating capacity to serve indus- try and those needed for the various other types of consumption. The proportions of the total power output required for those different purposes vary widely with the population and character of the com- munity served; their periods of maximum demand arle not identical and accordingly their peak requirements may be overlapping or cuIIIu- lative. By adjusting rates and other incentives, it may be possible to secure a better balanced consumption pattern. Nonetheless it may be useful to try to project the overall requirements in Colombia for industrial and non-industrial power, respectively, to assure that the expansion indicated above wvill be in line with other aspects of the proposed development program. Industrial Demand We have estimated that there are about 170,000 workers currently engaged in industrial production; that they are aided by mechanical  ELECTRIC POWER AND COMMMUNITY FACILITIES 517 equipment amounting to about 1.5 h.p. per worker; that three-fourths of this equipment uses electric power and, on the average, is used about 35 percent of the time. The objectives of the development pro- gram call for a considerable expansion in the number of industrial workers and the amount of equipment, and for an improvement in the proportion of the time that it is used, to obtain the desired increase in industrial productivity. Our estimates of trends in power availability and use for indus- trial purposes are shown in Table 149. According to these estimates the total horsepower capacity of non-generating machines of all types increased by nearly 80 percent between 1944-45 and 1950, and the co- efficient of utilization climbed from 0.28 to 0.35. As was pointed out in Chapter VI, this progress is largely a reflection of the postwar boom. While the projected industrial expansion over the next five years will involve a further sizable addition of machinery, 2 it is doubt- ful that increases in their capacity and utilization coefficient can take place at a rate matching that of 1945-50. While 1945 was a year of relatively low economic activity, 1950 represents the peak of the postwar expansion. And while the increase of machine capacity in the past five years took place in existing industry, already staffed with trained managers and workmen, the future increase will occur mainly in new industries, where staff and workers will have to be progres- sively trained in the use of the equipment. For these reasons, power availability in 1955 as projected in Table 149 seems realistic. It posits an increase in average use of equipment from 35 to 40 percent of maximum, in horsepower per worker from 1.5 to 1.8, and in electrical energy per worker/year from 2,500 to 3,500 kwh. On these assumptions industrial powver requirements wotuld amount to 805 million kwh. per year. This would be about 39 percent of the potential power output of 2,080 million kwh., if the expansion recommended above is carried out, as against 38 percent of total power output estimated as used in industry in 1944-45 and 1950. In view of the relatively light off-peak loads presently carried by most Colombian power systems, this slight increase in the proportion of industrial consumption would be easily manageable. While the in- crease in two- and three-shift operations, wvhich should be encouraged, may increase the industrial demand in peak as well as off-peak periods to some extent, it xvill usually be possible to schedule operations so as to avoid the hours of heaviest power use. 2 In speaking of machinery we mean to include equipment for electrothermal and electrochemical processes, wlhiclh are likely to increase greatly in importance as users of power.  TABLE 149 PROJECTED PowI.R AVAILABILITY FOR INDUSTRIAL PURPOSES, 1955 Illdustrial Consunip- tion of Maxinmum Capacity of Total H.P. Electric Load per Electrical Capacity 2 Power Machine Equipment of all Number Kwh. per (million (kwh. Utilization Available Equivalent Machines of H.P. per Worker kwh.) per yr.) Coefficient 3 (kw.) in H.P.4 Available 5 Workers 6 Worker per yr. 20 2 8760 0 .28 8 0 ,0 0 0 1 09 ,0 0 0 14 3 ,0 00 1 15 ,0 0 0 1 .2 5 1 ,74 0 Ind(utstries shown in 1I44/45 censusl All industries, estimatedl for 1950 426 8760 0.35 140,000 192,375 256,500 171,000 1.5 2,500 Modlel projected for 1955 .805 8760 0.40 230,000 310,000 412,000 230,000 1.8 3,500 I About 80 perccnt of all industrial production. 2 24 kwh. per day multiplied by 365 days. 3 Kwh. consumed divided by kw. capacity divided by 8760. 4 1 h.p.=0.74 kw. 5 Assuming that electrical equipmiient represents three-fourths of all mechaniical cquipment. 6 Knowni for 1944/45; estimated 1950; assumed 1955.  ELECTRIC POWER AND COMMUNITY FACILITIES 519 Non-Industrial Demand The use of electricity for purposes other than lighting is still very limited. The possibilities for expansion and diversification of household and commercial consumption of power are enormous; and as living standards rise the market for electricity for such purposes as cooking, water heating, refrigeration, air conditioning, urban transportation, wvater pumping, and many others is certain to develop very rapidly if proper encouragement is given. A more varied con- sumption pattern of this kind would help to even out load curves and promote mor-e efficient and lower cost operation of generating facilities. In fact, however, potential requirements for even the simplest kind of household uses are sufficient in themselves to justify the proposed program of electrical developmnent. The most common domestic fuels in Colombia are wood and charcoal. Such alternatives as coal and bottled gas are not widely used, because of their high cost and the difficulties of distribution in many areas. As a result of overcutting, forests in populated districts have been seriously depleted and the cost of wvood has risen sharply. The average urban household in 1948 spent about Ps.$15 monthly for fuel and Ps.$3 more for light.3 Electricity would in general be both cheaper and more convenient.4 As an indication- of the increase in availability of electricity for household use, if the recommended increase in power facilities were carried out, it may be pointed out that this program wvould give an average of 108 watts of generating capacity per capita for the pro- jected urban populations of conmmnunities of over 2000 population, as against their present average of about 60 avatts per capita. 5 The non-residential load at peak periods is relatively small except in the largest towvns. This would niake available an average of about 600 watts for each household-enough, say, for lights and a small cooking plate. Clearly this is no more than a minimum standard, but it is nmuch above wvhat prevails at present. 3 National Institute of 'Water Utilization and Electrical Developme-nt, Ioforme Genteral Sobre Electrificacid6 y Irrigacidn del Pais, p. 15. 4 In Medellifn, where per capita generatinig capacity is greatest, there are some 18,000 electric ranges, which indicates that perhaps one-half of the urban households of that city cook by electricity. 5 See Table 65, Chapter X \Ve recognize that this is only a theoretical calculation. since the distribution of power facilities will inevitably be quite uneven and they will not be wholly (although they will be largely) limited to urban districts. It is cited only for purposes of general comparison. 520 THE BASIS OF A DEVELOP-MENT PROGRAM FOR COLOMBIA Character and Location of Facilities The principal urban districts, such as those around Medellin, Barranquilla, Bogota. Cali and l\Ianizales, are already better equipped with generating facilities than most of the rest of the country. In spite of this fact these cities and the immediately surrounding areas should be assigned a high priority in the development of new power projects. There are several reasons for this. First, these localities offer established markets that can quickly absorb a large additional supply of power. Second, the necessary distribution systems are more concentrated, and many are already in place, and this reduces both the time and the capital required to develop an efficient power operation. Third, these cities xvill be the centers of the most rapid commercial and industrial expansion, in which power will necessarily play an important part; and the accompanying rise in their population and production will stimulate an increasing demand for powver. For similar reasons, certain other cities, which offer substantial industrial potentialities but have very limited power supply at present, should be included in the initial program of powver development. Examples are Cartagena, Bucaramanga, Cucuta, and Popayan. It is not our intention to suggest that power development be restricted to large urban centers. The distribution of electricity should branch out progressively from these established markets into the surrounding rural districts. Such expansion into areas of lighter demand and more expensive distribution can be undertaken at reason- able cost, however, only if the larger, more secure and better balanced markets are adequately developed. In certain agricultural districts, where we recommend a rapid expansion in the output of such valuable crops as rice, cotton, oil seeds and sugar, xve believe power develop- ment should be especially promoted in order to facilitate irrigation, farm mechanization and the growth of agricultural demonstration, processing and trading centers. The regions we consider particularly important in this respect are the upper Mlagdalena Valley betwveen Girardot and La Dorada, the Cauca Valley north of Cali, and the Sinu Valley. Present Colombian power systems are local in character, serving only a small number of towns in a limited area. The development of large hydroelectric "centrales" permits economic distribution of power to somewhat more extensive regional networks. Eventually it will be desirable to create power grids interconnecting the major generat- ing and distribution systems over a wide area, perhaps on a national scale. The advantages of a national grid, for efficient and flexible transmission of large blocks of power from major hydroelectric proj-  ELECTRIC POWER AND COMMUNITY FACILITIES 521 ects, are obvious. But the volume of power production is not yet sufficient, and generating costs are not yet low enough, to justify such a scheme; its practical realization is still several years distant. We recommend, however, that the National Institute of Water Utili- zation and Electrical Development undertake the planning of regional grids, with a view to their eventual interconnection into a national system, as an important part of its overall analysis and planning work. Most important power installations in Colombia in recent years have been hydraulic units, and the Institute of Water Utilization tends to stress development along these lines-perhaps naturally in view of Colombia's great hydroelectric potentialities and the Institute's own terms of reference. Nevertheless, it may well be desirable to give greater emphasis to thermal plants in the further expansion of capacity in certain areas--e.g., BogotA, Cali, and the Atlantic Coast region. Thermal units usuall} require a lowver unit investment than hydroelectric plants; they afford a firmer power supply, since they are not affected by dry seasons or droughts; and while their operating costs are higher, they may be financially advantageous if cheap fuel is available. Frequently a combination of thermal and hydraulic installations would make for the most flexible arrangement, as well as the lowest capital cost per KVA. Planning and Administration of Electric Power Programs The National Government has assumed the responsibility, through the Institute of WN7ater Utilization, for planninig and promoting electric power development on a national scale. However, the Institute is relatively new and its plans are still quite general. We recommend that it be provided with adequate funds and staff to perform the following functions: (1) obtain accurate flow data on potential sources of hydroelectric powver; (2) make surveys, or collate the surveys made by individual power companies, of present and prospective demand for power in the principal regions of Colombia; (3) develop a com- prehensive program and priorities for construction of generating facilities to meet the anticipated rising demand; (4) develop practical plans for interconnecting the major sources and markets for power, as rapidly as is economically feasible, with the eventual goal of establishing a national grid; (5) plan efficient and flexible combina- tions of thermal and hydraulic plants to meet the conditions and needs of the major power markets; (6) work out sound and realistic esti- mates and plans for financing power projects, and establish standard accounting and financial control systems; (7) review project designs and construction plans well in advance of material procurement to 522 TIIE BASIS OF A DEVELOPMIENT PROGRAM FOR COLOTMBIA assure that all fundamentals, such as foundatioln, geological faults, stream flowv, etc., are adequately checked and that designts and specifica- tions are suitable and arrangements for procurement and construction are properly handled: and (8) exercise general supervision over the construction and operation of projects to wvhich the National Govern- ment makes financial contributioln. In the past, power enterprises in Colombia, whether privately or municipally owvned, have generally been local in scope and under local administratioln. AMuch of the financing required to establish them, howvever, has come from outside sources-principally from foreign investment in private facilities or National Government aid to munici- pal enterprises-and in recent years the size of the initial investmelnts required has even more frequently exceeded the means available to local enterprise. To meet this sittuation the Government has established a pattern of "centrales" of mixed ovnership (usually shared by the natiolnal. departmental and municipal governments) to generate power on an adequate scale and to transmit and sell it to local utilitv coinDanies. In some cases the "central" takes over the local distributing company, wvith wvhatever generating facilities it may have, as vell. This seems to be a useful, practical administrative device for developing generating facilities on a nationwide scale while retaining decentralized admillistrationi and permitting flexible financ- ing and businesslike managenmelnt. As yet, however, the Institute of Water Utilization, xvhich is assigaled the principal role iln this pro- gram, is not adequately financed or staffed to carry out its broad responsibilities. Important problems of local administration also remain. It seems appropriate and desirable to raise locally a part of the capital needed to build adequate power facilities for the locality involved. But the extreme difficulty of obtaining payment of the portion of the "centrales" capital subscribed by the municipalities-even in the most prosperous regions-has been a major stumbling block to com- pletion of several important power projects. In view' of the tremen- dous importance of power development, the primary beneficiaries of such developmiient should be wvilling to make extraordinary efforts, if necessary, to fulfill their part of the obligation. Another problem is that of rates for power consumptioni. They are norInally set at the muniicipal level, subject to review by the Ministry of Industry and Commerce. As has been pointed out pre- viously, the character of the rate structure has an important bearing¢ on the efficiency and economy of the power system; the rates in many localities should be reviewed from this standpoint. MIore compre-  ELECTRIC POWER AND COMMUNITY FACILITIES 523 hensive attention is given to the problems of utility rate regulation in a subsequent part of this chapter. OTHER FACILITIES Water Supply and Sewerage Every community wlhich now lacks a pure and adequate source of water and sanitary means of \vaste disposal should be provided with at least mininmum facilities to satisfy three criteria: (a) elimination of substantial health hazards, (b) convenience to the public at least on a par with facilities presently available, and (c) ease of main- tenance. Also. existing systems in those cities wvhose growvth has far outrun their present facilities should be improved. WUater. Minimum requirenments can probably be satisfed for m1ost smiall communities (perhaps up to 5,000 population) by the provisioln of a number of outside taps at convenienit intervals throuhla the towln. For householders wvho desire runnin1g wvater inside the house, individual connections to the community pipe could be made at the expense of the property-owner. It is estimated that a simple system1 of this kind-including necessary well-digging, pumps, pipes, slow sand filters, etc.-wvould cost not more than Ps.$4 to U's.$8 per head of population. About 75 percent of this cost Would be for im- ported equipment (mostly pipe and pumps) and would require for- eign exchange; a large part of the remainder wvould be itn the forni of local labor. Larger towns and cities reqtuire a more elaborate system because a more ample source of supply is necessary, the wvater has to be car- ried or pumped over longer distances, a larger volume of wvater has to be treated, and the proportion of individual house conlnections is usually greater. The -Ministry of Hygiene estimates average costs- including the distribution netwvork wvithin the town and settling and chlorination facilities-at Ps.$400,000 for towvns of 10,000-20.000 popu- lation and Ps.$220,000 for towns of 5,000-10,000. On the basis of these costs and the data in Table 67, Chapter X, the following rough estimates of requirements for new or expanded wvater facilities in the next five years are suggested: 1. For the 10 cities of over 10,000 population which still will not have any modern wvater supply wvhen the 1950 conStruction pro- gram is finished, an average of Ps.$400,000 each, or a total of Ps.$4,000,000, about 70 percent in foreign exchange. 2. For the 46 towvns of 5,000-10,000 population, which are similarly vithout n-iodern facilities, an average of Ps.$220,000, or a total of Ps.$10,000,000, abouit 70 percent foreign exchange. 524 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA 3. For about 100 towns in the 2,000-5,000 group, with average population slightly over 3,700 (Table 64, Chapter X)-at Ps.$6 per capita, a minimum water system would cost perhaps Ps.S22,000 for each community, plus an additional Ps.$3,000 for some individual con- nections. The total requirement for 100 communities would be Ps.S2,500,000, about 75 percent foreign exchange. 4. For municipalities which are wholly rural or have nuclei of less than 2,000 population, it is difficult to make even a rough estimate. Their total estimated population is 3,358,000 (Table 64, Chapter X); if 20 percent (670,000 people) live in clusters large enough to justify a community wvater system, at Ps.$6 per capita such systems, allowing for some individual connections, would cost about Ps.$4,000,000 or Ps.$4,500,000, 75 percent of which woould be in foreign exchange. 5. For necessary expansion and purification facilities for locali- ties wvhich already have some xvater supply systems, only a guess is possible. There is no uniformity in the kinds of improvement re- quired. Bogota and Medellin need principally a supplementary flow of water in dry seasons and Bogota, an expansion of the distribution system; Barranquilla needs larger pumping and purification facilities and extension of the distribution network; Armenia, a purification plant. Each of these facilities must normally be tailor-made to fit into the existing systems. On the basis of general plans and rough cost estimates prepared so far by various cities, a sum of Ps.$50 mil- lion is tentatively suggested ; about one-third xvould be for filtration plants, rvhich need a smaller proportion of imported materials than condLuction and distribution facilities, so the foreign exchange require- ment is estimated at 50 percent. The total investment indicated for the next five years is about Ps.$71 million, or Ps.$97 million if the amounts budgeted for the ctirrent year are added. About 55 percent of the former figure \vould involve foreign exchange expenditures. The largest share of the total expenditure \vould be for facilities in large cities, wrhich need elaborate water supplies and can best afford to bear the burden of their financing and maintenance. No information is available as to the need for better wvater supplies for individual households in rural districts, but unquestionably a large proportion of the wells, springs and streams upon which they nowv rely are polluted or otherwise unsatisfactory. 'While the efforts and investmnents of individuals, rather than communities, must be the main reliance for improving private wvater supplies, the elimination of this health hazard is clearly a matter of public concern. The cost of building a satisfactory xvell is normally quite small-the principal  ELECTRIC POWER AND COIMMU NITY FACILITIES 525 requirement is labor, which would generally be furnished by the property-owner himself, or by his family, his neigahbors or his regu- lar farm workers-but considerable education by public agencies as to the importance of a satisfactory water source, and some simple technical aid, will be necessary. The Ministry of Hygiene should give active encouragement and assistance, through its local offices, to rural property owners in the improvement of their water supplies. Sewer Svstenzs. The building of sewers seems even more dubious than elaborate water supply systems for towns of small size. Certainly they would not be justified for localities which do not have com- munity water systems and substantial numbers of houses with interior plumbing. For most small towns, privies will normally be satisfactory and are less expensive and easier to maintain. A standard sanitary privy, designed by the Ministry of Hygiene and simple enough to be built by an individual out of local materials, costs about Ps.$50; assu-ming six persons per household, that is Ps.$8.3 per capita. The relatively small percentage of houses wvith modern plumbing could be served adequately by individual septic tanks until their number is sufficient to justify the building of a sewer. In making such a determination the special circumstances of each town must be con- sidered, but it is suggested for purposes of the present calculation that a public sewer system wvill not generally be necessary for towns of less than 20,000 population. Sewers serving small portions of such towns-business areas and wealthier residential districts-mav be economically justified. In such cases, the property-owners directly concerned should be prepared to finance such partial systems throu-h special assessments. The partial system could eventually form part of a general sewer system, as rising incomes and wider use of interior plumbing make it necessary. Four cities of over 20,000 population have no public sewer facili- ties, nor any definite prospects of obtaining them, and in numnerous others the sewer systems are limited in scope and inadequate from a sanitary standpoint. To correct these deficiencies, at least for the most built-up areas in these cities, it is estimated that an expenditure of Ps.$20 million will be necessary, perhaps 10 percent in foreign exchange. About half the towns from 5,000 to 20,000 population will still be without sewer facilities after completion of the.current construction program. About 120 of the towns in the 2,000-5,000 class and 360 villages and rural communities under 2,000 population will also lack such facilities. Assuming that the size of the towns is in each case 526 THE BASIS OF A DEVELOPMENT PROGRANI FOR COLOMBIA the average for their class shown in Table 64 of Chapter X, their total population in 1950 wvould be about 960,000, and the rural population about 7.2 million. For these areas an intensive program of privy construction seems the most practical approach. At an average of Ps.$8.3 per head of population, adequate privy facilities could be provided throughout the country at a cost of some Ps.$78 million; substantially all of this xvould be local currency. Assuming that half this program could be completed over the next five years, the require- ment for this period would be Ps.$39 million. As urban growAlth and industrialization continue in Colombia, the problem of stream pollution will become increasingly serious unless measures are taken to meet it. There are no sewage treatment plants in Colombia at present, and none are being built in connection xvith the sewer construction program now under way. It would be pos- sible, however, to provide settling and lagooning facilities adequate to eliminate the major pollution hazard at very lO\v cost in most localities-estimated at only 20 centavos per head of population- or not more than Ps.$l million in all. In numerous localities surface drainage is unsatisfactory and street sewers are needed. The provision of such facilities is closely tied in with street paving and cleaning, and with the construction or reconstruction of sanitary sewers, whiclh in many places are now combined wvith the street drains. It is estimated that Ps.$10 million wvill be needed for this purpose over the next five years. In summary, therefore, requirements for sewer and privy facilities for the next five years are estimated as follows: For construction and extension of sewers in larger urban centers Ps.$20 million For construction of privies . .39 For treatment facilities . .. .. 1 I For street servers .. ... 10 Ps.$70 miillioln Perhaps the equivalent of Ps.$3 million of this sum wvould have to be in foreign exchange. Telephones Taking into account the strong demand for extension of telephone service in urban areas described in Chapter X, the plans of the exist- ing telephone companiies for such expansion, the need for replacement of outwvorn or outmoded equipmelnt in some localities and the possible establishment of telephone systems in some cities xvhich now lack  ELECTRIC POWER AND CO-MMTUNITY FACILITIES 527 them entirely, it does not seem unreasonable to anticipate a doubling of telephone facilities in Colombia during the next five years--i.e., an increase of about 70,000 connections. The average cost is estimated at about U.S.$350 per line-U.S.$24,500,000, or about Ps.$48 million in all-of wvhich about U.S.$21 million would be foreign exchange. Schools, Hospitals and Related Facilities Capital requirements in these fields are shown in Chapters XXV and XXII respectively. Public Markets and Slaughterhouses Development toward more economical and less wvasteful systems of food-processing and distribution should be encouraged, and any important new investmelnts in markec and slaughterhouse facilities should be consistent with such a development. Thus, it is suggested that public capital outlays for such facilities should be confined, in general, to the following: 1. Rehabilitation and improvement of existing public markets and slaughterhouses to the extent required on sanitary grounds-e.g., pav- ing, screening, provision of adequate water supply, etc. 2. Improved refrigeration and cold storage facilities for meat and other perishable foods. 3. Construction of new wholesale markets where necessary. 4. Expansion of existing markets and slaughterhoouses as may be required to meet short-term needs. In this connection it is worth noting that some shorta-e of market space and increase in its cost, should help to promote a desirable shift in the pattern of food distri- bution-by strengthening the position of more efficient retailers and encouraging the decentralization of retail meat and produce shops. At the same time, the income to the city from rental charges could be increased; and when the existing public markets are finally abandoned. their central location should make it possible for the municipalities to sell them for other purposes at a substantial profit. It is estimated that these requirements can be met with expendi- tures of perhaps Ps.$30 to Ps.$40 million for actual physical invest- ments. apart from the cost of land, over the next five years. About one-fifth of the financial requirements wrould be for foreign exchange for the purchase of wvater pipes and lighting, refrigeration, and han- dling equipment. 528 THE BASIS OF A DEVELOPAMENT PROGRAM FOR COLOMlBIA Street Paving, Cleaning, and Waste Collection The informiiation available as to the needs of Colombian munici- palities for investment in street paving and cleaning, waste collection and the like is very inadequate. The seven cities listed in Table 70 of Chapter X, however, plan expenditures of some Ps.$38 million for street paving and nearly U.S.$800,000 (all in foreign exchange) for street cleaning and Avaste collection equipment. On the basis of this and other fragmentary information the Mission has been able to obtain, it is estimated that aggregate capital requirements over the next five years might amount to Ps.$50 million (substantially all in local currency) for street paving, and the foreign exchange equiva- lent of about Ps.$3 million for street cleaning and waste disposal equipment. It is worth notinig that the methods used b Barranquilla in per- forming these functions differ from those of most other Colombian cities in twvo respects. The first is its use of concrete for most street paving. The initial cost of such paving is about three to four times that of asphalt, buLt for streets which carry heavy traffic the superior surface and low\ maintenance cost of concrete paving usually more than justify the outlay. Moreover, the high cost of concrete has been due partly to a shortage in the domestic supply of cement, which is nowv overcome. It is believed, therefore, that concrete paving xvould be worthy of more general consideration. Barranquilla is also the only city to use a large-scale sanitary fill for garbage and waste dis- posal. This accounts partly for the greater use of mechanical equip- ment in its \vaste collection activities. WVhere nearby locations suit- able for landfills exist, this method of waste disposal is likely to be the most sanitary and economical. The capital outlay for equipment wvould normally be fully justified by increased efficiency and by the eventual value of the land improvement. Practically no cities or toxvns in Colombia have comprehensive municipal plans. Zoning regulations are rudimentary and poorly en- forced. W"here the city is growing rapidly, this is likely to lead not only to unsightly or unhealthy conditions, but also to \vasteful invest- ment in public services. For example, there are cases where wvater distribution systems have had to be extensively replaced because induistries requiring an exceptionally large volume of wvater xvere built in districts expected to be residential. Proper planning wvould make it easier to anticipate and to guide the character of urban development. It would also permit better control of speculative sub- divisions, which are ofteln developed without proper sanitary or other services and soon become an eyesore and a burden on the municipality.  ELECTRIC POWER AND COMIMUNITY FACILITIES 529 UTILITY RATES Utility enterprises, whether they are publicly or privately owned, should be financially self-sustaining and should have adequate and stable operating revenues. A sound rate structure is, therefore, of crucial importance to the continuing development of power, water and telephone systems. In this regard, the analysis of power and water rates in Chapter X suggests the following general courses of action: 1. The consumption of electricity and water should be mnetered insofar as practicable; efforts of utility companies to obtain additional meters should be given full support by the National Government's exchange control authorities. 2. Uniform general principles for fixing and changing utility rates should be developed as rapidly as possible by the National Govern- ment, in cooperation with local authorities and qualified technical experts. Actual rates will, of course, vary in response to local con- ditions and needs, but it is desirable that there be a consistent general pattern of rates upon which utility managers, investors and consumers alike can rely. Procedures, as simple and objective as possible, should also be established for changing rates in response to altered conditions. 3. The structure and level of rates should be such as to encourage a wider utilization of utility services, promote efficient operation and low unit costs, and provide sufficient revenue to enable them to service their debts, cover operating and maintenance costs adequately, and build up ample reserves for replacement or improvement of their facilities. 4. Rates wlhich serve primarily to tax or subsidize certain eco- nomic groups should be carefully reviewed in the light of their effect on the financial and operational soundness of the utility systems in- volved. While these social objectives are undoubtedly desirable in many cases, they can usually be achieved more directly and effectively. with less likelihood of adverse effects, through taxation rather than by manipulation of utility rates. The rate-making body should be an independent, objective agency, so constituted as to take account of the broadest interests of the Colombian economy. Presumably, therefore, this responsibility should not be lodged in the agencies concerned primarily wvith planning and promotion of utilities development, such as the Institute of \Vater Utilization and Electrical Development. The feasibility of establish- ing a semi-judicial agency for utilities regulation, perhaps located for administrative purposes in the Ministry of Industry and Commerce, 530 THE BASIS OF A DEVELOPMENT PROGRAMI FOR COLOMBIA might be considered by the proposed Public Administration Mission in its general study of this wvhole problem. Its powers should include investigation of the financial structure of utility enterprises, publicly or privately oxvned, the definition of uniform methocls of utility accounting, the establishment of general standards for rate-making, includling rates for wvholesale as xvell as retail power, the reviewv of specific rates on its own initiative or upon request, etc., and it should be giveni an adequate expert staff. LOCAL ADMINISTRATIVE MACHINERY Primary responsibility for administration of most public facilities and services rests wvitlh the municipal authorities, although the National Government furnishes substantial finanicial aid. Obviously, no single pattern of administration wvill fit the needs of all municipali- ties in Colombia. For the larger and wealthier cities, the "empresas inuiicipales' are generally a useful adminlistrative device, provided that competelnt, noni-political management is obtained. The followving suggestions might xvell be giveen further study by the proposedl Public Administration -Mission 1. The Board of Directors should be composed of persons of outstanding capacity, responsibility and political independence. Various methods might be used to assure that directors of the neces- sary high caliber are obtained, and at the same time that local interests are aclequately represented. In the last analysis. hosvever, no adlmin- istrative means will suffice without the support of interested and informed public opinion. 2. The terms of the directors should be long enough to permit themii to become fully familiar with the "empresas" operations; over- lapping terms for board members would help to provide the necessary continuity. 3. Technical operation and management of local public services should be developed as a career, not left to patronage or to the efforts of civic-minded amateurs. This is possible only if managers and technicians are given adequate responsibilities, security of tenure, opportunities for advancement and adequate salaries. 4. Municipally-owned utilities should be assured sufficient revenue and financial autonomy. Assistance in Municipal Development The administrative problems facing small municipalities are in some wvays even more fundamental than those of the major cities.  ELECTRIC POWER AND COMMUNITY FACILITIES 531 Considerable help and guidance from the National Government are necessary to enable them to establish and maintain a satisfactory standard of community services. The Municipal Development Fund and the other national agencies with wh`ch and through wvhich it works have given very valuable help in this field, but still more effec- tive finanlcial and administrative aid is needed. Consideration might be given to establishing a newAl Municipal Development Agency to meet this need. It would absorb the present Municipal Development Fund, and should be given sufficient po\vers, staff and financial resources to perform the following functions: 1. To serve as a center for studies on municipal development problems and a clearinghouse for technical and financial advice to the municipalities. For example, it could work out, through economic studies and discussions with local authorities, a more rational and equitable plan for allocating taxes and grants-in-aid to be recom- mended by the national administration to Congress. It should be a center for exchange of information among the municipalities about their common problems, and for practical training in local administra- tion. It should make continuing studies of needs for community facilities, the major priorities, and the most practical ways of meeting them. Drawing on the resources of other national agencies, it could help individual towns to analyze their needs and financial capabilities, and work out practical plans for developing necessary facilities. 2. To administer the National Government's grants-in-aid, as the Municipal Development Fund does at present. With more adequate staff and broader futnctions, however, it xvould be better able to develop and carry out a balanced national program. 3. To guarantee loans to municipalities, where the circumstances require and justify such loans, to finance the local shares of nationally- aided projects or to undertake other desirable projects on their own. This would open organized channels of credit to small municipalities for the first time and should enable the larger ones to borrow on more favorable terms. 4. To set standards for planning, design, constrtction, manlage- ment and maintenance of community facilities built with the help of national grants or guarantees. It should make periodic inspections of facilities and financial records, review the qualifications of managers and technicians, and sponsor special training courses where necessary. 5. To have qualified technicians, and supplies of repair parts and equipment, available at convenient field offices in case anythingu goes wrong with local installations. Thus it could provide a much better 532 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA service organization than rnost municipalities can afford to maintain independently, and wvould avoid unnecessary duplication of technicians and reserves of spare parts. Such an agency should not undertake to perform all these functions directly, but should xvork throughl other agencies and their field offices wvlhere possible. It would be primarily responsible for defining general policies and plans, for coordinating financial relations between the Nation and the municipalities, and for administering grants-in-aid. Establishment of such an agency wvould doubtless strengthen national iiifluelice in municipal development, but it should not be assumed that it wvould correspondingly weaken local -overnments. On the con- trary, it should assist them to administer their own affairs more effectively and thus lay the foundation for increasingly vigorous, responsible local government in Colombia. It may be desirable to reinforce this objective by providing that some members of the Muni- cipal Development Agency's Board of Directors be designated in some wvay by representative local bodies. It is believed that the financial and technical assistance of such an agency would be of great benefit to the majority of Colombian municipalities. And it would equally benefit the national economy by providing means for planning and guiding investments in com- munity facilities, minimizing wvasteful expenditures, improving the maintenance and operation of existing services, and helping to increase the country's productivity and strengthen its credit. ESTIMATED CAPITAL REQUIREMENTS Following is a summary of the estimates of capital requirements for comnulnitv facilities for the next five years Approximate Total (1.95 pesos per dollar) Electric power U.S.$50.5 million Ps.$154 million Ps.$255 million Water supply 20.0 32 71 Sewers . 1.5 67 70 Public markets and slaughterhouses 4.0 32 40 Telephones 21.0 2. 7 48 Street paving 50 50 Street cleaning and wvaste collection 1.5 3 5 Total .U.S.$98.5 Ps.$342 Ps.$ 37 These figures, of course, are only a rough overall estimate, not ai investment program in the real sense. Further analysis is require(  ELECTRIC POWER AND COMAIUNITY FACILITIES 533 to fill out the data available to the Mission, and to provide a firm basis for definite plans. It should be noted also that for certain other requirements-urban public transport facilities, public buildings, etc. -there was no adequate basis for making even rough estimates and hence they are not included in the above figures. These estimates indicate a need for investment in community facili- ties at a rate substantially higher than in the past, but probably not beyond the resources prospectively available to Colombia. The neces- sary capital will presumably be drawn from a number of sources: 1. The National Government, in the form of allocations from the Municipal Development Fund, subscriptions to hydroelectric "cen- trales", special grants to municipalities, etc. 2. Departmental governments, principally as subscriptions to hydroelectric "centrales". 3. The revenues or borrowings of municipal governments. 4. Private investments in certain utility companies. Table 150 is a rough attempt to estimate, first, the extent to wvhich the facilities discussed above will be self-liquidating-i.e., produce revenue adequate to service the required investment-and second, the potential sources of such investment. It appears that of the Ps.$537 million total, perhaps Ps.$161 million may be derived from National Government sources, Ps.$22 million from the departmental govern- ments, and Ps.$354 million from local governments or private invest- ments. It is not possible to estimate what part of the last figure might be private capital, since the data available on investment needs and plans of the various power and telephone enterprises do not segregate them on the basis of ownership. About Ps.$408 million, or 76 percent of the total, would be for self-liquidating investments, and hence would be suitable for loan financing. This includes about 77 percent of the National Government's share, all of the departmental share, and 75 percent of the amounts required from local sources. At present, however, the financial resources of the municipalities, particularly of smaller toAwns and rural districts, are quite inadequate to enable them to assume enlarged responsibilities. The fiscal situation of the municipal governments, their relations with the national and departmental governments, and the possible means of improving their position are discussed in Chapters XIII and XXVI. There is no need to cover the same ground here, except to reemphasize that most of the municipal fiscal problems arise out of the poverty and weakness 534 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA TABLE 150 SOURCES OF CAPITAL FOR SELF-LIQtUIDATING AND OTHER COMMUNITY FACILITIES, 1950-55 Percent Self- Municipal Type of Liqui- National Dept. Municipal Govt. or Facilities dating Govt. Govt. Govt. Privatel Total (millions) Power 100 Ps.$ 96 Ps.$222 Ps.$ 232 Ps.$114 3 Ps.$255 Water 904 30 - 41 - 71 Sewers - 35 35 - 70 Markets and slaughterhouses 100 - - 40 - 40 Telephones . 100 - - - 48 48 Paving . - - - 50 - 50 Waste collection, etc. - - - 3 - 3 Total . .. Ps.$161 Ps.$22 Ps.$192 Ps.$162 Ps.$537 I Includes investments in local power and telephone companies, whether privately or municipally owned. 2 Subscriptions to hydroelectric "centrales". 3 Investments in local generating and distribution facilities. 4 It is assumed that organized water systems, with individual house connections, should be self-liquidating, while those having outside taps open to general use will require support from public revellues. About 90 percent of the capital requirements estimated above are for the former. of the great majority of local governments and their consequent inabil- ity to borroxv on reasonable terms to finance permanent public im- provements, in spite of the generally low level of municipal debts. In general, they are too Aveak and disorganized to give adequate assur- ance to investors that loans wvould be properly managed and serviced; moreover, the amount of loans which they could use and repay wvould normally be too small to jutstify the cost of floating them. It is be- lieved that these difficulties could be reduced by more effective guid- ance of the borrowving activities and reinforcement of the credit position of the smaller municipalities by the National Government, possibly through a Municipal Development Agency operating along the lines proposed above.  CHAPTER XXIV Housing and Building Construction If housing accommodations in Colom-bia are to keep pace wvith the growth of population, it is estimated that 192,000 newv houses will have to be built from 1950 to 1955, even if no improvement in the present state of dwelling occupancy (6.4) people per dwelling, takes place. In addition, about 160,000 houses will reach that stage of dis- repair which wvill make major improvements or replacement impera- tive. Requirements for dwellings for the next five years have been calculated on the basis of assumed population shifts and are shown in Table 151. TABLE 151 NUMBER OF DWELLINGS IN 1948 COMPARED WITH ESTIMATED NEEDS, 1950-55 Annual Rate of Number of Dwellings Population Growth (thousands) (percentage) 1948 1950 1953 1955 1948-50 1950-53 1953-55 Urban 435.2 463.0 507.0 545.0 2.9 3.1 3.6 Rural 1,232.1 1,276.0 1,345.0 1,386.0 1.9 1.7 1.6 Total 1,667.3 1,739.0 1,852.0 1,931.0 1 2.15 2.15 2.15 In order to calculate the need for total or partial replacements, it was assumed that in any one year about 2 percent of all rural dwvell- ings and 1 percent of all urban dwvellings reach an advanced state of disrepair. 1 If the year 1953 is taken as the central year of the hous- ing program, the number of such dwvellings to be rebuilt in that year can be estimated at 31,970, or a total of about 160,000 dwellings in five years. I This concept, though similar to that of depreciation, is not the same. Were we to assume that rural houses in Colombia do not last more than 50 years, anid urban houses no more than 100, the calculated amount of depreciation would be very small indeed, because the population of Colombia 50 or 100 years ago was extremely small, and building units insignificant in number. We have thus preferred to make an esti- mate, not of the number of houses totally depreciated, but of the number of equivalent houses which would have to be built in order to keep the number of old dwellings -onstant. 535 536 THE BASIS OF A DEVELOPAIENT PROGRAMf FOR COLO-MBIA FINANCING OF HOUSING Since Chapter XI shows that one of the major problems involved in securing adequate housing for the lowv- and middle-income groups is that of financing, the feasibility of combining the housing func- tions of the Instituto de Cr&dito Territorial, the municipalities, and the housing section of the Coffee Federation in a single new agency should be considered. By concentrating, all efforts and sources of financing in a single agency to promote the development of low cost housing, greater strides could probably be made towvard adequate housing for the approximately 97 percent of the population which cannot afford dwelling units costing more than Ps.$8,000. The sole functions of this agency would be the financing, super- vision of construction and rental of low-cost dwvellings for persons xvith family incomes under Ps.$4,000 per year-i.e., those who can afford dwellings costing under Ps.$%,000. High cost construction, which represents approximately 20 percent of the value of dwelling construction, could continue to be financed through commercial banks wvith the debts thus created consolidated by the Central Mortgage Bank after completion of building. The financing of schools, govern- ment offices, hospitals, etc., wvould be handled through budget appro- priations. The agency wvould not engage directly in housing con- struction but it would set standards for all projects in wvhich it participated. Its staff wvould consist of technicians, engineers, hy- gienists and economists xvho wvould plan urbanization and housing, advise architects, contractors and builders in planning and construct- ing houses, and regularly inspect dwvellin'gs after construction. While this new housing agency might acquire funds by borrowing from the public, it is not believed that sufficient amounts could be obtained by borrowing at the suggested rate of 5 percent. Additional resources might be needed to defray administrative expenses and to subsidize the margin betwveen borrowving and lending rates. Tenta- tively, it \vould appear that the sources of revenue currently available to the three present housing institutions-namely, a surtax of 2'2 percent on incomes above Ps.$10,000, an export duty of 6 per thousand on coffee, and specified percentages of municipal revenues-Avould be adequate to take care of this deficiency. It is estimated, howaTever, that at least Ps.$125 to Ps.$150 million per year in newv borrowings would be needed by the agency. This might, in a few years, result in a very heavy service charge, unless the capital market -were rapidly im- proved and interest rates would fall significantly. Raising sums of this magnitude yearly would constitute a formidable task. To the  HOUSING AND BUILDING CONSTRUCTION 537 extelnt that bank and insurance funds could be diverted to this mar- ket under a governmentally guaranteed insurance system conducted by the proposed agency, the problem would be reduced. Study and adaptation of the system of guaranteeing housing loans in the United States might therefore prove beneficial. The proposed agency mighlt be divided into two major sections to deal respectively with rural and urban housing. Roughlly two- thirds of those who need more adequate housing live in rural areas. Rural Housing Little difficulty is involved in financing the construction of large haciendas and dwellings for their workers. The real problem in rural housing is to secure proper shelter for small owners or share- croppers. Some of them live in small communities which are too poor to provide collective services. The majority dwell in farms scattered in the hills and valleys of the Andes. Both types of farmers need housing with a minimum of sanitary facilities. It is doubtful xvhether private organizations of real estate inves- tors, architects and engineers could do much to help in the construc- tion of such dwellings. They would find little or no profit in invest- ing in rural dwellings as the administrative expenses would soon exceed the meager returns from rents. Construction should be k-ept so simple that the part-time help of a cement layer or carpenter wvould be the only cash expense for manpower that need be sustained. Until Colombian industry can develop to the point wvhere prefabricated houses can be sold in large quantities, the work of the farmer himself should remain the major investment in low cost housing. At present the Coffee Federation provides technical help and part of the financing for dxvellings costing from Ps.$1,600 to Ps.$3,500 and the farmer provides some financing and a considerable amount of work. But in addition to dwelling types A to F constructed xvith the aid of the Coffee Federation, which were described in Chapter XI, there should be a unit to cost about Ps.$1,000, perhaps no larger than 35 to 40 square meters, but built of good materials and provided with shel- tered outside k-itchen and latrine installation. A dwelling similar to this type is being built currently in Tolima by some large land- owners. It is a small whitewashed adobe dwelling, divided in two sections, with a cement floor, and a leaf roof supported by bamboo lattices. With the application of some engineering talent, it would no doubt be possible to replace the palm leaves with cement or tile roofs at no appreciable increase in cost. 538 THE BASIS OF A DEVELOPMIENT PROGRAM FOR COLOMIBIA This type of dwelling represents an absolute minimum for hous- ing, and therefore its inclusion in a program dedicated to better standards may seem objectionable. However, since perhaps 10 to 20 percent of the population in Colombia live in mud huts and some are reported without any shelter at all, a unit of this type might well form the basis of a Colombian housing program. If this type of shelter were made available, the poorest housed and unhoused seg- ments of the population would feel that their standard of living had been significantly increased. Needless to say, for this type of house little more than the farmer's labor can be requested as financial par- ticipation toward construction; for definitely depressed areas, terms of loans may even have to be more favorable than those suggested in Table 77 of Chapter XI and with a larger element of subsidy. Urban Housing The concentration of population in towns should make possible ra- tional planning and efficient construction of low cost houses. WVhether Colombian architects, engineers, and contractors manage to build apartment houses or separate dwellings, or a combination of the two, at least cost to the consumer is of academic interest. Whatever the solution, it will undoubtedly be found that simultaneous constructioin of a large number of dwellings is cheaper than constructing them one by one. This does not mean that we advocate the construction of enormous and glum barracks. On the contrary, it is extremely im- portant that due consideration be given to the kind of environment which the Colombian worker would find most pleasant and would most probably keep him at top efficiency. No doubt he would want flowers, space and colors in his housing developments. Whether or not the wvorker becomes the owner of his dwelling, the initiative for its construction and the means of guaranteeing its payment in due course are, however, not within his capacity. Good urban housing in Colombia therefore calls for action on the part of wealthy individuals, corporations, or the, state in order to initiate developments. For reasons of efficiency it is not desirable that the state have the responsibility of building if it can possibly be avoided. Corporations or cooperatives might be organized to retain architects and engineers to submit plans for building developments to the proposed housing agency. They would then assume responsibility for the construction and further management of the housing projects. The new agency would not finance the whole value of the projects but could give its guarantee to financial institutions, including commercial banks, which would put up some of the funds needed by the builders, as is done under the Federal Housing Act in the United States. The  HOUSING AND BUILDING CONSTRUCTION 539 intervention of the agency, aside from financing, would consist of approval of the plans from the point of view of health, adequacy, urbanizationa and the supervision of rentals or mortgage payments charged by the initiators of the project. Mortgage payments would of course be in order if the worker desires ownership and could finance some part of the construction. In addition, the agency might well set standards of maintenance in its contracts with builders and super- vise such maintenance. If no private corporations are ready to assume the responsibility for low cost housing, the agency could extend direct financing or im ortgage guarantees to those workers w ho would be willing to initiate construction of tlheir own housing according to set standards. Finally, the agency wouldl engage in direct action only if the private sector of the economy were completely unwilling or unable to provide for dwellings. In suclh event, the agency could submit specifications to the public. and engineers, architects and contractors offering the low- est bid would be r'esponsible for building while the agency would finance and manag;e the project which, later on, might be sold to the public. ESTIMATED COST OF PROGRAM Table 152 s'howvs the distribution of Colombian families by various income groups,, both urban and rural. For each income class is shown the average value of dwelling which it can afford in our estimation. The size of the dwellings and the estimated construction cost per square meter are also indicated. It should be noted that the con- structioln crust per square meter assumed for rural dwellings is rela- tively hig,h, but it is estimated that standardized wood construction could rreduce this cost to Ps.$20. Also, the computation of costs for homes of wvhite-collar workers and the wealthy is in line wvith present condi tions and does not allow for possible reductions in unit costs w hic_h could be brought about by the standardization of materials and thfe introduction of greater efficiency in the building trade. The recommended size of dwellings is small. The small well-to-do farmers, for example, generally have dwellings of at least 72 square meters compared with the 60 suggested in the table. The size of the )roposed home for farmers in depressed areas is undoubtedly very ;mall. However, it is not felt that these figures are set too low )arring economies in construction costs. To set them higher wvould lisregard current income conditions, or assume that financing could )e extended for more than 20-year terms and at less than 5 percent nterest. We do not believe this is possible, if funds are to be raised n sufficient amounts to execute a low cost housing program. 540 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLl'4JBIA TABLE 152 DISTRIBUTION OF POPULATION AND AVERAGE COST OF Dv'E Size of Percentage Dwellings Construct i of Total (Square Cost pe Avera Population Groups Families Mieters) Square 'l r _________________________________________________________eter, Cost o Dwellin Farmer, depressed areas . 8.0 33 Ps.$ 31 P .3 P . , Average farmer ....... 44.0 40 4' Snmall farmer, well-to-do. 7.0 60 r Worker, urban . . 29.0 66 .60 4.( White collar worker .... 3.5 60 006 Skilled worker ... - 100 MIedium landovner 2.0 80 8,0 Upper middle class .. . 1.0 100 100 lO,C Wealthy (rural) ... 1.0 200 120 24,C Very wealthy (urban) 1.0 300 120 36,C 100.0 Average cost (rlral) . 62.0 Ps.$ 9,' Average cost (urban) 380nPs$ 5,r On the basis of these computatiolns, the average cost of hor for rural families, which are 62 percent of the total, w ould be abo Ps.$2,250. The average cost of urban dwellings-for 38 percent of t] total population-would be approximately Ps.$5,550 at 1950 prices Table 153 shows what these figures mean in terms ehf total co 5 al of housing between 1950 and 1955 for 82,000 new urban dwqlin-sg TABLE 153 DWELLING REOUIRE.IENTS, 1950-1955 Urban Rura; Tot. Dwellings needed in 1955 545,000 1,386,000 1,931,( Dwellings existing in 1950. 463,000 1,276,000 1,739,1 New dwellings required 82,000 110,000 192, Replacements needed 25,350 134,500 159, Total dwellings required. 107,350 244,500 351, Total costl (thousands) . Ps.$596,200 Ps.$549,247 Ps.$1,145 Average cost per year (thousands).. 119,246 109,920 229 l Average cost of urban dwellings, Ps.$5,552; rural, Ps.$2,246.  HOUSING AND BUILDING CONSTRUCTION 541 110,000 new rural dwellinigs, which will have to be built from 1950 to 1955 if average occupancy of housing is not to increase. The equivalent of 25,000 urban and 134,000 rural dwellings will also have to be built, if needed repairs and replacements are made to existing dwellings. This means that for the five-year period, the total cost of construction of urban dwellings would amount approximately to Ps.$600 million while new rural dwellings would cost around Ps.$550 million. The total housing program for the next half decade would thus probably cost about Ps.$1,146 million, or around Ps.$230 million per year. Table 154 shows projected total investment in all types of build- ings in the same period. Stubstantial advances are expected in invest- ment in urban and rural dwvellings. In 1947 it is estimated that about Ps.$123 miillion were so intvested, while in an average year between 1951-1955 the total investment is expected to climb to Ps.$229 million. TABLE 154 TOTAL PROJECTED CAPITAL EXPENDITURES FOR DWELLINGS AND BUILDING CONSTRUCTION PROGRAM, 1951-19551 Total Annual Investment Program Program 1951-55 1951-1955 1947 (1950 prices) (1950 prices) (million5s) UrbaII dwellings Ps.$ 66.3 Ps.$ 596.2 Ps.$119.2 Rural dwellinags ... . .. 56.7 549.2 109.8 Total dwellings Ps.$123.0 Ps.$1,145.4 Ps.$229.1 onimercial buildings Ps.$ 17.2 Ps.$ 150.0 Ps.$ 30.0 goveriment Schools 50.0 10.0 Offices . 22.32 50.0 10.0 Hospitals 155.0 31.0 Public markets and slaughterhouses 42.7 8.6 Total commercial and govern- ment buildings . . Ps.$ 39.5 Ps.$ 447.7 Ps.$ 89.6 actories .... . . . Ps.$ 7.5 Ps.$ 100.0 Ps.$ 20.03 Granld total buildings . Ps.$170.0 Ps.$1,693.1 Ps.$333.6 I Including payments for trade markups and internal transport of imported equip- nent, 2 Estimated. 3 Factory construction also shown in Table 134, Chapter XIX. 542 THE BASIS OF A DEVELOP-MENT PROGRAM FOR COLOMIBIA In order to forecast investment in other types of buildings, 1947 investment was projected on the assumption that costs had increased by about 30 percent from 1947 to 1950 and that further expansion in the real volume of such construction had been necessitated by in- creased economic activity. A discussion of the requirements for sclhool construction will be found in Chapter XXV, wvhile expenditures for construction of hospitals are treated in Chapter XXII. Investment in governiment offices and other buildings has been estimated roughly. In total, the cost of all building construction is expected to increase from Ps.$170 million a year in 1947 to an average of about Ps.$340 million per year between 1951 and 1955. Total investment involved in the building program from 1951-1955 is approximately Ps.$1.7 billion at current prices. It is estimated that about one-half of this Nill be absorbed by labor costs, while 17 to 20 percent wvill represent imported materials. It may be possible to revise these figures doxvnward if building costs fall. Reduction in transport costs, the use of new buildin,g materials and improvements in building construction practices may result in decreased costs, or at least prevent a further rise.  CHAPTER XXV Education and Training Chapter XII presents a brief picture of the educational system and conditions in Colombia, pointing out some of the more significant deficiencies. Illiteracy remains a tremendous problem. The present educational program is evidently not keeping pace with the increase in population since there were more illiterates in 1947 than in 1937. School facilities are generally inadequate and many teachers are poorly trained and paid. The whole field of education needs more prolonged and cletailed study than the Mission was able to make, and it is hoped that such a survey wvill be made. It is possible here only to point out the more obvious and fundamental measures that should be taken. Since an adequate educational system underlies the success of any broad development program, both the quality and quantity of instruction should be improved. The problem of education may be approached from social, psycho- logical, political or economic considerations but the targets sought will differ accordingly. The Mlission recognizes that other than economic factors should be given due weight in a well-balanced pro- gram, but since the large majority of the Colombian people are near subsistence levels there are excellent reasons for placing primary emphasis on economic considerations in the educational program. From an economic standpoint, the need for improving primary educa- tion ranks first and vocational training second. As to other types of education, changes in curricula and requirements would probably effect sufficient improvements for the immediate future. However, fundamental to all improvement is the need for increased numbers of teachers with better training. No expense should therefore be spared to obtain well-trained teachers and additional primary and vocational schools. PRIMARY EDUCATION Economic development calls for increased per capita productivity by the introduction of machines or the improved efficiency of the worker, or both. In the agricultural sector of the Colombian economy Dnly a small contribution can be made to productivity by the inter- vention of machines, but increases in human productivity are of great mportance. Also, at present the agricultural sector includes the zreat majority of the population but in the process of development, ropulation will tundoubtedly shift to the urban sector. The introduc- ion of mass rural education is, therefore. of the utmost economic 543 544 THIE BASIS OF A DEVELOPATENT PROGRAMI FOR COLOMBIA significance, but it also raises many problems. While improvement of education in towvns and cities is relatively easy because of the concentration of population, ease of transportation, and because the relatively higher incomes enable urban families to forego the economic assistance given by children, in the rural areas none of these con- ditions exists. Small farms are scattered over hundreds of miles of niotntains or in sparsely settled plains, means of communication are not good, and the standard of living of farm families is so low that they are reluctant to have their children attend school instead of helping- on the farm. As a first step in improvinig primary education, a study might be made of all rural areas of Colombia where it \vould be possible to provide education for a substantial number of children at relatively low costs; then great efforts should be made to step up the rate at which education is introduced into these areas. The most modern means of mass education-such as the use of radio for the transmission of important lectures, the use of educational movies, the transporta- tion of pupils in school buses, the distribution of educational material by centrally located schools to a group of smaller schools-should be adopted. The nuclear school system, now employed in several Latin American countries, has been devised to secure more effective instruc- tion in, and supervision of, schools in rural areas. It might well be adapted to Colombia's requirements. Under this system, one central school is charged with the supervision and administration of a group of smaller schools in the surrounding area; the director of the central school provides guidance to the teachers in the other schools in such matters as curricula, methods, standards of instructioni, school sani- tation and plant management. AW"hile this outlines the need for great efforts in the dissemination of education in rural areas, the type of education has not been ex- amined. The primary impact of a program of mass education \vould probably be the reduction of illiteracy, but the lfission does not believe it should be the sole purpose. At present rural schools teach little more than the three "R's". Even in areas above average in economic conditions where pupils may get three or four years of schooling, their education does not provide information on the way to live in a modern agricultural environment. Little instruction in nutrition and in the prevention of disease is available. Although some health classes are included in the curricula of Colombian schools, the teachers themselves are largely uninstructed in problems of health. Also. the schools do not give instruction in the use of mechani- cal implements, the use of the soil, housing, etc. AWTe recommend,  EDUCATION AND TRAINING 545 therefore, that consideration be given to both increasing the coverage and to changing the type of education. Even under the best conditions, it will be difficult in a few years to devise an educational program which will simultaneously provide the rudiments of learning and some practical instruction. In order to obtain maximum attendance, the academic year might be so arranged as to release farm children from schools at planting and harvest times. Free meals and medical service at school should also be more generally available. Differential wage rates might be established for those adults who had positive proof of successful completion of four or five years' schooling. A number of such incen- tives might considerably increase the rate of school attendance. WVhen real progress has been made in the standards of living of both farm and urban families, the enforcement of rules regarding school atten- dance may be strengthened. At present, rules regarding attendance and child labor are not, and cannot be, enforced. It is more realistic to enact only such rules and regulations as correspond to the mores and economic condition of the population. In order to provide more adequate primary schooling both in urball and rural areas, the construction of many new school buildings will be necessary. At the present rate of about Ps.$5 million a year for primary school construction, it would take approximately a quarter century to meet estimated present requirements, without any improve- ment or replacement of present facilities and without making provision for further population growth. This excessively slow rate of school building is in part due to the high cost of construction. By using cheaper materials, more efficient production methods, and taking full advantage of the savings involved in large-scale pro- duction, it should be possible to bring the cost of simple structures, adequate for rural schools, down to about Ps.$30 per square meter of floor space. Assuming that a standard schoolroom to accommodate 40 pupils, and wvith some space for storage and other purposes, should have 80 square meters of floor space, the average cost would be Ps.$2400. Urban schools of brick or masonry construction with numerous rooms, plumbing and sewer connections, and other more elaborate facilities wvould be more expensive. For purposes of an overall estimate, an average requirement of Ps.$3000 per room for 40 pupils can be assumed, especially in view of the fact that the greatest shortage of school facilities at present appears to be in rural areas. Under this assumption, the present provision for school construc- tion-Ps.$5 million a year-would be ample for expansion of primary school facilities at the rate of 1000 to 1500 rooms annually. This 546 THE BASIS OF A DEVELOP-MENT PROGRAM FOR COLOMBIA Avould accommodate 40,000 to 60,000 more pupils each year, with a substantial allowaance for improvement and replacement of present facilities. We believe that this rate of construction is as rapid as is feasible, especially in view of the shortage of teachers. Since there are not sufficient teachers even for present schools, a great many more wvill have to be secured to staff nexv buildings. There is little purpose in further accelerating the building program unless enough new teachers are available. VOCATIONAL EDUCATION As has been pointed out in Chapter VI and elsewhere in this Report, foremen, supervisors and skilled laborers are almost entirely lacking in Colombia. This is due in part to the rapid expansion of practically all fields of economic endeavor in recent years. wlhich has created needs never before experienced in Colombia. The Mission observedI many cases where the lack of skilled mechanics or super- visors kept enterprises from being as efficient as possible. The Colombialn Government has recently organized vocational schools but it may have underestimated the number of people to be trained and it may have misjudged the direction which the training should take. The training of artisans may have been provided for, but it is also necessary to turn out persons fitted for the intermedi- ate wvork between management and common labor in a modern agri- cultural or industrial organization. In addition, consideration might wvell be given to financial help for children and adolescents of poor families wvhich may be necessary if they forego work for technical education folloxving their primary schooling. Industrial and Arts and Crafts Training MAuclh can be accomuplished in industrial training if governmenit, educational organizations and industry cooperate. Those industrial concerns wvhich have great difficulty in procuring skilled wvorkmen and foremen \vould doubtless velcome practical plans for training workers to meet their needs. They might well cooperate by furnish- ing instructors, training facilities, or some financial support and by giving some assurance of employment for satisfactory trainees. The Ministry of Education is considering a number of plans for an ex- panded program in Avhich industry takes an active part. The wvartime experience of the United States and other countries in techniques of rapid industrial and mechanical training may furnish useful guidance in developing such a program. The 'Ministry of Education recently estimated that Ps.$45 million are needed for construction of new vocational school buildings, and an additional Ps.$3 million for equipment. Such a large expenditutr  EDUCATION AND TRAINING 547 on industrial training facilities would seem someiwhat disproportionate in view of the urgent needs in primary and secondary education. Cer- tainly, however, considerable investment for expansion and improve- ment of vocational school facilities would be well justified if the training is of demonstrated practical value. Agricultural Training Agricultural schools should be gradually improved, enlarged and expanded in accordance with the plans of the Ministry of Education, until they effectively reach all sections of the country. The need for more agricultural training is evident and these schools represent the best means of intensively teaching modern agricultural methods to large segments of the agrarian poptilation. The Ministry of Educa- tion estimates that the budget for agricultural training, including the agricultural normal schools, should be stepped up progressively to about five times its present level of Ps.$588,000 a year to about Ps.$3 million. The three agricultural colleges have accomplished much despite very limited facilities. Although there miay be need for somoe new agricultural colleges in the future, the more immediate concern should be for enlargement and improvement of present facilities and programs.1 SECONDARY AND UNIVERSITY TRAINING Of the 17,000 pupils who complete primary school each year, only 13,000 go to high school and less than 3,000 ultimately graduate. For some students, high school is the culmination of their studies; for others, high school is a stepping-stone to the "Bachelor's" Diploma, which is given at the completion of high school, or to university studies. The smallness of this second category is disturbing. Eco- nomic reasons account in large part for the few who complete high school and go on to college. Many students who enter the universities complete only one year of higher learning because the nuniber of families -which can afford to support one of their members until the completion of university training is very limited, and the number of students is correspondingly small. Efforts should probably be made to attract more young people to higher education. Toward this end. the desirability of extending more financial aid, either partially or completely by the Government, to promising students from lowver income families should be considered. The rate at which secondary school expansion can take place de- pends on the availability of teachers with the required training and on the number of primary school graduates in a position to continue their educationi. Requirements for additional secondary school facili- 1 For a more detailed discussion see Chapter XVIII. 548 THE BASIS OF A DEVELOPMENT PROGRAMI FOR COLOMBIA ties will probably be quite small in the immediate future, but will rise sharply later on if effective steps are taken to increase the number of priimiary school graduates and the proportion enrolling in secondary schools. If it is assumed that the total high school attendance could not be raised to much more than 70,000 by 1955, both by increasing the number entering high school and by keeping students in high school longer, accommodations for 25,000 additional students would be necessary. If two square meters per pupil at a cost of Ps.$45 per square meter are assumed, investment necessary for secondary school build- ings would amount to about Ps.$2.2 million in five years. If university training is trade available to about 20 or 30 percent more students, the expense involved can be roughly estimated at about Ps.$5 million per year. This expelnse would be fully justified if thereby the reservoir of high-grade and wvell-trained individuals could be concomitantly increased. NORMAL SCHOOLS The problem of securing capable, trained teachers is one which affects existing schools as well as those to be built in the future. At present there are relatively few trained teachers and only about 800 are graduated each year from the normal schools. This is scarcely more than enough to fill vacancies occurring from a normal death rate among the present teaching staff. Thus not only are existing schools inadequately staffed, but as school facilities are increased the average quality of teaching personnel is certain to decline further, unless vigorous action is taken to increase the number of qualified graduates turned out by the normal schools and the number per- manently attracted into the teaching profession. If existing normal schools are used to full advantage, undoubtedly more graduates can be turned out than at present. As needs for teachers increase, more normal schools may be needed in future. Alore important. however, is the need to raise salary levels in order to retain trained teachers in the profession and to attract persons of desirable caliber. Only about 30 percent of the small number of teachers now graduated each year actuallv go into teaching. It would be of little value, from the standpoint of improving education, to train more candidates at considerable public expense only to have them go into other professions. The first requisite, therefore, is to provide more adequate inducements for a teaching career. Comparison of salaries of teachers (Chapter XI, Table 83) with those of other occu- pations would indicate the increases required so that teaching would offer equal attractions. In terms of long-range benefit to the country, there can be no doubt that the additional expense involved would be justified.  EDUCATION AND TRAINING 549 Whatever system of salary increases is adopted, we believe a substantial differential should be established in favor of trained teachers over those who are untrained or poorly trained in order to (1) attract those who are best equipped and hence most in demand for other pursuits; (2) provide incentives to the large number of poorly trained teachers IIow in the school system to increase their education. It may be feasible to institute a system of short training courses during vacation periods, with satisfactory completion of such courses a condition for raise in pay. Thus the qualifications of present teachers will be inmproved, and more properly qualified teachers will be made available to the schools, by making their calling more attractive from the standpoint of salary, prestige and tenure than it is at present. ESTIMATED CAPITAL REQUIREMENTS Preliminary estimates, shown in Table 155, indicate that the capital requirements for the constrmction of additional schools alone would amount to Ps.$38.5 million in the next five years. To this should be added substantial sums for comfortable shelter for students attend- ing institutions away from home, for permanent laboratory equipment, etc. Total capital investment required will probably approximate Ps.$50 million. Increases in teachers' salaries, provision of buses for school transportation, movie and radio equipment for demonstration purposes, and the increasing of fellowships for studies at home and abroad will further add to projected expenditures for education. Thus, compared with the general estimate that government expenditures in the next five years may increase by at least 30 percent above 1950 figures, it is anticipated that appropriations for education may increase by 60 to 80 percent and accordingly miay encroach on budget provi- sions for other governmental agencies. TABLE 155 ESTIM1ATED CAPITAL REQUIREMENTS FOR CONSTRUCTION OF ADDITIONAL SCIbOOLS, 1951-1955 Vocational Schools 3 Primary Secondary Industriall Agricultural Total (millions) First Year . Ps.$ 3.0 Ps.$ .3 Ps.$ 1.0 Ps.$ .3 Ps.$ 4.6 Second Year . 3.0 .4 2.0 .5 5.9 Third Year . 4.0 .4 3.0 .5 7.9 Fourth Year . 4.0 .5 4.0 .5 9.0 Fifth Year .. 5.0 .6 5.0 .5 11.1 Total . Ps.$19.0 . Ps.$2.2 Ps.$15.0 Ps.$2.8 Ps.$38.5 I A part of these sums miglht be obtained from private industrialists. 2 Including agricultural colleges and normal schools, but not the Extension Service of the Ministry of Agriculture.  CHAPTER XXVI Fiscal Policy Throughout this Report we have emphasized the importance of improving the productivity of labor and developing the natural resources of Colombia. These are the basic conditions for raising the standard of living. Their achievement, ho\vever, is determined in uo small degree by the efficiency with which the country's fiscal and monoetary mechanism operates. From Adam Smith on, it has been recognized that there are certain economic undertakings which do not readily lend them- selves to private management. This may be because their profita- bility is realized only over a very long period, as in the case of river development, highlway construction or irrigation projects; or it may be that the fruits of the enterprise are not assessable in direct returns at the market, as is the case with health and educational programs. Yet these matters are of vital importance to economic development and to the welfare of the people. Properly managed and planned. public expenditures oII such development projects may make a tre- mendous contribution to economic progress in Colombia. This, how- ever, will be possible only if Government finances rest on a sound foundation. That is to say, the necessary means of finance must be obtained in a way compatible wvith a high and stable level of economic activity and which\will contribute to a broad distribution of income among the people. Proper management and organization of the country's monetary system, similarly, are important conditions for the country's eco- nomic development. In order to stabilize Colombia's position in inter- national markets and to permit a sound direction of domestic capital flows, credit must be rendered available where needed, inflation must be checked and a reasonable stability of the peso assured. While little could be gained and much lost by substantially deflating the domestic price level, it is important that further inflation be halted. This in considerable part is a matter of monetary management. It requires a proper understanding of the issues involved and willing- ness to apply the necessary restraints when called for; also, it requires the availability of appropriate instruments of monetary control. In order to provide these instruments, some of the statutes now govern- ing the operations of the Banco de la Repulblica need to be considered. In this chapter we shall concern ourselves with taxation and budget policy. AIatters of monetary policy and credit structure will be considered in Chapter XXVII. 550  FISCAL POLICY 551 NATIONAL TAX SYSTEM The national tax structure, on the whole, provides a fairly good balance amolng personal income taxes, taxes on1 company profits and excises; yet the tax structure might be improved in various respects and there is dire need for overhauling the entire system of revenue administration. Improvements in Tax Structure The income tax, in its various parts, provides some 40 percent of the total tax yield and its importance is certain to increase in the future. The following suggestiolns, therefore, primarily relate to income tax improvenmelnts. 1. The present system of income tax rates, in w hich the basic rates are supplemented by three sets of surcharges enacted at various times, should be consolidated into one rate structure. While this need not involve a change in actual tax liabilities, integration will facilitate tax computation and result in a more understandable system. 2. The policy of taxing large salary incomes (in excess of Ps.$10 or Ps.$15 thousand) at the company, \vhile exempting them at the personal, level distorts the personal income tax structure. Intro- duced to forestall tax evasion by companies through excessive salary payments, the exemption results in unidertaxationi of high salary incomes, except where the higher company tax liability is reflected in a reduced salary before tax. By applying the special rates on high income, enacted in 1948, to total salary income, this distortion has been remedied to some extent; but it wvould seem desirable to repeal the high salary exemption for the entire tax income, while devising other means to check excessive deductions at the company level. 3. The interrelationship bet\veen the taxation of company profits and the taxation of capital income at the personal level raise diffi- cult problemns in any income tax systenm. In Colombia this relation- ship is complicated by the fact that the basic rate of income tax and the surcharge of 1946 apply to individuals and companies alike, -whereas the additional surcharges enacted in 1948 apply to natural persons only. Thus the bulk of company profits are taxed at the conmpany level at rates ranging from 25 to 30 percent (the basic rates plus 1946 surcharge), depending upon the size of the company. Dividend income is then exempted at the personal level, except for the special 1948 rates which range from 5 to 16 percent. If, instead, company profits Avere taxable at the personal level, the rate of tax (including the 1948 addition) would depend upon the shareholder's 552 THE BASIS OF A DEVELOPMENT PROGRAMI FOR COLOMBIA income bracket, and in the average case would be lower.' The present system, therefore, results in a somewhat heavier taxation of profit thani of other income. Since this acids to an otherwise rather moder- ate degree of progression in the tax structure, the result is not objectionable. The present treatment wvill lead to difficulties, however, once the level of personal income tax rates is increased, as may well be necessary in future years. It wvill then become desirable to differen- tiate between the schedule of rates applicable to personal incomes and that applicable to corporate profits, with personal rates rising more sharply than is now the case above the level of company rates. Dividend income, in such a system, xvill have to be taxed at the personal level, with either (a) exemption of dividends paid from the company tax or (b) crediting of tax paid by the company against the shareholder's personal tax liability. 4. Next there is the question whether the company tax should serve merely as a means of collecting the personal income tax on dividend incomes at the source, or -vhether there should be an addi- tional tax on companiy incomes as such. MTuch depends on the role of excess profits taxation. The excess profits tax is payable by both companies and individuals; but it is, by its very nature, a tax applied to the profits of a particular business unit, the rate of return for each enterprise being the standard by which excess profits are mea- stured. Notwvithstanding inherent administrative difficulties, the excess profits tax appears to have worked fairly well in Colombia and much may be said for accomplishing the supplementary taxation of business income in this fashion. This being the case, it wvill be xvell to continue treatment of the basic income tax on companies as a device for source withholding. 5. In coming years, additional revenue will undoubtedly be needed. Such needs will arise in part from the expansion of certain national services and partly from increased grants to local govern- ments. These needs might be met in considerable part from increased productivity of present taxes, resulting from both a rising level of national income and improved revenue administration. But beyond this, some additional taxes will be needed. These should be drawvn primarily from the income tax system, including (a) higher taxa- tion of personal incomes, (b) a corresponding adjustmnent in the income tax rate applicable to companies to maintain balance be- txveen the rates of tax applicable to retained earnings and to divi 1 The company rate of 30 percent about corresponds to the liability which woul be incurred by a shareholder with an income of Ps.$250 thousand.  FISCAL POLICY 553 dend income, and (c) a possible increase in the basic excess profits rate with some lowering, of the tax-free rate of return. Since many companies in Colombia are closely held and there is a high rate of profit retention, consideration may also be given to the so-called partnership method under which retained earnings are taxed to the shareholders as if distribution had occurred. 6. The personal income tax as now collected applies to a relatively small sector of the population. As shown in Chapter XIII, less than 8,000 taxpayers contributed 75 percent of the yield in 1947. This is due partly to the fact that initial rates are very low (ior an income of Ps.$10,000, the tax anmounts to about one-third of one percent of income) and partly to the fact that exemptions are high-for instance, Ps.$4,000 for a married taxpayer with an income under Ps.$10,000.2 Additional income tax yield will be needed in time to meet rising revenue requirements; also, it may be a desirable substitute for some of the indirect taxes now relied upon. This will be desirable espe- cially if a systematic program of national aid to departmental and municipal budgets is developed, thus relieving the indirect tax sources drawn upon by the lower levels of government. While the progressive income tax is frequently thought of as a means of taxing the verv large as against the middle and smaller incomes, such is only one of its possible uses. No less important is the fact that the income tax approach, by the use of exemptions and progressive rates, permits a more equitable distribution of the tax burden over the middle and lowver income brackets. Where these brackets are drawn upon, as will be increasingly necessary with expanding governmental func- tions, the allocation of tax shares can be accomplished more equitably by means of the income tax approaclh than by extensive reliance upon indirect taxation. Broadening of the income tax base, howvever, in- volves difficult problems of administration and renders improvements in the machinery of tax administration all the more necessary. 7. A most important aspect of tax policy in Colombia is the impact of taxation upon capital formationi. Capital is scarce and costly in an underdeveloped economy such as Colombia. Almost every item of capital formation absorbs scarce foreig-n exchange, and always it implies a diversion of resources from their more immediate uses in sustaining the modest level of consumption. But while capital is scarce it is also highly productive; in view of the low state of tech- nology in Colombia and the high level of technological knowvledge of our time, it is evident that properly directed capital formation may 2 Provisions of June 1949. 554 THIE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA rapidly raise the standard of living of the Colombian people. But the emphasis must be on proper direction: Ps.$1 million spent on the improvement of transportation facilities, irrigation or water supply in newTly cleveloped areas may contribute more to the country's wealtlh thani many times this amount spent on the construction of elaborate office buildings in big cities. Yet, the rate of profits wvhich the in- vestor may derive from the latter type of investment, and especially the profits to be derived in the short run, are particularly great. Thus the question arises whether the tax lawv may contribute to redressing this unbalance. One such aspect of tax policy (relating to underutilized land re- sources) has been discussed in Chapter XVIII. The tax treatment of capital gains is also of special importance in this connection. Follow- ing the British practice, the Colombian tax law excludes capital -ains (other than inventory gains wvhich are taxed as regular profits) from taxation if they do not constitute a regularly recurring source of in- come. This undoubtedly has accentuated the relative attractiveness of speculative investment, which is frequently realized as capital gains. While it would not be practicable or desirable to tax capital gains the same as other income, solne compronmise formula for their taxation needs to be developed. This formula should be designed tc, render the level of rates contingent upon the period over ivhich the asset was held, thereby encouraging longer-term, as againist specu- lative, investmelnt. Beyond this, the rates might be made to depend upon the extent to \vhich the investment has contributed to the country's econonmic development. To do this, capital gains need be divided into various categories depending upon the type of invest- iment from which they are derived. Capital gains from unimproved land, for instance, might be taxed at a relatively higher rate, whereas gains from the sale of an industrial plant \vould be taxed at a lowver rate. While the technical problems involved in such a scheme cannot be developed here in detail, the matter is one of great importance for a country like Colombia w here the rapid development of cities and the opening up of new areas Avill give rise to enormous capital gains. The prospect of such capital gains, under certain conditions, may act as a spur to economic development; yet in some cases it may dis- tort the flov of capital and slowv dowvn economic growtlh. 8. While primary emphasis should be placed upon the develop- ment of income rather than excise taxation, indirect taxation niight well be used in the form of excise taxes on certain luxury itemils. Such selective excises might be helpful in reducing luxury consump- tion, thus freeing foreign exchange and directing domestic resources into more essential uses. This mighlt also be accomplished by forcing  FISCAL POLICY 555 a reduction in the luxury expenditures of high income groups throuhIi steeply progressive income taxes; but the selective excise approach has distinct advantages for an underdeveloped economy such as Coloin- bia. High incomes, which result in high rates of savings, performi a vitally important function in Colombian development, provided that such savings are channeled into capital formation of types designed to improve the productivity of the Colombian economy. A selective system of indirect taxes would accomiplish the objective withouit deterring- investment by lowering investment returns or reducing the voluo-me of savings, both of which might result from highly pro- gressive income taxes. Improvements in Tax Administration Improving the basic tax law is only part of the problem. MIore immnnediate, and in many ways more important, is the need for im- proving tax administration. Inequities of the tax law are bad, whether they arise from a faulty statute or from ineffective application; the yield of a revenue structure depends as much upon its enforcement as it does upon the rules to be enforced. Colombian tax administra- tion is inadequate in botlh these respects. Inefficient administration in maniy instances causes inequitable tax burdens as well as sub- stantial revenue losses. The loss of revenue is due partly to failure of some taxpayers to report at all, and partly to failure of others to report fully. While it is difficult to estimate the additional yield that could be obtained through improved admiinistration, the gain might ivell amotunit to one-third of the present income tax yield, or Ps.$40 mil'lion. Improvement of tax administration is a matter of personnel and organization. The problem of personnel is of vital importance. At present, both the number of employees and their techinical trainingo are inadequate. To remedy the situation it will be necessary to (1) increase the number of employees in the fiscal service, (2) raise their salary standards so as to attract more capable personnel, and (3) provide for the training- of suclh personnel. These measures, ot course, wvill increase the cost of fiscal administration somewhat, but a multiple of the additional cost should be recouped in higher tax yield. For the year 1948, for instance, budget expenditures on revenue (excluding tariff) administration amounted to Ps.$3.5 million, over 85 percent of which wvas for salary payments. This expenditure of Ps.$3.5 million produced tax collections of Ps.$223 million. In other words, Ps.$1.57 were spent in the collection of each Ps.$100 of revenue. WVhile this ratio is high relative to the United States ratio of 60 cents per $100 collected, the comparison is misleading since the higher level 556 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA of U. S. tax rates is bound to be reflected in a lower cost-to-yield ratio. Suppose that both the number of people employed in Colombian tax administration and their average rate of salary were doubled. This expansion, wvhich hardly overstates requirements, would mean an increase in the cost of tax administration from Ps.$3.5 to about Ps.$1 4 million. Should the consequent improvement in adminis- tration produce an increase in vield of Ps.$60 million, as might be ex- pected, the additional outlay would provide the Government wvith a nearly sixfold return. And even if the resulting gain wvas less strik- ing, the outlay wNould certainly more than pay for itself. While such a program is clearly indicated, it must not be for- gotten that the availability of qualified personnel imposes limitations upon what can be accomplished in the slhort run. Expansion of the fiscal service, therefore, must go hand in hand with an extensive pro- gram of personnel training. The work required to administer a mod- ern income tax necessitates a thorough knowledge of accounting practices, substantially beyond that provided in public school train- ing. Therefore, consideration should be given to sending a number of qualified persons, present or former members of the revenue staff, abroad to study procedures and methods of tax enforcement. 'Under their contracts they should be committed on their return to give in- structions to auditors and tax collectors, and later to serve as techni- cal consultants. On this basis an in-service training program might be developed, and promotions (permitted under an expanded budget) might be tied in with the results of this program. Combined with generally improved salary levels, such measures should serve to attract capable young people into the revenue service. In addition, some technical changes should be made in adminis- trative procedure. First, the internal organization of all the revenue offices in the country should be unified; also, there should be more uniform procedures in dealing wvith tax returns. Second, a single revenue code should be drafted to include all regulations issued by the central office and revised whenever regulations change. This would assure uniformity in rulings, even on minor points, and clarify the taxpayer's rights and obligations. Third, measures should be taken to induce taxpayers, and companies in particular, to maintain their books in a form wvhich xvill permit proper tax assessment and verification of returnls. For this purpose, model systems of account- keeping should be made available for various lines of business. The revenue code might then stipulate that, in the case of litigation. failure to provide the information required in these accounts wvould place the burden of proof on the taxpayer. Finally, tax administra-  FISCAL POLICY 557 tion might be facilitated by permitting the larger taxpayers, and especially the larger companies, to compute their own liabilities and to pay in quarterly installments on that basis. These initial payments would then be subject to revision by the revenue administration and interest would be due on tax liabilities incurred because of initial underreporting. FORMULATION AND PRESENTATION OF NATIONAL BUDGET The budget is the central instrument by which all fiscal activities of the Government are planned and through which the legislature controls the conduct of governmental finances. It is of crucial im- portance, therefore, that the budget picture be presented in as clear a form as possible and that the framework of budget determination be such as to permit a careful and efficient planning process. As pointed out in Chapter XIII, the Colombian budget system is in need of reform on both counts. Budget Formulation A brief description of Colombian experience with the budget system introduced in 1923 and of the recent decree 3 was given in Chapter XIII. One great improvement provided by the new plan is the establishment of a Bureau of the Budget, which will furnish the President with more adequate facilities for budget planning and permit better co- ordination of the fiscal activities of the various parts of the Govern- ment. Some other features of the new plan, however, are questionable. 1. The new scheme departs from the earlier requirement that the Administration must always present a balanced budget. In the new plan this principle of balance is limited to the ordinary part (i.e., expenditures covering the essential minimum functions of govern- ment) of the budget, while proposed "secondary"' (less essential or developmental) and "extraordinary" (domestic disturbances and war) expenditures can be loan financed. While this is preferable to the untenable requirement that the entire budget must always be balanced by tax and other non-loan proceeds, experience with similar provisions has not on the whole been satisfactory. The argument in favor of some such distinction is that loan finance is more appropriate in the case of self-liquidating or developmental programs than in the case of current expenditures because the former add to revenues (either through fee proceeds or a higher future national income) so that the problem of debt service will be simplified. IHowever, this reasoninlg (unless limited to fee-yielding, self-liquidat- 3 Decree No. 164 of January 24, 1950. 558 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA ing projects) applies to health and education expenditures as much as it does to construction projects. AMoreover, if general economic con- ditioiis are such as to require avoidance of deficit financing because of its inflationary effects, deficit financing wvill be harmful whether directed toward capital or current expenditures. The choice between reveniue and loan finance fundamentally should not depend upon the type of expenditures but upon the state of economic activity. WVhile it is highlv desirable for the Governmelnt to carry on careful account- ing of its capital outlays-and this may \vell be done in a capital budget planned over a number of years-'the two parts of the budget should not be separated wvith regard to the choice between revenue and loan finance. Finally, there is real dangser that the neew formula wvill result in neglect of the so-called 'ordinary" expenditures, since they are to be tied to the availability of revenue, but less vital items are not sub- jected to any such limitation. The ordinary expenditures, after all, cover the most important and basic functions of the Government, in- cluding such matters as education and public health services; at a time of lov revenue yield, therefore, the Government should not be forced to cut these outlays while at the same time expanding loan- financed but less important items. On the contrary, first care should always be given to the maintenance of an adequate level of ordinary expenditures. Wlhile the desirability of checking reckless debt financing muist be recognized, budgetary balance is not a principle which can or should be legislated. The requiremenit that the budget on ordinary expendi- tures must be balanced by revenue may wvell do more harm than good. ¾N`hat is required is not a rigid formula but a careful and intelligent process o0 revenue and expenditure planning, giving proper emphasis to the needs of the economy for various public services and the requiremenits of economic policy for maintaining stability in price level and employlient. 2. In colnjunction svith the requirement for the revelnue financing of ordinary expenditures, the nex- plan also provides that the Congress canniot increase the proposed expenditure total if this disturbs the budgetary balance, or reduce the ordinary expenditures recommended in the Governmenit's budget. The first of these requirements is xvhollv ambiguous and should be clarified. The second stems from the princi- ple that ordinary expenditures must be revenue financed and is de- signed to prevent Congress from substituting less for more essential items within the "ordinary" category; such substitutions are to be avoided, because they force the Government to borrow later on in  FISCAL POLICY 559 order to finance the more essential items. While this prohibition might help somewhat, it will hardly eliminate distortions in the congressional choice between alternative expenditures. There will still be pressure for the exclusion of items which, though not in the "ordinary" category, are generally considered essential; and hence there \vill be continued need for supplementary expenditures by the Administration. In order to place the choice between- alternative ex- penditures on a sounder basis, Congress wvould have to be permitted to vote additional expenditures as long as the source of additional finance (revenue or loan) wvas provided for. But then the restraint against loan finance would be lost. Possibly a compromise might be worked out by substituting for these rules (including those set forth utnder 1 above) the requirement of a two-thirds majority for debt authorization over and above that needed to finance the expenditures recommended by the Government. Under this system all revenue wvould be counted first against ordinary expelnditures proposed in the Government's budget, and loan proceeds voted upon by simple majority would go first to finance the proposed ordinary expenditures not covered by revenue. Only loan proceeds in excess of this amount, and voted upon by a two-thirds majority, would be available for other expenditures. Yet, Congress would retain the privilege of changing the expenditure total and hence there wvould be less danger that the expenditure pattern would be distorted. 3. The new plan requires that revenue estimates again be based on a formula, although less rigid than that provided for in the original legislation. Any rule wlhich requires that yield estimates may not deviate from the preceding years' average by more than a certain percentage introdu ces undesirable rigidity into budget planning. Yet the experience during the 1940's, xThen no such limitation was applied, shoxvs that some sort of formula is needed. The nexv formula has the advantage that the resulting bias in revenue estimates will favor a compensatory fiscal policy over the business cycle: by making the deficit larger than intended in a period of declining income, and the surplus larger than intended in a period of rising income, the formula will contribute to a proper fiscal policy. 4. The newv plan limits the amount of expenditures in excess of budget appropriations which may be undertaken by the Administra- tion while Congress is not in session. This is a sound proposal, as it is of great importance to assure that the control over public expenditures is with the Congress. Also, it is desirable, as provided for under the new proposal, that expenditure authorizations should be drawn upon nnder ordinary circumstances in equal monthly installments. Howvever, 560 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMIBIA these monthly installments should not be made to depend upon the amount of revenue yield which is forthcoming in the course of the year. A proper functioning of governmental departments and public agencies requires that those in charge of the program knoxv at the beginning of the year what their available funds will be. The procedure, now practiced and to be continuedl under the new plan, of more or less arbitrary cutbacks in one or the other programs, interferes \vith proper expenditure planning on the basis of the annual program as deter- mined by the Congress. This provision should be dropped and the Government should be entitled in the course of the year to incur additional debt equal to the excess of estimated over actual revenue yield. 5. The newv budget law does not affect the common practice of earmarking certain revenues for specific purposes. This method of raising funds, usually for developmental expenditures, has been increasingly used in recent years. New or increased taxes may, per- haps, be less unpalatable if they are earmarked for specific purposes with considerable popular appeal, but the practice has several over- riding disadvantages. The basic objection is that it greatly reduces the flexibilitv of the Government's fiscal structure; under changing economic circumstances the expansion or contraction of earmarked reventues will not necessarily conform to the requirements of the function involved, or to its relative importance in the total budgetary picture. At the sarme time the Government agency which administers that function and the economic groups which specially benefit from it gain a vested interest in certain revenues, which makes it hard to stop or reduce appropriations even though the original purpose may have been fulfilled or reduced in importance. In consequence, the tax system is likely to be thrown out of balance and other functions starved for funds. The importance of the last consideration is em- phasized by the fact that earmarking is resorted to mainly for "second- a ry" expenditures, while "ordinary" functions, which may be less dramatic but are usually the most essential, cannot make use of the special revenues. AWNe recommend, therefore, that this practice of earmarking be abandoned as rapidly as feasible, except for the fees and charges of autonomous agencies which are partly or wholly self-supporting. Budget Presentation The financial data of the Government should be presented in U form \vhich provides the legislature and citizens with the informatiolr needed to formulate an intelligent judgment of the Government's fisca  FISCAL POLICY 561 program. The financial statements, as currently presented in the official documents, do not meet this requirement and are badly in need of reformulation. The information to be provided should include (1) the kinds and amounts of public services to be rendered, expenditures being classi- fied according to responsible ministries or agencies and accordinig to functions; (2) a breakdown of expenditures between current and capital outlays, with depreciation and interest being shown on capital projects; (3) a statement of cash receipts from and payments to the public, drawn up on a consolidated basis so as to include all phases of budgetary activity; and (4) a statement showing the relationship between the cash surplus or deficit and resulting changes in the national debt and the treasury balance. The recasting of the system of budget accounting and presentation is a difficult task and it might well be desirable to obtain technical assistance for this purpose; or, possibly, qualified Colombian personnel might be sent abroad to study the problem. Precise information with regard to (3) and (4) above, wvhich are especially important for appraising the impact of the Government's fiscal policies upon economic activity, is unobtainable from the data nowv published. Indeed, most published statements, especially in their interpretation of the term "deficit," contribute little clarification. Yet, until the factual picture is presented clearly, neither the legis- lature nor the people will be in a position to reach intelligent judg- ments regarding the conduct of fiscal policies. FISCAL SITUATION OF DEPARTMENTS AND MUNICIPALITIES Rationalization of National-Local Financial Relationships The relative importance of national revenues as against those of the departments and municip,lities has been rising steadily in recent years-from about 23 percent of total government income in 1920 to 35 percent in 1930, 41 percent in 1938, and some 60 percent in 1948. This general trend was to be expected, considering the character of Colombia's development in recent years; in fact, a shift in the balance of financial and administrative strength from local toward central governments has been almost universal throughout the world. Never- theless it involves some important political, administrative and finan- cial problems which must be realistically faced and overcome if Colombia's development is to proceed on a sound basis. As the importance and strength of the departments and municipali- ties have declined, the development of the functions for which these 562 THE BASIS OF A DEVELOPNIENT PROGRA-M FOR COLOMBIA levels of government are responsible has not kept pace in most locali- ties wvith the country's overall progress. Among these functions are such vitally important ones as health, wvelfare and educational services, the provision of wvater and sanitation systems, and the development of electric power facilities. The problem of providing adequately for local functionis is made more difficult by the great disparity in financial resources wvhich exists among different departments. and particularly among the feAv largest cities and the great majority of smaller rmunici- palities. As was pointed out in Chapters X and XII, the latter are too weak and poor to carry out their essential responsibilities in satisfactory fashion xvithout extensive national aid. The financial difficulties of the poorer and less populous depart- ments are aggravated by the narrowness of their revenue base. Although the importance of income from liquor sales and taxes has declined somewvhat in the last few years, it still constituted over 36 percent of departmental revenues in 1947-48 and is the major reliance of many departments. Their need for larger revenues, particularly for education, thus frequently comes into direct conflict wvith the responsibility imposed upon them by law for carrying on campaigns to reduce alcohol consumption. * The Government has tried to meet this problem of the inadequacy and inequality of departmental and municipal revenues by shifting responsibility for v arious functions partly or \vholly to national agen- cies, and by providing grants-in-aid from the National Treasury. These expedients, hovever, are likely to lead, and in some cases have already led, to newv distortions in political and administrative relationships of the various levels of government. There is, first, a trend towvard over- centralization of activities which should more properly, or coulcl more efficiently, be administered at the local or departmental level: this tends further to \veaken local initiative and responsibility. Second. the present allocation of functions among the National Government. clepartments and municipalities does not, generally, seem to be based on any consistent policy or pattern, but rather is the outcome of a succession of piecemeal changes. This has brought about considerable overlapping alnd confusion of authority and responsibilities. Third, muclh of the assistance given by the lNational Government to depart- ments and municipalities is ad hoc in character, based on transitory political considerations rather than on consistent principles of equity or neecl. Its effect is often to aggravate, rather than reduce, the dis- parities in the resotnrces of different local governments. These distor- tions are not, apparently. deliberate. They result mainly from the  FISCAL POLICY 563 speed with which the Colombian economy and governmental functions are expandinig and changing. and from inadequate coordination of National Government policies and administration. But unquestiollably they hamper the continued progress of the country on a sound basis, and steps should be taken to remedy them. ( The developmiienlt of a well-balanced and integrated system of rational, departmental and local finance in Colombia is a most difficult, pret vitally important, task. This should be based on two principles: (1) the nation as a whole must assume some degree of responsibility for meeting minimnum standards of public services in all regions of the country, and (2) this should be done wvithout \veakenilng the re- sponsibility of regions anid localities to help themselves. In a country like Colombia in which there are substantial differences in natural endowrment and economic development among the various regions, application of the first principle requires that some assistance be granted by the wealthier to the poorer regions. Thus contributions from the national budget, financed out of general revenue and drawvn more largely from the wealthier regions, will have to be directed primarily to assist the poorer regions to enable them to provide for more adequate public service standards. In order to accomplish this purpose, plans designed to provide for national-local sharing of rev- enue sources are of limited use only, as are systems of matching grants. These devices cannot accomplish the purpose because the poorest regions wvhich are most in need of assistance can least afford to share revenue sources and are least able to match the national contribution. The criterion for the allotment of grants, therefore, will h-iave to be that of need, measured in terms of per capita resources and public service requirements in the various regions. This, however, must be qualified by the condition that a particular region or municipality will be entitled to claim support only if, and to the extent that, an adequate effort has been made to raise public service standards ont of revenues dra-wn from local resources. 'Need and local effort at self- help must both be considered. Considerable time, and more intensive ,tudy of the situation at the various levels of government than has aeen possible for the Mission, will be required to xvork out the details :f a satisfactory program of fiscal reform. In general, however, we -ecommend action along the lines indicated in the following para- Iraphs, subject to review and elaboration by the proposed Public Xdministration Mission. The division of functions and of sources of revenutte amolng the hree levels of government should be reviewved in comprehensive 564 THE BASIS OF A DEVELOPMENT PROGRAMN FOR COLOMBIA fashion to adjust their respective financial resources more closely to their responsibilities, to give the departmental and local govern- ments relatively assured income adequate for their needs. and to simplify the present complex and often quite arbitrary system of trans- fers of funds among the different governmental levels. A Committee of Financial Experts in the Ministry of Finance has made extensive and valuable studies of this problem, and has proposed certain specific recommendations. The initial proposals of this Committee would lessen the depart- ments' dependence on liquor reveniues by transferrinig the depart- mental alcohol monopolies to the National Government, with the latter delegating additional taxes and assuming the responsibility for certain departmental functions in exchange. They would also put the lottery on a national rather than a departmental basis with a view to reducing administrative costs and eclualizing revenues; net income from the proposed National Lottery would be returned to the departments in shares based on a definite formula. The Committee also proposes certain other transfers of sources of revenue and respon- sibilities for expenditure, and more consistent (and apparently more equitable) formulas for allocation of national grants-in-aid to depart- mental and municipal governments. These changes wvould substan- tially raise the proportion of national aid going to the large number of poor municipalities which need it most-in 1946 the 450 municipali- ties at the bottom of the income scale, containing 32.5 percent of the population, received only 6.3 percent of national grants to local governments. Wlaile we do not feel that our information on these matters is detailed enough, or that our analysis has been sufficiently intensive, for us to endorse all the proposals of the Committee of Financial Experts, their general objectives appear to be desirable and necessary. These proposals deserve careful and sympathetic consideration by the Administratioln and Congress. The establishment of a more effective Municipal Development Agency, as suggested in Chapter XXIII, might be of value in helping the weaker municipal governments to improve the organization and administration of their financial affairs and to enable them to stand on their own feet. It should also make it possible for many municipalities which now have little or no credit standing to borrow on reasonable terms for municipal improvements. This is one example of the need for national assistance to strengthen the position of local govern- ments, and their capacity to fulfill their growing responsibilities-anc  FISCAL POLICY 565 thus in the long run to reverse the trend toward overcentralization of government authority and administration. PMunicipal Taxes Municipal revenues (other than borrowings and assistance from higher levels of government) are derived from two sources-(a) in- some from property and services, and (b) local taxes and charges. Chapter XXIII contains general recommendations with reoard to utility rates (the principal source of service income), which apply to publicly- and privately-owned utility enterprises alike. We recommend action along the following lines to improve the efficiency, equity and adequacy of local tax structures. 1. The effectiveness of local tax collections should be improved. We believe the amount of municipal revenues could be substantially increased in this way without increasing overall rates. The National Ministry of Finance (or perhaps the Municipal Development Agency if it is established) might well institute a program of training in assessment, enforcement and collection techniques for municipal finance administrators to give them the benefit of the best advice available. Fortunately, local taxes generally involve less complicated techniques of assessment and collection than income taxes. A major aid to more satisfactory collection of real property taxes will be the nationwide reassessment of property values now in progress, which has greatly expanded the tax base and removed many previous in- equities. On the basis of the normal tax rate of Ps.$2 per thousand, the valuations established by the end of 1949 should yield Ps.$30 to 35 million, which is substantially more than the total yield of the "predial" tax in 1948; and aggregate valuations will presumably be increased further as the reassessment program continues. 2. The complex structure of taxes on industry and commerce, motor vehicles, etc., which prevails in many localities, should be simplified in the interest both of equity and of efficiency of collec- tion. For example, there apparently is no satisfactory reason for separate collection of an annual motor vehicle registration fee and a monthly "circulation tax" for continuing use of the vehicle. A single annual or semi-annual tax would he cheaper to administer, harder to evade and more convenient for the taxpayer. The Committee of Financial Experts is developing proposals for modernizing the principal municipal tax on industry and commerce, and making it uniform for the entire nation. Under their tentative scheme, the tax would be based partly on the type of business (its "essentiality"), and partly on the level of its net profits. This wvould tindoubtedly be fairer and more logical than some of the present 566 THE BASIS OF A DEVELOPMIENT PROGRANI FOR COLOMIBIA taxes, but it wvould overlap in large measure with the National Govern- ment's corporate ilncome tax, as do the present local taxes on industry and commerce. While such duplication is not necessarily bad in itself, it wvould be desirable to consider reform of the industry and commerce tax as part of the necessary comprehensive review of financial relation- ships among the different levels of government. Clearly, however, the existing tax needs modification in any case. 3. Some upward adjustment in the average rate of real property taxes seems advisable. The present normal rate of tvo per thousand, and even the emergency rate of four per thousand, is very moderate in comparison xvith those prevailing in more highly developed countries. Higher real property taxes wrould, in fact, tend to proliiote economic development in several wvays: (1) by providing funds for necessary public facilities and services; (2) by helping to divert capital from undue concentration in land and buildings into more productive channels; and (3) by encouraging owners to use their land more intensively. The differential rates of tax on land used substantially belowv its economic capacity (proposed in Chapter XVIII) would serve these purposes. A similar principle already applies to unim- proved urban land in some cities and might well be extended to other localities and suburban land, with a view to discouraging real estate speculation and providing an incentive to more housing construction at reasonable prices. The latter should, of course, be supplemented by adequate building regulations to prevent a proliferation of jerry- built houses merely to avoid taxes. 4. All taxes and levies interfering wvith the free flow of trade betveen various regions of the country are detrimental to economic development and should be repealed. Departmental and municipal governments should not be permitted to impose such levies. A substantial increase in municipal revenues is certainly necessary to provide adequate local facilities and services (see Chapter XXIII). However, this need not be derived entirely from current resources. MIunicipal debts are loxv in the aggregate, and a great deal of progress has been made in recent years in putting these obligations, especially external debts, on a sound basis. If municipal finances and adminis- tration are strengthened and if their plans are reviewed and their obligations guaranteed by an effective M\unicipal Development Agency, many of them should be able to borrow substantial sums for develop- ment purposes on quite reasonable terms. On the other hand, it must be emphasized again that their ability to obtain and service new loans will depend very largely upon an increase in their current revenues and continued improvement in their overall financial position.  CHAPTER XXVII Money, Banking and Capital Markets The Colombian central banking legislation of 1923 was modeled in important respects after the early Federal Reserve System. The underlying purpose was to assure an elastic supply of currency and commercial bank credit to avoid credit crises by pooling reserves and to assure a high degree of liquidity of commercial bank assets through proper supervision. Rediscounts of the Central Bank, operating under eligibility requirements, wvere to 0-ear the volume of credit to the supply of eligible paper and hence, so it was thought, to the proper needs of trade. The concept of the Central Bank's function has since changecl in important respects, and therefore it has been necessary to make corresponding acljustments in the institutional structure of the banking system. VOLUME OF COMMERCIAL BANK RESERVES As pointed out in Chapter XIV, the supply of credit does not regulate itself but requires controlling action on the part of Central Bank autlhorities, designed to ease or tighten the supply of credit as the needs of the economiiic situation demand. This control is exerted by adding to, or curtailing, the lending potential of commer- cial banks. Whether this takes the form of rediscounts, open market trading or changes in the reqcuired reserve ratio is relatively unim- portant. W,Vhat matters is that the ability of commercial banks to lend is kept at the proper level. Action of the Central Bank to enlarge or restrict the supply of commtercial bank reserves or to change the required reserve ratio may be needed for two reasons: there may be changes in economic condi- tions which render the volume of credit excessive or deficient; or certain developments may occur such as inflowv of foreign exchange, or an increase of currency in circulation, wvhich Avould add to or detract from the prevailing level of reserves and thus require com- pensating action by the Central Bank. In addition, lending activities by the Central Bank itself may cause important changes in the reserve position of commercial banks. Gains or losses of foreign exchange resulting from a surplus of exports or imports have been an important unstabilizing factor in the Colombian money system. Bank reserves \vere swollen during the wvar by the inflow of foreig-n exchange and wvere drained subsequently 567 568 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA by exchange losses: early in 1950 they were again increasing as a result of the rise in coffee prices. An improvement in the balance of trade and the concomitant exchange gain, ho-wever, do not neces- sarily warrant an expansion of credit and a rise in the domestic price level. By raising domestic money incomes and thus increasing the demand for imports, as wvell as by making Colombian products more expensive to the foreign buyer, rising prices would nullify the im- provement in the country's balance of payments position. One way of dealing with the reserve effects of exchange move- meiits wvould be through a policy simnilar to the gold sterilization undertaken in the United States during the late thirties. In order to sterilize the effect of the gold inflow on commercial bank reserves, a policy wvas then adopted to finance treasury purchases of gold (which purclhases added to commercial bank reserves) through the sale of Government securities in the market (which sales reduced com- mercial bank reserves by an equal amount). Since Government securities cannot be sold readily in the open market in Colombia, a corresponding policy would have to be designed along somewhat different lines. The offsetting restriction of reserves might have to operate through reduced discounts or an increased reserve ratio. In setting the volume of rediscounts which the Banco de la RepiSblica may extend for a given period, the quota might thus be increased or reduced automatically by the amount of loss or gain in foreign exchange over the period. Or a policy might be adopted by \vhich there -would be a periodic adjustment in the reserve ratio so as to offset the reserve effects of the exchange movements. But xvhile such a formula might be readily worked out, it might not be desirable to establish so rigid a rule.i There is no particular merit in compensating for just one of the factors affecting commercial bank reserves if, at the same time, there may occur other changes in reserves (due to currency flow or lending by the Central Bank) which require further action. The only real solution to the problem is a central banking policy wvhich follo\vs current developments and makes proper adjustments \vhen the need arises. Similar problems also arise in connection with Central Bank lend- ing to the Government and various credit institutions. As was pointed out in Chapter XIV, lending of this kind was responsible I Suppose that prior to the inflow of exchange the reserve ratio is equal to r and the volume of reserves equal to R: let the inflow of exchange (i.e., the addition to reserves) equal G. Then, in order to keep the credit potential constant we must have R = (R -- G) or r = r R+G . r ri R where r, is the new reserve ratio.  MONEY, BANKING AND CAPITAL MARKETS 569 to a considerable degree for the expansion of bank reserves during the postwar period. It arose both in the financing of budgetary deficits and in providing Central Bank assistance to other public credit institutions, such as Caja Agraria and Fomento. With regard to Central Bank participation in the financing of budget deficits, the primary issue is not whether the Government should borrow from the Central Bank, but wvhether the funds shotuld be obtained from the banking system (be it the Central Bank or the commercial banks) or from the non-banking public. Where the debt is sold to the public, it is purchased out of existing money balances; where it is purchased by the banks, it is in effect bought with money newly created for the purpose. In the latter case, the money supply in the hands of the public is increased, but in the former case, the increase in the public's asset holdings is in the form of debt. Since money is more liqtuid than debt, borrowing from the banks is the more inflationary procedure. Although the initial effect on the money supply is the same whether the debt has been purchased by the Central Bank or the commercial banks, borrowing from the Central Bank also results in an increase in commercial bank reserves. This will permit a second- ary (and multiple) expansion of commercial bank credit unless off- setting action is taken. Frequent and easy resort to borrowing from the C'entral Bank for treasury financing thus imposes a heavy burden upon central banking controls. In times of inflation, in particular, it should be used sparingly, if at all. As will be emphasized below, the solution is in the development of a healthy market for public debt outside the banking system. Reliance upon Central Bank credit in supporting other public credit institutions has resulted in further conflict with the primary function of the Central Bank. Where the Government wishes to provide capital for development purposes, it should do so by channel- ing individual and business savings into such public uses, rather than by creating new money. This channeling may be accomplished through taxation or borrowing from the public, or through the use of public guarantees of private capital issues. Whatever the particu- lar techniques used, a sound program of capital formation, private or public, must be based upon the flow of current savings and thus' be divorced from the inflationary process. MEANS OF CONTROL The preceding considerations point to the necessity for a flexible central banking policy, aimed at continuously adjusting the lending ability of commercial banks to meet the credit requirements of each  570 TIHE BASIS OF A DEVELOPMENT PROGRANI FOR COLOMIBIA particular economic situation. In order to effectuate such a policy. the central bankinig authorities mulst have the assistance of a staff of competent economists, wlho are in a position to advise on economic developments both xvithin and \vithout the credit field. In particular, the responsible officers of the Central Bank should be supplied by the staff wvith bi-weekly or monthly estimates of factors, wvhich will acld to or subtract from banik reserves, so that they will then be in a position to determine and continiuously adjust the supply of com- niercial banki reserves. In order to implement such a policy of reserve control, the Central ,Bank authorities must have the necessary tools of control. In the United States these include, in order of importance, open market sales and purchases of Government securities, adjustments in the required reserve ratio and, of historical rather than current im- portance, adjustments in rediscount rates. Open market purchases and sales, which provide by far the most flexible means of control, are not readily adaptable to Colombian conditions. As yet there is no open market for Government debt. WNhile open market operations may be conducted to some extent in paper other than Government debt (e.-., corporate securities), these possibilities are limited. Thus emplhasis wvill have to remain at present on rediscount policy 1and reserve ratio adjustments. Of the two, rediscount policy is more flexible and adaptable to short-run adjustments. It is important, therefore, that the rediscount technique be made as effective as pos- sible. In order to grant the Banco de la Republica the necessary freedom of operation, any ambiguity in the legislation concerning its powNers should be resolved.2 The Board of the Banco de la Repflblica should have wvithout question the responisibility of determill- ing the voluinc of rediscounts according to the needs of the economic situation: and the Board should be free to do this wvithout any reference to the supply of so-called eligible paper. A similar recomi- mendatioln is contailned in a bill presented bv the Minister of Finance in July 1949. If the Board of the Banco de la Republica has the power of adjustinog the volume of rediscounts as it sees fit, the question arises as to how the limited v olume of rediscounts should be distributed among,- the individual banks. Presentation of eligible paper, or in this case of the "most eligible," should not be made the basis of dis- tribution. Continuous redefinition of eligibility would be unwieldy and discourage flexible policy adjustments. As noted before, eligibility requirements are of no value in assuring an automatic regulation of 2 See footnote 7, Chapter XIV.  MONEY, BANKING AND CAPITAL MARKEiTS 5 71 the proper creclit supply, and they are of little usefulness as a means of qualitative credit control. Little would be lost and much gaine(l in the wvay of positive policy formulation if the eligibility concept wvere dropped and primary consideration shifted to the quantity of reserves and credit as such. A second possibility would be to let the limnited supply of redlis- counts go to the highest bidder by adjusting the rediscount rate. B3ut this also is not a very feasible approach. Although it wvouldl have been desirable to tighten rediscount rates in the postwar period, the demand for rediscounts is not sufficiently sensitive to the interest cost. Such adjustments, therefore, wvould involve very drastic andl frequent fluctuations in rediscount rates. The rationing of limited rediscounts, therefore. wvould have to be left to the discretion of the Banco de la Repuiblica, or it might be handled by setting- flexible rediscount ratios. The first alternative has the advalntage of creating flexibility but raises difficulties of inter- bank equity. Under the second approach, the upper limit for redis- counts vvhich any individual commercial bank is permitted to obtain wvould be set as a fraction of its capital and reserves, much in the same way that a limit is set by the present law. Hoxvever, the Central Bank would have the power to change this ratio, now set at 120 percent, and to make periodic readjustments depending- upon the requirements of the situation. In order to assure flexibility, the Board of the Banco de la Rep6blica might be required every month to announce the rediscount ratio for the coming month. Since changes in ratio would apply to all commercial banks alike, no problems of interbank equity wvould arise.' This instrument of control -would be essentiall1 siniilar to adjustiiieiits in the reserve ratio but it inig-ht prove to have the advantage of greater flexibility. While neither of these mechanisms xvould have the flexibility pro- vi(led by open market policy, the two techni(Ilies used in conjtunictioll should be adequate to deal -with the problem. In addition, there are Dther devices wlhiclh might be used, such as a shift in Governmnlelnt leposits to and from commercial bankis andl the Central Bank at. the lirection of the Central Bank. DETERMINATION OF BANCO DE LA REPUJBLICA POLICY The wise use of, as well as the possession of, adequate instru- ilents of control is important. Those responsible for central bank- ng policy have a most difficult task, requiring a combilnation of quali- 3 Such a procedure, nevertheless, would create certain technical problems, such as letermining the period in which a bank wvoild have to contract its rediscounts if its -atio were overextended. In view of the small number of major banks involved, it hould not be diffictlt, howvever, to work otut these problems. .72 TTIE BASIS @lE \ DEVELOPIMENT P'ROGRAMI FOR COLOMIMA ties. Ideally they, must, in the first place, have an understanding of some of the most difficult technical problems in the field of eco- nomics. These problems center around not only the mechanics of the changes in the money (currency and demand deposits) supply but also the interaction of monetary, fiscal and exchange factors and their bearing on the dynamics of economic growth. Ability to assess the future impact on the economy of changes in these three fields, and to adopt coordinated policies in these same fields to bring about desired results, is both essential and most difficult. The creation of a strong technical staff is indispensable, but the final responsibility for action must rest xvith the top policy formutlationi body of the Central Bank. Secondly, the formullationi of central banking policy is a public trutst and consequenitly must be deterrinled by the public interest. The powver to create or destroy money has alxvays been the preroga- tive of the sovereigni. Chanlges in the char-acter of money from coins to notes to demand deposits in the 19th and 20th Centuries have resulted in monev being created throughl the commercial banking system as wvell as through the mint and the printing press. The primary purpose of central banks has become. therefore, not that of servicing the commercial bankinig system., but of controllinig the supply of money in the public interest. Commercial banks quite natuirally have a tendency to make loans and hence create demand deposits up to the full limits permitted by their reserves, and the responsibility of the Central Bank is to adjust these reserves so that the volumie of deposits can be maintained at a level appropriate to the -eneral economic situationi. FIinally, in an underdeveloped country wvith relatively small anntual .>avings, high interest rates and alluring- opportunities and needs for investment, the Board of the Central Bank will alwvays and in- evitably be exposed to great pressures and must be prepared on occasion to adopt unpopular restrictive policies. The bearing- of these considerationis on the organization and owvnership of central banks, on the composition and tenure of office of their boards of directors, andl on the difficult problem of the relationship of central balnks to governments is obviotus. Monetary theory in general and the role of central banlking in particular have undergone important modifications in the past twventy- five years. It may be desirable, therefore, to review the basic organi- zation of the Banco de la Repi6blica and its relationship to the Gov- eriinent in the light of the changes in theory and practice wvhich have occurre(d since it was established. Doubtless this whole sub-  MIONEY, RANKING AND CAPITAL MAIARKETS 573 ject will be studied by the proposed mission from the Board of Gov- ernors of the Federal Reserve System of the United States. PORTFOLIO OF COMMERCIAL BANKS At present the kinds of assets which commercial banks are per- mitted to hold are severely restricted. According to the Banking La-w of 1923, commercial banks may not grant loans of over one-yearlE nmaturity and they may not invest in industrial enterprise or real estate except wvhere such securities are offered as loan collateral. Exception is made for the investment of savings deposits. How- ever, only one commilercial bank has a savings department ancd only a small amount is involved. This does not mean that commercial banks render no contribution to long-term investment: by supplying short-term funds, other funds are in fact freed for longer-term use. Neevertheless, the direct contribution of banks to long-term capital formation is slight. And in viexv of the dearth of ftinds available for j long-term investment because of the reluctance of the Colombian investor to undertake such ventures, a larger direct contribution from the banks seems desirable. In the bill recently presented by the Finance -Minister, it is pro- posed that the Superintendent of Banks be permitted to license the establishment of savings departments in other commercial banks and that such banks be permitted to invest up to 50 percent of their savings deposits in loans for development purposes, with maturities up to five years. Also, a recent decree provides that commiiercial banks shall be permitted to invest up to 10 percent of their deposits similarly. This is a desirable step and consideration should be given to further development of this approach. The Superintendent of Banks might be authorized to establish certain assets as eligible for com- mercial bank investment up to a certain fraction of the bank's total assets, and banks might then be encouraged to hold such assets \vithin these limits. Since the supply of funds for financing projects which are of key importance to economic development is altogether inadequate and disproportionate to the funds which may be obtained for less essential uses, the Government may in certain instances wish to subsidize interest returns from such investments and to apply mandatory investment requirements. If that is done, the types of assets eligible for commercial bank investment should be determinedl most carefully. By suggesting limited bank investment in certain assets, we do not wish to suggest financing of long-term development projects by inflation. If continued inflation is to be avoided, total expenditures 574 TIIIE BASIS OF A I)EVELOP'MENT PROGRAMl FOR COLOMBIA in the economny, whether for consumption, private capital formationi or lon--termn development, must be held within the limits of the avail- able supply of goods and resources. That is, development expendi- tures (unless tax financed) mu1st be financed out of, or matched by, business or personal saving-s. The objective is not to achieve more cLapital formation by more inflationi, but to improv-e the direction of capital flo\v. Similarly. the objective is not to increase the existing credit supply but to redirect some part of this supply into develop- menital uses. Giveen an effective overall limitation otn credit expan- sioI, no additional inflationary problem is created by thus shiftinlg credit from coulnercial into developmental uses. From a long-run point of viexv, credit thus used -will contribute more to economic growth and be more compatible \vith price stability than alternative uses of the same credit in short-ternm and speculative ventures. 4 OPEN MARKET FOR PUBLIC DEBT As showvni in thle closing section of Chapter XIV, the increase in pulblic debt during the 1940's wvas absorbed very largely by public or semi-public instituitions. Private investors, including commnercial baniks, took only 20 percent of the total, anid a large part of this wvas accouinted for by compulsory investmelnt requiremenits. Thus there is little, if any, free market for the national debt; yet it is highly im- portant that such a market be developed. The program proposed b) the MNissioni assigns a hilgh degree of importance to certain long-range development projects which, by necessity, will be undertaken by the Government. While some of these projects might be justifiably based on loan rather thani revenue finanacing, such sources of loan finalnce maust be found outside the banking system, and especially outside the Banco de la Reptiblica. If the Governlmlenit is to carry through these programs without infla- tionI, a way- must be found to secure absorption of public debt by noni-bank investors. During- recent years the semi-public Caja Colom- biana de Alborros has provided in some measure a source of sucl funds, but the amoounts forthcolming are far short of what is needed. Moreover, it appears somewhat inequitable to expect holders of saving-s deposits to furnislh funds at 3 or 4 percent in ani economx- where capital returnis generally are very much higher. In order to establish an open mnarket in public (lebt. t\xo coIn- ditionis miust be inech First public debt mulst appear sufficiently- 4 in pursuing suich a policy of limite(d bank inlvestnlielit in developmental projects, the requiremelnts of bank liquidfitv should lnot be overlooked. However, given a healthy and expanding economy, there is no reason why some investmenit in such assets should not be compatible with a thorouglhly souind bauking positioni.  MONEY, BANKING A,ND CAPITAL MIARKErS 575 attractive to the investor, in competition- wvith other types of invest- merit, to attract the necessary funds; and secondly, an adequate flowv of savings of the proper kind must be available to seek investment in public debt. The first condition involves issues of political and economic stability. The investor will find investment in national debt attractive onlv if there is no question regarding the Government's credit standing and if the investor has confidence that there will be no inflation. Otherwise, investment in public debt wvill be less at- tractive than investmlent in variouis kinds of eqtuity assets, such as land, cattle, real estate or shares in private corporations. Thus public borrowing from the Central Banik wNill not only contribute to inflation but it will also undermine the development of a market for public debt outside the banking system. However, even in the absence of political uncertainty or fears of inflation, it is important that public debt be sufficiently attractive to compete with private investment. Accordingly, thought may well be given to designing types of public debt issues which will meet the needs of particular groups of investors. The second condition-the availability of funds for investmnent in public debt-will have to be met in time by a growing level of nationial income giving rise to a growing level of personal savings. This inevitably is a slowv process. Today, available saving-s are ieavily concentrated in retained earnings of business and the personal savings of the high income groups. As a rule, the position of these ;avers is such that investment in more speculative, higlher-yielding ypes of assets is preferred. To be sure, to the extent that inflation s checked and speculation is made less attractive through appropriate ax measures, a larger part of these funds may become available for ivestment in public debt. From the longer-run point of viewv, development of an open market I public debt, based on voluntary debt purchase, is of primary im- ortance. In the meantime, it will be desirable to make continued ,e of compulsory debt-holding provisions. Certainly, such metlhods finance are- less inflationary than borrowing from the banks and, used as a supplement to taxation, may be more equitable thani :clusive reliance on taxation. Howvever, funds thus raised should be 'plied to long-run development projects only wvhere they will do the ost good. It is very doubtful, moreover, wNhether such funds slhould raised for specific projects, such as the Instituto de Credito Ter- orial and the Paz de Rio project-like the earmarking, of taxes this ids to encourage misallocation of funds. Rather, it may be preferable credit such revenue-equal to, say, a 10 percent addition to income liabilities-to a general Developmnent Fund and to apply the 576 TTR BASIS OF A DEVELOPMENT PROGRAM FOR COLOMiBIA proceeds (together wvith additional tax proceeds available to the Fund) to finance those sections of the program most in need of help. ORGANIZATION OF CAPITAL MARKETS In our discussion of capital markets, wNe noted a highly uneven- dis- tribution of funds among ditferent uses, leading to overdevelopmenit in certain fields and neglect of others. 5 Structural improvements in the capital market, or rather the development of a fluid capital market, would facilitate a broader distribution of futnds and are highly de- sirable. The importan-ce of properly directing the flow of capital resources, so as to obtain the greatest possible benefit in terms of increased productivity, can not be overemphasized. Improvement in financial organization is one aspect of this problem; more direct guidance of capital flows is another. This is of particular importance for an underdeveloped economy such as Colombia's wvhere profit differentials betweeni various investment projects are not always a satisfactory indicator of the country's longer-run needs. The investor's desire to obtain hig-h profits in the short run leads to overemphasis of immedi- ately profitable investments and to a disregard of long-range projects which, thotugh less profitable in the short run, may contribute more to the country's productivity over a span of years. Distortions in the allocation of capital arising from the desire for quick profits will, of course, be reduced if the level of prices is stabilized; but the guiding of the capital flow into the most significant uses will still be an important problem. While the MIission has been cognizant of the need to consider this problem, we have not had the time to study it in detail and to make recommendations thereon. It is hoped that special attention will be given to it-as wvell as to the problem of integrating the various public credit and lending agencies-by the proposed mission from the Board of Governors of the Federal Reserve System of the United States. 5 See Chapter IV.  CHAPTER XXVIII Foreign Trade and Exchange As was pointed out in Chapter XV, any decisions on exchange rates and exchange controls must be very closely coordinated with other aspects of fiscal and monetary policy and with the requirements of the development program as a whole. This is a highly technical field; it is necessary that the factors involved be weighed with extraordinary delicacy and that the policy decided upon be administered with great skill and flexibility. We recommend that an intensive study be made of this whole problem of monetary and exchange policy in relation to the overall development program; and we recommend that this aspect of the study be carried out in close consultation with the International Monetary Fund, which has special responsibilities and competence in this field. TREATMENT OF FOREIGN CAPITAL Colombia offers many attractive opportunities for private foreign investment, and could benefit enormotusly from such investment, particularly if it xvere combined with Colombian capital in joint enterprises. Private foreign investment provides not only badly needed capital but also, and of almost equal importance, the technical skills and management developed in highly industrialized countries. High technical skills and good management policies not only benefit.k the enterprise directly involved, but also have a leavening effect upon industry in general. Canada may be cited as an example of wvhat foreign investment can mean to a country. Total foreign investment in Canada in 1947 amounted to the relatively large figure of $7 billion (of wvhich only $1.6 billion were invested in Government securities) and has aided im- measurably in Canada's becomin-g a highly industrialized country with a high standard of living. Apart from private investments in explora- tion and development of petroleum and gold, wvhere there was some definite assurance of being- able to recover dollar exchalnge on invest- ment, direct private foreign investment in Colombian industries amounts only to some U.S.$20 million. There are, of course, many explanations for this tremendous disparity in capital investmelnt. Credit is a tender planti difficult to establish and nurture and easily damaged. Successfully growvn, howvever, it yields enormous returns. A prolonged period of exchange sLability xwith no restrictions on the 577 578 THE BASIS OF A DEVELOP-MENT PROGRA-M FOR COLOMBIA remittance of earnings would do much to create an economic environ- ment favorable to heavy foreign private investment. In the pursuit of such a course, it may be necessary to tolerate some individual abuses such as the remittance of large profits earned in speculative activities that contribute little to the welfare of the counitry. The possible value of every additional regulation in preventing such abuses may be offset many times by the deterrent effect of multiplication of rules on the inflowv of foreign capital. Colombia has moved so far along the road of direct controls that it is probably unrealistic at this date to recommend a complete reversal of policy so far as foreign private investment is concerned. However, mutch can be done even wvithin the framework of rules, regulations and restrictions to create an atmosphere of certainty and the absence of discriminationi. Investors can put up with many conditions, pro- vided these conditions are known in advance, adhered to and not altered frequently. If, therefore, it is decided to continue certain restraints on the exportation of earnings on foreign capital, it is important that a definite policy be worked out and continued over a period of time. It should, for example, be possible to establish at the time of importation whether or not the basic conditions permitting remittances of earnings have been met. Thereafter, applications for such remittances up to the amount permitted by laxv should be approved automatically. A limitation on such remittances to a certain percentage of capital invested, averaged over a period of two or three years, might not be too great a deterrent. The important thing is that the limitation should be generalized and not left to the dis- cretion of the Office of Exchange Control. Similarly, constancy of treatment is necessary as regards the withdrawal of capital. The in- vestor should know what situation wvill face him in advance of bringing his capital into the country. Perhaps limitation as to the time when xvithdraxvals can be made and/or the amount of annual withdrawals wvould be desirable. This wvould seem to be the case especially wvhere capital comes into the country directly or indirectly in the form of merchandise. WVhether or not the importationi of capital for certain purposes ought to be restricted is problematic. There seems to be merit in avoiding this type of restriction, especially insofar as it might involvc discretionary action on the part of the authorities. Nevertheless generalized rules limiting investment along certain lines might be possible without serious effect. Such limitatiolns woould seem leas objectionable if they could be xvorked out so that the same rtle! applied regardless of whether the capital was of forei-n or domesti  FOREIGN TRADE AND EXCIHANGE 579 origin. In each case, certain charges on the country's foreign exchange resources may be involved. Where foreign capital is concerned, the charges may be for dividends and amortization, and in the case of domestic capital they may be for imported equipment. A further question arises wvhether, quite apart from the purpose, capital imported in different forms ought to be treated differently. The Colombian approach to the problem tends to allow for different categories of capital imports: inward transfer of foreign exchange, importation of newv machinery or equipment, importation of used machinery or equipment, importation of raw materials, importation of saleable materials, and acquisition of inventions and patent rights. Also, where capital is imported at the exchange certificate rate, there is a tendency to require that any remittances of earnings or amorti- zation be at the certificate rate. The important thing againi, as regards any differential treatment of different types of capital import, is that general rules should be established and that decisions as to treatment should not be left to be made on a discretionary basis. While the treatment of foreign capital in Colombia appears to have been reasonably satisfactory, there have been some problems. One serious difficulty has been the problem of having to establish that capital was legally imported into the country before remittances can be made. It should be possible to establish the legality of entry once and for all at the time of importation with no possibility of retro- active changes. It xvould probably do little harm if foreign capital already invested in Colombia w,ere given legal status. But the advan- [age of such a move would be largely destroyed if the foreign investor wvere forced to justify or to prove the legality of his capital import before such status was granted. Another serious difficulty under the present system in Colombia is the holding up of requests for authorizations to remit dividends even in cases wvhere there is no problem of proof of legality of the capital import. These delaying tactics appear to have been quite separate from the problem of eliminating the arrears of payments registered with the Office of Exchange Control. The delay referred to here has been rather a delay in getting the request for remittances Dn the arrears list. If payments have to be held up, that is one prob- let. But the holdup, if any, should be after the request for an exchange authorization has been registered wvith the Office of Ex- change Control, and not before registration. In general, once the import of capital has been allowed, it should be eligible for dividend and amortization payments, subject to any general (but not discretion- ary) rules that may be deemed necessary. 580 THE BASIS OF A DEVELOPMIENT PROGRAMI FOR COLOMBIA Special problems of foreign investment arise in the gold and petroleum industries. In the case of gold, it may be noted that the Decree of September 9, 1949 appears to have established conditions reasonably satisfactory to the foreign companies as regards the making of remittances. Like gold, the petroleum situation has certain peculiarities. In general, the problem of remittances is met bv permitting the com- panies to use the proceeds of the export of crude oil. There is, hoxvever, a special problem where a petroleum company such as the Tropical Oil Company has a large peso income from sale of refinery products or from the sale of imported merchandise. The establish- ment of reasonable and continuing rules for the treatment of such capital would seem to be desirable. It is gratifying that a thorough reconsideration of the problems confronting foreign oil companies in Colombia is currently under xvay. While it is probably true that the basic reasons for the tendency of foreign companies to withdrawv from Colombia may have been the disappointing results of recent explora- tion and the development of more promising areas elsewhere, never- theless the conditions under \vhich foreign oil companies have conducted their operations in Colombia have played their part. Chaniges in the basic petroleum lawv and in the tax laws as applied to the peculiar problems of oil companies are past due. In general, if Colombia xvishes to encourage the importation of foreign private capital and enjoy the substantial benefits therefrom, it must maintain positive governmental assistance in overcomning the problems which have developed writh respect to foreign capital as v,ell as ensuring absence of discrimination. In some cases, the device of joint foreign-Colombian enterprises has eased adjustment to the lawvs and customs of the country, and has worked very well in a majority of cases. Possibly many additional opportunities for such happy combinations would be uncovered and furthered through the creation of joint foreign and Colombian invest- nient banking and undervriting houses. BILATERAL AGREEMENTS At the time of writing, data were not available to permit appraisal of the effect of Colombia's bilateral agreements on her export and import trade. There is, hoxvever, certain evidence to suggest that this effect has been fairly small. Except for the ambitious agreement wvith Western Germany, the agreements themselves xvill not apparently facilitate much improvem1-ent in Colombia's trading position.  FOREIGN TRADE AND EXCHANGE 581 As a general proposition, it would seem unnecessary for a country with the dollar-earnino ability of Colombia to force her trade along bilateral lines. The fact that the great bulk of Colombian exports produce hard currency means that importers can buy in the cheapest markets. In the postwar period, there have been no significant difficul- ties in selling coffee for dollars. At present, it is difficult to see how the agreements would increase such exports significantly. Bilateral- ism means increased costs of imports, as evidenced by the Finnish case, and by a report in August 1949 that import prices ulnder the proposed French Agreement would be lowver if Colombia would pay for the goods in dollars rather than in coffee. It is argued that only through bilateral trades can coffee be sold to Europe and that, because of such sales, the taste for Colombian coffee is maintained. Moreover, through the consequent reduction of sales in the United States, the price structure there is strengthened. It is to be doubted, however, whether sales in small volume can have much effect. In general, bilateral trading has been resorted to by countries short of dollars. It involves skill in negotiation and expertness in implementation. Whilc it may be condoned for countries with no other recourse, the spread of this type of interniational trade will un- doubtedly yield greatly diminished benefits to the world as a whole, as contrasted xvith multilateral trade. It is greatly to be regretted, therefore, that Colombia, wvhich has benefited so tremendouslv from multilateral trading in the past, should embark on this course wvhich can only lead to more restrictions, more regulations and more inter- ference with the free flow of commerce and to sacrificing the benefits of international division of labor. CONTRABAND AND SMUGGLING Contributory causes of contraband and smuggling are tie main- tenance of a rate of exchange which overvalues the peso in relation to the dollar and a system of rigid import and export controls. There is widespread feeling that these regulations are not just and reasonable, and the illegal traffic is condoned by many. Any such wvidespread dis- regard of laws has a demoralizing and corrupting influence. It leads to unmerited large returns to the lawvbreakers and loss of revenue to the Government. The problems of smuggling and contraband could best be eliminated by removing the incentives. If, however, this is not considered possible, resolute efforts should be made to stamp them out through creation of a career national police service. There appears to be little justification for the continuance of con- trols on exports of cattle and agricultural products to Venezuela. 582 TIHE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA That country should continue to be a substantial dollar earner for some time, because of its large petroleum reserves and rich iron ore (leposits, and Colombia can obtain some of those dollars by developing its exports to Venezuela. DESIRABLE CHANGES IN THE COMMODITIES TRADED As has been frequently pointed out, Colombia's foreign economic position, wvhile currently very favorable, is at the same time vulnerable. It is imprudent, if not actually dangerous, for a country to tie its fortunes so closely to those of a single commodity. Advantage should be taken, therefore, of the currently favorable conditions to develop new exports wvith potential quantitative significance for the future, and to build up their domestic production. Attention has been called to some possibilities in Chapters XVIII and XIX. We are satisfied that it is both technically feasible and economically desirable to continue further the process of substituting domestic pro- dluction for certain imports. These imports include both raw materials (suclh as cotton) and fabricated articles, such as certain steel products, refined petroleum products and a variety of less important manu- factured goods. At the same time, we urge that every effort be made to assist in the development of exports of coal, forest products and additional agricultural products if current studies prove that such exports can be justified on economic grounds. A change in the com- position of imports to less basic items and the development of newv exports would help to shield the standard of living from the serious repercussions that might arise from any unfavorable developmerts in the coffee situation. Fundamentally, Colombia has the natural re- sources to provide a relatively high standard of living. If advantage is taken of the current situation to build up its powver resources and to increase both the production and fabrication of raw materials, the economy \vould become much less vulnierable to unfavorable develop- ments abroad. We have stressed throughout that, for the sake of Colombia's economic development, only enterprises should be started \vhich give promise of bein- able to hold their own in competition with foreign production -vvith such protection as may be offered by high transport costs. The mainteniance of an unduly high external value of the peso places an uneconomic handicap on some domestic manufacturers. It is to be hoped that the nexv permanent tariff will not be based on present price relationships but will take into account prospective chang-es in exchange policies.  FOREIGN TRADE AND EXCHANGE 383 It is difficult to determine in advance the outer limits of foreigni borrowings or foreign capital investment \vhichl may be encouraged \vith safety anti prudence. These limits change constantly Wvith changes in world economic conditions and the domestic situation. Moreover, the nature of the foreign investment or the purpose for which loans are secured are of paramount importance. For example, capital invested by foreign oil companies in exploration does not have to be repaid unless oil is found in sufficient quantities. At the other extreme would be a debt incurred to establish an uneconomic industry that would retard rather than help the development of the country. Colombia's outstanding indebtedness is not large in relation to current and prospective dollar earnings. It would appear, therefore, that Colombia could safely afford a substantial import of capital, pro- vided that it took place as part of an overall plan designed to increase the productivity of the country and render its economy less vulnerable to unfavorable developments in a single crop. Our model projections in Chapter XXX assume an average net inflowv of foreign capital, after repayments, of approximately Ps.$60 million per anntim.  CHAPTER XXIX Administrative Reforms Throughlout Part I, ancd particularly in Chapter XVI, the need for improvements in governmental organization and in the data on which policy must be formulated was stressed. In various chapters in Part II, the genieral types of reforms desirable in this field have been noted. The importance of these improvements can hardly be exag- gerated. In all countries, the governments have been assuming in- creasing responsibility for the operation of the economic system and are playing increasingly important roles in this field. It is obvious that for the successful formulation of the type of program set forth in this Report and for its efficient implementation and execution, far-reaching improvements in public administration are called for. As remarked previously, the Mission had neither the time nor the personnel to undertake an exhaustive study of this field but wvas concernled merely wvith pointing out some of the more apparent needs and possibilities. It quickly became evident that much more study was required than could be afforded by an economic mission. Con- sequently, since reforms in this field are necessary prerequisites to the adoption and execution of our overall recommendations, the Chief of the MIission indicated to the President that a further mission for this specific purpose would be desirable. The President immediately expressed his agreement wvith this recommendation. It is not proposed, therefore, to attempt to anticipate here the findings and recommenda- tionis of another advisory group. It may be useful, however, to in- dicate somie of thle more pressing problemls that need study and some possible general lines of solution. In general, the problem is to improve the efficiency of both plan- ning and administration throughout all levels of government in Colombia. This necessitates improvement of the data on which decisions are based; iniproveinelnt in the personlel of government ; strengthening the organization of the Executive Office of the President so that he may have better control over the Executive Branch of the Government and be better able to discharge his responsibilities for planning and administration; the streamlining of the Government by regrouping, reorganizing and rearranging the numerous agencies, boards, committees, and corporations that exist at present to the end of securing a more coordinated and consistent administration; and the carrying out of certain reforms in the relations of the National Goverinment to the departments and municipalities, from the point of view of both functions and finances. Speaking again in very general 584  ADMIINISTRATIVE REFOR-MS 585 terms. it is felt that in carrying out these studies and making these reforms a clearer line should be drawn between planning and direct controls. We have pointed out several instances where more expert planning would have obviated the necessity for resorting to direct controls. In general, it is felt that the difficulties and deficiencies of public administration are such that direct controls and Govern- ment ownership and operation should be avoided wherever possible. THE EXECUTIVE OFFICE OF THE PRESIDENT As pointed out in Chapter XVI, the system of checks and balances on which Colombia's political structure is based makes the task of economic planning more difficult. This was mentioned not with any idea of suggesting a basic change in the system, but rather to em- phasize the necessity for improving the operation of the Executive arm of the Government to minimize the difficulties inherent in the system of checks and balances. Although this necessity extends to every branch of the Government at every level, it applies par- ticularly to the Office of the President, to whom the country looks for leadership in planning and whom the country holds responsible for administration. These are tremendous responsibilities. It is vital, therefore, that the President be given every possible assistance in discharging them properly. Much can be learned from the steps taken by other countries to meet the increasing economic responsibilities of the state. In the United States, for example, President Roosevelt, at the beginning of his first administration, was most inadequately staffed to cope with all the problems confronting him. Various assistants, both official and unofficial, were hastily recruited for newly created positions reporting directly to him. In the course of time, need for more effective formal coordination was recognized by granting the President authority to appoint a number of additional secretaries and assistants and by setting up, in addition to the President's personal staff, an Executive Office in which were placed the Budget Bureau, the National Resources Planning Board, and later the National Secur- ity Resources Board and the Council of Economic Advisers. These various measures to provide the President with a more adequate staff, to improve the data on which his decisions were based, and to give him greater authority and control over the executive operations of Government may be studied with profit by Colombia. A planning or economic advisory agency of some sort appears to be of vital importance. The President is at one and the same time 586 THE BASIS OF A DEVELOPMENT PROGRAI,M FOR COLOMBIA the ceremonial head of the nation, the Chief Executive of the state, and the head of a political party. The demands upon his energy and time are tremendous and every effort should be made to relieve him of detail and to present material in a form that wvill enable him to make correct decisions w%ith a minimum of unnecessary effort, and to delegate the responsibility for executing these decisions with full confidence that they wvill be carried out effectively. While it is pos- sible in Colombia today for a Minister to have wvorked tup and pre- sented to the President in proper form material bearing UponI a problem wvitlhin the purviewv of his particular department, this purview is frequently unduly restricted and there is no machinery for effective handling of problems that cut across ministerial lines. As must be apparent to any reader of this Report, the most important economic problems do cut across such lines. It is recommended, therefore, that there be established in the Office of the President a Resources Planning Agency, headed by a board or individual of outstanding capacity antI prestige. It is believed that the head or heads of this agency should be chosen not to represent any particular economic group in the community but rather on the basis of individual attainments. Needed are men who have demon- strated broad vision, high intellectual attainment and outstanding public spirit. As important as securing the right direction of this agency wvould be the provision of a staff of the highest caliber to oroanize thie data and studies on the basis of wvhich the agency would make its recommendations to the President. In view of the present shortage of Colombian economists and statisticians wvell trained in quantitative and analytical economics, wlhich is certain to persist for some time, it seems desirable at first to recruit a number of foreign experts and advisers to work alongside Colombian technicians. It should be the first task of this proposed planning agency to undertake the construction and maintenance of various economic series bearing upon the national income, capital formation, various price levels, the balance of payments, and so forth. This information is essential to a proper allocation of the nation's resources, both govern- menltal and non-governnmental. It is not necessary that this work actually be performed by the planning agency itself but it is essential that the information be at hand for that agency to be able to point up the policy issues involved and make informed recommendations. Thus, the pllanning agency should be assigned responsibility for seeing that this necessarv basic analysis is performed. The consistelnt pursuit of basic overall economic studies will not only place the agency in a position to advise the President of the  ADMINISTRATIVE REFORMS 587 requirements for a coordinated and internally consistent economic program, but will also enable it to keep the President currently in- formed on the progress of the economy. If a broad program, such as that set forth herein, is adopted, one of the agency's duties would be to follow closely its implementation by all the various agencies of the Governiment and to report on its progress to the President. Moreover, by virtue of its overall studies, the agency will be in a position to assist individual ministries and agencies in their own planning. It would be a serious error to rely on the proposed agenicy for all planning activity. This should go on in every ministry and at every level of government and any program of government reorgani- zation must make adequate provision for better policy formation throughout the government. The job of the proposed Planning or Resources Advisory Agency would be to stimnulate such planning, coordinate the various plans and undertake such overall studies as cannot appropriately be carried on elsewhere. Finally, such an agency might appropriately assume responsibility for the organization and implementation in Colombia of the technical assistance and economic development activities initiated by the United States and the United Nations organizationis. The need for a central body for this purpose is obvious both to review the requirements of individual agencies and individual programs and to follow up the activities and recommendations of foreign technical experts. One of the administrative reforms effected during President Roosevelt's regime, which has proved highly successful in practice, was to transfer the Bureau of the Budget from the Treasury Depart- ment to the Executive Office of the President. So long as the Budget Bureau wvas in the Treasury, one Department, which had certain functions closely related to those of the other Government agencies, was placed in the anomalous position of reviewing and often neces- sarily cutting dovii their budget requirements as wvell as those of the Treasury Departmenit itself. Other department heads wvere encouraged to appeal to the President over the head of the Secretary of the Treasury by the fact that the latter wvas considered an interested party in jurisdictional controversies and competition for appropria- tions; this created awkwvard situations and impaired the efficiency of Governmenit. By the transfer of the Bureau of the Budget, its Director was made directly responsible to the President. He is now in a position to learn the President's wishes in advance, to clear his recommlendations wvith the President, and to speak for the President in discussions with agency heads. He is no longer part of an operating department wvith bureaucratic interests of its own, but rather a 588 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA technical adviser to the President on complex governmental interre- lationships and requirements. The chances that his decisions will be reversed by the President have been correspondingly diminished. The President's control over activities of all agencies of Govern- ment has been greatly increased, and the financing of every such activity has to be approved in advance by the Director of the Budget, as the President's agent, in the light of other Government functions and needs. The possibilities of working out a coordinated govern- mental program with proper allocation of funds to the various parts of the program, and of keeping the total program within definite financial limits, are greatly improved. At the same time, it is easier for the Congress to review governmental activities and requests for funds when they are presented as a single, balanced program, prepared in the light of consistent budgetary principles. All bills sponsored by any department or agency of the Government must first be sub- mitted to the Director of the Budget and be certified by him as being in conformity wvith the President's program before being presented to Congress. A Budget Bureau is being established in Colombia and the Budget Director will have the right of reporting directly to the President although the Bureau itself is attached to the Ministry of Finance. Further study and trial will determine whether an even closer relation to the President is desirable to perform the various planning and con- trol functions suggested above. Another broad function that could advantageously be performed by the Budget Bureau would be to prosecute continuous studies on ways and means of improving the administrative organization and management of the various depart- ments and agencies of Government. In the United States, a special section of the Bureau, the Office of Administrative Management, is devoted to this task. The position of Director of the Budget obviously calls for a person of high intellectual and moral stature. He must have not only a grasp of fiscal matters and of accountancy, but also a broad understanding of the substance, implications, interrelationships and relative impor- tance of the various Government programs. In effect, he would have primary responsibilities for translating the overall policies and pro- grams, developed by the planning agency proposed above, into con- crete administrative and financial terms. He must be able to resist great pressures and inspire complete loyalty in his staff. Here again foreign technical advisers could perform a useful service, by making available to the Director the experience of other countries.  ADMYIINISTRATIVE REFORMTS 589 Another means of placing the Chief Executive in a better position to discharge his major responsibilities would be to relieve him of lesser tasks. This could be done by reducing the number of officials who have the duty and privilege of reporting to him directly. This would follow naturally from a regrouping and consolidation of the functions and activities of the Government. Finally, a detailed study would undoubtedly reveal that numerous minor duties, which con- stitute a drain on the President's time and energy. could wvell be delegated. REORGANIZATION OF THE NATIONAL GOVERNMENT Tn Chapter XVI the need for a thoroughgoing reorganization of the Executive arm of the National Government was emphasized. Without question, as a result of the unplanned growth of Government functions, a maze of governmental organizations highly inimical to the quality of both planning and administration has been formed. In addition to the inefficiencies arising from overlapping and conflicting jurisdictions, there are whole fields of important activities for which literally no one is responsible. While, after intensive study, it may be found advantageous to have certain activities delegated to semi- autonomous and semi-official bodies, Cabinet members should have broad responsibilities for planning and administering the functional areas with which they are concerned. Policy formulation and adminis- tration in the fields of agriculture and transportation appear to merit special study. In general, a requirement for good administration in any field is a concentration of responsibility in one individual, together with ade- quate authority to discharge this responsibility, subject to general supervision and control by his superiors in the Executive Branch and by the Congress. It has become the general practice in other countries to take the quasi-judicial functions, such as approval of raillvay and utility rates, out of administrative departments and place them in bodies where greater security of tenure is afforded and decisions are less likely to be subject to political domination. The suitability of this practice for Colombia might well be studied. Finally, the experi- ence of other counttries indicates that the administration of certain activities, like the operation of state-owned railroads, may efficiently be carried out through the corporate device, with concentration of administrative responsibility and authority in the hands of the general manager, who in turn is responsible to a Board of Directors appointed by the Government. Strict financial accounting and responsibility are indispensable conditions for the successful operation of such enter- 590 THE BASIS OF A DEVELOP-MENT PROGRAMi FOR COLOMBIA prises. We have indicated the application of these general principles of administration to certain specific fields, particularly in surface and air transportation, though our recommendations will naturally be subject to reviewv by the proposed Public Administration Mission. A thorotughgoing study wvould doubtless disclose many places through- out the National Governmllenit where these principles mighlt further be applied with advantage. The political difficulties involved in a reor-anization of Govern- ment are formidable and great resistance to any change must be anticipated. Conseqiuently, it has been found advisable in the United States for the President to secure broad authority from Congress to regroup and to shift agencies and functions, with Congress reserving its right to overrule his decisions wvithin a strictly limited period. If no action is taken within this period, the President's decisions in this field have the force of law'. RELATIONS WITH DEPARTMENTS AND MUNICIPALITIES Any study of public administration in Colombia will necessarily be concerned with the relations among the various levels of govern- iment. The problem here is not only to secure a clear, consistent and logical allocation of responsibilities and revenues, but also to achieve various national minimum standards wvhile securing and retaining so far as possible, local responsibility. Some of the most important fnllctioins of government affecting the wvell-being of the individual are carried out at the municipal level and nowhere in government wvould reforms so immediately affect the citizen. This is true for such basic activities as education, health and sanitation, and the provision of light and power. Although the National Government is obviously concerned vith the health, education and wvell-being of all the citizens of the country and should, therefore, be expected to lay down national miniima and to assist poorer sections in attaining those minima, the system as it has developed in Colombia frequently wvorks in the other direction. Examples xvere cited in Chapter XIII. A thoroughgoing reform in public administration wrould doubtless seek to remedy this state of affairs. For the purposes of implemiieniting the overall plan of developmenlt envisaged in this Report, it is of the utmost importance that efficient administration and financial sounidness be secured at the municipal level. In this connectioni, Ave have made certain suggestions relating to the administration of municipal development programus wvhich we believe will be helpful. 1 These suggestions in themselves, however, I See Chai:ter XXIII.  ADMINISTRATIVE REFORMIS 591 will not achieve the needed improvement in the efficiency and responsi- bilitv of (lepartmiental and local governments. That improvemen-t can come about only through the growth and influence of informedl public opinion and the establishment of conditions of opportunity. salary and tenure that wvill attract first-class personnel. PERSONNEL A study of public administration would necessarily have to devote considerable attention to the problem of improving the quality of per- sonnel at all levels of government. All countries have had to strugtgle wvith the problem of making public service both attractive and efficient. In this field, therefore, as in others, there is a wealth of experience available from more economically advanced countries. The attainment of efficiency, initiative and high morale for the public service is a difficult task, but it has been solved relatively satisfactorily by many countries and there is no reason to suppose that the situation cannot be greatly improved in Colombia. In one field, that of police, the Government is to be congratulated upon securing the services of an outstanding British Mission, headed by Sir Douglas Gordon. It is to be hoped that his recommendations looking toward the formation of a career national police service will be adopted and implemented. We do not feel competent to make detailed and specific recom- mendations in the field of personnel management relating to salary scales, recruitment, dismissal, promotions, retirement, and so forth. WVe urge most strongly, however, that every effort be made to improve the quality of personnel at all levels. This Nvill probably involve an increase in public expenditures but we can think of no investment that would yield a higher return. As an offset to increased expenditures arising from expansion of services and increased salaries should be the savings resulting from elimination of duplication, replacemenit of inefficient personnel and the abolition of xvasteful practices. ECONOMIC DATA AND STUDIES It is hoped that this xvhole Report indicates sufficiently the im- portance and, indeed, the indispensability of accurate statistics com- petently arranged whichl may be brought to bear on significant prob- leins. In the absence of accurate and meaningful quantitative and analytical studies, the best administration in the world would be groping in the dark and would inevitably make serious mistakes. We urge most strongly, therefore, that every effort be made to build up a strong cadre of analytical economists, statisticians and accountants and that every effort be made to improve the quality of basic statistics. 592 THE BASIS OF A DEVELOPMIENT PROGRAM FOR COLOMBIA Fortunately, there is already a wealth of statistics being currently gathered so that what is mainly required is improvement in their quality and in their handling. This would cost very little in compari- son with the national benefits to be expected from such improvement. After further study it may prove desirable to organize a Division of Statistical Standards in the Bureau of the Budget to coordinate activi- ties and set standards in this field. This is another field in which foreign technical assistance, if properly used, can be of great benefit. In addition, every effort should be made to insure that an increasing number of Colombia's experts in these fields are able to secure the benefits of study abroad. It is gratifying that a new school of eco- nomics and statistics is being established in the University of the Andes with emphasis to be placed on the quantitative and analytical aspects of the subject, and it is hoped that existing schools will do likewise. It is also very desirable that accountancy achieve the pro- fessional status it enjoys in more economically advanced countries. It is appreciated that this cannot be done overnight, or secured by the mere enactment of a law. However, if it were determined that at a certaini date in the future certain activities could be per- formed only by persons who have satisfactorily completed a mini- mum training in the field of accountancy, this would no doubt do a great deal to raise the quality and the prestige of the profession. Good planning and administration rest in the final analysis on the existence of an informed public opinion. This can frequently be developed and expressed most effectively through the active partici- pation of private alnd unofficial groups, associations, organizations and foundations in the study and discussion of major public issues. In some cascs, the studies made and the measures advocated by private groups are for selfish or partisan purposes. In many cases, however, they are inspired by a genuine desire to bring about im- portant and desirable reforms. It would be most helpful if some- thing analogous to the National Planning Association of the United States could be inaugurated in Colombia by a group of public spirited citizens. The National Planning Association is composed of businessmen, farm and labor leaders, professors and writers, and finances research studies and makes public recommendations on most of the important economic issues of the day. Finally, study might profitably be made of steps taken in other countries to pro- vide more technical assistance, expert advice and accurate informa- tion to assist Senators and Congressmen in drafting legislation and In arriving at correct judgments.  CHAPTER XXX The Overall Program and its Implementation MAGNITUDE AND COMPOSITION OF THE OVERALL PROGRAM An appraisal of a development program must of necessity con- sider not only the suitability of a wide range of recommendations in many different fields but also the feasibility of the overall program of capital investmernt which it implies. We have now reached the point where it becomes appropriate, therefore, to consider the pro- gram as a whole, especially in its quantitative aspects, for the pur- pose of determining whether it is adequate yet not excessive in size, whether it is within the capacity of the country, and whether it is consistent with probable foreign exchange resources and govern- mental revenues. The overall investment program calls for approximately Ps.$5 billion, or Ps.$1 billion a year. This compares with Ps.$850 million estimated for 1950. We have not extended our calculations beyond a five-year period, though obviously a program of the kind set forth here should continue to grow for an indefinite time. A word of explanation is in order regarding the use of the word "program" in connection with total capital formation. We do not wish to convey the impression that we have examined and appraised all the specific projects making up these totals. For the most part we do not seek to substitute our judgment for that of the market place. We assume that a certain pattern and rate of growth will necessitate and justify a substantial volume of investment, particu- larly in industry and transport. It is rather in the fields where for one reason or another the pricing mechanism is more or less in- operative or appears to yield faulty results that we have either ex- amined specific projects or have made independent estimates of overall requirements. Thus, in the fields of industry and transport, we have examined a few very large projects which would not be undertaken by private industrialists as a result of their own studies. In addition, we have tentatively earmarked some sums for promising developments in these fields. For the most part, however, we have been concerned to divert a slightly larger fiow of capital to the provision of electric power, community facilities, hospitals, health centers and low cost housing than could be expected on the basis of existing trends. Expansion in these fields could be financed in large part from the savings which 593 594 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLO_MBIA would follow if our recommienidations against some Ps.$500 million worth of projects in industry and transportation were adopted. Tables 156 and 157 indicate the composition of the program for the period 1951-1955 and for the approximate midyear 1953. The recommended program of capital formation makes no provision for fluctuation in inventories nor for capital requirements for short-term agricultural crop loans. Neither does it include capital requirements for land purchase programs since these involve no drain on the huma-n re- sources of the commtunity. TABLE 156 PROJECTEI INVESTMENT PROGRAMI BY END USS, 1951-1955 Total Private Public Total Imports Investment Ilvestmenit Investment (millions) Inldustries ... .. US$191.5 U. Ps.$ 741.5 Ps.$ - Ps.$ 741.5 Agriculture 109.0 341.0 176.0 517.0 Transport 322.5 . 878.0 645.5 1,523.5 Mining .... .. .. 46.0 135.5 - 135.5 Constructioni trade .. 14.0 40.5 - 40.5 Housing . 43.5 1,145.4 - 1,145.4 Builinigs . 28.5 150.0 297.7 447.7 Mlunicipal facilities and poxwer. 98.5 - 536.6 536.6 Total . U.S.$853.5 Ps.$3,431.9 Ps.$1,655.8 Ps.$5,087.7 TABLE 157 PROJECTED INVESTAIENT PROGRAMA BY END tiSE, 1953 Total Private Public Total Imports Investment Investmenit Investment (millions) Inidustries U.S.$ 38.3 Ps.$148.3 Ps.$ - Ps.$ 148.3 Agriculture 21.8 68.2 35.2 103.4 Transport 64.5 175.6 129.1 304.7 Mining 9.2 27.1 - 27.1 Const:-uction trade . . 2.8 8&1 - 8.1 Housing 8.7 229.1 - 229.1 Buildinigs .5.7 30.0 59.5 89.5 Municipal facilities anid powver 19.7 - 107.3 107.3 Total .. . U.S.$170.7 Ps $686.4 Ps.$331.1 Ps.$1,017.5  THE OVERALL PROGRAMI AND ITS IMPLEMIENTATION 595 Table 158 compares the percenitage composition of the recom- menided program of capital investment in 1953 with that of estimated capital formation in 1947. The percentage allocated to industry declines slightly from 1947, which was ana abnormally high year for industrial capital investmenit. Agriculture, while increasing in abso- lute terms, continues to decline in relative importance and this may be rated as a long-term and desirable trend. 1 W\ e allot residential building- a higher percentag-e of the total than in 1947. The most marked change is in buildlings and mnunicipal facilities. The relatively higher percentage here is a reflection of the proposed increases in hospitals, schools, and other comm1lunlity faCilities, including- electric powver. TABLE 158 PERCENTAGE COMPOSITION OF CAPITAL INVESTM1ENT, 1947, 1953 19471 1953 Industries ... ....................... ........ 16.9 14.5 Agriculture .................. .............. 11.1 10.3 Transport ........ ............ ............... 332.6 29.9 Mining ............ ....................... 3.6 2.7 Construction trade ... ........... ................... 1.1 0.8 Housing .............. ............. ........ 20.0 22.5 Buildings (commercial and Government) ........... .... 6.4 8.8 Municipal facilities and power . ........... ......... 8.3 10.5 Total ........ ...................... . 100.0 100.0 Corresponds to Table 11, Chapter IV. Imports account for 33 percent and domestic production for 67 percent of the recommended capital formiatioln. Public investment represents 32 percent of the total, and private investment 68 percent. Furthermore, expenditures on equipment are estimated at 48 percent and on buildings 33 percent of the total program. THE PROGRAM AND ECONOMIC STABILITY Is an investment program averaging Ps.S1 billion a year over a five-year period too large or, in other words, is it consistent wvith the maintenance of stable prices, exchange receipts, governmental revenues and internal physical factors? For the essential ecolnomic reasoninlg involved in the reqllirements for price stability, the reader is referred to Chapter IV. The reason- ing, may be summarized here baldly as followvs: the gross national income (or product) represents payments to the factors of produic- 596 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA tion iucurred in the making of consumers' goods, producers' goods or public services. The amount of income not spent on consumption or public services-that is, the amount saved-thus equals the amount spent on producers' goods, or capital formation. The significant question, howvever, is at what level of income and prices this equality is attained. Starting from stable conditions of full employment under which the economy saves and invests a certain figure amounting to, say, 13 percent of the gross national product, let us suppose that a substantial new investment program is launched, financed by newly created bank deposits or by the use of existing idle funds. To produce substantially more capital goods. factors of production must be drawn from the making of consumers' goods. Money income and consumer demand are thus increased while the production of consumer goods is reduced. In the process, there occurs such a rise in prices as to force a decline in consumption in real terms. In other words, increased investment in money terms, in excess of current voluntary saving, sets in motion a rise in incomes and prices resulting in u2nintended saving or, which is the same, a cut in. real consumptioin. Translating this abstract discussion into real terms, it is obviously of the greatest importance that the investment program should not be larger than the voluntary sa-ving of the economy (plus budget surplus, if there is any) under conditions of fuTITeFmployment. Other- wise, inflation wvill occur and the program will be jeopardized. The maintenance of price stability is an indispensable condition for reaping the full benefits of private foreign investment in a country without paying an excessive price. Ulnder inflationary conditions, the rettirns to equity holders increase more rapidly than other types of in- come and the earnings may be disproportionate to the original in- vestment. This phenomenon, which is in effect a transfer of real income from the community to property ovners, arises from monetary factors and is not a reflection of increased efficiency. Consequently, unless an underdeveloped country can maintain stability, it may find itself forced to limit earnings on foreign investments and in this wvay to decrease their attractiveness to foreign investors. Price stability is also a condition of the maintenance of any new rate of exchange that would permit the attainment of a substantial degree of equilibrium in foreign accounts without recourse to individual and discretionary exchange control. Another, and even more important, reason for maintaining stability is that only in this wvay can a start be made toward attaining a more equitable distribution of income. Inflation, while forcing saving on  THE OVERALL PROGRAM AND ITS IMPLEMIENTATION 597 :he community, at the same time encourages waste. Earnings accrue :o property-owners so rapidly that expenditures on luxury items are ncouraged and incentives to eliminate waste, reduce costs and im- prove efficiency are weakened. Finally, inflation imposes a major harrier to the development of a bond market, to the indispensable [ong-term reduction in interest rates, and to the development of de- ,irable habits of thrift and foresight and the growth of insurance. Under inflationary conditions pensions and savings mean little and it is not surprising that social unrest has frequently accompanied such :onditions. The task of determining in advance the correct magnitude of in- vestment or capital formation to insure full employment, on the one hand, and yet avoid inflation on the other, is very difficult and yet it is the most essential element in economic planning. In Colombia's case, the volume of "intended saving" in large part results from the present distribution of income and control over business earnings. Any pronounced change in this distribution brought about, say, by taxation would affect the propensity to save and hence the "correct" figure of private capital formation, unless compensated for by changes in Government surplus or deficit. In addition, changes in Colombia's foreign trade position are peculiarly important in influencing both profits and coffee growers' incomes and investment decisions. In fact, all of the factors customarily regarded as influencing the business outlook can be logically handled and more or less quantita- tivelv assessed in this general saving-investment framework of analy- sis. In actual practice, the task is not quite so formidable as it appears since, once a period of relative stability is achieved, the prob- lem consists in making short-term estimates of movements in the factors affecting investment and intended saving and of providing for: compensatory action to offset anticipated excessive movements. In view of the inadequacy of current data, the limitations imposed by time and staff available and, above all, the hazards of economic forecasting for a considerable period in the future, ve cannot pre- tend that the magnitude of the investment program set forth herein is exactly the correct figure and not subject to modification. What we can do, however, is to demonstrate that a private investment pro- gram of this general magnitude does not appear to be out of line with the volume of voluntary saving which might reasonably be expected in the years immediately ahead, plus some net borrowings and invest- ment from abroad. We also believe that the proposed level of public capital formation is compatible with a balanced budget and that the program is consistent with a reasonable pattern of economic growth and the physical capacity of the country. The demonstration may 598 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA serve a useful purpose not only in suggesting that the program ap- pears to be suitable and feasible, but also in illustrating some of the problems of the dynamics of economic development and the inter- relationships of economic phenomena. As our model year, \ve shall choose 1953, midway in the overall pro-ram. Estimates xvere prepared first for 1950, based on our knowvl- edge of changes that have occurred since 1947, and1an effort was made to develop the model for 195, from this base. The 1953 model is liniked wvith the 1950 estimates through1 pr&jections of various exist- ing trends and a number of assumptions as to the behavior of prices, imports, productivity, etc., tilder the impact of the program. The main underlying assumptions made for the purpose of presenting this model are that the price level xvill remain unclhalnged from 1.9$a-.on, that the net foreign investment wvill amount to Ps.$60 million in 1953, that expenditures at all levels of government will be double those of 1947, and that no change will occur in the rate of exchange. 1 To the extent that actual developments depart from these assumptions or from the assumptions mentioned in the preceding section, all the mag- nitudes would be affected. Hence, it must be reiterated that this is a demonstration model, not a forecast. An explanation of the meth- odology employed, wvhich is unavoidably quite technical, is available as Appendix J. The results of our calculations are set forth in Tables 159, 160, 161 and 162. Table 159 presents for 1953 an estimate of capital formation, Government expenditures on current goods and services, consumer expenditures and net foreign in-estment derived from the assumptions and projections just mentioned. The sum of these gives a total gross nationial product in 1953 of approximately Ps.$6.7 billion comparedl Kvith about Ps.$5.7 b'lTibil estimated for 1950. It is apparent that a program of approximately Ps.$1 billion in 1953, unider the assumptions mentioned, \vould be consistent with a gross national product of Ps.$6.7 billion, wvhich in turn is consistent wvith a reasonable growth pattern. This, of course, is not an accident as overall limitations wvere kept in mind in Avorking out the program. It Awill be noted from Table 159 that under our assumptions consumiier expeniditures are expected to increase to otfset the rise in prices up to 1950 and to reflect further the increase in productivity throughout the period. With some assistance from abroad, a ratio of gross private and public investment to gross income of 15 percent does not appear unreasonable. I The assumption concerning the rate of exchange is not to be construed as a reconmslejidatioin, but nerely as an assumption in order to present a model tcf. Chapter XXVItt) Devaluaticis would affect certain magnitudes but need not affect the basic pattern or analysis.  TABLE 159 MODIo.I PROJECTION OF GROSS NATIONAL P'RODUCT, 1947-1950-1953 Volume Price Volume Price Total Index Index Total Index Index Total Values 1947-50 1947-50 Values 1950-53 1950-53 Values in 1947 (1947=100) (1947=100) in 1950 (1950=100) (1950=100) in 1953 ( milliolls) (nmillions) (millions) TOTAL GROSS NATIONAI PRODUCT . . 'Ps.$3,674 Ps.$5,708 Ps.$6,698 GOVERNMENT EXPENDITURES oii goods and services (current) .269 130 135 470 130 110 665 GROSS CAPITAL FORMATION . . . 62 2. 875 1,002 Imports. 22 117 111 288 ,09.3 100 315 Industries .68 138 124 116 139 100 161 Trade and transport .128 112.5 126.5 182 116 75 158 Labor-Construction .140 117.5 130 213 127 104 280 -Other 54 112.5 126.5 76 116 100 l 88 CONSUMER EXPENDITURES ......................... 2,985 4,363 5,095 Agriculture 1,000 109.7 129 1,415 110.8 100 1,584 Others . . . ....... .......... 1,568 119.3 128.6 2,405 122.1 100 2,918 Imiports ... ................. .. ........ .... ......... 417 117 111 543 109.3 100 593 NET EXPORTS 193 - 0 - 64 Exports ........ ............ .. ...... 446 113 165 830 1.19.3 93) 843 Imports ........... .. .. ............ ... ....... 639 117 111 830 109.3 l Q0 907 600 THE BASIS OF A DEVELOPMIENT PROGRAM FOR COLOMBIA Mlore significant is a comparison between the magnitudes of the constituent elements of capital formation obtained by projection and those- indicated in the program, as shown in Table 160. While total TABLE 160 COI,PARISON OF PROJECTED AND RECOMMENDED PATTERNS OF CAPITAL FORMATION IN 1953 Projection Program (millions) Total Gross Capital Formation Ps.$1.002 Ps.$1,018 Public Sector .272 ...... 331 Private Sector 730 687 Imports of equipment and material 315 342 Domestic production of equipment and material 161 149 Trade and transport ....... . . 158 151 Labor costs, construction 280 275 Otlier labor costs 88 101 requiremeiuts for capital equipment and durable goods are similar in botis instances. the relative participation of imports is greater in the investment program. It is not believed, however, that this implies a need for a level of total imports higher than the one projected if it were assumed that the past trend in capital formation would continue unchanged. Private capital formation under the in- vestmiient program would amount in 1953 to 10.2 percent of gross national product compared with 12.1 percent in 1947, when so much assistance was derived from utilizing previous accumulations of foreign exchange. Too much significance should not be attached to fluctuations in this ratio in any country where the absolute size of investment is small and the national accounts are profoundly affected by changes in the balance of payments. A major difference exists, however, between projected and recom- mended figures for public investment. This is a manifestation of the general orientation of the AMission's program. It so happens that some  THE OVERALL PROGRAM AND ITS IMPLENIENTATION 601 of the most urgently needed additional capital facilities lie in the public sector. While we recognize that private industry in Colombia is on the whole more efficient than public operation, we are neverthe- less forced to recommend a relatively greater expansion in the latter field. This makes efforts to improve the quality of public administra- tion, and the administration of publicly owned enterprises, of the greatest urgency. NATIONAL INCOME BY ECONOMIC SECTORS IN 1953 MODEL Other magnitudes which would make up a pattern consistent with the model calculation of capital formation, consumer expendittures, etc., for 1953 are shown in Table 161. The same methods and assump- tions utilized in deriving a "demonstration" figure of gross national product in 1953 also give us a national income of about Ps.$5.9 billion in that year. In addition to depicting the share in the national incorme contributed by each economic sector, Table 161 shows our various assumptions on prices, employment and productivity. The rapid in- crease in productivity in industry which has taken place since 1939 and which is projected for the years 1950-53 is not only the result of increased output per man hour but also of people shifting from handicraft and primitive agricultural production into industry. The demonstration in Table 161, therefore, serves a useful purpose in illustrating the impact on the economy of our recommendations and assumptions, and the nature of the changes in the labor force and productivity that may occur to make the program successful. Should productivity increase at the projected rate of about 3 percent per annum, wages and other factor incomes could be increased by that amount xvithout inflationary consequences. We believe that such a rate is possible under the program set forth herein. The assumptions on price movements brought out in detail in Table 161 may very well prove unrealistic. We believe, however, that prices can and should be stabilized and we are, therefore, reluctant to assume a continued increase. As remarked before, should the price rise continue, all our magnitudes would have to be revised. PROJECTED COMPOSITION OF NATIONAL ACCOUNTS Continuing the description of a possible and consistent economic pattern that xvould result from the projections and the various assump-  TABLE 161 MIODELPROJECTI(N OF NATIONAL INCOM1E, 1947-1953; EMPLOYMENT, PRsODUCTIVITY AND PRICE INDiCES, 1939-53 ~~~94 l 94 7 _ _ _ _ 19 0 _ _ _ ___ ____ __ _ 9~ 1950 1953 Employ- National Employ- National Employ- N'ational ment Average Income ment Average Income ment Average Income Economic Sector (tlhousands) Income (millions) (thousands) Income (millions) (thousanads) Income (millions) Agriculture ................ .. 1,755 Ps.$ 745 Ps.$1,308 1,843 Ps $1,130 Ps.$2,090 1,927 Ps.$1,165 Ps.$2,245 Total Urban .1,124 1,720 1,931 1,224 2,430 2,961 1,335 2,697 3,615 Industry ....... 146 3,380 494 171 4,860 831 202 5,735 1,158 Construction . 96 1,460 140 106 2,015 213 122 2,305 281 Governimeint ................... 98 2,040 200 11S 2,987 352 141 3,548 490 Otlers .. ............ ...... 784 1,400 1,097 829 1,893 1,565 870 1,926 1,686 Grand Total (or average) .. 2,879 Ps.$1,125 Ps.$3,239 3,067 Ps.$1,647 Ps.$5,051 3,267 Ps.$1,795 ps.$5, 8 60 1939-47 1947-50 1950-53 Indices (1939 100) Indices (1947 =100) Indices (1950 =100) Employ- Produc- Employ- Produc- Employ- Produc- ment tivity Price mncnt tivity Price ment tivity Price Agriculture ................ 115 110 230 105.0 104.5 145 104.5 106 97.0 'i'otal Urbaan ..... .. .... 126.5 126.5 200 108.9 109.6 128.5 109.5 111.5 100.0 Industry ..... ....... 146 146 193 117.4 117.4 124 118 118 100 Constructioni ......... 1....... 132 115 220 110.8 106 130 115 110 104 Government ................... 103 124 257 120.0 108.4 135 120 108 110 Others. .. . . .... 126 115 200 105.7 107.0 126.5 105.5 110 92.5 W;Veighted Average . .... . . 118.6 125.5 2(07 10(6.5 108.4 135 106.5 109.5 99  THE OVERALL PROGRAM AND ITS IMPLEMENTATION 603 tions wve have suggested, Table 162 presents a growth model of the national accounts. The assumptions on government taxes and on the balancc of paymcnts will be taken up in the following two sections. TABLE 162 MODEL PROJECTION OF NATIONAL ACCOUNTS, 1947-1953 (millions of pesos) Gross National Product 1947 1950 1953 EXPENDITURES ....... ....................... 3,673.8 5,708 6,714 Current Government Expenditures. 269.4 470 665 Government Expenditures-Capital 165.0 236 331 Private Capital Formation .447.0 639 687 Net Exports .. ....... ......... 193.0 .... 1 0 -64 Consumer Expenditures ............. ... .... 2,985.4 4,363 5,095 IN\'COMIE. ... . 3,673.8 5,708 6,714 -Depreciation ..... ... 128.5 175 201 -Indirect Taxes .306.3 482 650 National Income . ......... ........ . 3,239.0 5,051 5,863 + Transfer Paynments .4 ....... . 4.0 50 40 -Retained Earniigs .1.0...... IO.0 210 130 Personal Income . . .... ..... 3,131.0 4,891 5,773 -Income Taxes ., . ..... ..... 130.1 260 368 Disposable Income .3,000.9 4,631 5,405 -Consumer Expenditures .... .. 2,985.4 4,363 5,095 Personal Savings .+ 15.5 + 268 ± 310 The increase in depreciation charges forecast for 1953 reflects mainly increases in the volume of capital equipment, since depreciation is calculated at replacement costs, and the price level is assumed to remain constant. Retained business earnings are assumed to be slightly below their 1947 level. This-- again is consistent with our assumption that some incentives will be provided to encourage greater distribution of corporate earnings and increase both tax yields and personal savings. The figure for personal savings should be treated as at best a residual. It is, however, consistent with the level estimated for 1950. It wvould be unrealistic to make any further commelnts on the probable behavior of each of these specific items. As mentioned elsewhere in the Report, the separation of the concepts of depreciation, retained earnings and personal savings has to be largely arbitrary under Colombian conditions. 604 THE BASIS OF A DEVELOPMlENT PROGRAMI FOR COLOMIBIA Table 163 presents the projected overall picture of the whole Colombian economy for 1953. The table is useful in bringing out the fact that the projected depreciation account and retained earnings of TABLE 163 PROJECTED INCOME AND EXPENDITURES OF SEGMENTS OF COLOMBIAN ECONOMIY, 19531 (millions of pesos) Income Expenditures Balance Consumers 2 ...... 5,405 5,095 +310 Business ... .... . ... ..... 331 687 -356 Government .. 1,018 1,036 - 18 Transfers . .- 40 -40 - Net investment (foreign) - -64 + 64 GrDss National Product ..... 6,714 6,714 0 1 Capital formation at program, not projection, levels. 2 For explanation of terms, see footnotes to Table 17, Clhapter IV. business are inadequate to finance private capital formation (includingb housing) so that external sources of finance are needed. The govern- ment account also shows a slight deficit. Both these deficits are offset by private savings (Ps.$310 million) and foreign capital (Ps.$64 million). FISCAL ASPECTS OF THE OVERALL PROGRAM The recommendations of the Mlission are likely to increase expendi- tures in the Governmenit sector by a sizable amount. It is therefore necessary to examine whether these expenditures would be excessive in terms of revenue possibilities. In the following discussion, no reference will be made to Govern- ment income and expenditures resulting from the sale of goods and services. The experience of the past years has been that these accounts are approximately in balance, and there is no particular reason to be- lieve that this situation wvill be modified. In order to secure better administration and provide additional services in public health and education, it will be necessary to increase the number of Government employees. Also, their salaries will have to be raised in order to create the necessary incentive for shifts to Government employment. It is believed that the number of people employed by the Government may have increased by 20 percent from 1947 to 1950. However, most of this increase is likely to have applied only to the national defense  THE OVERALL PROGRA-M AND ITS IMPLEMENTATION 605 and police sectors. The staff increases in health, education and admin- istrative services advocated by the Mission will represent at least another 6 percent per year. On these assumptions, and assuming the salary and productivity increases described in Table 161, Government expenditures on current account may well reach Ps.$665 million by 1953, as is shown in Tables 162 and 164. Projected Government expenditures on capital formation in 1953 are described in the investment program and xvill total approxi- mately Ps.$331 million. It is assumed that the service on internal debt will decline as service requirements on foreig,n-held debt grow, so that total transfer payments will remain around Ps.$73 million. Table 164 presents a projected model of revenues and expenditures for all levels of government in 1953 compared with similar data for 1947 (actual) and 1950 (derived). It will be seen that in money terms, TABLE 164 MODEL PROJECTION OF COLOMBIAN BUDGET, 1947-531 (millions of pesos) 1947 1950 1953 REVENUES Direct taxes .............. ........ .... 130 260 368 Indirect taxes 306 482 650 Foreign exchange funds ........ . .... .. .... - 0 50 436 742 1,068 ExPENDITURES Current 270 470 665 Capital 165 236 331 Internal debt 2 . ...... .. ....... ... 42 50 40 Externial debt 2 10 26 32 487 782 1,068 BALANCE ... . ................. ..................... .- 51 -40 0 1 Excluding revenues and expenditures of Government enterprises and intergovern- mental payments. 2 Includes repayments and interest charges. recommended expenditures in 1953 are more than double the 1947 level. Even in real terms, the increase in Government services can be estimated at 75 percent. However, even at the projected 1953 level, Government outlays would represent only about 16 percent of the gross national product, a ratio that has prevailed in many Latin American countries in the past five years and hence does not appear unreasonable provided revenues can be obtained without undue strain to match this level of expenditures. 606 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA In 1947 direct taxes wvere about 4.2 percent of estimated personal incomes. It has been estimated that this ratio, through better collec- tion methods, could be lifted to arouncd 5.5 to 6 percent. New taxes on capital gains and on underutilized agricultural crop lands, and perhaps the increases in tax rates discussed or suggested in other chapters, could lift this figure to about 7 percent. In such case, fore- seeable income tax yield may xvell amounit to Ps.$400 million in 1955 and fluctuate between 6 and 7 percent of total personal incomes dlurinig the program period. Assuming that the Government or fiscal agencies will be the recip- ients of most expected forei-n loans. wkvhile equitv investment will accrue to the private sector, gross borrowings from abroad w ill increase Government receipts. The Government will acquire equip- nment directly with the proceeds of loans and thus reduce peso expelndi- tures proportionally. It can be anticipated that a better collection system may increase the yield of existing indirect ancd excise taxes slightly. Also, if exchange control is relaxed, it is likely that import duties on some luxury goods will be revised upward as a compensatory move. Thus more funds are likely to be available without adding greatly to the burden on the mass of the consumers. In Table 162 it was assumed that by 1953 indirect taxes of about Ps.$650 million wvould bridge the gap between gross lnational product and national income. This level seemns reasonable; it implies that the yield of indirect and excise taxes wvould be 9.6 percent of gross national product, only slightly higher than the ratio of 8.2 percent prevailing in 1947. As shown in Table 164, budgetary balance is likely to be obtained if direct and indirect taxes and foreign loans attain the level described above. The overall program would, therefore, be consistent with the existence of a budget requiring no domestic borrowing. THE PROGRAM AND FOREIGN EXCHANGE REQUIREMENTS WR/e nowv come to an area where longer term projections are particu- larly hazardous. WTe should again emphasize that our discussion is designed merely to illustrate the nature of the problem and the very rough magnitudes involved. It will be recalled that in Table 159 the projected model for the average year of the program called for slightly over Ps.$300 million of imported capital equipment and for Ps.$60 million net capital inflow. The bases on wvhich these assumptions were made are admittedly highly uncertain. The Colombian balance of payments is dominated  TI,E OVERALL P'ROGRAMI AND ITS 1AtliLE.MENTATION 607 bv the fortunes of a single commodity an(d total exchange receipts in the next five years clepenid in large part on the price of coffee. If, ror example, the crop should averag-e 6.5 million bags and the price average 43 cents (U.S.) per poulnd, the average receipts wvould be U.S.$369 miillioni. If other exports can be expected to average U.S.$50 million, total exchalnge receipts wvould amount to around Ps.$840 millioni in the average year of the program, 1953. Thle service on the existing- foreign debt nmay be expectedI to average U.S.$11.5 millioln. To this should be added transfer of profits on existing foreign equity investments in Colombia wvhich might amount to U.S.$10 million if exchange w,ere more freely available. Assumin,- that the outflowv of capital may be offset in part by gold production of aroundl U.S.$10 million yearly, \ve are faced \vith a net i .. of approximlately Ps.$20 million. To provide for the increase in consumption and investment en- visaged in the program. it xvould be desirable to have average imports or some Ps.$900 millioni. The difference betwveen this liguire and Ps.$820 million (imports less capital outpayments) vvould have to be made up by an inflow of capital in the form of loans and equity invest- inelts. In view of the present low ratio of servicing charges on thle external debt and dividen(ds on foreign-held investmenits in Colombia to exchan,ge receipts, a gross capital inflowv of U.S.$200-$250 millioln for the period does not appear excessive. This amotint Ivould cor- respond to the projected net ilnflowv of Ps.$60 millioln per annium. This assullmes, of course, that progress contilnues on the repayment of old (lebt, that the price of coffee does not recede too far from present levels, that efforts are made to build up other exports, that the wrhole program greatly increases the productivity of the country ancl, by changing the character of imports. puts the counitry in a less vulner- able position if the foreign demand for its products should fall. The importanice of the last consideration is that it would permit the con- tinued servicin- of debt in the face of falling exports wvitlhout imposilngY an intolerable burden on the standard of living of the country. It is also essential that inflation not occur since the transfer of profits on foreign eluity investments would then become an excessive burdeni. All these conditions would be met by implemnentatioln of the recoin- inendatiolns so that wNe may conclude that the foreign exchange re- quiremenats of the pro-ram are not inconsistent with reasonable expectatiolns. 6S THE BASIS OF A DEVELOPMENT P'ROGRAMI FOR (OLOMIBIAL THE PROGRAM AND PHYSICAL LIMITATIONS Since the projections of both consumption and investment have been built on estimates of the growth in manpowver and productivity, the program is necessarily within the overall manpowver potentialities. These overall estimates, in turn, imply considerable shifts in the labor force and a relatively rapid growth in urban communities. For example, employment in construction wvill probably increase by some 16,000 workers and in industry by 30,000 from 1950 to 1953. An in- crease of 3.1 percent a year is assumed in the urban population and 1.5 percent in the rural population. Appendix J contains a tentative description of necessary employmenit shifts in ten selected spheres of activity. It is believed that the somewhat greater rise in wages in industry, construction and Government than in the national average, and the lesser rise in halndicrafts and some backward agricultural regions, will lead to the requisite shift in employmiienlt, although some additional assistance to this maovement may have to be provided. The same basic underlying assumptions vwhich determined the size of the overall program likewise delimited the component parts so that there should be no difficulty arising from insufficiencies of electric pover, community facilities, housing, or transportation. This illus- trates the importance of our insistence throughout that a program of development must be comprehensive, integrated, quantitative and in- ternally consistent in order to be successful. IMPLEMENTATION OF THE PROGRAM As has beeni reiterated tlhroughout the Report, this shlould be regarded as a first draft of a program, or as a working paper, xvhich should serve as the basis for a definitive program. Next steps wvould logically be intensive studies to refine both the nature and size of the overall program ancd its component parts, and taking- the measures necessary to implement the programn decided upoIn. To meet the first re(quiremiient. the Colombiani Governmnenit has alreadv indicated its intentioni of referring the Report to a smali non-partisan body of outstanding men, equipped wvith a good technical >taf. xvho wvill be charged with the responsibility of preparing recom- -nielndations to the President. Presumably this committee will set up a number of subconimittees to studiy specific fields anLd will utilize the assistance of nationial and foreign technicians and specialists.  'I'lTE OVERALL PROGRAM AND) l'TS JAIPLEMIENTATION 609 Assumning that these recommendationis are comprehensive in nature and are acceptable to the Government, there xvill immediately arise the necessity of contiutous study, revision and progress reporting. The preceding sections xvill have illustrated the techlnical nature of the study involved and the necessity for constant adjustments and revi- sions. This functioni, we have indicated, mighlt well be performed bv a permanent Resources Planning or Advisory Agency set tip in the Office of the President. This wvould be an advisory rather than an action a-ency, and the quality of its advice to the President and the nature of its contribution xvoulld depencl on the technical efficiencv of its staff andI the soundness of judgment of the person or persons heading the agency. W;Ve have also suggested that this proposed Agency give leaderslip to and assist in the developmilenit of plans and programs at all levels of Government and should be the coordinating and clearing agency for technical assistance from abroad. Of eqtial importanice in the implementation of an overall prog,ram is the type of action initiated in various fields designed to guide ne\\ investment, brin,g about an expansion of certain activities, and in- prove organization and administration generally. The tvpe of action adopted xvill depend very largely on the underlying general philosophy of the appropriate role of Government in directing- economic affairs, which in turn should vary xvith circumstances. It is apparent that the preferenice in this Report lies on the side of minimizing direct controls and direct state operation. Having in mind the characteristics of the Colombian economy, xve should prefer, on the Avhole, to influence the actions of private individuals and groups through the provision of a suitable economic backgrotind and a system of incentives and deterrents. Although this type of planning- requires internsive study and an understanding of the nature of the economaic process, it has the great merit of avoiding the use of a wvide variety of restraints and( orders xvhich the use of direct control re(quires. Tt also dispenises xxith mulclh of the policing and the necessitv for building- lip a larg-e bureaucracy to administer the controls. In certain types of activities, hoxvever, Government action is practically indispensable. Tlhe necessity for pursuling sound fiscal measures is obvious. Other activities include such fundamental ftunctions as the provision of g-eneral education and the establish- ment of minimum health standards. A third class of activities, such as railivays and electric pow-er plants, may be the subject of varying degrees of responsibility on the part of public bodies, depending on a varietv of circumstances.  610 TIIIE BASIS OF A DEVELOPAIENT PROGRAAI FOR COLOMBIA As alvays, the formulation of general principles is an easier task than their application to specific fields. One of the most important re(luireinents for the attainment of our objectives is that the direction of flow of newv capital be modified. In this general field, we have suggested a number of measures designed to influence as far as possible individual decisions rather than to atternpt to channriel sav- ing-s directly through Government action. In general. it is felt that higher social returns Wvould be yielded by devoting more savings anid borrrowvin'gs to raising ag-ricultural productivity, providing electric power andl variouis communitv services, anci low cost but decenit housing. It is shownv- in Chapter IR that an exceptionally large proportion of Colombia's savings accrues to a relatively fexv people. Likewise, a substantial portion of earnings is retained by the enterprises which make them. This may not provide the requisite capital for the ex- pansion of more socially beneficial projects in other sectors of the economy, and the measures we have proposed may be insufficient. If this should prove to be the case, consideration might be given to a number of possible xvays to make these savings available. The most drastic wvotuld be simply to tax them and have the state supply the necessary fund(s. Another means would be a tax on undistributed earnings. This would be less drastic than an increase in the corpo- rate incotmie tax as it wv,ould not have to be paid unless a certain percentage of earninigs vere retained. Other devices, for whicl there is precedent in Colombia, include forced pturchase of securities or the provision of incentives to supply housing anti medical services lirectly for wvorkers WN\e are not takinlg a definite positioln on the matter of divertin,- the retained earnings of business enterprises into other fields as \ve feel that at this staoe the most important matters on \vhich agreement must be reached are objectives and magnitudes. When they are determined, further consideration can be given to the merits of a number of specific measures to implemelnt the program. Thle extent to \vhich particular measures are used is difficult to cletermine a priori anld must be tleterminledl in part by trial and experience. As an aid in increasing- the relative attractiveness of investment in agriculture and hoLusing, we have suggested the establishment of a /graduated capital gains tax, the highest brackets of wvhich shall apply to profits derived from urban real estate and more obviously specu- lative activities. The proposed graduated tax on underutilized agri- culttural crop land( is designed to provide an incentive for intensive  THE OVERALL PROGRAM AND ITS IMPLEMENTATION 611 cultivation or, what amounts to the same thing, a penalty on the uneconomic use of land. It is further suggested that under certain safeguards an increased proportion of the funds of commercial banks be permitted and encouraged to flow into agricultural loans and low cost housing. For the provision of more community services, including electric power, water and sewage disposal facilities, the importance of plac- ing municipalities on a sound financial footing has been stressed. It should not prove impossible to establish various organizational changes that will make most of these projects self-liquidating. If these various measures are adopted, it should prove possible to enlist the aid of foreign capital in the provision of these facilities. It is, however, to be doubted whether these incentives will stimu- late a sufficient additional flow of funds into these fields. Funds are now being obtained for the provision of community facilities and for low cost housing through local and national taxes. With more inten- sive study, it would doubtless be found that the yield of such taxes can be considerably increased. Additional funds for agricultural loans could be obtained not only from the banking system, but from more vigorous efforts to increase, collect and divert the flow of smaller savings into this channel. The Government will have to continue to provide, either through taxes or through borrowings, capital requirements for highway and railroad transportation; and the capital requirements for community facilities, especially electric power, will continue heavy throughout the program. There is some feeling that such types of expenditures should more properly be financed through borrowings than from cur- rent taxes. This position does not appear to be well grounded. A por- tion of the annual expenditures goes to replace existing equipment and it is probable that expenditures financed out of current taxes will be scrutinized more carefully than those financed by loans. Moreover, there has been in the past a distinct bias in Colombia toward inflation and for this reason it is desirable that the overall budget, including expenditures for both current and capital purposes, be kept substan- tially in balance. It is above all important that the Government re- sort to borrowings from the Central Bank only in emergency. Readers of this Report will appreciate that the burden of capital formation cannot be shifted onto future generations through borrowing rather than taxation, except in the case of foreign loans. 612 THE BASIS OF A DEVELOPMENT PROGRANM FOR COLOMBIBA The burden arises from the diversion of production from goods for present consumption to the production of goods which will make future consumption possible. The real cost, in other words,. is the (liminution in present consumptioil and this cannot be shifted from the present. The decision on borrowing or taxation as a means of financing public works should be dictated solely by considerations of price stability. The important thing is that overall capital forma- tion, both public and private, should not exceed inteiided or volmuntary saving by more than the amount of available foreign capital. In Colombia's stage of economic development, most forms of capi- tal formation involve imports. It is, therefore, not only essential that dcomestic savings be adequate in volume, but that a portion of these savings should be utilized for capital imports. This can, of course, be accomplished quite easily through the direct allocation of exchange, and the development program will provide guiding principles and criteria for allocation. If, however, for other reasons it is decided to abandon or relax the direct allocation of exchange and to secure equilibrium in the balance of payments through the adoption of a new rate of exchange, a different set of devices would be required to insure that an adequate volume of available exchange is utilized on capital imports. These devices might take the form of additional tariff duties on consumer goods. It is not, however, believed that this problem would be too serious. For one thing, it is anticipated that a portion of the capital equipment would be imported as a result of borrowings and private foreign inrvestment in Colombia. For another, it is to be anticipated that the demand for certain types of capital goods under such conditions of rapid expansion as we are envisaging would be quite. inelastic. In the third place, better tax collections and higher tax rates may be expected to curtail the relative demand for foreign imported luxury goods. The direct expansion of certain Government activities entails no particularly difficult problems of implementation. Here the necessi- ties are the prior acceptance of well-conceived plans, the proper allo- cation of responsibility for execution of such plans among the three levels of government, and various measures designed to increase the efficiency of administration and personnel. In education, in particular, a major effort appears called for and, in preparing a new and improved and expanded program, full benefit should be taken of the varied experience of other countries in this field.  THE OVERALL PROGRAM AND ITS IMPLEMENTATION 613 Again, in the field of agriculture, we have indicated the general lines along which further effort and study should be concentrated. The whole field of the organization of agriculture, which presumably would be one of the subjects of study of the proposed Public Admin- istration Mission, is particularly important for the implementation of this program. The health and education programs, though limited by lack of personnel, will require an increase in Government expenditures. In- creased revenues can be obtained from better tax collection, the pro- posed graduated land tax and the capital gains tax and, if necessary, throutgh higher income and excise tax rates. In facilitating the considerable shifts in manpower resources called for in the prorga-ram, particular attention should be paid to the estab- lishlment of national employment services and to various direct measures to secure recruitment of workers from particularly dlepressed areas, such as Boyaca, Santander, Narifio, and the Atlantic Coastal departments, so that the necessity of excessive up-bidding of wages may be avoided. In this way, the status of the people who move is improved and overcrowding in relation to the resources of certain areas is relieved. As a means of implementing our recommendations relating to im- provements in or-aniization and administration, we would place main reliance upon the work of the proposed Public Administration Mission and the adoption of various measures designed to improve the bases of policy formulation and administration throughout all levels of government. Some of the most urgent capital needs, such as those for relieving electric power shortages, wait upon a thorough reorgani- zation of municipal government and the institution of more rational relations betweeni municipal enterprises, municipalities and National Government organizations. We have made suggestions relating in particular to the organization of surface and air transport which, if implemented, should make possible increases in efficiency which will benefit all factors of the Colombian economy. Similarly, the recom- mendations in the agricultural field making for better land use and the coupling of financial with technical assistance, together with a number of other organizational suggestions, provide implementation for agricultural objectives. Finally, in the development of natural resources, proper incentive should be provided to encourage further oil exploration and development, the adoption of modern techniques 614 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA in coal mining, and the use of forest resources. We suggest that special tax incentives be provided to stimulate reforestation, particu- larly of certain land near the larger cities and along the rivers. BROAD OBJECTIVES OF THE PROGRAM So many aspects of the problem have been touched upon that it may prove useful to summarize briefly what it is hoped to accomplish in a five-year period through the adoption of the program. The pro- gramn is designed to: 1. Provide better health for all people; 2. Reduce illiteracy and improve primary, secondary and technical education; 3. Provide better balanced diets; 4. Provide more adequate low cost housing; 5. Provide more light and power, and 6. Make possible the acquisition of more of the amenities of life and the enjoyment of more leisure by all people. These objectives will be accomplished mainly through an increase in productivity, and secondarily through a better distribution of in- come, and increased borrowing and investment from abroad. The increase in productivity is expected to come about as a result of better organization of existing resources, the introduction and wide use of improved techniques, and the diversion of capital into more productive and more socially beneficial channels. It is also hoped, within the stated period, to increase substantially the power available per worker, to provide pure water and sanitary waste disposal facilities for millions, to increase agricultural produc- tion with little additional labor, to reduce transportation costs, to bring about marked expansion of industry, to bring about certain changes in imports and a diversification of exports, and to provide for a relatively large expansion in the construction of community facilities, housing and industrial and commercial buildings. The question may very well be asked, would not most of the objectives we have mentioned be attained in any case? The program set forth herein does not provide for any additional capital formation from internal saving, and substantial increases in production can be expected to occur regardless of a program. This is perfectly true and  THE OVERALL PROGRAM AND ITS IMPLEMENTATION 615 yet past experience suggests that the fruits of increased production will be unequally divided, that institutional factors will operate against the simple basic needs of the people being fulfilled, that large capital sums may be misdirected because of inadequate study, and that infla- tion will continue without conscious prevention. After all, the inherent richncss of the country which makes our program possible has existed for all these years and yet the standard of living of the people has remained far below that prevailing in many lands not so favored. One cannot escape the conclusion that reliance on natural forces has not produced the most happy results. Equally inescapable is the con- clusion that with knowledge of the underlying facts and economic pro- cesses, good planning in setting objectives and allocating resources, and determination in carrying out a program of improvements and reforms, a great deal can be done to improve the economic environ- ment by shaping economic policies to meet scientifically ascertained social requirements. In any case, the choice does not really exist. People everywhere no longer are inclined to accept poverty, ignorance and disease as unalterable facts of life. They are becoming aware that it is possible for them to improve their lot and they show an increasing tendency to judge an economic system by the extent to which it satisfies their needs. For longer term stability, the masses of the people must be cpnvinced that their economic system is efficient, equitable and capable of meeting what are coming to be universally regarded as the elemental needs of human society. Colombia is presented with an opportunity unique in its long history. Its rich natural resources can be made tremenldouisly pro- ductive through the application of modern techniques and efficient practices. Its favorable international trade and debt position enables it to obtain modern equipment and techniques from abroad. Inter- national and foreign national organizations have been established to aid underdeveloped areas technically and financially. All that is needed to usher in a period of rapid and xvidespread development is a determined effort by the Colombian people themselves. In making such an effort, Colombia would not only accomplish its own salvation but would at the same time furnish an inspiring example to all other underdeveloped areas of the world. Index  Index A tax policies, 84 technology in, 88 Abarco, 416 training for, 251-52, 547 Aberastury, Marcelo F., n. 172 transportation in, 398 Accountancy workers in, 7-8, 365 and Director of the Budget, 588 see also Cooperatives; Crops; Exten- professional status, 342-43, 592 sion work; Farms; Intensive farm- shortage of trained personnel in, 505 ing; Land; (and individual crops) and tax administration, 556 Agriculture and Animal Industry, Min- Acetate yarn, 410 istry of ADELCA, la0, 481 Animal Industry, Division of, 68, 381, 389 Administration; see Public administration consolidation of separate agencies with, Administrative Career Law, 497 400 Administrative Career Service, 202, 349 Education Section, 66 Administrative Council for the National Extension Section, 67, 70, 86, 252, 369, Railways, 107, 448 371, 383, 386 Aclobe dwelling, 537-38 Investigations and Experiments Section, Aeronautica Civil, 146-48, 154, 161, 166, 85, 399 479, 480, 482, 486 major administrative units, n. 80 Aerovias Nacionales de Colombia, 142 Rural Economics, Division of, 85, 398, Agricultural colleges, 252, 390-91 399 Agricultural mortgage bank, 322 tractors owned by, 70 Agricultural normal schools, 252 Air fares agreement, 154 Agricultural production Air Force, 149, 479 diversity of, 3 Air mail facilities and equipment, 402 administration of contracts, 481-82 goals for 1955, 361-83 contract for carrying, 145 and opening of new lands, 363 revenues, 149-50 trends in, 368 service, 149-50 Agriculture subsidy, 149 average rate of growth, 362 Air transport capital requirements in, 401-3 administrative organiization for, 476-82 census of, 398 air freight charge compared with high- commodities, quotas, price controls and way rate, 164-65 taxes on, 82-83 air-ground communications, 156-57, 482 credit facilities for, 53-54, 75-77, 387-89 annual audit of companies by indepen- development of new lands, 401 dent auditor, 481 experiment stations, 85, 395 approach control towers, 482-83 exports of products, 331, 582 capital requirements, 490-91 five-year plan for, 80, 360-61 commercial air traffic, 143, 476 general recommendations, 383-400 competition and rates, 152-54 mechanization in, 63, 70, 394-95 development of, 142 multiplicity of agencies, 344 freight rates, 144-45, 153-55, 164-65 planning for, 360-61 freight revenues, 149-50 policies for, 80-86 navigation facilities, 156, 482-84 population, 363 passenger traffic, 143-44 productivity in, 70 productive capacity of airlines, 163 processing of products, 82, 398 radio operation and maintenance, 478 rationalization of programs for, 400 rate regulation, 153-55, 480-81 research in, 85-86, 399 regulations governing airline operations, schools of, 66-67, 252, 390-91 147-48, 440, 479-82, 483 self-sufficiency in commodities of, 82-83, relationship of government to, 146-50 363 route system, 150-52 social research in, 85 technical regulation of, 148, 480 statistics, 85, 342, 390-96 traffic control, 156-58, 477-78. 482 619 620 INDEX Aircraft Anuario de Comercio Exterior, n. 408, i. conversion costs, 163 428 equipmenit possibilities, 167 Aniuario General de Estadistica, 408, n. operating costs and rates, 164-66 428 specifically suited to operating condi- Arable land, 4, 358, 384 tions, 488-90 Arango, Luis-Angel, xi Airport and Communications Corporation, Araracuara, 484 proposed, 476-79, 486, 490 Arauca River, 132, 473 Airport Development Corporation, U. S., Argenitina 476 birth rate, 171 Airports death rate, 174 buildings and runways, 490 population, 172 capital expenditures for, 484 Argillaceous shales, 73 construction of, 477 Armeiiia duplicate, 159-60, 487 electric rates, 223 improvement of, 477-78 growth of, 208 operating and maintenance expenses of, housing, 240 478 -Ibague route, 109, 118, 464 ownership of, 158-62 income and expenditures, 274 revenues, 161 municipal airport, 159 Alaska, use of aircraft in, 489-90 nmunicipal debt, 286 Alcoholic beverages, consumption of, 411 purification plant, 524 Amazon River, 4, 131, 132, 473 street paving, cleaning and waste col- Ambalema-Ibagu6 Railroad, 105 lection. 221 American cigarettes, 333 telephones in, 219 American and Foreign Power, 210 transportation rates to and from, 139 American Merchant Marine, disappear- Armero agricultural experimenlt station, ance of, 473 85 American Rolling Mill Company, 419 Arracacha, 372 Aimmonium nitrate, 395, 435 Asbestos, 415 Ammonium sulphate, 395, 435 Asphalt, 528 Amortization Assessments of land, 84; see also Re- of external debt, 323 assessment of property values and importation of new machinery, 321 Atlanitic Coast, 3, 169 Aniclhicaya power development project, Atlanitico 214 per capita expenditures, 272 Anldealn pipeline, 433 per capita expeniditures on hygienie, 271 Andersoni, Roger V., xiii, xxxviii depressed area, 35 Andes, 3, 4, 133, 416 distribution of physicians, 197 Andes, University of the, 592 expenditures, total, and bor education. Anenmia, 184 254 AnliydIrous ammonia, 395, 434-35 Fondo de Foniento Municipal, 228 Animal-drawsn machinery. 39495 funde(d debt. 286 Anti-maladriaw measuires, 3492 5 generating facilities, 213 Aniti-uialara 492 heasures,beds, number of, 193 hospital per capita expenditures, 272 malaria deathis, 180 concentrationi of deposit holdilngs, 53 municipal personnel, 277 dlstribution of physicianis, 197 primary school colistructioin, 245 expenditures, total, and for education, public primary schools, 244 254 thermal electric plants, 210 external and( iternal debt, 285-86 truck traffic flov, 122 Fondo de Fomenito Muniicipal, 228 Atrato River, 131-32 generating facilities, 213 Aull. Ruth, xi, xiii hospital beds, number of, 193 Automotive vehicles nialaria deaths, 180 imports of, 429 miscellaneous references, 3, 140. 183. rcgistrationi of, 121, 428-29 325, 459 AVIANCA, 142, 147-50. 152-54, 156, 162- mlunicipal expenditures, 275 64. 476, 481. 484, 487 mulnicipal personnel, 277 Aviation gasoline, 433, 460; tax on, 161 primary school construction, 245 public primiary schools, 244 B truck traffic flow, 122 Autioquia Cattle Fund, 388 Baclelor's diu)loma. 547 Antioquia Railroad, 105, 106, 141, 452 Balance of paymelnts, 309-17. 568, 586.  INDEX 621 606-7; sec also Foreign exchange; Bassie, V. Lewis, xiii Foreign trade BCG vaccine, 500 Bananas, 62, 87, 311, 375 Beans, 362, 363, 366, 368, 380 Banco Agricola Hipotecario, 75 Beef cattle and beef, 362, 363, 366, 368, Banca Central Hipotecario, 55, 56, 59-60, 380-81 75, 226 Beer, 4, 87, 411 Banco de la Republica Beer industry, consumption of electric formulation of policy, 571-73 power, 96 increase of credit, 297-98 Belencito steel plant, 420, 424, 425 miscellaneous references, ix, xi, xv. 22, Belgium, bilateral agreement with, 334 52, 55, 56, n. 64, n. 286, ii. 290, 295- Beneficencia, 1S4, 186, 189, 203-5, 278, 300, 307, 310. 328, 334, 336, n. 408, 502-3, 506, 510-12 570, 572, 574 Beverages, 408 rediscounts writh, 301 Bilateral agreements, 309, 333-34, 337, Bank capital, as percentage of deposits, 580-81 301 Biological Institute, 85 Bank credit, causes of increased, 290, 292 Birth rate, 5, 171-73 Bank earinigs, 301 Black, Eugene R., x, xi Bankilng system, structure of the, 295-96 Blackn market. 316, 324, 325, 332-33 Barbosa, 449 Blackstrap molasses, 415 Barco crude, 431-33 Blast furnaces. 426 Barley, 362, 363, 366, 368, 374 Blooming, merchant and rod mill. 426 Barrancabermeja Bocas de Ceniza channel, 127, 471-72 cracking facilities at, 432-33 Boeing, 162, 247 claily landings and takeoffs, 158 Bogota Magdalenia river traffic, 133 agricultural experimernt stationi, 85 Puerto Olaya pipeline, 140, 460 airport facilities. 159, 160. 484-85 refinery, 140, 459 birth rate, 5, 172 wxarehouse, 137 college of veterinary medicine. 67 Barranquilla concentration of denosit holdings, 53 air freight traffic and rates, 144, 155 concentration of industrv, 88 airport, 139, 160: technlically adequate concentration of traffic, 122 486 daily landings and takeoffs. 158 birth rate, 172 DC-4 equipment handled at, 164 -Cartagena, internatiolnal traffic. 104 death rate, 5, 173 coast,wise freiglht movements, 132 electric rates, 223 concenitration of industry. 88 grain elevator. 78, 397 concentration of traffic. 122 growth of, 208 concrete street paving, 528 income and expenditures, 274 daily landings and takeoffs, 158 miscellaneous references, 6, 64, 65, 73. DC-4 equipmenit handled at, 164 100, 102, 106, 110, 117, 140, 150, 230, deatlh rate, 173 252, 282, 389, 390, 396, 420, 425, 445, duplicate airports. 160 524 electric rates, 223 motor truck rates to and from, 126 growth of, 208 municipal debt, 286 hospital center, 507-8 -Neiva-Popayan highwav. 468 improvement of port, 472 power consumption, 212 income and expenditures, 274 power develonment, 214 low cost steel industry at, 427 -Puerto Wilches, proposals for rail- .Magdalena river traffic and rates, 133, road between, 449 139 roundhouse facilities, 446 miscellaneous references, 100, 226, 427, street pavina, cleaninlg and wlaste col- 453. 470, 484, 524 lection, 221 muniicipal debt, 286 telephones in. 219 port facilities, 127-28 water rates, 222 -Santa Mlarta highxvay, 468 BogotA Electric Company, 280 slaughterhouse, 220 Bogota Powver Company, 214 street paving, cleaning and waste col- Bolivar lection, 221 per capita expeniditures, 272 telephones in, 219 cattle in, 381 'water rates, 222 classified employees in, 349 Bartonellosis, 190 depressed area, 35 Basic tax rate and niormal rate of retumr distribution of physicians, 197 for land use, 385 expelnditures, 254 622 INDEX Fondo de Fomento Municipal, 228 -Santa Marta route, 465, 467 funded debt, 286 street paving, cleaning and waste col- generating facilities, 213 lection, 221 hog production, 381 telephones in, 219 hospital beds, number of, 193 Budget malaria deaths, 180 accounting, 270 miscellanieous references, n. 104, 349, balanced, 267, 557-58 373 Bureau of the, 269-70, 588, 592 municipal expenditures, 275 Bureau of the, U.S., 585, 587 municipal personnel, 277 deficits, 569 primary school construction, 245 Director of the, 588 public primary schools, 244 expansion of, 304 rice production in, 373 -to-income ratio, 305 thermal electric plants, 210 legislation, 267-70 truck traffic flow, 122 presentation, 270, 560-61 water shortage in, 74, 392 procedure, 267-70 Bonds, compulsory investment in, 308 projection, 605 Boyaca Buenaventura average departmental salary, 349 air operations, 476 average income, 9 airport, 485 per capita expenditures, 272 average daily cargo in, 130 per capita expenditures on hygiene, 271 average daily cargo moving from, 131 coffee lands in, 369 -Cali transportation, 119, 141, 443, 444 depressed area, 35, 423 coastwise freight movements, 132 distribution of phvsicians, 197 congestion at, 450 expenditures, total, and for education, growth of, 208 254 international traffic, 104 Fondo de Fomento Municipal, 228 Magdalena River rates, 139 funded debt, 286 mechanized loading and unloading generating facilities, 213 equipment. 470 hospital beds, number of, 193 motor truck rates to and from, 126 malaria deaths, 180 port facilities, 116, 128-130 miscellaneous references, 83, 187, 276, Buga 382, 420, 613 agricultural normal school, 67. 390 municipal expenditures, 275 -Buenaventura cut-off, 456-57, 465, municipal personnel, 277 467 non-industrial area, 424 fertilizer mixing plant, 79 parcelization of land, 63 storage facilities, 78 primary school construction, 245 Bugalagrande powdered milk plant, 79 public primary schools, 244 Building construction, capital expendi- truck traffic flow, 122 tures for, 541-42 wheat in, 374 Building materials, 89. 415-16 Bracket rates, 264 Buildings, investment in, 232-33 Brahma cattle, 86 Bureau of Mlines, U S, 435-36 Brazil Bus registrations, 121 average income, 25 Business birth rate, 171 expenditures, 49-51, 604 coffee production in, 335 income, 604 population, 172 retained earnings of, 50-51, 575 steel plant, 421 savings, 24 Breakage in transit, 102, 126, 165 Brick, requirements for, 415 Bridge structures and guard rails, 445 C British Police Mlission. 102, 471, 591 Cacao, 86, 362, 363, 366, 368, 377-78 Bucaramanga Cacao Revolving Fund, 81 airfield, 161, 484 Caja Agraria, 85, 236, 386, 388, 392 cold storage facilities, 220 Caja Colombiana de Ahorros, 52-54, 76, daily landings and takeoffs, 158 307, 308, 574 electric rates, 223 Caja de Credito Agrario, Industrial y grow,th of, 208 WMinero, 53, 54, 59, 68, 75, 298, 299, hospital center, 507-8 387, 391 income and expenditures, 274 Cajas de Proteccion, 236 municipal debt, 286 Calamar power development, 214, 520 Magdalena river traffic, 133  INDEX 623 warehouse, 137 contribution of national finance to, Calarca, growth of, 208 255-56 Caldas by economic sectors, 38-42, 44, 49-51 per capita expenditures, 272 and end use, 41-43, 594 distribution of physicians, 197 financial aspects of, 47 expenditures, 254 general sources of, 49 external and internal debt, 285-86 and gross national product, 46, 598 Fondo de Fomento Municipal, 228 and imports, 39-41, 599, 606 generating facilities, 213 in industry, 437-39 hospital beds, number of, 193 by inflation, 48 malaria deaths, 180 long-term, 573 miscellaneous references, 64, 73, 106, patterns of, 600 140, 183 and price stability, 49 municipal expenditures, 275 public and private, 44-45 municipal personnel, 277 and saving, 294, 612 power development project, 214 series on, 341-42, 586 primary school construction, 245 structure of, 38-47 public primary schools, 244 and types of assets, 43 truck traffic flow, 122 Capital gains Caldas Railroad, 105, 106 exclusion from taxable income, 264-65 Cali tax treatment of, 554, 600, 610 -Buenaventura highway, 464 Capital goods, 19-20, 22 coal, 435 Capital requirements concentration of industry, 88 air navigation equipment, 483 concentration of traffic, 122 construction of hospitals, 513 daily landings and takeoffs, 158 construction of schools, 549 DC-4 equipment handled at, 164 estimate of industrial, 436-39 electric rates, 223 highway projects, 465 growth of, 208 refining equipment, 432 hospital center, 507-8 sewer and privy facilities, 526 income and expenditures, 274 surface transport, 474-75 miscellaneous references, 100, 220, 252, telephone facilities, 527 414, 443, 484 Capital yields and interest rates, 59-60 motor truck rates to and from, 126 Caqueta, Comisaria de, funded debt of, municipal debt, 286 286 power development, 214 Caqueta River, 132, 473 roundhouse facilities, 446 Cargo-handling devices, 443 telephones in, 219 Cargo transfer charge, 102 water rates, 222 Caribbean Coast, 61, 62, 179, 182 Camacho-Lorenzana, Jose, xi Caribbean ports, 102, 115 Canada Caribbean Sea, 132, 473 comparisons with, 3, 295 Cartagena exports to and imports from, 313 air freight rates to and from, 155 foreign investment in, 577 coastwise freight movements, 132 Canal del Dique, 134, 459, 471-73 daily landings and takeoffs, 158 Canneries for fish, 383 duplicate airports, 160 Capital electric rates, 223 access to, for new ventures, 56 generating canacity in, 212 imports, 315, 578-79 growth of, 208 investimient in highways adjusted to eco- lhospital center, 507-8 nomic utility, 461 income and expenditures, 274 investment in industry, 88 -Magdalena river traffic, 133 investment, percentage composition of, -Medellin route, 119-20, 465 595 miscellaneous references, 100, 226, 434, markets, organization of, 576 453, 470, 484 movements, control over, 309 port facilities, 128, 472 net inflow, 606 power development, 520 re-expolr-t of, 320-31 street paving, cleaning and waste col- resource3 of, use of, 294 lection, 221 scarcity of, 14-15, 358 Cartagena Railroad, 105, 116, 458, 472 shortage of, 94 Casabe crude, 431 Capital formation Cast iron requirements, 418-19 amount of, 38-45, 357 Catch basins, 74, 392 concept of, 37-38 Cativo, 416 6 24 INDEX Cattle, 311 Choc6 marketing, 71 average departmenital salary, 349 population, 380 distribution of physicians, 197 raisers, credit to, 301-2 Fondo de Fomento Municipal, 228 Cauca generating facilities, 213 per capita expenditures, 272 hospital beds, number of, 193 classified employees, 349 malaria deaths, 180 distribution of physicians, 197 municipal personnel, 277 expenditures, 254 primary school constructioln, 245 Fondo de Fomento Municipal, 228 public primary schools, 244 funded debt, 286 thermal electric plants, 210 generating facilities, 213 Church, 241, 390, 502 hospital beds, number of, 193 Cienaga, growth of, 208 malaria deaths, 180 Cigarettes, 407, 411 municipal expenditures. 275 Civil Aeronautics Authority. U. S., 482 municipal personnel. 277 Climate, 3, 61, 168, 234 primary school construction, 245 Clothing requirements, 4 public primary schools, 244 Coal truck traffic flow, 122 analysis of Cerrejon coal, 435-36 Cauca River, 62, 106, 132, 179 deposits, 4 Cauca Valley, 62, 106, 377, 392, 401, 425, exports of, 582 443, 520 investmenit in, 436-37 Caustic soda, 87, 89, 415 mines, 90, 427 Ceballos. Juan de Dios, xi, xiv reserves, 435 Cedar, 416 Coastwise transportation, 131-132, 473 Cement, 4, 87, 407-8, 415, 427 Coello project, 73 Cement industry, consumption of electric Coffee power, 96 domestic production and consumption, Central America and Antilles, exports to 362-63 and imports from. 313 expansion of sales, 334 Central bank experiment station at Chlclhinla, 85 credit, expansion of by, 297-99 exports, 4, 309 gold and foreign exchange holdings of, exports, dependence upon, 310-11 317 exports, transportation rates for, 138-39 legislation, 567 farms, size of, 62 lending to the Government, 568, 569 growers, 8-9 policy, 296-300, 569-70 growing regions, 73 Central Mortgage Bank, 536 importance of, in internationial tradle, Centrales, 522 18, 61 Cereals, roots and similar crops, 371-72 inmprovement in culture, 367, 369 Cerrejon coal, 435-36 major crop, 62 Cessna, 489 % price indices, 288 Changeover from miieter- to yard-gauge, price of Manizales, 311. 317-18 445: see also Railroads price support program, 78 Charcoal, 435, 519 processing plants. 79 Checks and balances, system of, 343 production, 366-69 Chemicals, 87, 415, 437 U. S. imports, 335 Chest X-ray, 500 world imports of, 335 Chicha, 411 world production of, 335 Childreni of primary school age, number Coffee Growers' Federation, 59, 67, 73, of, 242 75, 78, 81. 85, 235, 237-39, 252, 334, Chile 369, 388, 391, 536-37 average income, 25 Cold storage facilities, 220, 527 birth rate, 171 Colombian-American rayon group, 410 per capita power, 212 Colombian Cotton Institute, 378 death rate, 5, 174 Colombian-foreign enterprises, 406 death rates by age groups, 175 Colombian Livestock Association, 81 horsepower in, 10 Comisarias, distribution of physicians in, national income comparisonis, 32 197 population, 172 Commerce. credlit to, 301-2 Chilean nitrate, 395 Commerce and Industry, Miniistry of, 74. Chilean steel mill, 421, 427 n. 77, 83, 222, 331, 522, 529 Chinchinia Coffee Experimenit Station, 85 Commercial banks Chipechape locomotive shop, 111 annual volume of loans, 301-2  INDEX 625 credit extende(d by, 52 Cooperatives deposits in, 295 and housing, 240 excess reserves of, 298 loans to, 388 loan principle, 303-4 marketing, 396 loan rates, 300 Cooperatives, Superintendency of, n. 77, new loans granted by, 302 n. 84 policy, 300-304 Cordilleras, 4, 62. 72, 73, 106, 133, 425 portfolio of, 573-74 C6rdoba, Jaime F, xi, xiv rediscounts of, 296-99. 300, 567, 570-71 Corn, 86, 362, 363, 366, 368, 372 reserves, 296-299, 300-301, 567-69 Corporate and personal incotme tax Commercial buildings, investment in, 233 integrationi of, 264 Commercial fertilizers, 395-96 for Paz de Rio, 422 Commercial training, 250; see olso Voca- Corporations, earnings of, 9 tional education Cost accounting techniques, 342 Committee of Financial Experts, 564 Cost of living, 27, 289 Commodities traded, changes in, 582-83; Costa Rica, birth rate, 173 see nlso Foreign trade Cotton Communiications and air traffic control, domestic production and consutmption, 482 363 Community facilities ginning equipment, 81 administration of, 225 lint, 361, 362 capital requirements for, 532 production, 81, 366, 368, 378-79 improvement of, by National Govern- research, 81, 86 ment, 226-231 textiles, 4, 407, 409-410, 437 need for, 209-210 Cotton textile industry, consumption of projected inivestmlienit ini, 593-95 electric power, 96 sources of capital for self-liquidatinlg Council of Economic Advisers, U. S.. 585 and other, 533-34 Cracking facilities, 430, 433; see also Compania Colombiana de Seguros, 471 Petroleum Compania Colombiana de Tabaco, 411 Credit Company profits, taxation of, 551 creation by Central Bank, 296-99 Compenisation rates, 126, 138, 139, 154-55; expansion, restraints on., 299-300 sec calso Air transport; Inland water- facilities, 8, 51-55, 57-58, 75-77 way system; Motor truck rates and pricing policies, 361 Compensatory fiscal policy, 559 for purchase of dwellings, 235 Competition among airlines, 150-152, 480 supply of, 567 Compulsory investmeent requirements, 308. 'Crew feathierbedding", 136, 469 575, 610 Criollo or white bean cacao. 377 Concrete, 437, 528 Crops Concrete reinforcilng rod, 418 acreage in, 62 Consolidated PBY, 162 chaange in emphasis amiong various, 365 Construictioln improvement of, 86 and( capital formation, 44 loans for, 75 cost of dwellings, 539-42 production trends in various, 362 cost of municipal housing, 240 rotation of, 71 expendittures, 37 targets in specific, 367-83 and iiailiteiiace of tuberculosis hospi- Crude foodstuffs, prices of, 318-19 tals. 499 Crude petroleum, reserves, 314. 430, 431 Consumer expendlitures, 8-9, 23, 49-50. Cucuta 599, 604 duplicate airports, 160 Consunmer goods, 19-20, 22; index of electric rates, 223 prices, 287-88 growth of, 208 Consumer income, 49-50. 604 income and expenditures, 274 Consumer savings, 49-50 municipal debt, 286 Consumption taxes, 258-59; sec also Tax power development. 520 Consumption, volume of, 407-408 Citcuta Railroad, 105, 107, 108, 457-58 Contour plowiing, 393 Cundiniamarca Contrabanid, 324. 332-33, 581-82 average income, 9 Contraloria General, 9, 172, n. 209, 218, Beneficencia, 203-205 n. 241. n. 286 per capita expenditures. 272 Control and air navigation equipment, 483, classified employees. 349 490 concentration of deposit holdings, 53 Convair-240, 167 departmental roads. 468 Cooperativa de Colonizacion Tecnica. 79 distribution of nhvsicians. 196-197 Cooperative movement, 83-84, 400 expenditures. 254 626 INDEX external and internal debt, 285-86 Differential wage rates based on school- Fondo de Fomento Municipal, 228 ing, 545 generating facilities, 213 Diphtheria, 499 hospital beds, number of, 193 Direcci6n General de Aeronautica Civil; malaria deaths, 180 see Aeronautica Civil miscellaneous references, 140, 382, 459 Direcciones Seccionales de Estadistica, municipal expenditures, 275 170 municipal personnel, 277 Direct taxes, 256-57, 605-6 primary school construction, 245 Disease control, 86, 498-502 pubic primary schools, 244 Disease, incidence of, 177-182, 492 sotls in, 73 Disease prevention, 507, 544 tractors in, 70 "Dishington" shirting plant, 410 truck traffic fiow, 122 Distribution of farm products, 396-97 Cundinamarca Railroad, 105, 107, 110, 116 see also Agriculture Currency in circulation, expansion of, Diversion canals, 73; see also Irrigation C97-98 Dividend income, rate of tax, 551-52 Curricula changes, 543 Dividends, transfer of, abroad, 320-21 Currie, Lauchlin, v, ix, xii, xiii, xv Dollar debt, 322-23 Curtiss C-46, 166 Custodial institutions, 510, 513 Dollar exchange certificates, 325 Custom duties, 258-59, 263 Domestic fabrication and current coII- Customs Department, 470 Customs Department, 470Double-heading, sumption, 89-90 112, 443, 445; see also Railroads D Douglas DC-2, 162 Death rates, 5, 173-177 Douglas DC-3, 162-163, 164-165 Debt authorization, two-thirds majority Douglas DC-4, 163, 165. 486 for, 559 Douiglas DC-6, 167, 486 Debt, purchase of, 569 Douglas Super DC-3, 167 Deficit Drainage, 74, 391-93 concept of, 270 Drinking water, 74 finance, 304-6, 558 Duitama agricultural normal school, 67, De Mares Concession, 90 390 De Mares crude, 431 Duplicate airport facilities, 477 Denmark, 389 Durable consumer goods, as capital for- Density of occupation ner house, 232 mation, 37 Dental Practice Act, 196 Dwellings Dentists, 196 average cost of construction, 237, 540 Departments average cost of, by population groups, debt of, 284-86 540 expeniditures of, 270-72 average value of, 235 fiscal situation of, 561-66 capital expenditures for, 541 level of services in, 271-72 construction of low cost, 235-39 personnel of, 349 cost and area of. constructed by Coffee relations with mtuicipalities, 590-91 Federation, 238 revenues and expenditures of, 270-73 increase of, 232 revenues, inadequacy of. 562 investment in, 233 revenues, sources of, 273, 562 number of, 232 roads of, 116 occupancy, 535 Dependents, number of. 5 requirements, 535, 540-41 Depletion rates, 431: see also Petroleum see also Housing Deposit holdinzs, distribution of, 303 Dysentery, 179 Depreciation, 49-50, 439 Depressed areas, 35, 423 E Development expenditures, matched by business or personal savings, 574 Eastern Railroad, 106, 448 Development projects of Industrial De- Eastern trunk highway, 117 velopment Institute, 57 Economic advisory agency, 586; see also Diesel-electric locomotives, 443-44 Resources Planning Agency, pro- Diesel fuel. 430, 433 posed Diesel-powered towboats, 472 Economic data and studies, 591-92; see Diet, 8, 183-84, 405, 502 also Statistical data Differential tax rates on land, 566; see Economic development self-generating, also Tax 356  INDEX 627 Economic planning, organization for, 341- Evaporating plants, 496 43 Excess profits tax, 257, 258, 386, 552-3 Economic stability, 595-601 Excess reserves, 297 Economic zones, 3-4, 100, 364-65 Exchange authorizations, 310 Ecuador Exchange certificate system, 324-326 bilateral agreement with, 334 Exchange controls, 82, 309, 324-31, 339, and contraband, 332 340 Gran Colombiana line, 127, 330 Exchange rates, 324-27, 598 Ecuadorian border, highway to, 117 Exchange receipts, 310, 335, 607 Education Exchange stability, 577-78 appropriations for, 549 Exchange taxes, 263, 326-27 per capita expenditures, 271-72 Export-Import Bank, 73, 311, 316, 322-23 distribution of material for, 544 Exports expenditures for, 253-54 coffee, 87 facilities for, 7, 241 command hard currency, 309 rural, 66-68 control of, 326, 331-32 see also Primary education; Secondary developing new, 83, 583 education; Vocational education of earnings on foreign capital, 330, 578 Education, Ministry of, 66, 241, 248, 250, increase in, 335 546-47 net, 599 Efficiency percentage distribution by destination, measures to increase, 404-7 313 variation in, 91 potential agricultural, 364 Electric furnaces, 96, 427 Extension work, 67-70, 86, 252, 369, 371, Electric plants 383, 386 grants for, by FFMI, 227 External debt, 282, 321-23, 607; see also hydroelectric, 210 Public debt thermal, 210 Electric power F capital requirements, 532 commercial and residential demand, Facatativa roundhouse facilities, 446 96-97, 519 Factors of production, balance among, 358 consumption, 516 Factory buildings, 233, 439 industrial uses, 210 Factory-owned facilities, power generated for industry, 95-96 by, 97-98 metered consumption of, 224, 529 Fadul, Miguel, xiv, n. 64 planning and administration of pro- Fairchild Packet, 167 grams, 521-23 Faison, Haywood R., xiii production, 87, 210 Family income levels, 234 public service plants, 210 Family unit, 7 rates, 98, 212, 222-24, 522 Farm Security Administration, U.S., 388 regulation of rates, 529-30 Farms Electric smelter, investment in, 437 average size of, 13, 383-84 Emeralds, 87 cooperatives, 397 Employment indices, 602 financing of machidlery purchases, 77 Employment shifts, 608 and home management, 68, 82, 387-89 Empresa Siderurgica de Paz de Rio; see laborers, amount of schooling, 251 Paz de Rio machinery and equipment, 83, 401-2 "Empresas municipales", 225-26, 530 -to-market roads, 398 Engine crews, assignment of, 447 marketing system, 77 Equilibrium rate of exchange, 345; see operators, amount of schooling, 251 also Exchange rates prices, 77 Equipment production problems, 69-74 expenditures, 37 purchase program, 386-87 maintenance of, 110, 445 Fats and oils, 87, 412-13, 437 standardization of, 446 Federacion Nacional de Cafeteros, n. 62, Erosion, 63, 72-73, 84 236, 237-39; see also Coffee Growers "Eternit", 415 Federation Europe Federal Housing Act, U.S., 538 exports to, 313, 334 Federal Reserve System, U.S., 295, 567, imports from, 313 573, 576 shipping to, 127 Federation of Coffee Growers; see Coffee European stock, 5 Growers Federation 628 INDEX Federation oi Panela and -Molasses Pro- Forests, 4 ducers, 82 . cuttin;g and burninlg, 72 Feeder aircraft. 489 depletion of. 519 Fertilizer mixin g plant. 79 land in. 61 Fertilizers, 70. 86. 376. 380. 395-96. 434 reserves. 416 Fiber sandals. 411 temperate zone. 61 F inance, Ministrv of. 226. 564. 588 tropical. 61 Finished maniufactures. unit value index. Foster-Wheeler estimates of pipeline con- 318-19 struction, 460 Fiinished textiles. self-sufficiency in. 330 France. 334 Finland, bilateral agreement with, 334 Franchise reg-ulation. 479-480 Finlay, Carlos, Institute. 189 Franco. Joaquin, xiv Fique, 363, 366, 368, 379 Franco. Jorge. xiv Fiscal and monetary series. need for, 342 Franco. Roberto. Institute, 189 Fiscal policy, 304-8, 550-66 Fredoniia. t-ansportation rates to aiid Fish production, 363, 366, 368 from, 139 Fisheries Free meals at school, 545 development. 402 Free port, central warehouses in, 406 loans for, 388 Freight rates Fishiiig industry, 79. 383. 402 air cargo, 154-155 Flesher, Carl W., xiii inlanld waterway, 135-140 Flight equipment, 162-67, 487-88. 490: see rail, 115 aIso Air transport truck, 125-126 Flota MIercanta Gran Colombiania, 330, Freight traffic, distribution of, 103 see also Gran Colombiana lie Freight trains Flour mills, 79 average speed of, 112 Fondo de Fomento Munmicipal, 58. 215. carrying capacity, 110 226-30: see also 'Municipal Develop- see also railroads ment Fund Fresh fruits and vegetables. 382-83 Fondo Gansadero (Ic ATdtioqclia, 77 Fuel oil production, 428-29, 430, 433 Food Fuente, Emilio, n. 172 distributioii and marketing, 219-20, 396- Full employment, 597 97 FuLnded domestic debt, maturity periods expenditures for. 66, 183 of. 283-85 and milk, 495-96 Fungicides, 396 processing, 87, 527 Food aiid Agriculture Organization, xv, G 78 Ford Trimotor, 162 Galera Zamba, 412 Foreign assets, 324 Gamarra Foreign capital duplicate airports, 160 invested in Colombia, 319-21 MIagdalena river traffic. 133 laws and regulation. 320-21 Gamba, Guillermo Camaclho. xiv niet inflow of, .5S3 Garbage collection. 220 anid tax provisions, 265 Garcia. Luis Roberto. n. 6 treatment of. 577-80 Gardening, 389 Foreign (elet, 18. 607 : S.c also Public debt Garner. Robert L., xv Foreign exchange Gasoline accumullation of, 288 barges, 434 and coffee, 335 consumptioni. 407, 414, 429, 430 and development activities. 338 tax, 119. 263, 477-78 and emplovment for capital goods im- Gauge, standardization of, 457-58; see ports, 47 also Railroads and exchange control system. 331 Generating capacitv, 213-14. 515. 519: sce for importation of commodities. 327 also Electric Power inflow, 297-98 Generatingr facilities. 211. S70, 522: see remittance of, 327 also Electric Powver requirements. 606-7 Geological Survev. U. S.. 436 reserves, decreases in .156 Germany. Western. bilateral agreement Foreign investment. 319-21. 577. 598 wvith. 334. 580 Foreigni oavments. arrears of. 316 Gill. Frederick C.. xiii Foreipo trade. 40. 104. 577-83 Girardot. 139. 208. 401. 446 Fore;tr-. loans for. 388 Girardot Railroad, 1. 115. 116 IForestry products, 90. 416-17. 5S2 Glass bottle capacity. 89  INDEX 629 Glass products High-cost steel, handicap to development, dlemand for, 413 425 investment in. 437 High incomlies, tax rates applicable to, 257 (Goiter, 184. 500-1 High school attendanice. 547-48; scc olso Gold Education and the balance of payments. 314 Higher education. 253 black market price, 325 Highway transport certificates, 324 high prices per ton of capacity. 124 contraband exports, 325. 332 licensing and regulation of. 124 exports, 87. 309, 311 number of passengers. 121 foreign ilvestmelnt in, 580 tonnage of freight. 121 mining, 320 volume of, 121-3 production, decline in, 325 Highways sterilization, 568 administration of. 118-121 G6mez, H6ctor Abad, xiv bituminous macadam, 116 Gonorrlhea, 181-182 capital investlmielnt in, 463, 475 Goodvear plant, 414: see also Tires and concrete. 116 Tubes constructioln. 117. 120. 463 Gordon, David L., xii. xiii, xxxviii current ontlavs for. 461-2 Gordon. Sir Douglas. 591 curvature, 116 Government agencies equipment, 124-5. 464 improvement in organization of. 584-92 extensions of, 464-8 proliferation of, 345 flexibility of, 460 streamlining of, 584-85 grades, 116 Governiment air services. 148-149 improvement of operating efficiency, Government buildings, investment in, 233 461 Government employees. 604-5 increased utilization of. 462 Government expenditures, 50. 59S-99, 604 integrated network of, 126 Governlmenit income, 604 maintenance of, 118, 452. 461, 463 Government securities rates. 164-5 compulsory holding requirements, 300 width of, 116 open market in, 568 Hogs and pork, 362, 363. 366. 368. 381 private trading in, 300 Home care programs, 503 Grace, W. R. & Companiy, traffic hlandling Home vegetable gardens. 382-83 reports, 130 Homes for the aged, 194 Grades andl standards for farm prod- Honda river traffic. 133 nicts, 396 wagarehose 137rtafi,3 Grain elevator, 78 waHepouse, 137 Grain storage program, 397, 402 per eapita, 10 Gran Colombiana Line. 127, 473 capacity of maclimes. 518 Grayson., Gor-don, xii, xiii per or 15, 88, 96, 517-8 Greater Colombian Merchant Fleet. 127 Hpitarls 51 00 96 517-8 Gross national product. 22-23, 26. 46. S8. capital expenditures for. 513 596, 598-99, 601. 604 , ranits for, by FFMI, 227 Gnaduas Formation, 72 mainitenianice costs, 195, 507, 509 Guatemala, death rate, 5. 174 need for beds, 506-9 Guaviare River. 132 number of beds in, 192-4 Guiiiea grass, .31 ervice areas. 507-8 Housing H ability to pay for. 234-5 accommodations, 535 Hainabergli, Augusto, xiv agency suggested. 536-7 Health concditionis, 233-4 centers, 189, 510-3. 593 cooperatives, 236 e(lucationi, 501-2 finaiicing of, 235-6. 536-7 physical factors affectinig. 168-171 Institute. 386 services and municipalities. 494 institutions. sources of reveniue. 536 visitors, 196 lowv-cost. 593-5. 614 and welfare. 168-207. 492-513 minimum, 537-8 Hearings procedure, 148 and municipalities. 239-40 Helper service, 443: see olso Railroads overcrowding in, 169 High cost constructioni finaniced throughl promotion bv enterprises of specified commercial banks, 536 capitalization. 239 630 INDEX requirements for, 535 prices of, 318 typical, 7-8 quotas, 327-8 for various income groups, 235 taxes levied on, 119 see also Dwellings total, 10 Huila transportation rates for, 139 per capita expenditures, 272 unavailability of, 289 distribution of physicians, 197 Impuesto predial, 281 erosion in, 72 Income expenditures, 254 average, 7, 9, 25, 234 Fondo de Fomento Municipal, 228 per capita, 28 funded debt, 286 distribution of, 20, 596 generating facilities, 213 distribution of, and inflation, 294-5 hospital beds, number of, 193 groups, 34-5 malaria deaths, 180 levels, 234 miscellaneous referenices, 7, 73, 381 percentage available for housing, 235 municipal expenditures, 275 Income tax municipal personnel, 277 exemptions, 257 primary school construction, 245 rates, 257, 260-61, 551-53 public primary schools, 244 repeal of salary exemption, 551 truck traffic flow, 122 returns, concentration of, 262-63 Hydraulic units, 521 yield, 257, 305, 553, 606 Hydroelectric centrales, 214, 520, 533 India grass, 381 Hydroelectric resources, 4, 436 Indian stock, S Hydrogen production, electrolytic proc- Indirect taxes, 262-63, 305, 554-55, 606 ess for, 96 Industrial census, 87, 408 Hygiene Industrial demand for power, 516-18; see per capita expenditures for, 271-2 also Electric power personal, 501 Industrial Development Institute, 56 Hygiene, Ministry of Industrial equipment budget of, 187-8 electrically powered, 95-6 employees of, by salarv levels, 201 utilization of, 97 functions of, 186 Industrial production miscellaneous references, 177, 182, 184, raw materials for, 88-9 198, 216, 225, 418, 494, 498, 503, 506, series on, 342 510, 511, 523, 525 value of, 88-9 organization of, 185 volume of, 88, 95 personnel employed in, 189 Industrial products, demand for, 409 Hygienist Career, 497 Industrial research, 406-7 Industrial training, 250, 546-47; see also Vocational education I Industry Ibagu6 capital and reserves, 88 growth of, 208 characteristics of, 91-9 incomiie and expenditures, 274 concentration of, 88 transportation rates to and from, 139 credit to, 301-2 Ibaguc-Armenia highway, 102, 122, 454 employment in, 33 Ibague-Armenia link, 102, 119, 343, 448 expansion of, 94, 409 Ibague-Armenia Railroad, 453-455 and fuels, 87-99, 404-39 Icollantas tire plant, 414 historical development, 87 Icopesca fishing company, 79 importance of, 407-8 Illiteracy, 241, 543, 544, 614; sce also management of, 92 Education supervision in, 92 Immigration, 172 taxes on, 565-6 Immunization, 499, 502 Infalnt mortality, 5 Imports Infante, Jorge, xiv capital, 40 Infectious diseases, 499 and capital formation, 612 Inflation controls on, 324 and availability of imports, 51 duties on, 606 and budget deficits, 306 and exchange taxes, 327 causes of, 287-94 illegal, 333 contribution of government finance to, merchandise, 40 305-7 overvaluation of, 324, 333 effects of, 294-95 percentage distribution by source, 313 and exchange rates, 338  INDEX 631 international aspects of, 293-94 Iron ore and long-term financing, 573-74 deposits, 427 miscellaneous references, 17, 550, 596-97 phosphorus content of, 424 Inland waterway system, 100, 103, 132-38, reduction of, at Paz de Rio, 424 468 silica content of, 424 In-plant training courses, 405 Iron and steel, 417-28, 437; see also Steel Insect control, 86 Irrigation, 73-74, 371, 373, 378, 391-93, Insecticides, 396 401-2 Insects and rodents, 170-171 Italy, 334 In-service training program for tax per- Iturraspe, Jorge E., n. 172 sonnel, 556 Institute of Inter-American Affairs, 188, J 198, 496 jpi,selidsr n 2 Institute of Nutrition, 81, 183, 500-1 Johns-tlanvindsr 415 Institute for Parcelization and Coniza- Johns- Wilfred, xiii tion of Land, 63-64, 386, 388, Joint foreign-Colombiaii enterprises, 580 Institutc of Social Security, 206 Junkers U-34, 162 Institute of Water Utilization and Elec- JurisdictioUs, conflicting1 345 trical Development, 74, n. 211, 214, 224, 231, n. 519, 521 K Instituto de Credito Territorial, 53, 57-58, 69, 75, 81, 236-37, 240, 388, 422, 536, Kellogg Foundation, 496 575 Kemmerer's Budget Law, 267-270 Instituto Geografico Militar y Catastral, Kerosene, 430, 433 n. 72, 82, 281, 385, 393 Kilowatts per worker, 518 lInstituto Nacional de Abastecimientos, Knecht, Herman D., n. 109 77, 334, 395 Koppers Company, 419, 420 Instituto Nacional de Aprovechamiento Kunze, Royce, n. 482 de Aguas y Fomento Electrico, 81 Kuznets, Simon, n. 355 Instituto de Parcelaciones, Colonizaci6on y Defensa Forestal, 75, 81 L Insurance companies, 56 1 abor force, distribution of, 30-31, 33 Insurance costs and transport, 102, 471 Labor in foreign-owned industries, 321 Integrated logging operations, 416 Labor productivity; see Productivity Integrated steel plant, 419, 421; see also La Dorada, 4, 107, 133, 137, 398 Steel La Dorada Railroad, 105 Intendencias La Falua, 449 distribution of physicians, 197 La Guajira, air transportation to, 149 malaria deaths, 180 Land Intendencias and comisarias best practicable use of, 393 Fondo de Fomento Municipal, 228 development and reforestation of, 402 hospital beds, number of, 193 ownership, 384 primary school construction, 245 policy, 63-4 Intensive farming, 384, 389; and progres- taxes, 84 sive tax rates, 386 use and taxation, 384-7 Interest rates, 59-60, 323, 388, 536 use and tenure, 61-4 Intergovernmental loans, 322-23 use of, uneconomic and paradoxical, Internal debt, 283 383-4 International Bank for Reconstruction Landa, Ruiz, n. 61 and Development, v, ix, xi, xv, 22, Landing fees, 161-62, 477, 478 311, 322 Landings and takeoffs, number of, 157- International economic position, 18, 309- 58, 160 340 Lands, Division of, 85 Interniationial indebtedness and invest- LANSA, 142, 147, 150, 152-54, 163, 487 ment, 319-24 LATCO, 142, 150, 163, 166 International Monetary Fund, xv, 311, Leather, 311, 413, 437 317, 577 Lebrija power development project, 214 Intestinal infections, 179-181 Lemonite ore, 424 Inventory policy, 406 Leprosaria, 501 Investment program, 593-95, 597; see also Leprosy, 182, 501, 513 Capital; Capital formation Libano flour mill, 79 Investments abroacd, 324 Licensing of imports and exports, 309 Ipiales national airport, 161 Life expectancy, 5, 171 632 INDEX L-imestonie, 427 Magdalena Railroad, 105, 116 Limited markets for industry, 93 Magdalena River Lineas Aereas Nacionales. S.A., 142 average annual traffic. 133 Lineas Aereas Transatlanticas Colom- channiel stabilization, 133-4, 136, 471-2 bianas. Ltd., 142 deterioration of channel, 130 Liquors, 408 elimination of route disability, 448-53 Literacv, 8 and erosion, 72 Lithosols, 72 freight charges, 136-7, 469 l ivestock, 62; breeding of. 71, 86 and inland waterway system, 132-4, 468 Load factor, 97-98, 213, 516 labor practices, 469-70 Loading and unloading charges, 137 miscellaneous references, 102. 104, 110, TLoam soils. 72; see also Soils 115, 158. 179 Loan finance operating costs and rates. 135-137 for developmental purposes, 269 public service fleet, 134-5 for extra-bud-etary expenditures. 268-9 towboats, 135-6 for self-liquidating programs, 557-8 Magdalena River Railroad, proposed, Loan rates, 59-60 450, 452, 454, 456, 457, 472. 474 Local governments; sec -Municipalities Magdalena Valley, 3, 4. 7, 62, 106, 171, Location, handicap of, to industry, 93-94 379, 392, 398, 401, 416, 443, 465, 520 Lockheed Constellation, 167, 486 Mahogany, 416 ILocomotives Major crops, 62 assigned to individual engineers, 113 Malaria, 171, 179-80, 187, 498-9 different types of, 110 Malayan raw rubber, 414 general repairs, time required for, 111 Mamonal Refinery. 432-3 Iorenzana, Jose Camacho; see Camacho- Management in industry, 405-6 Lorenzana, Jose Manizales 1.os Frios, 449 birth rate, 172 Lotteries, 273 daily landings and takeoffs, 158 Low cost housing, 58, 539 death rate, 5, 173 Lozano, Norberto Solano. xiv electric rates, 223 Lubricants, 432 growth of, 208 Lumber, 90, 416, 437 income and expenditures, 274 1Luxury goods market, 219 excise taxes on, 554 municipal debt, 286 illegal imports of, 333 power development, 214 import licenses for. 327 slaughter house, 220 street paving, cleaning and wvaste col- M lection, 221 transportation rates, to and from, 139 McClov, John, xv utility rates, 222 McGra`w-Hill estimates of demand for Manpower refined products, 430 abundant item in production, 358 Machinie tools for railroad repairs, 446 effect of health problems oni, 492 Alachinerv and apparatus, 330 growth in, 608 Magaiigue, .Magdalena river traffic, 133 resources, 16 Magdalena shift of, 407 agricultural experiment station, 85 Manirique, Jorge Boshell, xiv per capita expenditures, 272 Manufacturing output, 10 cattle in, 381 Marginal and development areas, 479 coffee lands in, 369 Marketing depressed area, 35 of farm products, 396-8 distribution of physicians, 197 news reporting system, 396 expenditures, 254 Markups, trade, as percentage of c.i.f. Fondo de Fomento Municipal, 228 cost, 38 generating facilities, 213 Marshall-Moorman Development Comi- hog production, 381 pany, xiii hospital beds, number of, 193 Martin-202, 167 malaria deaths, 180 Martiniez, Raul Varela, n. 70 municipal expenditures, 275 Mass education, means of, 544 municipal personnel, 277 Meat primary school construction, 245 handling, 219-20 public primary schools, 244 inspection of, 496 thermal electric plants, 210 processing, 170 truck traffic flow, 122 Mechanical cotton picker, 379  INDEX 633 \Iechanization Minister of Hygiene, 58 in agriculture, 63, 394-5 Mlinister of Industry and Commerce, 58 of loading and unloading, 443, 469 MIinister of Labor, 58 problems, 70 Minister of Public Works, 58, 441 \Iedellin Ainisterio de Agricultura y Ganaderia, agricultural college, 67 n. 62 agricultural experiment stationi, 85 MXinor exports, stimulation of, 326 airport, 159, 485 MIodel systems of accountkeeping, 556 birth rate, 5, 172 Molina, Jose M., n. 72 -Bogota highway, 464-5, 467 Monetary control, 303-4 concelntrationi of industry, 88 Monetary and credit policy, 295-304 concelntratioln of traffic, 122 Monetary and exchange policy, 577 dlaily landings and takeoffs, 158 Monietary system, 550 DC-4 equipment handled at, 164 Mfoney, banking and capital markets, death rate, 5, 173 567-576 electric ranges, n. 519 Money supply electric rates, 98, 223 annual increase of, 292 generating capacity, 212 control of, 572 growtlh of, 208 expansion of, 288-89, 569 hospital center, 507-8 sources of increase, 290-93 hiousing, 240 oio ivr45 income and expenditures, 274 Mlonteria, growth of, 208 miscellaneous references, 100, 102, 140 Motitoyan Jua, Antonio, xiii 252, 390, 417, 425, 48 4, 524Moty,JaAnni,xi miotor truck rates to anid fromn, 126 Mortality cauises, 174, 176 municipal debt, 286 Mortality rates of differe7t age groups, ore reduction at, 427 174-175 power developmenit, 214 Mortgage credit, 303 roundhouse facilities, 446 Mortgage guarantees, 539 slaughterhouse, 220 Mortgage loans, 55, 57 steel plant, 57 Motor truck rates, 126 storage facilities, 78 Motor vehicle registration fee, 365 street paving, cleaning and waste col- Mouiitin, Joseph W, xiii lection, 221 -Multilateral trade, 309, 581 telephones in, 219 Municipal Development Agency, pro- transportationi rates to and from, 139 posed, 531-32, 534, 564, 566 typhoid cases in, 169 Municipal Development Fund, 58, 199, -Turbo hiighway, 465, 467-8 215, 216-17, 226-30, 243, 279, 531 utility rates, 222 MIunicipalities Medical benefits, 207 administrative machinery, 530 Medical care, 9, 184, 195-202, 502-3, 545 assistance for development of, 530-32 Medical personnel, public employment of, average income of, 224 511 budgets of. 274 Mental hospitals. 194, 507, 509 cost of governnment, 276 Merclhanidise exports, 312, 314 debt of, 286 Meta, truck traffic flow, 123 departmental aid to, 278 Meta River, 132. 473 expen(litures, 275 Metallic manufactures, 330 expenditures for debt service, 2S6 Mexico fiscal situation of, 561-66 birth rate, 5, 171, 173 functiolns of, 276-77 death rate, 5, 174 growth of, 208 death rates by age groups, 175 housing in, 239-40 death rates by causes, 176 income from property and( services, population, 172 278, 280 Migone, Raul C., n. 172 markets in, 396-97 Military expenditures, 255-56 national aid to, 226, 562-64 Milk, 170, 363, 366. 368, 382 personnel of, by departments, 277 Miller, Sherman F., n. 109 relations Nvith departments and national Mineral water, 412, 437 government, 346, 590-91 Minifundia, problem of, 63 revenues of, 274, 276-82, 565-66 Minimum health standards, 493 revenues of, by size of revenues, 276 Miniimum water requirements, 523-25 tax receipts earmarked for housing, 239 Milnister of Education, 58 taxes of, 278, 280-81, 565-66 MIinister of Finance, 58, 573 Musgrave, Richard A., xiii, xxxviii 634 INDEX N personnel by functional groups, 348 personnel by salary classifications, 348 Nare River, 452 relation of, to departmental and mumii- N\Tariflo cipal governments, 346 average departmental salary, 349 reorganization of, 589-90 average income, 9 revenues of, 259, 561 per capita expenditures, 272 National highways, 116, 119-20; see also depressed area, 35 Highways distribution of physicians, 197 National income expenditures, 254 per capita, 25 Fondo de Fomento MIunicipal, 228 contribution of industry to, 407 funded debt, 286 at current and 1947 prices, 27 generating facilities, 213 by economic sectors, 601 hospital beds, number of, 193 growth of, 25-9 malaria deaths, 180 and money supply, 289-90 miscellaneous references, 4, 9, 63, 83, projection of, 602 129, 187, 190, 196, 276, 374, 613 series on, 341, 586 municipal expenditures. 275 sources of, 29-33 municipal personnel, 277 National Institute of Water Utilization parcelization of land, 63 and Electrical Development: see In- physicians per population, 196 stitute of, etc. primary school construction, 245 National Livestock Bank, 77 public health organization, 190, 191 National-local financial relationships, public primary schools, 244 rationalization of, 561-4; see also soil in, 72 Municipalities truck traffic flow, 123 National lottery, 564 wheat in, 374 National Navigation Company, 131-2 Narifio Railroad, 105, 116, 458 National Planning Association, U.S., 592 National accounts National Port Autlhority, proposed, 470, composition of, 601-4 471 computation of, 22-4 National power network, 214, 520-21 ; sec projection of, 603 also Electric power National Airport Fund. 161-2 National Railways, 106, 115-16. 119, 419, National airports, 161, 485 441, 443, 454, 458 National budget, 255, 306, 557-61 see National Resources Planning Board, also Budget U.S., 585 National Bureau of Economic Reseatch, National School Fund, 227, 229, 230. 243, U. S., 22 249; see also Education National Coffee Federation; see Coffee National School of Hygiene, 189 Growers' Federation National School of Nursing, 188-9, 198 National Cotton Institute, 81 National Securitv Resources Board, National Council for Railways, 470 U.S., 585 National Council of Transportation, 154, National Treasury 440, 480-1 contributions from, to municipalities, National Counicil of Ways of Communica- 279 tion, 119 grants from, 230-1, 562-3 National debt National University, 67. 253 absorption of, 307-8 Natural resources, 13-14, 357-59, 613-14 changes in, 306 Navigable rivers, 100 andl gross national product, 307 Navigation, Directorate of, 127 interest pavments on, and national in- Navigation and Ports. Department of, 470 come, 307 Negro stock, 5 interest rates on, 284 Neiva tvpes of, 282-84 airport, 161 National expenditures, development of, electric rates, 223 305-7 Netherlands, bilateral agreemenit wvith, National Federation of Coffee Growers; 334 see Coffee Growers' Federation Night flying, 166, 482-84, 486-88: see also Nationial Food Supply Institute, 397 Air transport N ational Government Nitrogen, 395, 434-35 balanced financial system, 563 Nordeste Railroad, 105, 108, 110, 116, 445 credit to, 296-300 Normal colleges, 390 domestic debt of, 284 Normal schools, 247, 248, 249, 548-49 expenditures of, 255-56 Norte Railroad, 445, 448, 449, 450, 452  INDEX 635 Section No. 1, 105, 108, 116, 457, 458 agricultural experiment station, 85 Section No. 2, 105, 108, 110, 116 growth of, 208 Norte de Santander income and expenditures, 274 per capita expenditures, 272 Pan-American Hlighway, 118, 468 per capita expenditures on hygiene, 271 Pan American Sanitary Bureau, xv, 496 distribution of physicians, 197 Panama Canal, 434, 473 exTenditures, 254 Pancla, 361, 362, 363, 366, 368, 371, Fondo de Fomento Municipal, 228 397-8 funded debt, 286 Paragrass, 381 generating facilities, 213 Paratyphoid fever, 179 hospital beds, number of, 193 Parcelization of land, 63 municipal expenditures, 275 Passenger municipal personnel, 277 equipment, 114 primary school construction, 245 increase in, and freight traffic, 453 public primary schools, 244 rates. 115, 153 truck traffic flow, 123 revenue, 149-50, 165 Nova Scotia, 389 train, average speed of, 112 Nuclear school system, 544; sce also Edu- Pasteurization of milk, 170, 496 cation Pasto, 72, 208, 507-8 Nurses, 196, 198-99 Pastures Nursing Practice Act, 198-199 acreage in, 62 Nutrition improvement of. 380-1 deficiencies in, 183-184 returns from, 63 disorders caused by lack of, 492 Patrimony tax, 257, 258 instruction in, 500-1, 544 Payload limitations, 164, 166, 443 level of, 364 Payroll taxes and social security, 505 reouirements for, 364 Paz de Rio project, 57, 420, 422, 575; Nuttritional edema, 184 see also Steel Pension system, 447 a Pereira airport, 159 Ocean shipping, 473 growth of, 208 Office of Administrative Management, income and expenditures, 274 U.S., 588 municipal debt, 286 Office of Exchange Control, 82, 310, 316, P6rez, President Mariano Ospiina, ix, xi, 320, 327, 328, 329, 331, 332, 334, 578, xv 579 Personal income Oil extraction, industrialization of, 412 distribution of, 33-6 Olaya-Salgar pipeline, 459 estimate of, 24 Old ape insurance program, 207 higlher taxation of, 552-3 One-crop farming, 71; see also Agricul- Personal savings, 24, 49, 575 ture Personnel Open hearth furnaces, 426; see also Steel government, 591 Open market in government debt, 299, improvement of. 584 570 Persons per dwelling, 232 Organization and planning, 16-18; see Peru also Public administration average income, 25 Orinoco River, 4, 118, 131, 473 population, 172 Orphanages, 194 Peso Output, growth in volume of, 407 buying power of, 337 Overcrowding in houses, 234; see also depreciation of, 324 Housing external value of, 582 overvaluation of, 326 p stability of, 550 Pesticides, 396 Pacho, production of pig iron in, 417 Petroleum Pacific Coast. 3, 61, 79, 179, 182, 190, 427 exploration, 336 Pacifico Railroad, 6, 105, 109, 110, 111, exports of, 4, 18, 309 113, 115, 116, 445, 448, 450, 456, 460 foreign investment in, 580 Packing plant, 79 investment in, 437 Paints and resins. 415 miscellaneous references, 320, 408 Pajarita cacao, 377 price indices for, 318 Paliira production and consumption of refined, agricultural college, 67, 390 428 636 INDEX proven reserves, 432 basic sources of, 359 refining facilities, 90, 430, 432-34, 460 per capita, 211 Petroleum companies consumption of, 212, 515 capital imports bv, 315 demand for, 212 transfers of foreign exchanige, 310-2 development projects, 214 wxithdrawing from Colombia, 315 facilities, character and location, 520-21 Petroleum products, 428-34 generating capacity, 96 demand for, 430 increase in installed capacitv, 515 demand for, estimated by McGrawv- requirements for, 214 Hill, 430 use of, 211 Petroleum refinery, 87, 140 sec also Electric power Pharmaceuticals, 415 Prefabricated houses, 537 Phosphorus, 395 President, Executive Office of the, PhysiciaIIs, 196-197, 496 343-45, 584-89, 609 Pieceworlk wages, 95, 405, 447 Preventive medicine, 498, 504 Pig iron production, 417 Prevision Social, 236 Pilferage losses, 102, 126 Prices Pipe, 418 indices of, 602 Pipelines inflation of, 288-9 capital investment in, 475 maintenance of, 293, 595-8 capital requirements for, 460 measures to reduce, 404-7 for crude petroleum, 138 series on, 586 economic utility and cost of, 140, 459-60 Prieto, Joaquin, xiv for gasoline and refined products, Primary education 138, 140 average salary of public school teachers, miscellaneous referenlces, 100, 434 246-47 for "white products", 140 enrollment in public schools, 242 Plan Quinquenal de Fomento Agricola; facilities for, 545-46 sce Agriculture, five-year plan for improvement of, 543-46 Planes, utilization of, 163 need for, 389 Plaining and administration private schools, 242 improvement of, 584 pupils per room in public schools, 243-44 organfization for, 341-349 school construction program for, 245, see also Public adminiistrationi 545 Plannling agency, 588: see also Resources size and enrollment of public schools, Planning Agency, proposed 244 Plant and equipment expenditures, 37, 409 teachers, number of, 243 Plcitano, 62, 363, 372, 375 teachers, training of, 246 Platinum, 311 Private borrowers, bankc lending to, 293; Police, 591 see also Credit Polo, Jorge Pena, xiv Private capital formation, 294, 595. 600 Popayan Private contractors, loans to, 388-89 airport, 161 Privies, 231, 525, 526 electric rates, 223 Producers' goods, 19-20 internial debt, 286 Productioii power development. 520 capacity, 408 slaughterhouse, 220 costs and pr-ices, 93 Population goals, 360-61 age distribution of, 241. 243 loans, 75 estimates of, 5, 193, 197, 208. 211 targets for 1955. 366 increase in. 28, 172, 232, 358 Productivity optimum size. 358 per capita, 13-18 rural, 14, 208-9. 608 of farmers, 63. 71, 363 urban, 14. 208-9, 608 health requisite to, 359 Port facilities, 127-31, 470-71. 475 increased by education, 543-44 Postal savings systetn, use of, 53 increases in. 353-54, 359, 407, 601, 614 Potassium, 395 indices of, 602 Potatoes, 62, 361, 362, 363, 366, 368, 372, in inidustry, 91-92, 404-5 375-77 oni railroads, 112, 442 Poultry and eggs, 382 per worker, 95 Powdered milk plant, 79 Professional and scientific personnel, 184 Power Profit-to-capital ratio, 262 availability for industrial purposes, Program 517-18 and capital formation, 593  INDEX 637 fiscal aspects of, 604 Puerto Rico, n. 358 implementation of, 593-615 Puerto Salgar, 133, 137, 459 magnitude and composition of, 593-95 Puerto Wilches nature of, 353-59 Magdalena river traffic, 133 need for a comprehensive and ilnteg- navigation soutlh of, 133, 448 rated, 355-56 warehouse, 137 objectives and emphasis, 353-55, 614-15 Purchasing power, 93 physical limitations of, 608 Putumayo River, 117, 132, 473 of projected investment. 594-95 Progressive tax rates, 262, 385-86 Q Projected income and expenditures, 604 Property tax, 258 Quibd6, 484 Property tax assessment, 262, 266 Qulndio, 73 Prostitution, 182 Quota allocations, 327-329 Providencia, air transportation to, 149 Public administration R concentration of responsibility. 589 Racial composition, 5 organization for, 16-18, 341, 345-47 Radio, 478, 544 reforms in, 584-92 Railroad Administrative Council, 129 see also Government agencies; Na- Railroads tional Government abandonment of, 458-59 Public Administration Mission, 400, 442, administration of, 107-109, 441-42 530, 563, 584, 590, 613 capital investment in, 475 Public capital formation, 595, 600 concessions, 107 Public debt clescription of, 104-6 funded debt, 283-86 employee productivity, 113 interest payments on, 256 equipment, 110 investment in, 575 extensions and changes of. 448-59 open market for, 308, 574-76 gauge standardization, 108 Public expenditures high cost of transportation, 115 and gross national product, 304-5 integration of, 108-109 growtth of, 304-8 isolated lines, 106 Public finance, 255-86, 305-8 maintenance of way and structures, Public health 109, 445 estimated number of personiel. and manual block system, 112, 443 annual expenditures for, 511-12 nationalization of, 107 organization, 184, 190, 493-95 network of, 105 personnel practices, 199, 200, 498 operating practices, 111-12 personnel requirements, 496-98 payload on, 110 services, 184-192 pension system, 114 specialists. 198 replacement of rails, 445 training of workers, 497 safety problems of, 443 turnover of personnel. 200-2 schedules, unreliability of, 114 Public Health Service. U. S.. 496 shop facilities, centralization of, 445 Public markets, 170, 219, 527, 532 state-owned, operated by corporation, Public opinion, 592 589 Public personnel Railway Mission. U.S., 109, 443, 445 average salaries of. 256, 347. 349 Raw materials, 91, 404, 407 dismissals for political reasons, 346 Rayon, 410 low pay, 346 Rayon industry, consumption of electric securitv of tenure, 346, 349 power, 96 turnlover of, 347, 349 Rayon pulp, 410 Public Railways Corporation, proposed, Rayon textiles, investment in, 437 441-42 Real property tax Public service generating facilities, 211, adjustment in average rate, 566 213; see also Electric powver normal rate, 281 Public utilities. 222-231, 522, 529-30; Reassessment of property values. 281, 565 sce also Communitv facilities Recio River Project, 74 Public welfare, 202-3, 502-3 Reclamation, 74 Public works expenditures, 255-56 Rediscounts, 296-99, 300, 567, 570-71 Public Works, Ministry of, 107, 118, 119, Refining facilities; see Petroleum 124, 127, 146-47, 462, 471, 480 Reforestation, 393 Puerto Berrio, 7, 133, 137, 434 Refrigeration, 496 Puerto Olaya, 459 Regional power networks, 520 638 INDEX Regional specialization, 364; see also inspectors, 200-201 Economic zones laboratory technicians, 200-201 Reinforcing rod, 417, 418 nurses, 200-201 Remission of earnings, 330, 578 physicians, 200-201 Rent, outlays for, 235 tax personnel, 555 Reorganization of government, 589-90 teachers, 548-49 Representatives, House of, 343 Saldana Irrigation Project, 73, 379, 392 Research and statistics, 398-400 Salt, 4, 412 Reserve fund for social security, adminis- Salt Administration, 412 tration of, 505-6 Salto Nuevo power development project, Reserve funds, sources and uses of, 297-98 214 Reserves of commercial banks, 296-99, Salvador, birth rate, 173 567-70 SAM, 142, 150, 163 Resources Planning Agency, proposed, San Andres, transportation to, 132, 149, 586-87, 609 473 Retirement pay, 95 San Jorge Valley, 4, 377, 379, 398 Revaluation of farm lands, 385 San Juan de Dios Hospital, 204 Revenue code, 556 Sanitation, 199, 495-96 Revenues Santa Marta earmarking of, 560 coastwise freight movements, 132 estimates of, 267, 269 growth of, 208 and financing of ordinary expenditures, international traffic, 104 558-59 national airport, 161 formula for estimates of, 269, 559 port facilities, 117, 127-129, 161 projected, 605 Santander sources of, 563-64 per capita expenditures, 272 structure of, 256-59 depressed area, 423 Rice, 62, 78, 361, 362, 363, 366, 368, distribution of physicians, 197 3R2-73 expenditures, 254 Rio Grande power development external and internal debt, 285-86 project, 214 Fondo de Fomento MIunicipal, 228 Rio Hacha coastwise freight movements, generating facilities, 213 132 hospital beds, number of, 193 River and port improvement projects, malaria deaths, 180 471-73 miscellaneous references, 63, 83, 187, Road construction and maintenance, 119, 210, 382, 613 463; see also Highxvays municipal expenditures, 275 Rockefeller Foundation, 86, 189, 198, 496 Inunicipal personnel, 277 Rodriguez, Justo Diaz, n. 6 parcelization of land, 63 Rolling stock primary school construction, 245 better use of, 457 public primary schools, 244 improved types of, 443 tobacco production in. 380 maintenance of, 474 truck traffic flow, 123 standardization of, 446 Santander del Norte, 180, 38J Roofing material, 415 Savint Roosevelt, President, 585. 587 aviual volnme of, 357 Roundhouse facilities, 446; see also forced, 294 Railroads and gross natioisal product, 596 Rubber shoe industry, 411 and investment, 48 Rubber tires. 87, 407, 413-15 and public debt. 575 Rinmral dwellings voluntary and forced, 356 imVeStl-nent in, 233 Savings and investment institutions, 51-59 replacements needed, 535 SCADTA, 142, 156 Rural education, 66-68, 389-91 Sc 1 S J Rural health and nutrition, 69 average cost of construction, 545-46 Rural housing, 68-69, 537-38 buses for, 544 Rural income, 29-31 I fbuse rt, 543 Rural industries, 79 facilIties,54 Rural populatrion, 6,646 grants for, by FFM, 227 Rural population, 6, 64-65 resources for construction, 243, 245 see also Education S Scotch whiskey, 333 SAETA, 142, 150, 163 Seaports, 127, 128 Salary levels Secondary education dentists, 200-201 enrollusienit for, 248  INDEX 639 expansion of schools for, 547 conditions of, 61 facilities for, 248 conservation of, 72-73, 393-94 investment necessary for school build- crops for improvement of, 371 ings, 548 Soledad airport, 476 number of schools, 246 South America, exports to and imports Secondary and university training, 547-48 from, 313 Seed practices, 71 Specialization of labor, 355 Self-liquidating public services, 267-68 Stabilization Fund, 56 Self-sufficiency Stamp tax, 263 in agricultural commodities, 83 Standard of living, 6-10, 11-21, 65-69, national, 336-37 353-55, 357, 359, 360, 615 Semi-manufactures, unit value index, Standardization of equipment and gauge, 318-19 446; see also Railroads Semi-trailer equipment, 464; see also Standards for common carrier airlines, Highways 148 Sepiate, 343 Standby capacity, 97 Septic tanks, 525 State, Department of, U.S., n. 10 Servicio Cooperativo Inter-Americano de Statistical data, need for, 341, 398-99, 584, Salud Publica, 187 591-92 Sesame, 378 Steel Severance pay, 9, 95, 206 domestic financing for production, 422 Sevilla, housing in, 240 estimated profitability of operations, 423 Sewer facilities fabricating facilities, 87, 419, 426-28 capital requirements for, 525-26, 532 industrv at Barranquilla, 426 construction program for, 216-17, 525-26 ingots, a417, 427, 4a i disposal systemFs,E 227 market survey of products, 418-19 treatment plants, 216, 217, 526 pipe requirements, 418-19 Share n pla - , 259160 tre yields, pricing products, mill products, of demand for, 418423 Sheep anid goats, 382 Shipping Conference, 331 products from European mills, 423 Shoes, 4, 411, 437 rails, 418 Short-term credit, 51 unit cost of production, 423 Silverware, 87 Sterling bonds, 322 Simon, Farrar, n. 482 Sternwheel vs. propeller-type vessels, Sincelejo, shortage of water in, 74 comparative operating costs, 136 Sintering plant, 424 Stevedoring services, 469 Sinu River, 131-32 Stock exchange, 55 Sinui Valley, 4, 63, 378, 384, 398, 520 Stock ponds, 392 Sisga flood control project, 74 Storage Six-hour shifts, 405 facilities, 77-78 Skilled labor, lack of, 121 of farm products, 396-98 Slaughterhouses, 170, 219-20, 527, 532 and price fluctuations, 397 Smallpox, 499 Storage and Preservation of Grains Con- Smith, Adanm, 550 ference, 78 Smith, Raymond C, xiii Stream pollution, 526 Snith, T. Lynn, n. 6 Streets Smugglinlg 325, 581-82 capital requirements for, 532 Soap, production of, 413 cleaninlg, 220-21, 528 Social security, 95, 206-7, 503-6 drainage, 216 Social Security Act of 1946, 206 paving of, 220-21, 528 Social Security Board, 506 projected expenditures for, 221 Social Security Institute, 192 Suarez River, 449 Social workers, lack of, 502 Sugar, 4, 62, 87, 361, 362, 363, 366, 368, Sociedad Aerea de Tolima, S.A. 142 370-71, 407, 412, 437 Sociedad Aeronautica Medellin, S.A., 142 Sugar Distributing Company, 82 Sociedad Colombo-Alemana de Trans- Sugar industry, consumption of electric portes Aereo, 142 power, 96 Soda ash, 87, 89, 415 Sulphuric acid, 89, 415 Soderlund, Dorothy, xiii Superintendencia de Cooperativas, 240; Soft drinks, 407, 412 see also Cooperatives Sogamoso, 420 Superintendent of banks, 55, 295, 300, 573 Soils Sur Railroad, 108 classification of, 393 Surface drainage, 526 640 INDEX Surface transport, 100-141, 440-475; see per capita expen(litures on hygienie, 271 also Highways, Inland waterway per capita expenditures, 272 system, Pipelines, Railroads coffee lands in, 369 Surplus, concept of, 270 cotton in, 378 Sweden, bilateral agreement witlh, 334 distribution of physicians, 197 Switzerland, 384 erosion in, 72 Syphilis, 181-182 expenditures, 254 Fondo de Fomento Municipal. 228 T T ftiifded debt,facilities, generating 286 213 Tabio, 6-7, 8. 64-66, 68. 85, 251 hospital beds, number of, 193 Taniiigcapciy,413 Taning 5miscellaneous capacity, mialaria deaths, 180 references, 7. 64, 73, 106, Tariff Comission, US., n. 61187, 237, 379, 384 Tariff Conmissioii, U.S., m 61 municipal expenditures. 275 Tax . municipal personnel, 277 administrationi, 265-67. 555-57 primary school constructioni, 245 appeals, 266 public primarv schools, 244 burden, distributioni of, 259-263 tractors in, 70 on capital income, 551 truck traffic flos, 123 collections, ratio of budget expenditures Tolpo, Clarenice, n. 482 to, 555-556 Ton-kilometer costs. 125 declarationis. processing of, 266-67 Ton-mile costs, 110, 444 inducements to efficient land use, 384-87. Topography, 3, 100 566 Topping units, 430; see also Petroleum liabilities at various levels of inicomiie Torfs, Jacques. xii, xiii, xxxviii 260-61 Toro, Emilio, xv rates, illustrative, 385 Torres, Leonel, xiv receipts, 305 Toris, 333 returns, checking of, 266-67 Tourist class air service 143 structure, improvements in, 551-54 Toris class ai 5erie, 143 on undistributed earnings, 610 Track ballast. 109. 445: see also Railroads Taxation and capital formatioll, 264-65. Tractorina, 433; see also Petroleum 553 54 Tractors and tractor-drawn equipment, Taxation and deficits, 305-7 Trade deficit, 316-17 Teachers Trade and transport costs, 43. 44, n. 437, avaqlability of, 547 439. 474, 475, 491, 599, 600 quality of, 543, 548 Trading zones, 3-4. 100, 364-65 salaries, 246)-47 Traffic surveys and estimates, 462, 465 shortage of, 243, 546 Training see also Education of professional personnel, 511 Technicians, 344 of social workers, 503 Techo field, 484 of tax personnel, 555 Telephiones, 218-19. 526-27, 532 Transportation Terminal elevators, 78 agricultural, 71, 80 Terms of trade, 317-19 for cattle, 381 Terrain, problems of, 100 costs, 102 Territorial Credit Institute, 388; sec also estimated capital investmelnt for, 474-75 Instituto de Cr6dito Territorial improvenent of, 404 Textile industry, 87. 320, 410 inadequacy of, 440 Textiles, 408, 409-10 lack of unified system, 91 Thermal plants, 521 : see also Electric rates per toil, 139 power regulation of, 440 Ties, railroad, 109, 445 vear-round system of, 450 Tiles for flooring, 415 see also Air transport; Highways; In- Timetable dispatching, 443; sce also land waterway system; Pipelines: Railroads Railroads Tires and tubes, 413-14 Transportation Act of 1949, 119 Tobacco, 4, 87, 362, 366, 368, 380, 408 Transportation and Tariffs, Division of, Tobacco Cooperative, 380 124, 147 Tobacco Development Fund, 82 Trapiches, 79, 397-98 Tolima Treasury Department, U.S., 587 adobe dwelling, 537-38 Triana. Concha, xiv average income, 9 Tropical anemia, 179  INDEX 641 Tropical forcsts, 416 national income comparisons, 32 Tropical Oil Company, 129, 314. 315, 320, percentage employed in agriculture, 14 580 physicians per population., 196 Truck population, 172 equipment, 124 presidential assistants in, 585 licensing restrictions on operations, 441 productivity of labor oni railroads, 112- maintenance, 464 113 operating costs and rates, 125-26, 461 public debt, 307 rates, 103 public welfare services, 203 registrations, 121, 428-29 railroad rates in, n. 115 volume of traffic, 121-23 reserve control in, 570 Tuberculosis, 177, 181, 187, 194, 499-500, rising prices in, 293 507, 509 surplus aircraft, 142 Tulua municipal airport, 159 tax collections, ratio of buclget expetndi- Tumaco tures to, 555 coastwise freight movements, 132 technical assistance, 587 international traffic, 104 telephones in, 218 -Pasto, 465, 467 traininlg of Latin American students in, port facilities, 128-30 391 Tunja, 208, 484 University training, expense of. 548 Turbo, coastwise freight movements, 132 Unmetered consumption of utilities, 222, "Turn" system, 133, 469; see also Inland 224 waterway system Urban dwellings Typhoid, 179 investment in, 233 Typhus fever, 192 replacements needed. 535 Urban housing, 538-39 u Urban income, 29-31 Uruguay, per capita power, 212 Underutilization of land, 84; tax on, 385, Utah, life of highway equipment in, 125 606, 610-11 Utility rates, 222-24, 529-30 United Kingdom, 295, 333-34 Utilization coefficient, 517-18 United Nations Food and Agriculture Organization, V xv, 78 statistical office of the, n. 172, n. 174, V acations, paid. 95, 206 n. 175 Vaccination, 502 technical assistance from, 587 Valle del Cauca United States per capita expenditures, 272 aid programs in, 505 per capita expendcitures on hygiene, 271 aircraft in commercial service, 167 coffee lands in, 369 airport operational standards, 164 distribution of physicians. 197 anhydrous ammonia used in, 395, 434 expenditures, 254 average hospital stay, 195 Fondo de Fomento Municipal, 22S average income, 25 funded debt, 286 birth rate, 5, 173 generating facilities, 210, 213 per capita power, 212 hospital beds, number of, 193 checks and balances, 343 malaria deaths, 180 comparisonis with, 3, 168, 198, 319, 333, miscellaneous references, 64, 73, 140, 337, 378, 426, 585 459 cotton yields in, 378 municipal expenditures. 275 death rate, 173, 174 municipal personnel, 277 death rates by age groups, 175 primary school construction, 245 death rates by causes, 176 public primary schools, 244 diseases in, 177 rice cultivation in, 373 exports to and imports from, 313 sugar production in, 370 flight and ground equipment from, 145 tractors in, 70 gold sterilization, 568 truck traffic flow. 123 governmental reorganization in, 590 Valorizacion, 281-82 highway equipment, life of, in, 125 Value added in manufacturing, 88 horsepower in, 10 Vegetable shortening plants. 413 hospital facilities, 192 Venereal diseases, 181-182. 187, 500 income tax rates, 262 Venezuela increases in output, 28 birth rate, 5, 173 interest payments on public debt. 256 and contraband, 332 642 INDEX dleath rate, 174 Wheat mills, consumption of electric death rates by age groups, 175 power, 96 death rates by causes, 176 Wheat Production, Fund for Promoting, export market for textiles, 409 82 exports to, 333, 581-82 White, Joseph, xiii Gran Colombiana Line, 127, 330 Whooping cough, 499 Veterinarian educational program, 67 WVindow glass, 413 Veterinary medicine, college of, 252 Winston Brothers Company, estimate of Viani model community, 81 rail construction costs, 453 Vila, Pablo, n. 5 Wire products, 418 Villeta formation, soils of, 73 Wool Development Fund, 82 Viscose yarn, 410 Woolen mill, expansion and moderniza- Vocational education, 67, 250-52, 391, 543, tion of, 410 546-47 Woolen textiles, 407, 410, 437 Worker productivity; see Productivity w Workers benefits for, 95 Walnut, 416 full-time, 31, 33 War, Ministry of, 146, 147, 480 handicaps of, 92 Warehouses, 137 productivity of, 404-5 Wartime inflation, 287; see also Inflation urban, 9 XWaste collection, 220-21, 528 see also Labor; Productivity Waste disposal facilities, 169, 209 Wylie, Katheryn H., n. 72 Water-rights laws, 74, 391 Water supply y capital requirements for, 523-24, 532 construction program for, 216-217 Yaragua uribe grass, 381 facilities, 215-217 Yard-gauge track, 106, 452 grants for, by FFM, 227 Yarn production, 410 need for. 169. 209 Yaws, 182 rates, 222 Year-round navigation on Magdalena utilization of, 74, 391-93 River, 468; see also Inland waterway wells, 74, 524-25 system; Magdalena River Water transport and port facilities, 127- Yellow fever campaign, 189 39, 468-473 Yucca-name, 62, 363, 366, 368, 372, 375 Watts per capita, 211 Western Germany, bilateral agreement z -with, 334, 580 Western railroad system, 106, 448, 455-56 Zebu cattle, 86 Western trunk highway, 117 Zones, trading, 3-4, 100, 364-65 Wlheat, 62, 83, 86, 361, 362, 363, 366, 368, Zoning regulations, 528 373-74 Zuluaga, Jorge, xiv