Announcement of Sixty Million US Dollars Loan to Colombia for a Development Program and Export Expansion Project on June 26, 1972

IN"TERNATIONAL BANK FOR • RECONSTRUCTION AND DEVELOPMENT 1°818 H STREET, N.W .. WASHINGTON D. C. 20433 TELEPt10NE: EXECUTIVE 3-6360 Bank Press Release No. 72/45 Subject: $60.0 million loan to Colombia June 26, 19 72 for a development program and export expansion project The World Bank has approved a $60.0 million equivalent loan to Colombia to assist the G0'1ernment to meet the growth and employment objectives of its development program, which has been disrupted due to circumstances beyond its control, and to promote the growth of non-traditional exports (those other than coffee and petroleum). In 1970 the Colombian Govemment drew up a Development Plan designed to achieve or surpass 7% GDP growth in 1970-73. The plan stressed particularly the need to associate higher growth rates with the creation of increased employment opportunities. The rate at which Colombia's labor force is growing • has made the employment problem especially difficult. A 1970 ILO report estimated that for the next 10 to 15 years the labor force would grow at 3.5% per year, one of the highest rates in the world. At this rate output would have to increase by about 6.7% per annt.m to absorb new entrants ,into the labor force and at an even higher rate if memployment is to be reduced. U~ortunately, events occurred during 1971 -- mainly a sharp, unexpected drop in coffee prices and an unusually heavy and prolonged rainfall - which broke the momentum of growth and disrupted the development program. GDP growth slackened to an estimated 5.5% in 1971, while prices, spurred by reduced supplies of foodstuffs, rose by 10-12%. The authorities found it necessary to reduce the import budget, stepped up efforts to promote non- traditional exports, and imposed strict monetary measures to dampen demand. At the same time the Govemment felt that extraordinary assistance was necessary and requested the Bank to consider, on a non-r~curring basis, a progra loan, which would. complement Govemment. measures to raise new revenues and to provide additional incentives for minor export growth and which would be designed to restore the development program to the levels approved by the • Consultative Group for Colombia which is chaired by the World Bank and composed of the major intemational and bilateral sources of foreign assistance. /more  Bailk P.R. No. 72/4S -- Colombia - 2 - Two-thirds of the $60.0 million Bank loan, or $40 million, will be used to finance imports of raw materials, intermediate products, and capital equip- • ment which will be ~ssociated with the higher rate of growth contemplated under the Government's development program. The balance, or $20 million, will be channelled to the export sector for fixed investment requirements. Of the peso counterpart generated from the import financing, $30 million equivalent will be used to support the public investment program and $10 million. equivalent to finance working capital for the export sector. The counterpart for the invest- ment program, and Government receipts from new revenue measures e..nd ftom customs duties and other taxes generated by the additional imports financed by the loan, will enable public investment expenditures of the Central Government to increase in real terms by 9% in 1972 and 12% in 1973. This rate of expan- sion would serve to restore the momentum interrupted in 1971; for the 1970-73 period, total investment would grow at an average annual rate of 9% in real terms, thus meeting the Development Plan target. The public sector invest- ments to be financed from counterpart funds would be those which are not externally supported on a project basis and many of which are designed to address urgent social problems. Without the loan these .tmassisted investments would decline by a~ost one-third in real terms in 1972; even with the loan • there would be a real decline in such investments in 1972 but this decline would be more than offset in 1973, and the average real growth in unassisted . investnents - ~· during . .--- the 1970-73 ·- - period - would be 17.,5% per ann\lll • The loan component for the export sector, and the peso counterpart to be used for working capital financing, would help increase capacity of export industries and thus promote the fulfillment of Government targets for non- traditional exports. The loa.n is for a ~riod of 20 years, including a five year grace period, at an interest rate of 7i% per annum. Eighteen Japanese, Swiss and United States fi.nancial institutions par- ticipated in the Bank loan for a total amount of approximately $1.9 million equivalent. They are: The Mitsubishi Trust & Banking Corporation, Tokyo; Western Pennsylvania National Bank, Pittsburgh; The Sumitomo Trust & Banking Co • ., Ltd., Tokyo; Union Bank of Switzerland, Zurich; 1'he Daiwa Bank, Ltd • ., Osaka; The Industrial Bank of Japan, Ltd., Tokyo; Security Pacific National Bank, Los Angeles; The Kyowa Bank, Ltd., Tokyo; Marine Midland - New York; Girard Trust Bank, Philadelphia; Ctiemical Bank, N'ew York; Manufacturers Hanover Trust Co., New York; Industrial National Bank of Rhode Island., • Providence; The Sanwa Bank, Ltd., New York Agency; The Toyo Trust & Banking Co., Ltd., Tokyo; Beverly Bank, Chicago; First Wisconsin National Bank of Milwaukee., and ~orth Carolina Natioµal Bank, Charlotte. - 0 -