Announcement of Ecuador Borrows from Bank, IDA, U.S. AID, and IDB on May 26, 1964

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIA~rION 1818 H STREET, N.W. WASHINGTON D.C.20433 TELEPHONE: EXECUTIVE 3-6360 Bank Press Release No. 64/19 Subject: F.cua.dor borrows from Bank., IDA, IDA Press Release No. e+/6 U.S. AID and IDB May 26, 1964 The World Bank and its affiliate, the International Development Association (IDA), have joined with the United States Agency for International Development (AID) and the Inter-American Development Bank (IDB) to provide the equivalent of $39 mil- lion to the Government of Ecuador for a $62.2 million five-year national highway program. The four organizations today signed documents providing for a World Bank loan of $9 million; an IDA credit of $8 million; an AID loan of $13.3 million; and an IDB loan of $6 million. AID made a loan of $2. 7 million for the program in • September 1963; the remaining costs of $23.2 million are being covered by the Government of Ecuador. Progress in Ecuador. The program will further the goals of the Ailiance for Ecuador's highway system, although still in a relatively early stage of de- velopment, constitutes the country's principal mode of transportation. The network comprises some 9,375 miles of roads and tracks, of which about half are all-weather and open to traffic throughout the year. kl-lier loans from the World Bank and from Ail) and its predecessor agency, the Development Loan Fund, (DLF), assisted the construction or improvement of certain key roads throughout the country. These roads are already having a benefi'cial effect on the economy and are contributing to the prosperity of the areas they traverse. Transport costs have been reduced and agricultural production increased. This is particularly significant in the • coastal area; the bananas and cacao grown there now account f'or about three- ~ua.rters of' the country's foreign trade earnings.  - 2 - The five-year program bo,ing assisted by the four lending organizations will be carried out in two separate but overlapping stages. Work under the second .t ' stage would be started a~er satisfactory progress has been achieved in the first stage. In the first stage, roads partly financed by earlier Bank and AID loans and certain other related road sections will be substantially completed; main- tenance operations will be improved; and engineering plans prepared for an addi- tional 314 miles of roads to be built or improved in the second stage. All 'but one of the roads in the earlier Bank/AID-fina.oced project are already open to traffic and need only minor work and some paving for their completion. The other road, which extends about 100 miles from Santo Domingo to Chone, is about two-thirds complete and requires additional earthworks, raving., and bridges. Adequate maintenance is essential to protect the substantial capita.l invest- • ments already made and to be made in highways. Some start was made in this direc- tion with the assistance of an earlier World Bank loan. The current maintenance program is directed at providing for the adequate maintenance of about 3,125 miles of surfaced highway by 1968. I:t includes strengthening the national maintenance organization, completion of workshops, warehouses and other facilities, the acqui- sition and operation of equipment, a training program for maintenance personnel, and the provision of labor, materials and supervision necessary for its execution. The four new roads to be built or improved under the progrE;l,m are.as follows: (a) '1he Santo Domingo-Quininde-Esmeraldas highway which passes through a p0tentially rich and developing agricultural are~. It links Santo Domingo, the center of a prosperous farming district With Esmerald~s, the country's third largest banana. shipment port. Colonization s~hemes a:ce in progress in the area With the assistance of Inter-Americo!n Development Bank financing. (b) The Que"fedo-Baba.hoyo-Duran highway which will constitute part of the future trunk network. This also passes through good farmland and will ~rovide considerably improved facilities for the internal distribution of local products now transported over trails and by water. •  - 3 - • 1 ( c) The Cajabamba•Bucay-Chilcales highway which will :form th,~ mst importa..i.t southerc connection b ~ the coastal. highway system and the Pan Americen Highwa.:,I' it. th·e Sierra. E:r-s~ing routes are c,ften closed to traffic by bad weather and landslides. The new road will facilitate the flow of goods and agricultural products between thE~ rich mountain plateau and the large consuming area a.round Guayaqu:1.1. (d) The M. J. Calle-Machala. highway 'Which forms pa.rt of the coastal trunk road connecting the provin~es of Guayas and El Oro. This road Will open up a potentially rich agricultural region and connect it with other parts of the country. It will improve the distribution of foodstuffs in the country and at the same time en- large the market for products of Ecuadorian industry. The high priority of the maintenance and construction program is con.firmed by the conclusions of a General Transportation Study recently undertaken by con- sultants provided by the World Bank. The roads will make new and productive lands in the coastal region accessible to efficient transportation, will establish re- U.&ble communications between important urban centers, and will considerably re- auce vehicle operating costs. Past experience in Ecuador has demonstrated that • w"hen. regions have been opened .1p by roads, agricultural production increases sub- 1 stantially almost immediately and contim1es to increase for some time thereafter. The Mini.stry of Public Works will carry out the program. All phases are to be supervised and executed with the assistance of consulting engineers who have been retained by the Government. Construction contracts and major equipment pur- chases have been or will be awarded on the basis of international competitive bidding. The Government of Ecuador has taken important fiscal measures to provide in .. creased revenues for the program and for other highway expenditures, incl,uding de·ot service, local and penetration roads and other priority trunk roads. A uni- fied tax was for the first time applied to all banana exports. A National Highway Fund was established in the Central Bank to receive the revenues of several exist- • ing taxes devoted to highways, part of the proceeds of the banana export tax, and other new revenues. From these sources, the Government will contribute about two- thirds of all the funds needed for r. .,i,:.ghwa.y expenditures over the next five years.  - 4- The World Bank initially reviewed the project for which the joint finaccing was announced today. The four lending organizations will cooperate closely on metters affecting the administration of the program. A Transportation Coordinating Committee, composed of representatives of the Government and of the four lending • agencies, will consult periodically regarding the program and transportation in- vestment in general. World Bank Loan The World Bank loan is for a term of 25 years, including a 5-year grace period, and bears interest at the rate of 51% per annum including the 1i com- mission which is allocated to the Bank's Special Reserve. Bank of America National ~~~st~~ Savings Association and Grace National Bank of New York are participating in the loan, without the World Bank's guarantee, for a total of $120,000 repre- senting the first maturity which falls due August 1, 1969. • IDA Credit The IDA credit is for a term of 50 years. Repayment of principal will begin August 1, 1974, after a 10-year period of grace. One percent of the principal will be repayable annually for 10 years and 3% will be repayable annually for the final 30 yea.rs. The credit is f'ree of interest, but a se; :-vice charge of 3/4 of 1i per annum on the amount "Withdrawn and outstanding will be made to meet IDA's admini- strative cost.s. 1UD Loan The AID loan is for a term of 4o years, including a 10-yonr grace period, with interest at 3/4 of 1% for the first 10 years and 'c!/o thereafter. IDB Loan The IDB loan, made from its ordinary resources, is for a a term of 25 years, including a 4-1/2-year grace period, with interest at 5-3/4%, including the 1% commission allocated to the Bank's Special Reserve. Up to $5,400,000 of this • loa.n will be disbursed in U.S. dollars and the equivalent of $6oo, 000 in sue res. Irving Trust Company of New York has agreed to participate in early maturities of' ·the loan, without the guarantee of the Bank, for a total ':>f $257,000.