Colombia - Sixth Development Finance Companies Project

FILE COPY Dment of RETU TO The World Bank FOR OFFICIAL USE ONLY EPORIS [8K Report No. P-1772-CO REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE BANCO DE LA REPUBLICA WITH THE GUARANTEE OF THE REPUBLIC OF COLOMBIA FOR A SIXTH DEVELOPMENT FINANCE COMPANIES PROJECT February 26, 1976 F hIs document has a resticted dibution and may be ued by reciplents only in the perfonmnce of jther offical duties. Its contents may not otherwise be disclosed without World Bank authorIzatIon.  CURRENCY EQUIVALENTS (as of January 16, 1976) Currency Unit - Colombian Peso (Col$1) Us$1 . - Col$33.10 Col$l - US$0.302 Col$1 miUion - US$30,200  FOR OFFICLAL USE ONLY INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REFORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROFOSED LOAN TO THE BANCO DE LA REPUBLICA WITH THE GUARANTEE OF THE REPUBLIC OF COIOMBIA FOR A SIXTH DEVELOFENT FINANCE COMPANIES PROJECT 1. I submit the following report and recommendation on a proposed loan to the Banco de lL Republica (BR) with the guarantee of the Republic of Colombia for the equtivalent of US$80 million, the proceeds of which would be relent by the Banco de la Republica to development finance companies (financieras). The Bank loan would have a term of 17 yearsj, including 3 years of grace, and would be amortized according to a fixed schedule based on the Bank's projection of the expected aggregate amortization schedules of the individual sublcians to be made by the Banco de la Republica to the financieras. Interest on the loan would be 8-1/2 percent per annum. The proceeds would be relent on the terms summarized in paragraph 38. A par- allel loan of US$30 milaion, based on the Bank's project appraisal, has been approved by the Inter-American Development Bank. PART I: THE ECONOMY 2. The Bank's most recent economic report (Economic Position and Prospects of Colombia, No. 696-CO) was distributed to the Executive Directors on May 28, 1975. Country data sheets are provided in Annex I. Background 3. During the paLSt two decades substantial structural transformation has taken place in the Colombian economy and the country is now well advanced in the transition from a predominantly rural, agricultural, and largely self- contained economy to anl urban industrial economy, more oriented toward inter- national trade. Broadening of the country's productive base has been accompanied by rapid glowth of non-traditional exports and development of a modern sector which relies to a considerable extent on imported inputs. From 1967 to 1974 Gross Domestic Product increased by an average 6.5 per- cent per annum in real terms, well above the historical average of less than 5 percent (1950-67), and real per capita GNP increased by an average annual 3.6 percent. Two mutually dependent phenomena, increased investment and relaxation of the foreign exchange constraint, have been major factors in bringing about the acceleration in growth which occurred during the 1967-74 period. Merchandise exports have expanded more than three-fold since 1967 and, most s'Lgnificantlyt non-traditional exports have become an increasingly important source of foreign exchange earnings, growing from 27 percent of merchandLse exports to about 50 percent at present. Much of This document has a restricted dJistribution and may be used by recipients only in the performance of their oflicial duties. Its contents may not otherwise be dislosed without World Bank authorization.  - 2 - this increase was the result of both product and market diversification, especially of manufactured exports as the share of total exports shipped to Latin American countries more than doubled. Despite the rapid development which has taken place in recent years, however, per capita income is cur- rently only Us$520 and Colombia remains an underdeveloped country with a relatively small modern sector superimposed on a large, traditional and poor base. 4. While economic growth continued at a rapid pace in 1974, albeit somewhat slower than in the preceding three years, there were a number of adverse developments--including weakening of balance of payments perform- ance, loss of self-sufficiency in petroleum production, persistent and serious inflation, continued deterioration of public finances, and reduction in public investment--which threatened to interrupt the higher growth path achieved by Colombia in recent years. Changes which took place in the world economy in late 1973 and 1974 exacerbated these problems and underscored the urgency of stabilizing the economy and reorienting economic policy so as to re-establish the basis for accelerated economic growth. In order to reduce inflation, strengthen domestic resource mobilization, and improve alloca- tional and productive efficiency, the new administration undertook basic reforms of the fiscal, monetary, and price systems shortly after taking office in August 1974. 5. The cornerstone of the new government's program was reform of the tax system. Shortfalls in government revenues had in recent years resulted in chronic fiscal deficits which were major sources of inflation and impeded expansion of infrastructure investment and social programs vital to accel- eration of development. Tax buoyancy declined sharply in the early 1970's as a result of the negative impact on Government revenue of the increased use of tax benefits for exporters and because of administrative deficiencies. This deterioration of the National Government's financial position was accompanied by weakening of the capacity of the rest of the public sector (departmental and municipal government and public enterprises) to mobilize domestic resources and execute investment. In order to overcome these problems, the new government implemented a tax reform which covers almost every important component of the tax system and represents a significant improvement on nearly all counts, standing as a landmark in the recent history of such undertakings, both among developing and developed nations. The reform has strengthened public finances by producing a sharp increase (56 percent) in tax revenues in 1975. 6. In addition, the government has implemented far-reaching reform of the financial system aimed at stimulating private savings and improving the allocational efficiency of the financial system. This reform included a restructuring of interest rates, simplification of the complex reserve system and elimination of many of the more rigid and cumbersome controls which inhibited the system's allocational efficiency and effectiveness in mobilizing private savings. The reform has produced a more balanced flow of resources through Colombia's financial system and a substantial increase in financial savings. Reforms of the fiscal and financial systems have  made it possible to reduce the annual rate of inflation in Colombia from 28 percent in early 1974 to less than 18 percent at present. 7. The government has also taken action to correct major distortions which existed in the price system. Price controls on a number of important agricultural products nad resulted in artificially low prices which discour- aged production, stimulated consumption, and resulted in costly subsidies which further weakened public finances. A petroleum pricing policy aimed at maintaining the pri,e of gasoline and other derivatives at artificially low levels resulted in declining domestic production of crude oil and the country has recently become an importer of crude for the first time since the early 1950's. The present Administration has shown its intention to deal with these politically difficult but critical problems, by adjusting prices of both agricultural and petroleum products. Prices of crude have recently been increased to a level which provides adequate incentive to producers to increase exploration and production. In addition, retail prices of gasoline have been increased about 60 percent over the past 18 months. While gasoline prices are still below world prices, the government is adjust- ing them:'periodically and has stated that it intends to continue such adjust- ments until they reach a realistic level. Developments in 1975 8. Since the beginning of the year, Colombia has been going through a slowdown in the rate of economic growth. Growth of every major' productive sector, with the exception of agriculture, is expected'to be negligible for the year as a whole and it is likely that GDP will grow only moderately (2-4 percent) in real terms as compared to 1974. The slowdown seems to have been triggered by the end of a construction boom and a drop in demand for certain manufactured exports. Overbuilding during the 1973-74 construction boom together with modific'ations in interest rate policy which have reduced the flow of funds to construction, have resulted in a sharp contraction in the building industry. Despite real depreciation of the Colombian peso, demand for exports of some of Colombia's key branches of industry fell sharply in 1975, a phenomenon linked to the recession in the OECD countries. This, together with depressed demand for industrial inputs used by the construction sector and a reduced level of demand by the public sector, have brought about a recession in industry, which in turn has adversely affected commercial activity. 9. During the first half of 1975 sharply reduced export earnings stemming from continued depressed world coffee prices and lower demand for Colombia's nontraditional exports resulted in a loss of net foreign exchange reserves of about US$90 million. Since June, however, improved performance of non-traditional exports and increased coffee receipts together with reduced imports stemming from a slowdown in economic growth have resulted in a recovery of foreign reserves by US$210 million. Net international reserves are currently about US$550 million, a level sufficient to cover over three months of imports of goods and non-fa'ctor services. The outlook  for 1976 is for continued strong world coffee prices and improved perform- ance of non-traditional exports. Growth of aggregate demand should result in some recovery of imports which have been depressed throughout 1975. Despite this, net international reserves are expected to continue to in- crease in 1976. Develorment Stratezy and Growth ProsDects 10. The long-term development strategy of the present government is to return the economy to the higher rates of growth achieved in recent years and provide increased employment opportunities and a broader distribution of the benefits of economic growth to all segments of the population. Public expenditures are being reoriented toward nutrition and primary education programs which affect the productivity of the poorest 50 percent of the population. A four-year development plan has recently been completed which aims at creating the conditions necessary for achieving full employment through increased capital accumulation in the private sector, improvement in the efficiency of the price system and expansion of public investment. The main focus of the public sector investment plan is on Colombia's poorest regions--Choco, Narino, Boyaca, and the North Coast--and the rural and urban poor. Special priority has been assigned to agriculture because it is in the rural areas where the greatest concentration of poverty exists and in agricultural activities where the highest employment impact can be achieved. Commercial agriculture is also to receive support due to its strong contri- bution to export and employment growth. Policies for promoting decentraliza- tion of industry away from the largest cities in the country have been adopted to accelerate integration of more backward areas into the modern sector of the economy. U. Continued strong growth of agriculture coupled with recovery of the construction and industrial sectors is expected to result in resumption of a 7 percent growth path in the late 1970's. To achieve this will require an increase in the share of investment in GDP from 19 percent in 1970-74 to 23 percent in 1980. As a result of the recent fiscal and monetary reforms, domestic savings are projected to increase from 19.5 percent of GDP in 1970-74 to about 22 percent in 1980. The trends outlined above assume that public sector savings will account for a larger share of an expanded level of public investment than in previous years. Gross fixed investment of the public sector has been projected to grow from 7 percent .of GDP to 11 percent, an amount sufficient to carry out the sectoral invest- ments required to fulfill developmental and growth objectives. Total public sector savings plus capital receipts should reach over Col$250 billion during 1975-80, sufficient to finance approximately two-thirds of expected public investment of Col$350-400 billion, leaving a savings investment gap of well over Col$100 billion. In addition, the public sector will require about Col$75 billion for amortization of external debt. Almost all the gap is expected to be covered by external borrowing and only moderate amounts are likely to come from internal borrowing.  - 5 - 12. Assuming that the economy returns to a 7 percent growth path in the late 1970's, that wDrld coffee prices remain strong, and that non- traditional export growth recovers in 1976 and continues at a strong pace thereafter, Colombia is expected to require gross official capital inflow of TJS$.2 billion during 1975-80 (US$2.5 billion net), of which almost $600 million will be disbursed from commitments made through the end of 1974. The remaining $3.6 billion will have to come from new commitments which will have to average about $850 million a year. Of the latter amount, about half are assumed to be obtained from suppliers' credits, foreign bond sales, and borrowings from commercial banks, and the other half through loans from public bilateral and multilateral agencies. This level of exter- nal borrowing would pernit Colombia to maintain an adequate level of foreign exchange reserves and simultaneously cover the public sector savings invest- ment gap discussed above in paragraph 11. 13. Due to the shift in public investment priorities toward socially oriented projects for integrated rural development, nutrition, health, and education, which has been brought about by the new Administration, the foreign exchange share of total costs of public investment projects has declined. Official external lenders will obviously not be able to attach their financing to more than a few of these projects. In these circumstances they will have to finance some local costs if total foreign assistance is to be sufficient to permit the Government to carry out the required level of public investment without inflationary internal borrowing. 1. Colombia's public external debt repayable in foreign currency amounted to US$2.8 billion at the end of 197h, or US$2.1 billion excluding undisbursed commitments. The Bank Group's share of this external debt (disbursed only) as of the end 1974 was about 28 percent, but this share is expected to decline to below 25 percent in 1980 as Colombia relies to a greater extent on other external borrowing. Service on this debt was about 16 percent of foreign exchange earnings in 1974. The debt service ratio is expected to rise slightly to above 17 percent in 1980 as a result of greater capital inflows associated with a higher growth rate. The Bank's share of total debt service is about 30 percent at present but is expected to decline to 15 percent by 1980. Assuming economic growth will be accom- panied by a further strong expansion of non-traditional exports and the maintenance of sound economic and financial policies, Colombia should find it possible to secure the amounts of external capital it needs and to service the indebtedness that this borrowing would generate. PART II: BANK GROUP OPERATIONS IN COLOMBIA 15. The proposed loan--the 63rd to be made to Colombia-would bring the total amount of Bank loans to Colombia to US$1,166.7 million (net of cancellations). Of the foregoing amount, US$856.8 million is now held by the Bank, excluding two loans of US$4o.5 million which are not yet effec- tive. IDA has made one credit of US$19.5 million for highways in Colombia in 1961.  - 6 - 16. Disbursements have been completed on 37 loans and the one IDA credit. IFC has made effective investments and underwriting commitments in 21 enterprises in Colombia, totalling about US$30.2 million of which IFG now holds US$16.5 million. Annex II contains a summary statement of Bank loans, the IDA credit, and IFC investments as of December 31, 1975, and notes on the execution of the 25 on-going projects. 17. Since FY68, Bank lending in Colombia has become more diversified than in earlier years. All three loans in the education sector have been made since then as were six of the eleven agricultural loans, five of the six loans in the water supply sector and four of the loans for industry. This compares with seven loans since FY68 in the sectors where the Bank has been traditionally active, i.e., power and transport. 18. Bank efforts have been focused on production-oriented activities and activities which carry social as well as economic benefits. Projects being developed will seek to combine the objectives of increasing output and exports, with maximum benefits in terms of employment and improving the income of the poor. 19. We expect over the next several years to make an increasing contribution to the agricultural and industrial sectors, with particular emphasis on projects involving small and medium size farmholdings. The other major focus of our activities would be in such social sectors as nutrition and health, urban development and water supply. We would continue to support projects in the traditional sectors of Bank lending--electric power and transportation--in those cases where support is required for necessary institutional development. 20. The operations of external lenders in Colombia are shown in Annex I, pages 3-4. While IBRD, IDB, and AID provided about four-fifths of total external financing to Colombia in the 1961-72 period, their share has decreased since then. The IDB has assisted projects in low-cost housing, university education, agrarian reform, ports, electric power, water supply, transportation, and industry. Between 1968 and 1972 AID shifted the emphasis of its lending from program to sector loans, particularly for education, urban development, and agriculture. More recently it has moved in the direction of small project loans aimed chiefly at the improvement of income distribution. It is expected to phase out its aid program in Colombia over the next year. PART III: INDUSTRY IN COLOMBIA Growth and Structure 21. Manufacturing industry, which contributes about one-fifth of qolombia's GDP, is a leading growth sector. Between 1967 and 1974 manu- facturing output grew by an average annual rate of 9 percent to 10 percent,  -7- a level unmatched since the 1950's. Industrial exports rose from an insig- nificant level in 1967 to US$380 million in 1974, representing over 7 percent of industrial output, and made an important contribution to industrial growth. This export expansion has been characterized by a remarkable diversification in the range of goods exported and continued geographical diversification of trade partners. Exports to Latin America, and particularly to Andean Pact countries, have increased very rapidly. 22. The five largest industrial branches are textiles, beverages, food products, chemicals, and non-metallic minerals, which together account for more than 60 percent cf value added in manufacturing. The most rapid growth has taken place in textiles, with production doubling within five years. Intermediate goods such as paper, oil products, non-metallic minerals (parti- cularly cement), and basic metals have also grown rapidly. Colombia has now achieved a substantial degree of import independence, with manufactured imports accounting for only about 20 percent of domestic consumption. Almost all consumer goods ancL 80 percent of intermediate goods are supplied domesti- cally, although about half of capital goods requirements are still imported. With further efficient import substitution opportunities becaming progressively more difficult to fincl, exports will be increasingly important in the future expansion of industrial output and employment. Industrial Employment 23. Rapid popule.tion growth and rural migration have resulted in con- tinuing high unemployment in urban areas. The recent more rapid industrial growth has made an important contribution towards alleviating this problem. Employment in manufacturing has grown at 6 to 7 percent annually since 1968, considerably faster than the average annual rate of 3.5 percent characteristic of the 1953-63 period and 1.6 percent for the period 1963-68. Faster growth was largely the result of rapidly growing employment in non-durable consumer goods industries, particularly in the export sector. Cost of labor is low in Colombia in comparison with other Latin American countries. The low cost and comparatively highly skilled labor force provides an important comparative advantage to Colombia that has contributed to recent export performance. Urban Development and Industry 2h. With 70 percent of the population living in urban areas, Colombia is already well urbanized compared with other Latin American countries. However, industry is strongly concentrated in and around the four largest cities, Bogota, Medellin, Cali and Barranquilla, which account for over 80 percent of industrial employment and output. Continued migration to these cities creates intractable-problems of unemployment and urban poverty and is putting severe pressure on infrastructure resources. Industrial pollution is also becoming a serious problem in the big cities. There are another 15-20 medium-sized cities which have basic electricity, water, and waste disposal facilities and are relatively well placed to serve certain internal  - 8 - or external markets. The Government is encouraging more rapid industrial development in this second range of cities, most of which have high unem- ployment rates and lower per capita income levels than the large cities. Protective System 25. Colombian industry developed on the basis of import substitution but nevertheless the protective system, based on tariffs and import licens- ing, has not been excessively restrictive, and several industrial branches are competitive in international terms. However, nominal protection, averaging 30-35 percent, is highly differentiated between categories of goods, and some enjoy very high effective protection (e.g., automotive goods and electrical machinery). Some gradual reduction of protection has been achieved in recent years and the Government recognizes that further reduction and rationalization would be a useful stimulus to industrial efficiency. However, changes have been complicated both by balance of payments considera- tions and on-going tariff negotiations among the Andean Pact countries. Export Incentives 26. The system of export incentives established in 1967, which had a major impact on the growth of Colombian exports, has been modified recently. Direct fiscal subsidies have been substantially reduced because of their high budgetary costs, policing difficulties, and possible friction with trading partners. Instead, greater reliance is being placed on maintaining an appropriate exchange rate and providing a greater volume of credit, at advantageous terms, to finance export sales. In addition, exporters are given preferential access to BR's industrial development funds and to foreign borrowings, and they are allowed as in the past to import raw materials, intermediate products, and capital goods free of duties. Financial System 27. The Colombian financial system comprises a wide variety of financial institutions (including commercial banks, financieras, insurance companies, agricultural and mortgage banks, savings and loan corporations, mutual funds, and two stock exchanges). In the past, this system has operated under a high degree of Government control and regulation which has handicapped the develop- ment of an effective capital market. Equity markets were generally depressed and venture capital was scarce. Officially fixed interest rates were often artificially low, with wide differentials in rates for different categories of borrowers and savers. Financial institutions were forced to invest a high proportion of their resources to provide financing for priority sectors at subsidized interest rates. Resource mobilization by private sector firms was hampered by unequal competition from tax-exempt public sector instruments with guaranteed face-value liquidity, and from the indexed instruments issued by savings and loan corporations. Interest rate constraints on the supervised financial sector limited its opportunities to mobilize private savings and encouraged the development of a large and very active extra-bank market outside the control of the monetary authorities.  - 9 - 28. When the present Government assumed office in August 197h, it introduced a wide range of fiscal and financial reforms aimed primarily at (a) controlling inflation, encouraging private sector savings, and improving monetary control and (b) improving income distribution by making the tax system more progressive. Although the financial system remains subject to a significant degree of government control, these reforms in- corporate important steps towards the development of a freer and more dynamic financial system. Interest rates have been raised in successive stages and differentials between rates have been narrowed. The degree of monetary correction andl tax-exemption allowed on the indexed savings and loan instruments has been restricted to bring their returns more into line with competing instruments. The forced investment requirements of financial institutions have been relaxed somewhat and further relaxations are planned. In addition, the Government has started to encourage a more active market in private sector securit-Les by removing the tax-exempt status and guaranteed face-value liquidity of new issues of public sector instruments. Overall, these changes are helpLng to remove some of the inefficiencies and distor- tions that have handicapped the system of financial intermediation in the past. Outlook 29. During 1974 mounting domestic inflation and the slower growth of world trade began to create difficulties for several industries. The rate of growth of manufacturing output declined from the 10 percent annual rate recorded in 1973 to about 7 percent in 1974. Based on initial indications it appears likely that output will grow more slowly in 1975. 30. Nevertheless, prospects appear reasonably good for Colombia to regain the 9-10 percent annual growth rate achieved between 1967 and 1973, once domestic inflation is brought under control and the expansion in world trade resumes. Colombiats resource endowments, low cost and skilled labor force, and dynamic and experienced entrepreneurial base are major assets, and the country stands to gain from the growing prosperity of its oil-rich neighbors and from the Andean Common Market. With capacity utilization already quite high, an. increased level of investment in productive capacity will be required to support future industrial growth. The availability of funds for fixed asset and working capital financing is likely to be one of the major constraints on such growth. 31. Maintaining a high rate of industrial growth has a high priority in the development strategy of the present Government. It has indicated that emphasis is to be placed on expanding and diversifying exports, and on pro- moting the development; of industry outside the present major industrial concentrations. Several features have been incorporated in the proposed project that are designed to support these objectives.  - 10 - PART IV: THE PROJECT Background 32. Banco de la Republica (BR), Colombia's central bank, has applied for a sixth Bank loan to assist private development finance companies (financieras) in their financing of the foreign exchange costs of the development projects of private sector productive enterprises. Since 1966 five Bank loans totalling US$163.5 million have been made available through seven financieras to over 200 enterprises, mostly in the manufacturing industry sector but including mining, agro-industry, and tourism enterprises. The financieras also had access, together with other financial intermediaries, to a US$10 million portion of the Development Program and Export Expansion Loan (Loan 8h2-CO of 1972). By mid-1975, these loans were virtually committed. In January 1975, a US$5.5 million Small-Scale Industry Loan (Loan 1071-CO of 1975) was made through Corporacion Financiera Popular (CFP), a Government- owned development bank, to reach companies with assets below Col$20 million (US$630,000 equivalent)--a group that had previously received less than 10 per- cent of Bank lending via the financieras. 33. The present project was appraised by a Bank mission in April/May 1975. Negotiations were held in Bogota during Niovember 1975 with a Colombian delegation led by Dr. Armando Olarte of the Ministry of Finance. A project appraisal report entitled "Colombia: Sixth Development Finance Companies Project" (No. 901a-CO dated January 23, 1976) is being circulated separately to the Executive Directors. The main features of the loan and the project are summarized in Annex III hereto. ProJect ObJectives 3h. Unlike its predecessors, the project places primary emphasis on addressing the industrial sector problems analyzed in Part III of this report and places much less emphasis on the strengthening of the individual finan- cieras. Specifically, the project would: (1) increase the access of medium-size firms to the loan proceeds: This would be accomplished by requiring that, except in the special cases described below, firms with total assets over Col$100 million (about US$3 million equivalent) as of December 31, 1975, would have to accept financ- ing of investment projects in dollar-denominated amounts and thus would have to assume the risk of the peso's depreciation against the dollar. This requirement, as well as a proposed limitation of US$4 million on the amount of the loan proceeds that could be borrowed by any one firm or industrial group, would encourage large firms to seek financing directly from alternative  - 11 - foreign sources, instead of from the financieras. A There is evidence that larger firms could obtain such alternative financing and would make greater use of it if financiera financing were not available in pesos. (2) stimulate investment in ex=ort projects; Firms of any size would be entitled to borrow the loan proceeds through the financieras in peso-denominated amounts for the financing of export projects, which are defined as projects which could be expected to generate net foreign exchange earnings within five years. A small portion of the proposed loan would be reserved for an experimental program designed to stimulate technology improvement by firms to increase their efficiency and make their products internationally competitive. Such funds could be used for financing the upgrading or adaptation of technology, including the placement of contractis for research and development, the hiring of foreign technicians or consultants, training of technical staff in foreign countries, purchase of unrestricted rights to production processes, and the purchase of quality control and l3iboratory test equipment. (3) stimulate decentralization of industry outside the Bogota Medellin. and Cali industrial regions. Again, firms of any size sponsoring decentralized investment pro- jects would be entitled to borrow the loan proceeds through the financieras in peso-denominated amounts. Another small portion of the loan would be reserved for use on special terms by the financieras for making minority equity investments in new enterprises whose projects are located outside the three main industrial regions. Detailed Features of the ProJect and Loan 35. Of the US$60 million loan, US$70 million would be allocated for sub-loans made by thfi financieras for investment projects, US$5 million for the technology component, and US$5 million for the equity financing component. (a) Relending Terms Investment project sub-loans to final borrowers would have a maxi- mum term of 13 years including a grace period not exceeding three years. Borrowing firms whose total assets were less than Col$100 million as of December 31, 1975, or whose projects qualify as export or industrial decen- tralization projects, would have the option to borrow at minimum interest /1 In addition any firm or industrial group which has outstanding sub-loans totaling USih million under this and previous Bank DFC loans would only be eligible to borrow further funds if it were presenting an export or decentralization project and could demonstrate that it had no alternative source of financing, and it would be required to borrow in dollar- denominated amounts.  - 12 - rates of 11-3/4 percent in dollars or 25 percent in pesos. The financieras would borrow the proceeds of the loan from BR at 9-1/4 percent in dollars and 22 percent in pesos; BR would retain margins of 3/4 percent and 13-1/2 percent, respectively, to cover the risk of depreciation of dollars or pesos against the currencies actually disbursed by the Bank. Large firms, whose projects do not qualify as export or decentralization projects, would only be eligible to borrow Bank funds in dollars. Financieras would be permitted some limited flexibility to charge higher than the minimum interest rate in order to reflect the higher risks or supervisory costs associated with particular projects. They would be able to vary their margins between 2-1/2 percent and 3 percent on dollar loans and between 3 percent and 4 per- cent on peso loans, resulting in maximum lending rates of 12-1/4 percent and 26 percent, respectively. (Section 3.06 of Draft Loan Agreement). 36. Sub-loans for upgrading technolozy (research and development, training of technical personnel, services of foreign consultants, purchases of rights to new production processes, and quality control and test equip- ment) would be made in pesos for a maximum term of five years including a two-year grace period and would finance up to 75 percent of the overall cost of a proposed technology improvement program, which on the average is ex- pected to be approximately equal to the foreign exchange cost. The maximum size for any one sub-loan would be US$250,000. To encourage firms to under- take suitable improvement programs, final borrowers would pay a reduced interest rate of 18 percent per annum (including a 3 percent margin for the financieras). (Section 3.07 of draft Loan Agreement). 37. As in past DFC loans to Colombia, the financieras would have the option to use the main Bank loan proceeds to make equity investments instead of sub-loans, without regard to project location. However, this option has been unutilized because of lower returns from such investments. The proposed loan therefore introduces a new option. The financieras would be able to draw on Bank loan funds in pesos if they make minority equity investments in decentralization projects. Such borrowings could cover part or all of the foreign exchange component of the project, up to a maximum of US$500,000 for any one project. Upon review and approval of the project, BR would set a term for the sub-loan up to 15 years, including a grace period of up to five years, and would decide whether the economic merits of the project and its high risks or long development time would justify an interest rate lower than the 22 percent which the financieras would pay to BR under the invest- ment project lending program. The minimum interest rate that BR could charge would be 17 percent. (Section 3.08 of draft Loan Agreement). 38. The incentive to export production and decentralization of invest- ment which we envisage from the relending conditions derives from the selec- tion of certain projects for peso-denominated financing. Although the peso and dollar relending rates have been set with the objective of equalizing the financial cost of peso and dollar financing under present inflationary expectations, inflation cannot be projected with accuracy far into the future, and most entrepreneurs therefore consider it very advantageous to borrow in pesos.  - 13 - Relending Rates DFC to BR to DFC Private Firm Maximum Term Investment proJect financing 11-3/ to 15 years incl. Dollar-denominated financing 9-1/4% 12-1/4% 3 years grace Peso-denominated fin&ncing 22% 25 to 26% 15 years incl. 3 years grace Technology financirxe ()esos) 15% 18% 5 years incl. 2 years grace Equity investments (ve;os) 17 to 22% 15 years incl. 5 years grace (b) Review of Loe.n Conditions 39. In view of the complexity and novel features of the project, the Bank would monitor closely the following points during the commitment period of the loan: (a) the appropria&teness of the interest rates set for investment project sub-loans in the light of inflation trends and prospects; (b) BR's performr,nce in carrying out its various responsibilities under the Loan; (c) the financieras' progress in raising domestic resources; (d) the utilization of the technology and equity financing components of the loan and the effectiveness of the conditions and arrange- ments for the evaluation and approval of sub-loans under these components. 40. Twelve months after loan signing, or when US$140 million of the loan has beern committed, whichever comes first, the Bank would inform BR of any important issues arising from the review of the points listed above and would discuss with BR arnd the Government the desirability of introducing modifications into the project. 41. Our objectivei with regard to the review of interest rates would be (1) to maintain a rate on dollar-denominated financing of investment projects reasonably in line with the rate Colombian firms would have to pay to foreign commercial sources and (2) to maintain an interest rate on peso-denominated financing that would be equivalent to 5-7 percent in real terms, taking into account our best judgement on the outlook for inflation in Colombia at the  time of the review. We would coordinate our review of interest rates under this loan with a similar review of interest rates under the Second Agricul- tural Credit Project, which we expect to present to the Executive Directors shortly. (c) Retroactive Financing As requested by BR, the lending program component would include provision for reimbursing the financieras for approved disbursements up to US$5 million equivalent made between July 1, 1975, when the fifth loan was virtually committed, and the date of the Loan Agreement. However, it now appears that only about US$3.0 million of retroactive financing will actually be required for the list of projects eligible for retroactive financing agreed upon with BR during loan negotiations. (Section 2.02(f) of draft Loan Agreement). (d) Institutional Arrangements The loan would be administered by BR's Department of Development Credit (DDC), with which the Bank has had a long relationship. Under our first four DFC loans BR's role in the project approval process was limited to reviewing the economic priority of projects proposed by the financieras for financing. With the fifth loan, however, we initiated a strategy of assisting BR in upgrading its capability with a view toward its eventually taking over most of the Bank's functions vis-a-vis the financieras and to facilitate participation by additional financieras. Progress toward achiev- ing this objective has been slower than expected, largely because several of the more experienced personnel of the Department of Development Credit were lost to private enterprise during 1973 and had to be replaced. To prepare DDC staff for increased responsibility under the proposed loan, we plan to continue and intensify a training program that was begun under the fifth loan. During loan negotiations BR agreed that it would take all necessary steps to assure that DDC staffing would remain adequate in numbers and capability. (Section 4.05 of draft Loan Agreement). In addition agreement was reached with BR on a policy statement spelling out its new responsi- bilities under the sixth loan, which would include (a) the financial and technical review of sub-loans above the free-limit of US$500,000 equivalent which would be granted to the five oldest financieras and (b) similar review of all sub-loans of the newer financieras. Sub-loans of the five older financieras up to US$1.5 million equivalent, as well as sub-loans of the two newer financieras included for the first time under the fifth loan (Loan 903-C0, May 1973) up to US$500,000, could be approved by BR without the prior approval of the Bank. BR would also approve all technology and equity financing sub-loans. 42. There are currently 15 private financieras in Colombia specializing in equity investment and long-term financing for industry and other productive enterprise. Five of the financieras have participated in the Bank-financed program since the first DFC loan, while two additional ones qualified and  were admitted to participation beginning with the fifth loan. Financial data for these seven are contained in Annex III. With the sixth loan we are proposing to further broaden participation by allowing any additional financiera to use up to US$750,000 of the Bank loan proceeds provided that it meets specified standard criteria designed to insure the financiera's basic financial soundriess and to initiate the institution-building process; participation without limitation would be permitted once the financiera has undergone a full appraisal by BR and received the Bank's approval. The Bank's prior approval would be required of the first project submitted by a financiera participating in the program for the first time. Subsequently BR could approve individual sub-loans of such newly participating financieras up to US$250,000 equivalent. (Section 3.09 of draft Loan Agreement). 43. Unlike the previous DFC loan to Colombia, which allocated specific quotas of the Bank loan proceeds to the individual financieras in the early stages of the project, the proposed loan would have no such quotas but would be used by the financieras from the outset on a first-come, first-served basis. 44. The seven financieras now participating are all predominantly Colombian-owned and their shares are widely held. Capital structure is regulated by maximum debt-equity ratios agreed with the Bank. Given the volume of financing they will be called upon to provide in the next four to five years and the somewhat limited prospects they have for increasing equity, we propose to relax the maximum ratios somewhat. The higher ratios are supportable, taking into consideration the experience of the financieras, the strength of their portfolios and reserves, and their projected satisfac- tory debt service cove3rage. 45. At the end of 1974 Bank funds accounted for 27 percent of the total assets of the seven fLnancieras and BR and other official long-term credit lines for about 23 pe:rcent. About 31 percent of the seven financieras' assets represented their own resource mobilization through equity, time deposits, and bond is;sues, while the remainder of 19 percent consisted chiefly of short-term foreign borrowings. 46. The aggregate loan portfolios of the seven financieras totaled some Col$6 billion (about US$200 million equivalent) at the end of 1974, of which 80 percent repressented loans to industry. Equity investments were relatively limited, totaling only Col$645 million (US$20 million equivalent). Loan and equity portfolios were sound, with the exception of one financiera which up to 1969 had become heavily involved in promotional investments in order to contribute to diversification of its predominantly coffee-growing region. The portfolio of this financiera is steadily improving, and it should be able to cover the remaining losses it can expect in the next few years. All seven of the financieras are profitable in nominal terms, although in the case of the aforementioned financiera in the coffee region profit- ability is low. In real terms, the profitability of the financieras has been unsatisfactory. However, they should be helped in the future by increased  - 16 - dollar-denominated lending under the proposed loan, the higher spread which wi-l be permitted on peso lending, and their increasing leverage. In addi- tion, they are preparing to enter the short-term money market for the first time and this should help their profitability. 47. Over the next two to three years the seven financieras expect to be called on to provide long-term loans of about US$130 million equivalent to finance equipment imports associated with fixed investment. Of the pro- posed Bank loan, US$70 million would be available to meet this requirement, and a further US$10 million may be available from BR long-term credit lines. To help provide the balance, a parallel loan of US$30 million has been approved by the IDB and would be used to finance investment sub-loans on project terms. The IDB loan has a term of 17 years, including 3 years of grace, at an interest rate of 8 percent per annum. h8. In order to meet the local currency financing requirements of their clients, the participating financieras will need to raise amounts in domestic resources approximately equivalent to the annual amounts disbursed under the Bank loan. During loan negotiations the financieras agreed to try to raise at least Col$400 million in domestic resources during the 12 months ending August 31, 1976. Following the resolution of certain legal and fiscal problems that presently inhibit their short-term operations and medium-term bond issues, they would try to raise larger sums in subsequent years. (Section 3.04(ix) of the draft Loan Agreement). The Government, for its part, has agreed to take all actions necessary to enable the financieras to meet their domestic resource mobilization targets. (Section 3.03 of the draft Guarantee Agreement). Role of the Financieras in the Economy 49. The financieras have become the most important source of term finance for industry in Colombia. The oldest and largest of them--i.e., the seven which participated in our fifth DFC loan--now provide about 12 percent of the financing for industrial investment, besides offering seed capital for new ventures and fostering more efficient resource allocation through their role in project preparation and evaluation. While under the fifth loan the financieras continued as before to channel a substantial proportion of Bank funds to relatively large firms, a study sponsored by the Bank in 1974 demonstrated that on the average the projects funded by the financieras had favorable economic and financial rates of return and were relatively labor intensive. The representative sample of 29 financiera projects showed an average economic return of 32 percent and an average financial return of 18 percent, while the average cost of investment per job created was US$7,000. There were no significant differences related to size of firms, apart from the relative difficulty the smaller ones had in obtaining financing. Another interesting finding of this study was that the Government, through the tax mechanism, received by far the largest share of the net economic benefits of financiera projects.  - 17 - 50. In addition to introducing a more concerted attack on sector prob- lems, the proposed project would continue the Bank's successful institution- building relationship started with the first DFC loan in 1966. The Bank would place more emphasis than before on strengthening the central bank's Department of Development Credit, and would largely delegate to that entity the responsibility for evaluating sub-loan applicationss supervising the financieras, and providing assistance to the newly participating institutions. 51. The propcsed project is of high priority to Colombia because of the critical role of manufacturing in the economy--both in (1) maintaining the favorable balance Of payments required if Colombia is to achieve its dual goals of rapid economic growth and greater distributional equity and (2) pro- viding the maximum number of additional employment opportunities in this rapidly urbanizing country. In addition to the resources that would be pro- vided by the Bank loan, the loan has been the vehicle for Colombia to mobilize additional resourcfls for the same purpose from the IDB. PAF.T V: LEGAL INSTRUMENTS AND AUTHORITY 52. The drafl; Loan Agreement between the Bank and the Banco de la Republica, the dra't Guarantee Agreement between the Republic of Colombia and the Bank, the Report of the Committee provided for in Article III, Section (iii) of the Articles of Agreement, and the text of a draft resolu- tioIn approving the proposed loan are being distributed to the Executive Directors separately. The draft agreements conform to the normal pattern for loans for DFC projects. 53. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank. PART VI: RECO4MMENDATION 54. I recommend that the Executive Directors approve the proposed loan. Robert S. McNamara President Attachments February 26, 1976   MJN'EX I Pop. 1 of 4. pages CODETET DATA - COLOMBIA AMUA POPULATION NST 1,139,003 kII2 22 5 olltlon (oid-1973) Po, k.2of or.bl. lend 8OCtAL INDICATORS ON? ME CAPITA US$ (ATIAS RAS 33) A. ho/a 600 /5 760 /5 890 / DEMOGRAPH8IC M& Fthrate (per thous,nd) 39 /b a 45 d38/ lap0 381/d 143/ Crude death r.t. (par th,ouea,d) 12;)L 13 j~10 73 10 -D -nat acrt.lity rat. (p.r lhoaoan 1I.0 births) 107O ~ ~ 14 0 1 10 58bd LIfe expectsoy at birth (yi,.r) 57 591 55 71a 61 /d 6147 Orooo ro~odaotion rte / 3.2 3.2 /d 26~ .26/ : Population growth rate - urle. 6ZLk..~ -. 57 5 - Ago otoctor. (Percent) 147 47 141.8 142 146 * lb 50 5O- 53.9 53 tr 50 15-6h 3/ 3S/ 6.3 57; 1 65 aod on.. 1.7 Et 1.7 /t 1.2 1.5 7; 1.9 /1 D.-dnoooy ratio Urb-n popl.Itiooo as peroent of total 53 &, 62 takb 38.7 /a 56 to 59to Foolely plaOolng. N. of .... ptoro ooonnltt (thoco.) 0.5 316 4867118, 250~ 8C. of users (% of ...rrLed wous.o) *..8.2 75- 1.6 00.O lMbor fore. (thonoand.) 5,100 / 6,200 /a 14,500 /o1 29,500 to 1,000 Percentage employed tn ag,imtc uro 147 141 59 1414 P",oontag. noo-ploY.d 8L ~ 7 14 2/5 14 ISCOME DISTRIBU71ON Per fnt of ationa 10000 r.cri,,od by highs.t 5% 36 /, 33 to32 A " aa b 33 /.b 36 soba Porooot ofnational iPoooo r.-olod by bighest 20% 63 59 7!s 60 711 .':J1 62 701 664aoo Percnot of otion.l 1.c00 r9cstood by lowest 20% 3J 4 7s 3 7F;t;;L; 3 7U1 1471 P-Coont,of,.t80001looo-o rocotved by looooot 140% 9i10 7; 10 2t~f 10 7Z 11LI1- M0311tIB3T1011 OF LAND o8AIERSIP N owned by top 108. of ,oos .. 53 % o,n,d by 000110.1t 10% of oaf, .. r. 0.9 REALTH AND0 lOfTRITIO0) POjoilatbon p.or phY'Iclac, 2,C0 2,160 tao 2,220 1, 950 i ,14140 Population Per -aroig p.rsoo 3,520 tAd 1,0140 7lao 1,880 /'c 7,300JD .a 1,570 PoPolation per hoepit.1l bed 580 - 1450 - 4o 260 930 Per 0.1p01. C.Iorio -oppl.y as % of roqsiroo.nto 15 90 taf 88 /o 113 a 106 107t Per ..pit. p,otoin oupply, to,tal(ga par dayrZ6 5o 70' 50 ~ 78 67 66 DOf obioh, -oi.al aod polse 28 26, ~ 227A 39 28 Dabet1-14 ,o..ro t7 2..1571 .11 AO3oo.ad k8 Prlo.-y Conbol aoroll,ot ratio 95 A ill 130 / i) 01 tal Adjusted .... otary orhool 0e701100t ratio 12 21. 711 28 27 a 23 Tooro of iB. ollog prooldad, fleet aod C.oond I-Iol 11 11I 11 13 12 V.o.tt.nal -nroIon-t .0 % 000 choo1 -.11-oat 30 t0k 25 /h.ok 114 17 214 to Adolt 11ttr.Cy role % 73 7- an 7 ,Z 55 /sI 68 /n 814 7_ A-.ag. N-, of p-C000 p.r eo,oo (orb..) . 1.9 1.0 tgo 2.5 /00 Poro.. t of oCcplod andt,, otohout piped 0010. 59 tp,r.a0 . 614tp,a 67 7T ooa 61 T.oo A.0.00 to .1.lictioty (ao % of total Pop.lotloo) 681 .141 147 /:2:.F 60 P.ronoot of Voral popol.ttoo ,crn.,oted t 10 o.trictty 08 ..18 , ~ 8 /0.0 28 CONSUMPTION L-.01 rcta.P.r 100 P.pooatio 139 103 to. 89 60 276 P.....g., o... Per 1000 poP).2att00 7 t w 7 7i. 14 25 25 Ele tr ic PCo.ooosot (.A p.o.) 237 ' 14114 2141 1,77 586 Noaoprlot oo,ooPltiOn P.C. hi: P., year 2.2 1.9 to. 2.0 2.9 3.1 Notes, Piguros mfor elither to -.he latest Periods or tO a,oooot of .onirormeata tesper.tore, body weighots, aOo lb. latoot y,or.. blotat peiod, refe- in prioolpr di.trib.tion by age snd see of ooti-I. populationo. lb. years 195 -60 or1966-70; th, loleot Yoaro ',, p".- /k Poeooedr.(raq.-atr.)no for all oo,,trl.. a. et.b- tlp .to1960(and 1970 ibo yIDAKoo, R.oao 2,010. Pro,ida for a ein1oo /j The Per C.pitLo COP .0ties.1.]. at oarkot PrIns- 1'r, _U"mas. of 60 greas of total protei p.r day, and 20 asr- of y-Cr oth,o'o- .o, 1960, ca1coiootod by tho 500soo,oin on 1] snd pulo. protein, of wbhicb 10 gres. sbould be ianta t.ch,sIq-,o 00Lhb 1977 World Book Atl.o. protein. Thue. atand-rd are ooohat 1oow than tbose of 75 12 A,eroo;'o _obor ofdooghtCro o.r oooof rop-ooolclo- gram of total. proten aod 23 g,aus of aLou.alproteio as a ago. ao, for tho word, propo.el by PA0 1. 86, Third World Food I lpobolloo L I oo-t roles o- -r tho d-sdr- -oll oo 1n orSy.. 196 _d I"1. /7 Scowe studies have sugge.ted that orodo death rates of Childron '1 toIl of Iso,'15 nod 65 a,d -o,r ogo br-kbelo to gase I ibhagl 14 asy be used a firot approotaation indao of Ibho- is lob-r f-ro brabk,,. of ,goo 15 th-rogh 6o. Oalootritino. FA PO r.or. o,Io-.drd. ro9-r.to. Phylpot1.g0rol -- L/. Pernntoge ~.ollsd of WM.rep-oltg popolatloo of obool aga ojiros , s ..-Ioo otlilly aol bealth, tolklog as d final for 0.06 ooatry. to '78 -- oo 7(2960-614; to Rlogottrod ooly; td 1965.70 UII eotate /197; 95 ; t aebodo bn,8oo P;esbl.1; A'31118: t 1960-72; a 1951.61;; /;3tZpolotoiCL1j ,tn t. f0,1,0,'of &taoe. basetfaI., loool.; A 19614.7ro to AoiT.it0atl,. oodrt- of p-ir1nIo o,d diotritoe (ovlyoto ao,d 0800cootero); Ln Urbao _ilo,'rPo o-r., of ot,,[t-tt- Cle nts,01 of ootctpalltt.. and dietrote; /o L-calllloo ,f 2,500 - scro; I~ 961; /5 Pot.lote; tr ti-659 year,; to 60 years and -or; Ratio-of population oooodor 15 ond 65, and Orar to loin] lois- fo-c; too Wat fpp1looslr1Sn 0adoe to total labor forc; to Based 0n 1.3 percent _Vlope oololOoofr ,0 rotormo, ..oloding Indian jongl. popuolation; /w Bogota only; 7;- 19631 Lj Inoo.. roOplpooo; /. booo--oooaly aotlo pop.lotloo; too Diapsa.bl.in oom tab Ho...ebold,; -/a. 1969; tad 1965; to.5Ropil.olIoooVOooOl; tf 1961-63; tog 196144o6; tah 1966-67; /ml GrTos anroflent whtc)FTnolude. o.,nge stu- doolo; to, Th, o,I olTo1-t ratliTos1 1971 -sore pe~rcent and 1U roent for boatc and secoodary odocation, roopoc- 10012; 7 TcInolosiln: taaoher trainlog at thoird level; A 15 year. and 0over to Prsrons 6 year, old and o-r abs toolt C--noo tk-or that they cm rmod -do write; tan Definition =nbnooo; / ,Total,/orban ad mr.ra; Ooord sorononi t of ooonto oor.y; /9 ,,d p00,t of d."tig.; ta ae is1 de; ta Otioaat based on oaoplo l,loolooloo of 000000 rto,O; a!Lt bnoido or outside; /00 -rnaldi.og aine-perimnent d-T1tngo; tA, 1971; toInol.dig opoclal p.rp...o enhtoloo; tii 191 ty DerIed f7M o.;ple uar.. eutateots (2140,000 pom'reo exolud- ogI? 0 -,0, Proslooo-o; L2, 96-7 b 1A57; tbb 19614-juan 19714, N6 Percenot being 080;UDnoodn Ih,olooo i. 0,1,5.L. as the boj.otive o.ontry bo... oo Coboobia 1,n. -In the stage of eoonooic developoo.rt that Mexico vue Ion- yenro agO. 8,01h oontrieo ala at a GDP growth rat of ob.at 7 pe00nt on at a subsetantial radootto of unOdployoot. AM0hh10 07 N-cob-r 25. 8975  ANNEX I ~~R01~~C ~~VEW~~~fr MTA ~~Page 2 Of 4 Pages (Amout in millione of U1.S. doUlars) ActualPretd 1967-69 1970 - 1973- 19 77 - LA~~TTON T9::KT6- 6 9 1972 1,97 3 19=74 1977 1980 1973 1973 1977 .1980 97 197 E 1980 ATOAL ACCOIUNTS 1974 Prices & EXha---e Rate Average Annual Growth Rates AsPreto D GrosB tomestie Produc 8,26 11.054 11,839 12,540 14,159 17,330 5.3 6.9 4.6 7.0 100.6 01.6 1(11.7 Gains from Terms o fm Trae +) jo z_. 7 z__ 226 - 2q Q - -.b -1 Gross Domestic Income 8,166 10,927 11.766 12,540 139-3 3 17,041 7.6 7.3 4 I 6 9 100.1) lPI 100.u Import (incl. NFS) 1.3LL 1,757 1,637 1,914 2,166 2,631 7. 7 -1.5 7.3 9.3 I) 9 15 5 16.6 Exot ' (import capacity) J,,"7 j,"4 j_j.9 9 1.975 2..129. 2. 73 7 7.6 5 . 5 4.2 8 .9 13.3 15.2 6I Resource Gap ~~~ ~~~~64 73 162 - 6) _47 -9 3 0 Consumption Expenditures 6.488 8,705 9,564 10,071 10,960 13,322 8.1 8.9 3.2 6.7 81,3 78.7 78.2 Investment '1 (mncl. stocks) 1,742 2,295 2,040 2,530 3,020 3,813 3.2 -2.2 8.2 01. 0 17 3 21.7 .'?. 4 Domestic Savings 1,678 2,222 2,202 2.443 2,973 3.719 5.6 1.6 7.8 7. 7 16.7 21 5 22.0 NationalI Savinigs 1,594 1,984 1,987 2,283 2,671 3,274 4.5 0.4 7 .7 7 0 16 1 9 3 19 4 ?.4ERCHAIIIISE TRADE AnMnual ata at Current Prices As Percent of ITotal Tmports Capital goods 290 334 38 7 501 768 1,183 5.9 11.0 16.6 15.5 37 6 3 5 .9 2 7 Intermediate goods imr.fuels) 254 405 488 817 1,104 1,652 14.0 8.4 22.7 14.4 47.4 51.6 ',5.6 F-uels and related materials 3 5 2 15 94 544 1 .5 - - 7 7 0 0.2 4.4 IS 0 of which: Petroleum ( - ) (- 1 (- ) 15) 94) (.5443 - 7 - - - -- Consumption goods 61 115 152 16 8 22 2.0 1. 431_ Total Mech. Impots (cIf) 608 859 1,029 1,00 2,146 3,631 11.8 8.7 2. 92 100 ((d T' Exports Primnary products roml. fuels) 418 7 7 9 1,009 1,117 1,992 2,931 15.5 16,3 18.5 13.7 76.,3 7 2 9 h16 2 Fluels and related materials 71 52 53 90 74 105 -27.5 -10 0 8.7 12.3 4.0 2 7 27 3 of which: Petroleum ( 56) ( 31 ( 26) 5) - - -3(-24.0) - - 2.01 - - Manufacturedl goods 117 148 260 398 666 1,392 19.0 52.0 26.5 28.0 19.7 24.4 31.4 Total Merh Eprts(ob 606 979 1.322 1-,605 2 ,7 32 4.428 15.5 18.8 19.9 17 5 1-00.0 1-00 1) (50-0. Touri sm and Blorder, Traue M-rchandise Trade Indices Average 1974 -100 Elxport Price index 29.3 53.3 74.0 100.0 115.0 146.3 2sport Price index 37.8 57.4 77 0 100.0 128.9 161.8 Terms of Trade index 77.5 92.9 96 1 100.0 89.2 90.4 Exports Voluime Index 84.7 95.5 98.7 100.0 123.6 163.2 VAL.UE ADDED) BY SECTOR Annual Data at 1974 Prices and Exchange Rates Average Annual Growth Rates As Percent of Totlat Agriculture 2.589 3,057 3,168 3,320 3,770 4,427 4.1 4.4- 4.5 5.5 28.3 26.3 25.7 Industry and Mining 1,656 2,215 2,467 2,600 3,270 4,177 8.3 7.4 7.3 8.5 22.4 23.7 24.8 Service 3 694 4.973 5.391 5,803 6,352 8,279 7.9 7.4 5.8 7.0 48.9 50.0 5(1. Total 7j~439 TM-45 TT?126 11723 1Tr,79 2 -1T.8 83 6.8 6.6 58 70 T~o TW 0 PLJBLIC FINANCE As Percent of GDP (Central Government) Current Receipts 744 1,128 1,174 1,186 1,555 1,926 9.5 7.9 7 3 7.4 10.0 11.3 11.4 Current E enitures 431 432 469 632 377 891 7.2 13.8 3.8 4.7 5.7 5.6 5 .3 Bigtr aings 23 496 505 554 778 1,035 13.0 4 7 11.4 150. 43 57 61 Othler Public Sector Savings 782 101 13 120 1.16 206 - - - 21.0 0.1 0.8 1.2 Public Sector Investment 1,101 948 933 1,030 1.315 1,902 3.4 6.3 90 13.1 7.9 9.5 (1.3 ciJIREENT EY.PERIITLJRE DETAILS Actual Prelim. Est. Proj. DETAIL OR fToa As % Total Current Expend.) 1972 1973 1974 197Z 1976 PUBLIC SECTOR 4fToa Education ... . .. ... ... INVESTMET PROGRAM (1968 /72- 197'1 /75) Other Social Services ... .. . .. ... ... Social Sectors 26 2 317.7 Agriculture . .. . .. . .. . . .. Agriculture 23.8 11.3 Other Economic Services . .. ... ... ... Industry aLnd Mining 12.4 . Administration and Defense . .. ... ... ... Power 866 ((ther . . .. .. .. Transport and communications 31.6 21.9 Total Currenit Expenditures . .. .. ... ... Other 6.0 1L2. 9 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ T otal E x p e n diturespen itur es100.00100.0 SELECTED INDICATORS 1960- 1965- 1970- 1973- FINANCING (Calculated from 3-year averaged data) 1965 1970 197-5 1978 Iverage ICOOR 3.96 3.17 3.50 3.20 Pub~lic S.-ctor Savings 69,4 70.7 Import Elasticity 1.10 1.16 0.95 1.40 Progiam aid counterpart 0.8 1.1 1'rogirnal Domestic; Savings Rate 0.11 0.18 0.19 0.33 Foreign Project Aid 29.8 2Z8.2 Marginal National Savings Rate 0.08 0.14 0.14 0.29 Total Financing 100.0 100 0 LABOR FORCE AND Total Labor Force - Value Added Per, Worke 74r - pricles Exc. Rates) OUTPUT PER WORKER Is Millions % o-f Total 194-3 In U.S.1Dollars Pecn fAeae 1964 73 1964 1923 1964 1973 Growth Rate 1964 1973 1964 1-973 Growrth Rate Agriculture 2.427 2.057 47.3 30.2 -1.9 791 1,329 66.4 88.4 5.9 Industry 0.958 1.212 18.7 17.8 2.7 1,610 2,236 135.2 148.7 3.7 Service 1.749 3.542 34.0 512.0 8.2 1.516 1,355 127.3 90.1 -1.2 Total 5.134 6.812 100.0 100.0- 3.2 1,191 1,504 100.0 100.0 2.6 -not applicable -nil or negligible not available - lees than half the smallest unit shown 12/75  ANNEX I Avn. inAcl Actoal Setiantd Pnt4(irb- ~ B.t. U1977 191 172 17 t jj i i ziPc 190 1979-90 3(r7044RY BALANCE iF PAYMENTS Deports (m..l NiFS) 996 974 1,207 1,548 1,946 1,894 2,364 2,732 3.223 3.782 n4 28 2~ Tr 11-1. NIP8) 1,135 ~~1 285 1,236. 1.424 2.015 1.930 2.360 2714 3,T 38 384 4.900 39 -311 - 29 124 -69 -56 - 4 .1T .'T 62 152 intere.st (net 8 9 -101 124 -I1" 128 -155 IS18O 228 -275 1 21 7 Diret I-nce,cct Income 91 75 - 73 - 71 64 72 -83 -95 It11 14) AmS 0.1, er ct) 27 34 35 35- J 5t 9 ec n-I Iliinnceocic,rreiitkeceante - 92 -433-5 9 229 -217- 85~I - -'4~~~~~~~~~~~~~~~_ - 485 Prvae -not beetne 39 40 17 23 28 is 20 25 too I1 7 Sc Public M167T L-fis DLeb-s-s,feto 236 222 351 487 367 440 542 65' 782,4 cc, -Re,,ey-t. ~- 75 - 92 . 96 1 32 - 205 - 137 - 174 230 3 .I .. -_4__I Set Dtab,ir,evecte ~~~ ~ ~~~~ ~~~161 130 255 2T8T ''Th 303 "7ri =422 40c' 4cn 'L OtLhe 8.1 MIcacL. niebare .ncte 128 145 139 43 50 -R 6~~~~- 7 -84 8 9 -58 -120 DeVflhib.rmeaen. IF- 61 00 - S 70 - - - --- CapItal 'rrncaacticcc, net. 75~~~~~~~2 135 33 - 4 -29 7 1tL0 -.71 IL. 1( 197- Change in Net Rcee-v 6 82 -164 -213 406 R O M VL d1250 1.38 6 117 j 1RA41I' AND LOANI OO280fl94c88 2(fftcial Grat. & G-at-likee DITtnert -0 PSblin Debt 43.6 4987 57 A 29 4 I RePayment, BA Public Debt 75 0 97 0 95 9 131 I 4 NbAlic !L 8121-m Total Public Debt Service 118 6 140.7 153 8 209- n . A7 iBRD 109 153 74 1I2 a Other Debt Service (net) 112 3 133 8 155I 8 26 73D - . . .-et.). Debt Servic (ret) 230 9 2 738 3080 cc 5 7I ('tier 42 41 29 65 ('tir 9tnlnilat-ra . . - - - Berde re ortm B-dnap() Ujc -scet 113 818 114 50 54 5cppl-ern 1(7 35 37 26' 46 Public Debt Sorvm- 11.9 144 12 2 Ii . I - Fnac-a to-tit.tic- (8 38 04 190 48 Total Debt Serice 23.2 298I 25 21SI7 2I 9accia 45- - TDoafli-et Eccet. I.,. 32 3 35 8 31 n 1.2 ' P0bl- L-nn ce3~8.7Trea aioDb Actual Debt Datelalalg al Dc.31. 1974 Tot. ae % Pricr Ye.r 1814 4 A I 9 2 2 01241R12A1 DMB percent bey Art. em % Prier Yes- 0163 c 9 7 4 0 9 9 0 I' Wo1rld Bac,k 5172 iDA 22.8 1.8 lUD Debt Oct. & Diebareec 354 1 390 8 453 4 514 5 II1 Other MUattlat-rl 126.3 6.0 Ae % Public Debt 063D 28.3 2087 27 5 2n . S 27 Scve,ant. 900.9 42.8 C e5Public Debt Ser.ice 30 9 29 5 30 9 26 0 - Seppl.ers 147.3 7.0 Financial Iaatitatta- 268.9 12.7 231 Debt Oat. & Ditebermd 19.5 (9 4 20 9 21 c 2 Betide 54.1 2.6 ae 5 Public Debt 116D I 6 1 4 I 3 I 2 Public lbbte -..i 24.3 1.1 C. e %Public Debt Sevic CI 02 23 A T.ta.1 Public. M61T Debt 2, N- cI310. 0 Other HOLY2 Debts ihert-t-e Debt (climb, c-lo) cot applicable e tfft estlato cot available -nil r uglgieble 12 cot a_ailable seprataly -I ee clan hlfe. tbe hat inclded in total emellest unit ebau  ANNEX I Page 4 of Lh COLQUIIA: EXTERNAL PUBLIC DEBT CCOMITMENTS. 1970-74!/ (Millions of Dollars) Source of Financings 1970 1971 1972 1973 197[ International Organizations 109.3 194.6 114.7 191.3 72.5 IBRD 1109.3 153.1 74.1 162.2 8.0 IDBxW - 41.5 40.6 29.1 61.5 Governments 112.7 110.3 113.7 5 53.8 Germany (F.R.) 14.3 6.5 5.3 5.3 4.2 United States 97.4 94.4 108.4 41.0 21.6 Other 1.0 9.4 0.0 4.0 28.0 Suppliers 117.0 34.8 37.1 26.1 L6.2 Germany (F. R.) 36.0 9.0 0.0 3.6 23.6 Japan 1.2 0.8 13.5 0.0 L.7 Sweden 15.8 1.7 3.9 16.0 2.2 United Kingdom 0.0 6.1 0.2 0.1 1.0 United States 1.3 7.6 1.1 2.2 2.3 Others 62.7 9.6 18.4 b.2 12.4 Private Banks 18.1 37.9 84.2 190.1 48.2 Japan - - - 25.0 - United Kingdom 7.7 10.0 40.0 - - United States 6.4 13.1 L2.8 43.8 32.4 Others 4.0 14.8 1.4 121.3 15.8 Bond issue - - - 45.0 - Other Financial Institutions 0.9 0.0 7.0 - 3-3 Total 38 377.6 356.7 502.8-Y 224.od/ i Data contain estimated components and are therefore suitable only for illustrative purposes. I IDB commitments (Board approvals) exclude amounts repayable in Colombian pesos. c/ Includes refinancing loans totalling US$83.5 million from private banks in the Euromarket.. dil Does not include a nationalization loan of US$7.8 million. Source: IHRD  ANE IIJ^ Page 1 of ei THE STATUS OF BANK GROUP OPERATIONS IN COLOMBIA A. STATEMENT OF BANK LOANS AND IDA CREDITS (as of Dec. 31, 1975) US$ Mlillion Loan Amount (less cancellatio.s) Nwuber Year Borrower Purpose Baak IDA Undisbursed Fully disbursed loans and credits 550.5 19.5 -- 502 1967 Instituto Colombiano de la Irrigation 9.0 1.0 Reforma Agraria 536 1968 Empresa de Alueducto y Water Supply 1h.0 Alcantarillado de Bogota 575 1968 Interconexion Electrica, S.A. Power 13.0 1.? 62h 1969 Colombia Agriculture 17.0 680 1970 Colombia Roads 32.0 l.7 681 1970 Interconexion Electrica, S.A. Power 52.3 i.0 682 1970 Empresas Mun:Lcipales de Cali Water Supply 13.5 .0 738 1971 Empresas Municipales de Water Supply 2.0 Palmira 739 1971 Colombia Agriculture 8.1 0.- 7h0 1971 Empresa Uiacional de Communications 15.0 1_. Telecomunicaciones 741 1971 Empresa de Acuieducto y Water Supply 83.0 5 Alcantarillado de Bogota 7)42 1971 Banco de la Rtepublica Industry h0.0 C.? 8M2 1972 Colombia Industry 30.0 1.8 8h9 1272 Instituto Colombiano de la Irrigation 5.0 I Reforma Agraria 860 1972 Instituto de Fomento Water Supply 9.1 6.2 Municipal 87h 1973 Empresas Publicas de Power 56.0 3o.v Medellin 903 1973 Banco de la Republica Industry 60.0 27.6 920 1973 Colombia Education 21.2 15.1 926 1973 FerrocarrileE. Nacionales Railways 25.0 11.2 971 1971T Colombia Pre-Investment 8.0 3.0 Studies 1071 1975 Banco de la Republica Industry 5.5 l6.9 1072 1975 Instituto Nacional de Water Supply 27.0 27.0 Fomento Muricipal 1073 1975 Empresa Nacional de Communications 15.0 13.9 Telecomunicaciones 1118; 1975 Colombia Rural settlement 19.5 19.5 1163* 1975 Colombia Small-Farm 21.0 21.0 Development _ Total 1,166.7 19.5 266.3 Of which has been repaid 266.L 1.0 Total now outstanding 900.3 18.5 Amount sold 20.9 Of which has been repaid 17.9 3.0 Total now held by Bank and IDA 897.3 18.5 TOTAL UNDISBURSED 266.8 266.8 * Not yet effective  ANNEX II Page 2 of 8 B. STATEMENT OF IFC INVESTMENTS (as of Dec. 31, 1975) Type of Amount in US$ million Year Obligor Business Loan Eguity Total 1959. Laminas del Caribe, S.A. Fiber-board 0.50 - 0.50 1960-1965 Industrias Alimenticias Food products 1.98 0.08 2.06 Noel, S.A. 1961 Envases Colombianos, S.A. Metal cars 0.70 - 0.70 1961-1968 Morfeo-Productos para el Home furniture 0.08 0.09 0.17 Hlogar, S.A. 1961 Electromanufacturas, S.A. Electrical 0.50 - 0.50 equipment 1962 Corporacion Financiera Development - 2.02 2.02 Colombiana financing 1962-1963 Corporacion Financiera Development - 2.04 2.04 Nacional financing 1963-1967 Companiea Colombiana de Textiles 1.86 0.27 2.13 1968-1969 Tejidos, S.A. 196h -1970 Corporacion Financiera de Development - 0.81 0.81 Caldas financing 1964-1968 Forjas de Colombia, S.A. Steel forging - 1.27 1.27 1966 Almacenes Generales de Warehousing 1.00 - 1.00 Deposito Santa Fe, S.A. 1966 Industria Ganadera Livestock 1.00 0.58 1.58 Colombiana, S.A. 1967-70-74 ENKA de Colombia, S.A. Textiles 5.00 2.64 7.64 1969 Compania de Desarrollo de Tourism - 0.01 0.01 Hoteles y Turismo, Ltda. Hoturismo 1969-1973 Corporacion Financiera del Development - 0.45 0.45 Norte financing 1969 Corporacion Financiera del Development - 0.43 0.43 Valle financing 1970 Promotora de Hoteles de Tourism 0.23 0.11 0.34 Turismo Medellin, S.A. 1970 Pro-Hoteles, S.A. Tourism 0.80 0.22 1.02 1973-1975 Corporacion Colombiana de Housing - 0.46 0.46 Ahorro y Vivienda 197) Cementos Boyaca, S.A. Cement 1.50 - 1.50 )975 Cementos del Caribe, S.A. Cement 3.60 - 3.60 Total Gross Commitments 18.75 11.48 30.23 Less cancellations, terminations, repayments and sales 9.03 4.72 13.75 Total commitments now held by IFC- 9.72 6.76 16.48 Total undisbursed 2.)45 0.15 2.60  ANNEX TT Page 3 of 8 C. PROJECTS IN EXECUTION 1. Summarized below is the current status of all Loans signed but not fully disbursed: Ln No. 502 Irrigation (Atlantico I); US$9 million, June L967. Effective date: November 2, 1967 Closing date3: original - December 31, L972 current - December 31, L975 2. Physical works have been completed. Delays in project execution have been occasioned by poor selection of areas suitable for irrigation, teclnical problems in the construction of irrigation and drainage works, and non-compliance by contractor wirth established schedules. Agricultural development has also been 3low, due to poor project management and lack of adequate supporting services to the farmer. However, INCORA has appointed a very capable Project Manager who has brought with him a competent agri- cultural team who, it is believed, have the potential to develop the project satisfactorily under its less than ideal circumstances. Agricultural development and reclamation of saline areas will require two to three years, with the land clearing, leveling, plowing, and bordering performed as part of an overall program to caurry out the same work in the Loan 8h9-CO project area. Disbursement of Loan- 502:-CO wiU be completed shortly. Ln No. 536 Water Supply (Bogota I); US$14 million, June 1968. Effective date: August 7, 1968 Closing date: original - June 30, 1972 current - December 31, 1975 3. This loan is almost fully disbursed. Ln No. 575 Electric Power (Interconnection); US$18 million, December 1968. Effective date: February 25, 1969 Closing date: original - February 29, 1972 current - December 31, 1976 4. The original project was completed and commercially operational in 1271. The Bank agreed that an undisbursed balance could be used to finance a 220kv transmission line, Guatape - Barrancabermeja. The cost of the line is estimated at US$7.2 million of which about US$h.1 million represents the foreign component. For more than a year, contributions from ISA's shareholders had been seriously overdue and ISA was unable to pay its contractors on time. ISA ceased submitting requests for withdrawals from the IBank Loan after October 1974. Subsequently most of the overdue payments were made by ISA's shareholders and withdrawals from the Loan were resumed in May 1975. a These notes are desigred to inform the Executive Directors regarding the progress of projects in execution, and in particular to report any problems which are being encountered, and the action being taken to remedy them. They should be read in this sense, and with the understanding that they do not purport to present aubalfanced evaluation of strengths and weaknesses in project execution.  ANNEX II Page lx of 8 Ln No. 624 Agricultural Credit II; US$17 million, June 1969. Effective date: November 3, 1969 Closing date: original - December 31, 1973 current - June 30, 1975 5. This loan is almost fully disbursed. Ln No. 680 Highways VI; US$32 million, June 1970. Effective date: March 29, 1971 Closing date: original - November 30, 1974 current - November 30, 1976 6. The largest component of the project, the paving program, has experienced considerable cost increases and is still experiencing delays. The status of the other components of the project is more satisfactory. The Ministry of Public Works has taken many steps (supported by the Bank) which have reduced, although not avoided, delays and contractor bankruptcies under the paving program. Due to cost increases, the Bank's participation in the program was reduced to 15 percent but recently following a request from the Government the Bank agreed to delete a number of roads from the project; this has made it possible to increase the disbursement percentage to 50 percent, thereby restoring the rate which was originally applicable. Ln Hlo. 681 Chivor Hydroelectric Power; US$52.3 million, June 1970. Effective date: September 1, 1970 Closing date: June 30, 1977 7. The first generating unit for the Chivor Hydroelectric Project is expected to be put into service in mid-1976, a year behind schedule. The project's foreign and total costs are expected to be 35 percent higher than originally estimated. For more than a year, contributions from ISA's shareholders had been seriously overdue and ISA was unable to pay its contractors on time. ISA ceased submitting requests for withdrawals from the Bank Loan after October 1974. Subsequently most of the overdue payments were made by ISA's shareholders and withdrawals from the Loan were resumed in May 1975. Ln No. 682 Cali Water Supply and Sewerage; US$18.5 million, June 1970. -Effective date: September 2, 1970 Closing date: original - June 30, 1974 current - December 31, 1975 8. As of December 31, 1975, about 85 percent of the loan amount was disbursed. Disbursements were delayed due to a late project start, but the entire project is now under execution, and it is expected that construction activities will be finished by the end of 1976. Recently, EMCALI raised tariffs for water, sewerage and power but completion of the project continues to be hampered by serious financial difficulties. The Bank has recently urged the Borrower to undertake necessary corrective measures, including further tariff increases, and discussions are currently under way with the Borrower to define the contents of these measures. Assuming a favorable outcome, the Closing Date will be postponed.  ANNEX II Page 5 of 8 Ln No. 738 Palmira Water Supply and Sewerage; US$2 million, May 1971. Effective date: December 29, 1971 Closing date: original - March 1, 1975 current - March 1, 1976 9. As of December 31, 1975, about 75 percent of the loan amount a disbursed. Disbursemerts were delayed due to initial management and fiscal problems. A financial crisis in early 1973 was resolved through higher tariffs and tight budget control. Further postponement of the Closing Date will be required to complete the project. Ln No. 739 Land Settlement Caqueta I; US$8.1 million, May 1971. Effective date: October 19, 1971 Closing date: original - December 31, 1975 current - June 30, 1976 10. Because of considerable price increases and unexpectedly difficult physical problems, project, objectives were reduced to about 70 percent of appraisal targets in August 1973 halfway through the project period. Since then, the livestock credit program has picked up' speed so that the revised goal for this component shlould be achieved ahead of time. On the other hand, the road construction program has fallen far behind schedule although it is now proceeding at an acceLerated pace. Despite these problems, the project is making a substantial contribution to the successful colonization of the Caqueta area. Loan proceeds are almost fully disbursed. A second loan for the project (No. 1118-CO) was signed in Jume 1975. Ln No. 740 TelecommunicatLons II; US$15 million, May 1971. Effective date: August 16, 1971 Closing da'e: December 31, 1976 11. Contracts for all Bank-financed goods have been signed and technical and financial consultants have been retained. Due to initial delays in the procurement of project equipment, a slippage of up to 18 months in the completion date of some oi the works in the project is now anticipated. 1JS$l.6 million remains undisbursed. In No. 741 Water Supply (Bogota II), US$88 million, May 1971. Effective clate: August 16, 1971 Closing dat.e: June 30, 1978 12. Disbursements up to December 31, 1975 amounted to hO percent of this loan, only 57 percent of the appraisal estimate. Slow progress in the construction of the vital Palacio - Rio Blanco Tunnel - is the main reason for the project's delay; the previous foreign couitractor has been replaced by another firm which has already made an impressive start. The progress of the project, however, is endangered by serious financial problems which are currently the subject of consultations with the Government and the Borrower concerning necessary corrective measures, including further tariff increases.  ANNEX II Page 6 of 8 Ln No. 712 Development Finance Companies IV; US$40 milli.on, May 1971. Effective date: October 27, 1971 Closing date: original - December 31, 197T current - June 30, 197) 13. This loan is fully committed. Disbursement i; now almost completed. Ln No. 8.2 Development Program and Export Expansion Project; Us$60 mil'ion, June 1972. Effective date: August 2)4, 1972 Closing date: original - December 31, 197T current - June 30, 1976 lI. The first program loan tranche of US$20 million was promptly disbursed, and the first DFC tranche of U6i$10 million i:; now fully committed. The second tranches totaling US$30 million were cancell(d. Disbursements are proceeding satisfactorily. Ln No. 849 Irrigation (Atlantico II); US$5 million, June 1972. Effective date: November 1, 1972 Closing date: March 31, 1978 15. Construction of drainage facilities is lagging far behind schedule primarily due to the poor performance of the contractor having the major responsibility for the drain construction financed under this loan. Steps are being taken to replace the contractor with another. INCORA had been delaying initiation of the agricultural development pha,3e of the project, which includes land clearing, leveling, and initial preparation, until the physical works were completed. However, INCORA has now agreed to expedite this part of the project. Meanwhile, the principal use has been for live- stock. Originally conceived for dry-farming of crops ard dairy farming, INCORA now believes the soils in the area are better tha.wn originally classi- fied and suitable for irrigation in the future. Ln No. 860 Medium-Size Cities Water Supply and Sewerage Project; US$9.1 mil- lion, October 1972. Effective date: March 7, 1973 Closing date: September 30, 1976 16. As of December 31, 1975, about 30 percent of the loan amount was disbursed. Disbursements were delayed due to initial serious management problems. But about 50 percent of scheduled works have by now been completed and the remainder are expected to be completed in 1976. Ln No. 874 Guatape II Hydroelectric Power Project; US$56 million, January 1973. Effective date: March 13, 1973 Closing date: December 31, 1978 17. The progress of the work is generally satisfactory except for delays in the resettlement of Ei Penol and Guatape villages, which means that filling  ANNEX II Page 7 of 8 the Santa Rita reservoir cannot be started before mid-1977, two years behind schedule. This would 'be likely to lead to an energy deficit in the inter- connected system of at least 10 percent from 1978 to 1981. The revised project cost estimate is substantially above appraisal estimates, mainly clue to higher costs of the works at El Penol and Guatape. The financial situation became difficult in October 1974 at which time the Borrower ceased to present withdrawal application:, to the Bank. Subsequently substantial increases in EPM's electricity tari:ffs led to a significant improvement and withdrawals from the Loan were resumed in May 1975, but recently new financial problems have emerged. The situiation is currently the subject of consultations among the Bank, the Government, and the Borrower. Ln No. 903 Development Finance Companies V; US$60 million, May 1973. Effectivre date: November 9, 1973 Closing date: June 30, 1977 18. Commitments of the loan were interrupted for several months last year pending agreement on a revised interest rate. Commitments have since proceeded well, and thE loan is expected to be fully committed soon. Dis- bursements are still behind schedule, but in view of the present rapid rate of commitment, they shculd be completed by the Closing Date. Ln No. 920 Education III; US$21.2 million, July 1973. Effective date: January 10, 1974 Closing date: June 30, 1977 19. Project implementation is about eighteen months behind schedule and all work has now been suspended pending detailed discussions with the Bank regarding project objectives, content, financing, timing, and implementa- tion. This situation results from new legislation about to be promulgated which seeks to reform the education system, thereby necessitating changes in the project/loan provisions. The Borrower is preparing detailed proposals, expected to be ready for discussions with the Bank in March 1976. Ln No. 926 Sixth Railwa;y Project; US$25 million, August 1973. Effective date: December 6, 1973 Closing date: June 30, 1976 20. With the exception of rails and dump trucks, procurement with loan funds is satisfactory and equipment continues to a'rrive without major problems. Locomotive availability deteriorated somewhat during the last reporting period due to collision damage'but freight car availability improved greatly because of larger supply of materials. Derailments increased slightly and an in- tensified campaign is underway to reverse the trend. The connection between the Pacific and Antioquia divivsions took place in September. Working and operating ratios for 1975 are expected to be 106 and 118 as compared to the full year appraisal target of 97 and 111 respectively.  ANNEX II Page 8 of 8 Ln No. 971 Preinvestment Studies Project; US$3 million, March 197h. Effective date: June 27, 1971T Closing date: 'December 31, 1978 21. The Bank has approved five sub-projects amounting to total Bank comziitments of US$JI million. The Borrower (FONADE) has recently suomitted its first request for disbursement from the loan. A supervision mission is planned for the near future. In No. 1071 Small-Scale Industry; US$5.5 million, January 1975. Effective date: May 20, 1975 Closing date: December 31, 1977 22. After a slow start due to a change of management in Corporacion Financiera Popular, the beneficiary institution, commitments are moving well and are now on schedule. The first tranche of the loan was committed by December 15, 1975, and the second tranche has been released by the Bank in view of the satisfactory performance of CFP. Ln No. 1072 Second Multi-City Water Supply and Sewerage Project; US$27 million, January 1975. Effective date: April 1, 1975 Closing date: June 30, 1980 23. This loan became effective on April 1lh, 1975 and as yet no disburse- ments have been made. Ln No. 1073 Telecommunications III; Us$15 million, January 1975. Effective date: April 1h, 1975 Closing date: December 31, 1978 2h. This loan became effective on April 1, 1975 and US$1 million has been disbursed. Bid awards for all Bank-financed goods except multiplex equipment have been approved by the Bank, and the multiplex bid award is expected to be approved soon. The Borrower expects to sign contracts for all goods by June 30, 1976. Ln No. 1118 Caqueta Rural Settlement Project; US$19.5 million, June 1975. Effective date: Closing date: October 31, 1979 25. This loan was signed on June 2, 1975, and has not yet become effective as the Borrower is changing the agency to execute the credit element of the project from the Banco Ganadero to the Caja Agraria. Ln No. 1163 Cordoba 2 Agricultural Development Project; US$21 million, September 1975. Effective date: Closing date: December 31, 1980 26. This loan was signed on September 12, 1975, and has not yet become effective.  ANNEX III Page 1 of 3 COLOIMBIA SIXTII )EVELOIP4ET FINAICE COMPANIES PROJECT LOAN AND PROJECT SUI41ARY Borrower: Banco de la Republica Guarantor: Reapublic of Colombia Beneficiaries: Private Development Finance Companies Amount: U;3$80 million equivalent Terms: Interest rate of 8-1/2%. The loan would have a term of 17 years, including three years of grace, and would be repaid according to a fixed schedule based on the Bank's projection of the expected aggregate of the amortization schedules of the individual sub-loans to be made. Relending Terms: DFC to BR to DFC Private Firm Mlaximum Term Investment project inancing I)ollar-denomin ted 9-1/4% 11-3/4 to 15 years including 12-1/4% 3 years grace Peso-denominated 22% 25 to 26% 15 years including 3 years grace Technology financin esos 15% 18% 5 years including 2 years grace Equity investments (pesos) 17 to 22% -- 15 years including 5 years grace Cmn peso-denominated financing the Banco de la Republica wvuld assume the foreign-exchange risk. On dollar- denominated financing it would assume the foreign- exchange risk of the dollar against the currencies actually disbursed by the Bank.  ANNEX III Page 2 of 3 Project Descri-tion: 'Ihe project comprises (a) the financing of the foreign- exchange component of the investment projects of private sector productive enterprises, principally manufacturing firms (US$70 million of the Bank loan); (b) the financing of the upgrading or adaptation of technology by priv' te firms (US$ 5 million of the Bank loan); and (c) the financing of equity investments by the DFCs in new enterprises to be established outside Colombia's present major industrial centers (US$5 million of the Bank loan). Peso-denominated financing of investment projects xould be available only for (a) the projects of firms iith total assets under Col$lO0 million (US$3 million quivalent); (b) export projects; and (c) projects to be located outside the present major industrial centers. Estimated Disbursements: FY76 FY78 FY79 FY80 ----- US$ Million----------------- Incremental 2.0 13.0 26.0 29.0 10.0 Cumulative 2.0 15.0 hl.0 70.0 80.0 APMraisal Rteport: Iteport No. 901a-CO dated January 23, 1976. Note: The following table presents financial data for the :;even DFCs which participated in Loan 903-CO (Fifth Development Finance Companies Project). The same DFCs t:re expected to be the main participants in the new project.  2 1 Q LA ~~~~~~~~~~~~~~~~~~~ANNEI 1 1 1 F ge, 3 of IsoI Oats on F1I,.so.. [ra. COLL9GI*MI VALLE hACIOhAL CALDAS _ NORT OCCIDEIIT SANTADERi CONSOLIOATED . A. of oeceb, 31. 1974 No. of pofos Ionol poosoonnl 29 28 16 16 21 8 10 No. of shao-SSd-rs 207 199 211 759 560 219 104 Sh-rholdiag*. os t f tots! ah.r. capit.i Col.bt.n poltole .-to- 57.4 72.2 77.1 76.1 46.2 49.9 92.5 Co.o1bio poblic *et-or 0.3 0.4 0.2 6.5 9.9 8.3 7.5 Fore-g. con-roled 0.8 2.0 5.0 -- 1.8 1.8 -_ Fo-eig. 35.3 23.0 14.5 9.9 32.2 40.0 __ IFC 6.2 2.4 7. 1.5 9.8 (In ColS stllton) Assets LoWns 1237.1 1169.9 983.2 496.1 513.4 254.0 73.1 4716.8 b7.6 E -port.ttpor- fis.nI nlo 20.3 298.4 95.5 34.6 113.8 25.0 22.2 1109.8 15.9 EguLty invontoont- 166.4 58.3 164.4 131.0 74.1 30.2 12.4 644.8 9.2 Other ..s. .t 151.6 121.8 _ 69.6 66,6 60.9 25.9 12.7 509.1 '.3 T7011 ...ets/Lobi1lit-oo .nd E yltv 2075,4 1648.4 131Z. .7 718.3 752.2 343.1 120.4 6980.5 0D0.o0 Lisbilitlsa ond Kq0l0v OR *nd oth-r ,,Ff,rlnl csorro. 446.9 354.5 277.8 172.6 122.2 156.3 29.7 15b0.0 21 3 Ib0D 512.2 352.8 428.0 276.9 293.0 _. -- 1862 9 .7 1 For.,g. baob, 297.6 309.7 93.3 32.8 111.6 19.0 21.4 85.7 12.7 O-nd. and tli- doposIt. 250.2 169.9 126.6 71.0 29.1 73.7 5.4 775.9 91 Other 217.3 142.2 52.3 25.8 76.6 25.0 11.9 551,1 v Equlty 351.2 319.8 334.7 139.2 129.7 68.3 52.0 1394.9 20.0 In..-. Sta.ttnt (1974) Tor-l inctov, 324.3 260.9 216.8 108.3 131.1 48.1 19.5 Fino..cla1 008.. 174.8 152.3 121.1 70.R 75.2 26.8 4.8 Adnini.tr-l- costs 29.4 21.6 14.9 13.1 17.2 6.3 4.7 T.- s-d 700100110 prov-s.ons 38.9 , 31.0 22.3 11.5 13.7 5.4 3.5 Set profit 81.2 56.0 585 12.9 25.0 9.6 6.5 Thotl d.bt/oqu.ry ((ool. goorootoos 5.3 4.2 3.1 4.3 5.3 4.4 1.9 P-r-ootogo Inc-o... In tIdl s.a.ts 29.6 24.4 13.1 10.5 22.1 17.9 12.4 Not profit na 7. of 000r000 eq.uty 25.6 19.2 18.0 9.7 20.8 15.1 14.1 Adnlnlstt- v .e.penoet.. .. of 0 R.5 t0t-1 ..00t0 1.6 1.5 1.2 1.9 2.5 2.0 4.1 EtIt-d pin ocol Outtot Ac of De-eob.r 31. 1975 1/ Total d.bt/.q,flty (Incl. g.or-ttes.) 5.5 4.6 3,1 5.0 6.1 5 S 2.7 Not pofit 00 % 008070 oqolty 24.0 19.8 21.3 11.5 18.0 16.6 14.6 Net pmfit grtnth 2 17.0 31.4 25.1 54.0 (!.5) 22.1 27.0 P- ... t1g 0 I..- 11.1 .... ts 77.6 27.1 10.5 32.8 32.1 35.5 29.0 1, Bloss on onsoditod InInnt-in fl6nlol at.tin.et- r eooJ-d doom8 1975.